SEC CHARGES TWO CORPORATE OFFICERS WITH FINANCIAL FRAUD

A financial fraud complaint centered on claims that two senior executives of Basin Water, Inc. falsely inflated company revenue beginning before it was publically traded and continuing through the end of 2007 was filed by the SEC. Named as defendants are the founder of the company and its Chairman and CEO, Peter Jensen and the Chief Financial officer Thomas Tekulve. SEC v. Jensen, Civil Action No. CV 11-05316 (C.D. Cal. Filed June 27, 2011).

Basin Water, Inc. designs, manufactures and services groundwater treatment systems. Mr. Jensen founded the company in 1999. It became a public company in May 2006 when its stock was registered for trading with the Commission. In the first quarter of 2006 the two defendants began fraudulently inflating the revenue of the company. Specifically, the two officers caused the company to book revenue contrary to the requirements of GAAP. In this regard the company recorded as revenue:

• Sales that were contingent on the customer’s acceptance of the treatment system;

• The resale of a system to the ultimate customer;

• Sales that did not occur in the quarter;

• Sales where the company never delivered the treatment system;

• Sales where collectability was not reasonably assured and for which the company did not receive payment; and

• Sales to a special purpose entity the defendants created and which involved round trip sham transactions.

As a result Basin’s revenues were overstated by 13% in 2006 and 74% in 2007 according to the complaint.

On August 11, 2008 the company announced it was restating its financial results. The restatement was issued in February 2009.

Prior to the announcement Mr. Jensen sold 1,660,943 shares of company stock realizing profits of $9,173,075. He also donated 290,000 shares of stock for which he took tax deductions of $763,345. These transactions took place while he was in possession of material non-public information about the financial condition of the company.

The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(a), 13(b)(5) and 20(a). The complaint also alleges that the defendants failed to comply with Section 304(a) of SOX. The case is in litigation.