The SEC charged two executives of Milwaukee-based medical imaging and information technology firm Merge Healthcare with concocting a scheme to illegally inflate earnings and then lie to auditors and shareholders about it, causing a loss of $500 million in market capitalization when the fraud was uncovered by Merge's audit committee in 2006.
Former Merge President and CEO Richard Linden, 48, of Barrington, Ill., and former Chief Financial Officer Scott Veech, 47, of Whitefish Bay, Wis., agreed to settle the civil lawsuit filed against them by the federal securities regulators without admitting wrongdoing. Linden agreed to pay $590,000 to settle the civil claims, and Veech will pay $280,000. Regulators also sued the company for failing to have strong internal controls in place, but the company will not pay a settlement.
The regulators said Linden and Veech conspired to hide the fact that they were recording revenue on sales of imaging hardware and software that were only partially delivered, when internal e-mails show they were aware that they could not record the sales as revenue until the products were fully delivered. In all, Merge prematurely recorded 124 transactions between 2002 and 2005, causing it to overstate its net income by 230% during that time, regulators said.