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Sunday, May 19, 2024 | Back issues
Courthouse News Service Courthouse News Service

Profiting From Disaster With Lies

DALLAS (CN) - The CEO of Home Solutions of America dumped $6.8 million of his own shares at prices inflated by false boasts of profits from Hurricane Katrina, and six cohorts profited from associated shenanigans, the SEC claims in Federal Court. The SEC says the Dallas- and New Orleans-based company reported millions of dollars in bogus revenue after the disaster, and that "the company's financial results were largely fabricated and its public statements were intended to deceive."

Then-CEO Frank Fradella is charged with inside trading. Some of the six other defendants are accused of inflating revenue by millions of dollars at Home Solutions' biggest subsidiary, Fireline Restoration.

"During fiscal years 2004 to 2007, HSOA and several of its senior officers and employees engaged in an escalating pattern of maneuvers aimed at misleading the public about HSOA's true financial condition, and defrauding HSOA's major lender," according to the complaint. "Specifically, at year-end 2004 and continuing into 2006, HSOA's CEO and President, Frank Fradella, initiated an expense-deferral scheme to inflate earnings by expensing year-end bonuses when paid rather than when earned. In addition, beginning in 2006, Fradella and other HSOA senior executives engaged in a series of revenue inflation schemes, booking millions of dollars of bogus revenue by invoicing and recording receivables on work that had never occurred. HSOA compounded the fraud by issuing false and misleading press releases that materially misrepresented revenues, the terms of contracts with third parties, and the financial health of the company. At the peak of a series of materially false and misleading press releases in 2006, Fradella dumped approximately $6.8 million of stock into the inflated market."

In a statement announcing its lawsuit, the SEC said, "The stock price later plummeted after large insider stock sales, the filing of private securities lawsuits alleging fraud, and the company's public announcement that it would restate its financial statements. ... Simply put, instead of rebuilding New Orleans and other hurricane-stricken areas, they constructed a fantasyland of fraud."

Also sued are Brian Marshall, 45, of Tampa, president of Fireline, who sold the company to Home Solutions in 2006 and became a Home Solutions vice president; Rick J. O'Brien, 45, of Dallas, an HSOA vice president, president, CFO and COO; Stephen C. Gingrich, 41, of Treasure Island, Fla., Fireline's controller and then an employee of HSOA; Thomas L. Davis, 50, of Tampa, a Fireline vice president; and Jeffrey T. Craft, 35, of Tampa, "Marshall's business partner in Craftmar Construction, Inc., a Tampa-based development company, and in several other entities formed to develop projects in Florida."

O'Brien consented to a permanent injunction and a $130,000 fine, the SEC said.

Gingrich consented to a permanent injunction and a $25,000 fine.

Davis consented to a permanent injunction, a $25,000 fine, and disgorgement of $32,850 in interest.Craft consented to a permanent injunction

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