| UNITED STATES OF AMERICA |
| Before the |
| SECURITIES AND EXCHANGE COMMISSION |
| SECURITIES EXCHANGE ACT OF 1934 |
| Release No. 66268 / January 30, 2012 |
| ACCOUNTING AND AUDITING ENFORCEMENT |
| Release No. 3358 / January 30, 2012 |
| ADMINISTRATIVE PROCEEDING |
| File No. 3-14723 |
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| In the Matter of |
| SYMMETRY MEDICAL, |
| INC. and FRED L. HITE, |
| Respondents. |
| ORDER INSTITUTING CEASE-AND- |
| DESIST PROCEEDINGS PURSUANT TO |
| SECTION 21C OF THE SECURITIES |
| EXCHANGE ACT OF 1934, MAKING |
| FINDINGS, AND IMPOSING A CEASE- |
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| AND-DESIST ORDER AND A CIVIL |
| PENALTY |
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| I. |
| The Securities and Exchange Commission (“Commission”) deems it appropriate that cease- |
| and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities |
| Exchange Act of 1934 (“Exchange Act”), against Symmetry Medical, Inc. (“Symmetry” or “the |
| Company”) and Fred L. Hite (“Hite”) (collectively, “Respondents”). |
| II. |
| In anticipation of the institution of these proceedings, each of the Respondents has |
| submitted an Offer of Settlement (the “Offers”) which the Commission has determined to accept. |
| Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of |
| the Commission, or to which the Commission is a party, and without admitting or denying the |
| findings herein, except as to the Commission’s jurisdiction over each and over the subject matter of |
| these proceedings, which are admitted, Respondents consent to the entry of this Order Instituting |
| Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, |
| Making Findings, and Imposing a Cease-and-Desist Order and a Civil Penalty (“Order”), as set |
| forth below. |
| 2 |
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| III. |
| On the basis of this Order and Respondents’ Offers, the Commission finds1 |
| A. SUMMARY |
| that: |
| 1. In April 2008, Symmetry restated its financial statements for its 2005 and 2006 |
| fiscal years and its first and second quarters of fiscal 2007, along with selected financial data for its |
| 2003-2006 fiscal years. The restatement was required because of a financial fraud orchestrated by |
| senior management at one of Symmetry’s wholly owned subsidiaries, the Sheffield, England- |
| based Symmetry Medical Sheffield LTD, f/k/a Thornton Precision Components, Limited |
| (“TPC”), whose financial data was at all relevant times consolidated into Symmetry’s financial |
| statements filed with the Commission. Among other things, TPC’s senior officers—one of whom |
| was also an officer of Symmetry—materially overstated TPC’s revenues and assets, materially |
| understated its expenses, and falsified corporate books and records. This misconduct went |
| undetected and uncorrected in part because Symmetry failed to devise and maintain adequate |
| internal accounting controls and because TPC personnel circumvented the controls that did exist. |
| The fraud at TPC caused Symmetry to file with the Commission eight quarterly reports on Form |
| 10-Q and three annual reports on Form 10-K that materially misstated the Company’s |
| consolidated financial results throughout the relevant period. It also caused Symmetry’s books |
| and records to be materially inaccurate throughout the relevant period. |
| 2. |
| Moreover, in July 2006, Symmetry’s CFO (Respondent Hite), did not provide |
| Symmetry’s Audit Committee with a copy of a status report concerning TPC by Symmetry’s former |
| Director of Internal Audit (the “IA”). In the report, the IA identified exceptions at TPC, citing |
| among other things bill-and-hold transactions, and failures by TPC (i) to provide requested |
| evidence; (ii) to provide complete evidence; and (iii) to perform proper account reconciliations. In |
| the report the IA also sought permission to solicit outsourcing proposals from other “Big Four” firms |
| to provide, for the balance of 2006 and for 2007, internal audit services at TPC that would include |
| “internal controls testing and financial audits” there. The IA resigned from Symmetry shortly after |
| preparing this report, and accordingly, was not present at the next Audit Committee meeting (held on |
| July 26, 2006) to present the foregoing findings and request concerning TPC. Hite—the conduit for |
| materials to be included in board packets for directors’ consideration—provided the status report |
| to the Company’s independent auditor, but did not include it in the Board Packet for the July 2006 |
| Audit Committee meeting, and the Committee did not otherwise learn of the report until after the fraud |
| at TPC was discovered in September 2007. |
| 3. |
| Finally, Hite received bonuses and incentive-based and equity-based compensation |
| from Symmetry, and also realized Symmetry stock-sale profits, during periods covered by the |
| Company’s April 2008 restatement, for which he has not, to date, reimbursed Symmetry. |
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| 1 The findings herein are made pursuant to Respondents’ Offers of Settlement and are not binding on any other |
| person or entity in this or any other proceeding. |
| 3 |
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| B. RESPONDENTS |
| 4 . Symmetry Medical, Inc. (“Symmetry” or “the Company”) is a Delaware |
| corporation headquartered in Warsaw, Indiana. Through its operating subsidiaries, Symmetry is a |
| manufacturer of medical implants and instruments and also manufactures specialized products for |
| the aerospace industry. Since its December 2004 initial public offering, Symmetry’s common |
| stock has been registered with the Commission pursuant to Section 12(b) of the Exchange Act and |
| listed on the New York Stock Exchange. At all relevant times, TPC was one of Symmetry’s |
| operating subsidiaries, and accounted for a substantial portion of Symmetry’s consolidated revenues |
| and net income. |
| 5. Fred L. Hite (“Hite”), age 44, has served as Symmetry’s Chief Financial Officer and |
| Senior Vice President since March 2004. |
| C. FACTS |
| The Fraud at TPC |
| 6. Beginning prior to Symmetry’s December 2004 initial public offering, and |
| continuing until late September 2007, personnel at the Company’s TPC subsidiary—led by certain |
| members of TPC’s senior management—engaged in a financial fraud through which TPC’s |
| consolidated assets and earnings were materially overstated. As a result, the financial statements |
| included in Symmetry’s annual reports on Form 10-K for its 2004, 2005 and 2006 fiscal years, as well as |
| its quarterly reports on Form 10-Q for (among other quarters) the first and second quarters of its 2007 |
| fiscal year, were materially false and misleading and did not comply with generally accepted |
| accounting principles (“GAAP”). The financial fraud at TPC involved the systematic understatement |
| of expenses and overstatement of assets and revenues, and was achieved primarily by improperly and |
| prematurely recognizing revenue, improperly capitalizing expenses, overvaluing inventory, and |
| understating costs of goods sold. The scheme stopped only when, on September 24, 2007, a manager at |
| TPC disclosed the scheme to Symmetry’s CEO. |
| Symmetry’s 2008 Restatement |
| 7. Several months later, as a direct result of the fraud at TPC, Symmetry restated its |
| financial statements for its 2005 and 2006 fiscal years and for the first two quarters of its 2007 |
| fiscal year. Symmetry also restated selected financial data for its 2003-2006 fiscal years. The |
| cumulative impact of the restatement—as the table below reflects—was, among other things, to |
| reduce Symmetry’s net income for its |
| 2004 fiscal year from $11.7 million (as originally reported) |
| to $8.4 million (as restated), its net income for its 2005 fiscal year from $31.8 million (as originally |
| reported) to a net loss of $9.9 million (as restated), and its net income for its 2006 fiscal year from |
| $24.1 million (as originally reported) to $18.5 million (as restated): |
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| Fiscal Period Reported |
| Income |
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| Restated Income |
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| Difference |
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| Overstatement |
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| FY 2004 $11.7 million $8.4 million -$3.3 million 39% |
| FY 2005 $31.8 million -$9.9. million -$41.7 million 421%2 |
| FY 2006 |
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| $24.1 million $18.5 million -$5.6 million 30% |
| Q1 2007 $3.7 million $1.6 million -$2.1 million 131% |
| Q2 2007 $4.4 million $4.7 million + 0.3 million -6.4 %3 |
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| 8.. The restatement also caused the following percentage reductions to Symmetry’s |
| financial statement line items for accounts receivable, inventories, and total assets: |
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| Balance Sheet FY 2005 FY 2006 Q1 2007 Q2 2007 |
| Item |
| A/R (Net) -18% -31% -30% -28% |
| Inventories -28% -30% -34% -30% |
| Total Assets -13% -14% -15% -14% |
| 9. In the seven months between the close of trading on October 4, 2007, after which |
| Symmetry made its first disclosure concerning accounting irregularities at TPC, and the close of |
| trading on April 25, 2008, the day after Symmetry filed its restatement, Symmetry’s stock price fell |
| more than 26%, from $17.74 per share to $13.05 per share. |
| Symmetry’s Deficient Internal Controls |
| 10. Between 2004 and September 2007, Symmetry failed to implement and maintain |
| adequate internal controls over financial reporting that were sufficient to provide reasonable |
| assurance that Symmetry’s financial statements were accurately stated in accordance with GAAP. As |
| a result, Symmetry’s accounting controls failed to prevent or detect the above-described fraud at TPC |
| that led to the Company’s April 2008 restatement. |
| 11. Symmetry did not maintain an effective control environment at its TPC subsidiary. |
| This control deficiency included inadequate operation of corporate entity-level controls, including |
| monitoring controls that were not sufficiently sensitive in scope and therefore failed to detect and |
| prevent on a timely basis management override of controls at TPC and collusion of TPC’s |
| management team to achieve desired financial accounting results. In certain instances, information |
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| 2 $33.6 million—or more than 80%--of the reduction in earnings for FY 2005 resulted from the write down of goodwill |
| associated with the acquisition of TPC, since the fraud at TPC had pre-dated the acquisition. |
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| 3 Symmetry’s gross profits for Q2 2007 were, however, materially reduced as a result of the restatement, from $15.5 |
| million (as originally reported) to $14.7 million (as restated). |
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| critical to an effective review of transactions and accounting entries was not disclosed to corporate |
| management and internal and external auditors. |
| 12. TPC did not maintain effective controls over the period-end financial reporting |
| process, including controls with respect to journal entries, account reconciliations and proper |
| segregation of duties. Journal entries, both recurring and nonrecurring, were not uniformly |
| accompanied by sufficient supporting documentation and were not adequately reviewed and |
| approved for validity, completeness and accuracy. Account reconciliations over balance sheet |
| accounts were not uniformly properly performed and approved for validity and accuracy of |
| supporting documentation. TPC did not uniformly uphold proper segregation of duties within their |
| accounting department with respect to financial reporting. |
| 13. TPC did not maintain effective controls over the inventory management process |
| including controls with respect to inventory existence. TPC did not utilize a comprehensive |
| enterprise resources planning (ERP) system to control its inventories, but rather relied upon |
| physical inventory counts. The process for compiling and reconciling these physical counts to the |
| general ledger was subject to management override of controls and a lack of proper segregation of duties |
| resulting in inaccurate reporting of inventory quantities on hand. |
| 14. TPC did not maintain effective controls over the sales and accounts receivable process, |
| including controls with respect to the existence of receivables, sales cutoff, the application of cash |
| receipts, and segregation of duties. Accordingly, certain sales transactions were fictitiously recorded |
| while certain other transactions were recorded prior to the completion of the revenue process. |
| 15. TPC did not maintain effective controls over the preparation of the income tax provisions |
| and related deferred and current tax calculations. Account analyses and reconciliations were not |
| prepared for various tax accounts resulting in erroneous entries which were posted to the tax accounts |
| not being detected or corrected in a timely manner. |
| Hite’s Conduct |
| A. The Internal Audit Status Report |
| 16. In the Fall of 2005, Symmetry created an internal audit unit, headed by the IA, who |
| was to report to the Chairman of Symmetry’s Audit Committee. On July 17, 2006, the IA provided |
| Hite and the Company’s independent auditor with a status report for submission to Symmetry’s |
| Audit Committee for consideration at its next meeting, which was scheduled to be held at TPC on |
| July 26, 2006. Hite was the conduit for materials to be included in the board packets provided to |
| Symmetry’s directors in connection with their board and committee meetings. In that report, the |
| IA claimed to have identified problematic bill-and-hold transactions at TPC and further asserted that |
| TPC personnel had not provided requested evidence pertaining to the IA’s Q1 2006 sales cut-off, |
| cash cutoff and monthly controls testing. By July 2006, TPC was misstating its revenues and net |
| income primarily by booking top-side journal entries of fictitious sales revenue and overvaluing |
| inventory to conceal its understatement of costs of goods sold. These misstatements had not been |
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| detected by the IA and were not included in the report. Rather the IA’s report only implied the |
| potential presence of deeper problems at TPC, since the report sought permission to solicit |
| outsourcing proposals from “Big Four” accounting firms to provide, for the remainder of 2006 and |
| 2007, internal audit services at TPC to include “internal controls testing and financial audits” there, |
| saying, “The extent and severity of issues identified at [TPC] exceed the size and ability of IA’s |
| current staff and consultants from other firms.” |
| 17. Hite forwarded the status report to the Company’s independent auditor as well as |
| Symmetry’s controller and they discussed it with the IA. After the IA resigned on or about July |
| 19, 2006, Hite did not, however, include the report in the board packet for the July 26 Audit |
| Committee meeting. According to the minutes of that meeting, Hite told the Committee that the |
| IA had “tested all facilities and all were acceptable with a few exceptions found at [TPC].” The |
| Audit Committee discussed the IA’s resignation and thereafter the chair of the Audit Committee |
| conducted an exit interview with the IA. However, Hite did not provide the IA’s report to the |
| Audit Committee, and the Committee did not otherwise learn of the report until after the fraud at |
| TPC was discovered. Hite did immediately hire a new IA whose initial work included internal |
| controls testing at TPC. |
| B. The Receipt of Bonuses, Equity-Based Compensation and Stock-Sale Proceeds |
| 18. As a result of the misconduct at TPC described in paragraph 6 above, Symmetry |
| issued materially inaccurate and non-compliant accounting statements in its (i) December 2004 |
| initial public offering and July 2005 secondary offering registration statements; (ii) annual public |
| filings with the Commission for fiscal years 2004, 2005 and 2006; and (iii) quarterly public filings |
| for the first and second quarters of 2007. Specifically, Symmetry filed Forms 10-K for fiscal years |
| 2004 through 2006 and Forms 10-Q for the first and second quarters of 2007 that were in material |
| non-compliance with its financial reporting requirements under the federal securities laws, and |
| Symmetry was required to restate its financial statements for fiscal years 2005 and 2006 and for |
| the first two quarters of its 2007 fiscal year, along with selected financial data for its 2003-2006 |
| fiscal years. |
| 19. During the 12- month periods following Symmetry’s filing of inaccurate financial |
| statements in: (i) its December 2004 IPO and July 2005 registration statements; (ii) its 2004-6 |
| annual public filings; and (iii) its quarterly filings for the first and second quarters of 2007, |
| Respondent Hite received, from Symmetry, bonuses and incentive and equity based compensation, |
| and also realized profits from the sale of Symmetry stock. |
| 20. Respondent Hite has not reimbursed Symmetry for the bonuses, incentive and |
| equity-based compensation or profits from sales of Symmetry stock that he received or obtained |
| during the statutory time periods established by Section 304(a) of the Sarbanes-Oxley Act of 2002. |
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| 21. The Commission has not exempted Respondent Hite, pursuant to Section 304(b) of |
| the Sarbanes-Oxley Act of 2004 [15 U.S.C. § 7243(b)], from the application of Section 304(a) [15 |
| U.S.C. § 7243(a)] of that Act. |
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| Symmetry's Remedial Efforts |
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| 22. In determining to accept the Offers, the Commission considered remedial acts |
| promptly undertaken by Symmetry and cooperation afforded the Commission staff by |
| Respondents. |
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| D. LEGAL ANALYSIS |
| Symmetry |
| 23. Exchange Act Section 13(a) and Exchange Act Rules 13a-1 and 13a-13 require issuers of |
| registered securities to file annual and quarterly reports with the Commission. Exchange Act Rule 12b- |
| 20 requires that these periodic reports contain all material information necessary to make the required |
| statements not misleading. The filing of a periodic report containing materially false or misleading |
| information constitutes a violation of these provisions. SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 |
| (D.C. Cir. 1978). Exchange Act Section 13(b)(2)(A) requires issuers of registered securities to make and |
| keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect transactions |
| and dispositions of assets. Exchange Act Section 13(b)(2)(B) requires such issuers to devise and |
| maintain a system of internal accounting controls sufficient to provide reasonable assurances that its |
| transactions were recorded as necessary to permit preparation of financial statements in conformity |
| with generally accepted accounting principles. Exchange Act Section 13(b)(5) provides that no person |
| shall, among other things, knowingly circumvent a company’s system of internal accounting controls. |
| 24. As described above, Symmetry failed to devise and maintain effective internal |
| accounting controls in violation of Exchange Act Section 13(b)(2)(B). This failure allowed officers |
| and employees of Symmetry’s TPC subsidiary to perpetrate a financial fraud that caused Symmetry to |
| maintain materially inaccurate books, records, and accounts in violation of Exchange Act Section |
| 13(b)(2)(A), and to file periodic reports with the Commission that included materially false and |
| misleading financial statements in violation of Exchange Act Section 13(a) and Exchange Act Rules |
| 12b-20, 13a-1, and 13a-13. In particular, the assets and earnings Symmetry reported in its annual |
| reports on Form 10-K for its 2004 through 2006 fiscal years, and its quarterly reports on Form 10-Q for |
| the first two quarters of its 2007 fiscal year, were materially overstated. |
| Hite |
| 25. Symmetry’s internal audit function, and the reports prepared by Symmetry’s IA for |
| Symmetry’s Audit Committee in connection with the IA’s internal audit testing, were, as Hite knew, |
| a part of Symmetry’s system of internal accounting controls as defined in Exchange Act Section |
| 13(b)(2)(B). Hite knowingly circumvented this facet of Symmetry’s system of internal accounting controls |
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| by failing to furnish the IA’s report to Symmetry’s Audit Committee. Accordingly, Hite violated |
| Exchange Act Section 13(b)(5) and was a cause of Symmetry’s violation of Exchange Act Section |
| 13(b)(2)(B). |
| 26. As a result of Hite’s failure to reimburse Symmetry for the bonuses, incentive and |
| equity-based compensation or profits from sales of Symmetry stock that he received or obtained during |
| the statutory time periods established by Section 304(a) of the Sarbanes-Oxley Act of 2002, Hite |
| violated that provision. |
| IV. |
| FINDINGS |
| Based on the foregoing, the Commission finds that: |
| (a) Symmetry violated Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and |
| Rules 12b-20, 13a-1 and 13a-13 thereunder; and |
| (b) Hite violated Exchange Act Section 13(b)(5) and Sarbanes-Oxley Act Section 304(a), |
| and was a cause of Symmetry’s violation of Exchange Act Section 13(b)(2)(B). |
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| V. |
| ORDER |
| Accordingly, the Commission deems it appropriate to impose the sanctions agreed to in |
| Respondents’ Offers, and it is hereby ORDERED, pursuant to Section 21C of the Exchange Act |
| that |
| : |
| A. Respondent Symmetry cease and desist from committing or causing any violations |
| and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and |
| Rules 12b-20, 13a-1 and 13a-13 thereunder; |
| B. Respondent Hite cease and desist from committing or causing any violations and |
| any future violations of Section 13(b)(5) of the Exchange Act and Section 304(a) of the Sarbanes- |
| Oxley Act, and from causing any violations and any future violations of Section 13(b)(2)(B) of the |
| Exchange Act; and |
| C. Respondent Hite shall, within ten days of the entry of this Order, pay a civil |
| money penalty in the amount of $25,000 to the United States Treasury. If timely payment is not |
| made, additional interest shall accrue pursuant to 31 U.S.C. § 3717. Such payment shall be: (A) |
| made by wire transfer, United States postal money order, certified check, bank cashier’s check or |
| bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand- |
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| delivered or mailed to the Securities and Exchange Commission, Office of Financial |
| Management, 100 F St., NE, Stop 6042, Washington, DC 20549; and (D) submitted under cover |
| letter that identifies Hite as a Respondent in these proceedings, the file number of these |
| proceedings, a copy of which cover letter and money order or check shall be sent to Stephen L. |
| Cohen, Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, |
| Washington, DC 20549-5553. |
| D. |
| Respondent Hite shall, within thirty (30) days of the entry of this Order, reimburse |
| Symmetry for a total of $185,000 in Symmetry bonuses, other incentive-based or equity-based |
| Symmetry compensation, and Symmetry stock sale profits pursuant to Section 304 of the |
| Sarbanes-Oxley Act, 15 U.S.C. § 7243. Defendant shall satisfy this reimbursement obligation |
| to Symmetry by paying over to Symmetry a combination of cash and vested Symmetry stock |
| that, collectively, totals $185,000 in value, with the stock portion thereof not to exceed $85,000, |
| and with the value of said stock being based on Symmetry’s closing share price on the date the |
| shares are transferred to Symmetry. Defendant shall simultaneously deliver proof of satisfying |
| this reimbursement obligation to |
| Stephen L. Cohen, Division of Enforcement, Securities and |
| Exchange Commission, 100 F St., NE, Washington, DC 20549-5553. |
| By the Commission. |
| Elizabeth M. Murphy |
| Secretary |
| |
