O'Melveny Defeats SEC in Securities Fraud Case Against Former Basin Water CFODecember 12, 2013
FOR IMMEDIATE RELEASE
LOS ANGELES, CA – December 12, 2013 – Handing defeat to the Securities and Exchange Commission’s trial unit in an alleged securities fraud case, O’Melveny & Myers LLP achieved a complete victory for client Thomas C. Tekulve, Jr., the former CFO of Basin Water, Inc. Following an eight-day bench trial, U.S. District Judge Manuel L. Real rejected every claim in the SEC’s 57-page complaint against Tekulve and Basin’s former CEO, Peter Jensen, finding that “[t]he SEC has not carried its burden of proof with respect to any of the causes of action.”
The SEC had alleged that from 2006 to 2007, Tekulve and Jensen engaged in “sham transactions” to fraudulently boost revenues at the Rancho Cucamonga, Calif.-based startup, which sold water-purification systems. The court directly rejected these allegations, finding “no documentary evidence or witness testimony presented at the trial tended to show that any of the transactions were shams. In fact, everybody involved in the various transactions testified that they were actual, legitimate deals.”
The SEC also alleged that Tekulve lied to Basin’s independent auditor for its 2006 and 2007 financial statements, but the court found that “Tekulve gave accurate and complete information to Basin’s outside accountants,” noting that the SEC did not call any of the auditors to testify. Openly skeptical of the government’s claims at trial, Judge Real concluded in his ruling that the SEC had presented no evidence of fraud: “The SEC has not presented any direct evidence that Jensen [or] Tekulve knowingly or intentionally misl[ed] anybody.”
O’Melveny partner Carolyn Kubota praised the ruling, saying “in this case, the SEC confused accounting disagreements for fraud. The court saw the distinction.” Noting that the SEC was seeking to impose an officer-and-director bar that would have effectively deprived Tekulve of his livelihood, Kubota added, “Mr. Tekulve is a good, honest, hard-working man who would never knowingly violate the securities laws. We are deeply gratified that the court rejected the unsupported claims made against him.”
In addition to Kubota, the O’Melveny trial team included partner Seth Aronson and associate Alec Johnson. Jensen was represented by David Scheper, William H. Forman, and Jean M. Nelson of Scheper Kim & Harris LLP.
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