The SEC charged Key Tronic, a contract manufacturer of computer components and medical devices, along with two executives: Brett Larsen, the company’s CFO from July 2015 to June 2024, and Nicholas Fasciana, SVP of U.S. Operations. The agency found violations of the FCPA’s books and records and internal controls provisions, though there’s no foreign bribery in this case.
From approximately July through December 2020, employees at Key Tronic’s Oakdale, Minnesota facility created false inventory entries to show manufacturing activity that never happened. The entries inflated inventory value, reduced manufacturing expenses, and boosted reported income; employees reversed the entries after each period closed. Fasciana, who oversaw the Oakdale site, was aware of the scheme and directed portions of it.
The morning of Key Tronic’s January 2021 earnings release, an internal complaint about Oakdale arrived. Within hours, Larsen and senior management briefed the Board and outside auditor, confirmed the core allegations, and reopened the books. Key Tronic reversed nearly $1 million in improper income that same day and recorded roughly $764,000 in additional pre-tax corrections.
Key Tronic’s auditor advised considering a delay to the earnings release. The company didn’t wait. On the call, it reported year-over-year net income and EPS growth but still missed guidance. Properly booked, the out-of-period adjustments would have cut the company’s $1.58 million quarterly net income by 44%.
The SEC ordered all three to cease and desist, ordered Larsen to pay a $20,000 civil penalty and Fasciana a $15,000 civil penalty. Larsen, whose conduct as CFO drew a civil penalty, is now Key Tronic’s CEO.
James Okafor