Key Tronic Corporation, the Nasdaq-listed electronics and medical device manufacturer based in Spokane Valley, Washington, has settled SEC charges tied to an accounting manipulation scheme at its Oakdale, Minnesota facility where employees created fake inventory entries to inflate profits during the COVID-19 pandemic.
The SEC’s April 20, 2026 order also resolved related charges against then-Chief Financial Officer Brett Larsen, who is now the company’s CEO, and Nicholas Fasciana, the company’s Senior Vice President of U.S. Operations during the relevant period.
According to the SEC, employees at the Oakdale facility began manipulating inventory accounting in 2020 after a sharp decline in orders created mounting pressure to hit internal financial targets. Internal communications referenced a projected revenue shortfall that eventually grew to roughly $10 million, raising fears inside the facility about potential layoffs.
Under GAAP absorption accounting rules, labor and overhead costs can be assigned to work-in-process inventory rather than immediately expensed, temporarily boosting reported income. Regulators say Oakdale personnel exploited that system by creating false “Monster Jobs” — fake work-in-process entries that classified unrelated inventory as partially completed products even though the materials could not actually be assembled into legitimate finished goods.
The SEC said the entries were reversed after each accounting period closed.
Fasciana, who oversaw the Oakdale operation among other facilities, allegedly knew about and directed portions of the misconduct. In one November 2020 exchange cited by regulators, the East Division Controller warned Fasciana she was “very uncomfortable” with the Monster Jobs practice after documenting it in an email. Fasciana responded by asking whether the practice could be “wound down over the next 3-4 months.”
The SEC said the scheme continued through the end of the company’s second fiscal quarter.
Regulators also alleged Oakdale employees manipulated absorption calculations in another way by intentionally reducing work-in-process balances before monthly calculations were performed. The effect was to preserve accounting credits for future quarters rather than recording them immediately under company policy.
In August 2020, Fasciana was reportedly informed that Oakdale was generating unusually high absorption figures and that using all of them immediately could hurt future reporting periods. According to the SEC, employees then carried portions of the absorption forward into later quarters in violation of both GAAP and internal accounting policies.
The situation escalated on January 26, 2021 — the morning Key Tronic planned to release second-quarter earnings.
An employee complaint alleging inventory misconduct arrived hours before the scheduled announcement. Larsen, senior management, outside auditors, and the board were informed that day, and the company quickly confirmed the core allegations involving approximately $981,000 in improperly recorded pre-tax income tied to Oakdale.
Correcting the Oakdale entries reduced projected pre-tax income by roughly 47%.
At the same time, Key Tronic booked approximately $764,000 in additional accounting adjustments that partially offset the reversal. Some of those adjustments related to prior periods rather than the current quarter.
According to the SEC, Key Tronic’s outside auditor twice advised delaying the earnings release because additional facts could still emerge. The company nevertheless proceeded after a board meeting held roughly an hour before publication. The SEC said supporting documentation for the adjustments and their materiality analysis was not fully provided to the board during that meeting.
Key Tronic ultimately released earnings that day reporting net income of $1.58 million and earnings per share of $0.14. Had the out-of-period adjustments been recorded in the quarters to which they properly belonged, the SEC said net income would have fallen by roughly 44% to about $900,000 and year-over-year earnings growth would have been nearly eliminated.
The SEC faulted Larsen for conducting what it described as an insufficient materiality analysis before proceeding with the release despite the late-emerging accounting issues and auditor concerns.
Key Tronic later launched an Audit Committee investigation with independent counsel and forensic accountants. Completed in July 2021, the investigation confirmed the Oakdale misconduct and resulted in changes to internal controls, reporting structures, and oversight procedures.
The company received no financial penalty from the SEC because of its cooperation during the investigation and remediation efforts. Larsen agreed to pay a $20,000 civil penalty, while Fasciana agreed to pay $15,000. Both men also consented to cease-and-desist orders.
The SEC’s case paints a picture of accounting manipulation that began at the operational level inside a struggling manufacturing facility before escalating into broader disclosure and governance failures at the corporate level.
