diff --git a/raw/aaer/2006/AAER-2363.pdf b/raw/aaer/2006/AAER-2363.pdf new file mode 100644 index 0000000000000000000000000000000000000000..2a68d559d05c6ee7b3078bdebd52a751362ca1dc Binary files /dev/null and b/raw/aaer/2006/AAER-2363.pdf differ diff --git a/raw/aaer/2006/AAER-2370.txt b/raw/aaer/2006/AAER-2370.txt new file mode 100644 index 0000000000000000000000000000000000000000..a1473b4148cf8a816dc3a01681bf33388fcef7ff --- /dev/null +++ b/raw/aaer/2006/AAER-2370.txt @@ -0,0 +1,258 @@ + + + +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION + + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 53236 / February 7, 2006 + +ACCOUNTING & AUDITING ENFORCEMENT +Release No. 2370 / February 7, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12173 + + +In the Matter of + +CUMMINS INC., + +Respondent. + + + +ORDER INSTITUTING CEASE-AND-DESIST +PROCEEDINGS, MAKING FINDINGS, AND +IMPOSING A CEASE-AND-DESIST ORDER +PURSUANT TO SECTION 21C OF THE +SECURITIES EXCHANGE ACT OF 1934 + + +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 Cummins Inc. (“Cummins” or “Respondent”). +II. + In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) 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 it and the subject matter of these +proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease- +and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to +Section 21C of the Securities Exchange Act of 1934 (“Order”), as set forth below. +III. + On the basis of this Order and Respondent’s Offer, the Commission finds that: +A. RESPONDENT + Cummins Inc., an Indiana corporation headquartered in Columbus, Indiana, manufactures, +distributes, and services engines and engine-related products world-wide. Cummins’ common +stock is registered with the Commission under Section 12(b) of the Exchange Act. Cummins’ +stock trades on the New York Stock Exchange and Pacific Stock Exchange under the symbol +“CMI.” The company’s fiscal year ends on December 31. + +B. FACTS + From 1997 through 2002, Cummins failed to reconcile key accounts at two manufacturing +locations, in Fridley, Minnesota and Darlington, United Kingdom. These manufacturing locations +together accounted for approximately fifteen to twenty percent of Cummins’ total revenues. +Because Cummins failed to reconcile these accounts, errors in the accounts went uncorrected. The +errors had a material impact on Cummins’ previously-reported results. On August 4, 2003, +Cummins restated its financial results for the years 2000 through 2002 to correct these and other +errors. + Fridley’s Reconciliation Deficiencies +The reconciliation deficiencies at the Fridley facility, which were the primary cause of the +accounting errors, began as early as 1997. Cummins’ accounting policies at the time required that +each manufacturing plant reconcile its major accounts, including accounts payable, on a monthly +basis. At the Fridley location, however, the staff failed to reconcile its accounts payable subsidiary +ledgers to the general ledger between 1997 and 2002. Instead, they simply rolled forward the +accounts payable balance reflected in the general ledger account each month without investigating +or reconciling the differences between subsidiary ledgers and the general ledger. Cummins’ +internal auditors cited the Fridley location in 1997 and 1998 for failing to reconcile its subsidiary +ledgers for the accounts payable accounts to the general ledgers on a regular basis. In fact, each +year during the period from 1997 to 2001, Cummins’ internal audit reports recommended that +Cummins institute a monitoring process to ensure the proper reconciliation of key accounts. +However, Cummins did not institute a monitoring system until 2001. +In 1998 and 1999, Cummins took two actions to address unrelated matters that had the +unintended effect of exacerbating the accounts payable problem at the Fridley facility. First, partly +in response to Y2K concerns, as well as to consolidate and standardize financial systems and +processes, Cummins began implementing a new management information software system. +Fridley was one of the first locations to implement the new system, beginning in 1998 and +continuing into 1999. However, Cummins did not adequately train Fridley’s employees on the +new system. Because the Fridley employees did not understand how the new system worked, they +created “work around” procedures to fix what they perceived to be problems with the new system +and its implementation. These ad hoc “work arounds” introduced additional errors into the + 2 +accounts payable system. Because Fridley was not reconciling its accounts payable accounts, +however, Fridley did not identify and correct these errors. +Second, during 1998 and 1999, Cummins underwent a major restructuring that, among +other things, resulted in the departure of a significant portion of Cummins’ financial and +accounting staff. The exodus of experienced finance personnel particularly affected the Fridley +location and further complicated the intermittent efforts to reconcile Fridley’s accounts. During +this period, Cummins also consolidated its accounting functions, relocating most of the accounting +functions, including the reconciliation of accounts payable, from Fridley to a Cummins’ office in +Nashville. However, a misunderstanding between the Fridley and Nashville offices led each to +believe that the other was responsible for reconciling the accounts payable accounts. Due to this +misunderstanding, reconciliations were not performed on Fridley’s accounts payable accounts from +1999 through at least part of 2002. In addition, Fridley changed controllers three times between +2000 and 2001, further compounding the internal controls breakdown.1 +In 1999, Cummins’ independent auditor noted in its letter to the Audit Committee several +problems with reconciliations and internal controls throughout Cummins. In response to these +findings, Cummins began a targeted review of various accounts. The year-long effort, which was +assisted by Cummins’ independent auditors, resulted in a $44 million charge to earnings in 2000. +The effort did not address the problems at Fridley, however. Thereafter, to address concerns with +reconciliations company-wide in 2001, Cummins created a corporate quality assurance position to +investigate all balance sheet accounts, with particular emphasis on internal controls and +unreconciled accounts. Additionally, Cummins required that all business units periodically submit +reports on designated accounts to the quality assurance manager, providing information on the +status of their balance sheet reconciliations. Fridley reported the deficiencies in its accounts +payable reconciliation to the quality assurance manager in August 2001. However, because the +Fridley controller at the time had been on the job for only a month, Cummins’ corporate controller +gave Fridley a grace period of several months in which to correct the reconciliation errors. +Although Cummins corrected many of the reconciliation deficiencies at other locations, +Cummins failed to devote sufficient resources to correct the reconciliation problems at Fridley. +During most of the period from mid-2001 to the end of 2002, Fridley had only one full-time +consultant and one full-time employee working on the reconciliations. By 2001, the accounts +payable accounts at Fridley had not been reconciled for at least four years, and the limited staff +working on the issue – who lacked experience with accounts payable – was unable to identify, +segregate, and correct the improper entries recorded in or missing from the accounts payable +subsidiary ledgers or the general ledger accounts. Thus, the reconciliation remediation process +stretched into the fourth quarter of 2002 without completion. +In August 2002, following the passage of the Sarbanes-Oxley Act of 2002, Cummins +corporate management directed that all unreconciled accounts be reported to corporate +headquarters and reconciled by year-end 2002. Faced with this deadline, Fridley reported to the +corporate office in late October 2002 that its accounts payable accounts remained unreconciled, but + +1 The controller at each Cummins facility is the person responsible for accounting +procedures and internal controls at that location. + + 3 +indicated that it expected no material impact upon income. At the end of December 2002, +however, Fridley personnel completed their analysis of the unreconciled accounts and determined +that the problem was much larger than originally expected. On January 3, 2003, Fridley reported +to Cummins corporate senior management there was a “$16 million accounts payable problem.” +Darlington’s Reconciliation Deficiencies +In June 2000, Cummins’ internal auditors reported that the Darlington, U.K. facility had +not been reconciling its accounts payable general ledger accounts to the supporting subsidiary +ledgers. As was the case at Fridley, it appeared that the accounting staff at Darlington did not +understand how to reconcile accounts properly. Cummins replaced the Darlington controller in +early 2002, as part of its targeted review and clean-up, and required the Darlington facility to report +periodically regarding the status of its account reconciliations. However, as with Fridley, +Cummins failed to devote sufficient resources to training the accounting staff at the facility and +correcting the problem in a timely manner. Darlington did not complete the reconciliation of its +accounts until year-end 2002, over two years after the problem had been identified at the corporate +level. + Cummins’ Restatement + In late January 2003, Cummins notified the SEC that it had discovered a potentially +material accounting error. Following this disclosure, Cummins took the following steps: (i) it +sent trained accounting personnel from the corporate office and the company’s outside auditor to +Fridley to investigate the accounts payable accounts reconciliation issues and resolve them; (ii) it +retained special counsel to conduct an internal investigation; (iii) it issued a press release +announcing the potential adjustment; and (iv) it fired the accounting personnel responsible for +the delinquent account reconciliations in question. + On August 4, 2003, Cummins filed its 2002 Annual Report on Form 10-K, which +contained restated financial results for the years 2000, 2001, and 2002.2 The restatement +corrected prior period accounting errors caused primarily by Cummins’ failure to timely +reconcile a number of key accounts, including the accounts payable accounts at Fridley and +Darlington, and to correct a $44 million charge to earnings the company took in 2000 to correct +the reconciliation errors that had been identified at that time.3 The restatement had a material +effect on Cummins’s earnings results: + +2 Cummins reported unaudited financial results for 2002 in three Quarterly Reports on +Form 10-Q, filed on May 15, 2002, August 14, 2002 (amended on October 17, 2002), and +November 1, 2002, and a current report on Form 8-K, filed on May 12, 2003. + +3 The restated financial statements were audited by Cummins’ current auditor, +PricewaterhouseCoopers LLP (“PwC”), because Arthur Andersen LLP, Cummins’ predecessor +auditor for the years 2000 and 2001, had ceased operations. The restatement also included +additional and unrelated adjustments that PwC identified in the course of performing the 2000 +and 2001 re-audits. + + 4 + + 2002 +(Millions) +2001 +(Millions) +2000 +(Millions) +Pre-2000 +(Millions) +Previously reported net earnings $72 $(102) $8 +Restatement adjustments (after tax) $10 $(1) $6 ($37) +Restated net earnings $82 $(103) $14 +As a percentage of restated earnings 12% 1% 43% + Cummins’ Remedial Measures + Cummins instituted a number of improvements to its internal controls designed to prevent +any recurrence of similar problems in the future, including: making specific internal control +enhancements at Fridley and Darlington; hiring experienced finance, accounting, and internal audit +personnel throughout Cummins; improving reporting lines between business unit controllers and +the corporate controller; improving internal controls governing account reconciliations; and +expanding the oversight by the Audit Committee of the Board of Directors. + C. LEGAL ANALYSIS + Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require issuers +with securities registered under Section 12 of the Exchange Act to file annual and quarterly reports +with the Commission. The obligation to file such reports embodies the requirement that they be +true and correct. See, e.g., SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978), cert. +denied, 440 U.S. 913 (1979). Section 13(b)(2)(A) of the Exchange Act requires issuers to make +and keep books, records, and accounts that, in reasonable detail, accurately and fairly reflect the +transactions and dispositions of the assets of the issuer. Section 13(b)(2)(B) requires issuers to +devise and maintain systems of internal accounting controls sufficient to provide reasonable +assurances that, among other things, transactions are recorded as necessary to permit preparation of +financial statements in conformity with generally accepted accounting principles and to maintain +accountability of assets. + A fundamental concept underlying accurate financial reporting is that all accounting entries +that are required to be recorded must, in fact, be recorded.4 During the relevant period, two +Cummins manufacturing facilities failed to properly record transactions and the disposition of +assets on their books and ledgers.5 Cummins’ failure to properly record these transactions resulted +in material discrepancies between the general ledger accounts on Cummins’ books and the + +4 Financial Accounting Standards Board Concepts Statement No.5 (As Amended) +("Con 5"), Recognition and Measurement in Financial Statements of Business Enterprises, +para. 63. + +5 Under Con 5, an asset or liability should be recognized on the company’s books when it +meets four fundamental criteria: definition, measurability, relevance, and reliability. +“Recognition” is the process of formally recording or incorporating an asset or liability in an +entity’s financial statements. Because Cummins failed to perform reconciliations in a timely +manner, it failed to detect, quantify, and record many accounting items that met the recognition +criteria set forth in Con 5. + 5 +supporting subsidiary ledgers for the accounts payable accounts. If Cummins had properly and +timely performed reconciliations for these key balance sheet accounts, it would have detected and +corrected the errors years earlier. + Cummins also failed to maintain sufficient internal accounting controls to provide +reasonable assurances that its transactions were recorded as necessary to permit the preparation of +its financial statements in conformity with generally accepted accounting principles. Among other +things, Cummins failed to employ and train qualified personnel in its Fridley and Darlington +finance departments and failed to have an internal control system adequate to monitor the accounts +reconciliation process. +As a result of the conduct described above, Respondent violated 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. + +IV. + + In determining to accept the Offer, the Commission considered remedial acts that were +undertaken by Respondent and the cooperation that Respondent afforded the Commission staff +during its investigation of this matter. + +V. + + In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent’s Offer. + + Accordingly, it is hereby ORDERED that: + + Respondent 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. + + By the Commission. + + + + N ancy M. Morris + S ecretary + 6 \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2372.txt b/raw/aaer/2006/AAER-2372.txt new file mode 100644 index 0000000000000000000000000000000000000000..80f7bbd051e558c7980bca083d0131e34625d566 --- /dev/null +++ b/raw/aaer/2006/AAER-2372.txt @@ -0,0 +1,52 @@ + UNITED STATES SECURITIES AND EXCHANGE COMMISSION + +SECURITIES ACT OF 1933 +Release No. 8660 / February 9, 2006 + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 53265 / February 9, 2006 + +INVESTMENT ADVISERS ACT OF 1940 +Release No. 2486 / February 9, 2006 + +ACCOUNTING AND AUDITIING ENFORCEMENT +Release No. 2372 / February 9, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12179 + +In the Matter of Lawrence A. Stoler, CPA + +On February 9, 2006, the Securities and Exchange Commission instituted administrative and +cease-and-desist proceedings pursuant to Rule 102(e) of the Commission’s Rules of Practice, +Section 8A of the Securities Act of 1933, Section 21C of the Securities Exchange Act of 1934 +and Section 203(k) of the Investment Advisers Act of 1940, against Lawrence A. Stoler, CPA + +In the Order Instituting Proceedings, the Division of Enforcement and the Office of the Chief +Accountant allege that Stoler engaged in improper professional conduct in the audits of three +hedge funds, Lipper Convertibles, L.P. (“Convertibles”), Lipper Convertibles Series II, L.P. +(“Series II”), and Lipper Fixed Income Fund, L.P. (“Fixed Income”) (collectively, the “Funds”) +for the year ended December 31, 2000 and was a cause of violations by the Funds, their portfolio +manager, Edward J. Strafaci, and the entity that managed the Funds, Lipper Holdings, LLC. +Stoler was the engagement partner on PricewaterhouseCoopers’ audits of the Funds’ financial +statements, including the financial statements for Convertibles and Series II that were filed with +the Commission pursuant to Section 17 of the Exchange Act. The Division of Enforcement and +the Office of the Chief Accountant allege that Stoler failed to adequately assess the substantial +evidence produced by the audits that Strafaci was materially overstating the value of the +convertible bonds and convertible preferred stock in which the Funds were invested, and +unquestioningly relied on a purported confirmation process that was significantly flawed. They +further allege that Stoler knew or should have known that his failure to conduct and supervise an +audit that conformed to GAAS and his approval of, and signature on, unqualified audit reports on +the Funds’ 2000 financial statements, and internal control reports filed by Convertibles and +Series II, would contribute to violations of the federal securities laws by the Funds, Strafaci, and +Lipper Holdings, including the dissemination to prospective investors and advisory clients, and +the filing, of materially misleading financial statements, and the filing of inaccurate internal +control reports. + +A hearing will be scheduled before an Administrative Law Judge to determine whether such +allegations are true, to afford the respondent an opportunity to establish defenses to the +allegations, to determine whether remedial action is necessary and appropriate, and to determine +whether respondent should be ordered to cease and desist from committing or causing violations +of and any future violations of the securities laws. The Administrative Law Judge is directed to +issue a decision no later than 300 days from the date of service of the Order Instituting +Proceedings, pursuant to Rule 360(a)(2) of the Commission’s Rules of Practice. \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2377.txt b/raw/aaer/2006/AAER-2377.txt new file mode 100644 index 0000000000000000000000000000000000000000..892a078ee2962d7083540ff17bf771c2797eb309 --- /dev/null +++ b/raw/aaer/2006/AAER-2377.txt @@ -0,0 +1,155 @@ + + UNITED STATES OF AMERICA + before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 53330 / February 17, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2377 / February 17, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12209 + + : + : + : +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE + : PROCEEDINGS PURSUANT TO RULE + EDWARD A. HEIL (CPA), : 102( e) OF THE COMMISSION’S RULES OF + : PRACTICE, MAKING FINDINGS, AND + Respondent. : IMPO SING REMEDIAL SANCTIONS + : + : +____________________________________ : + +I. + + The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against Edward +A. Heil (“Respondent” or “Heil”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of +Practice.1 +II. + + In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) 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 + +1 Rule 102(e)(3)(i) provides, in relevant part, that: + + The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. + 2 +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 him and the subject matter of these +proceedings, and the findings contained in Section III.C. below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) +of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. + +III. + + On the basis of this Order and Responde nt’s Offer, the Commission finds that: + +A. Edward A. Heil (“Heil”) resides in Long Island, New York. Heil has been a CPA +in New York State since 1973, and was employed by a well-known accounting firm between 1972 +and 1991, where he was an audit partner for seven years. He co-founded eSafetyWorld, Inc., +(“eSafety”), and was its Chairman, President and Chief Executive Officer at all relevant times. + +B. eSafety was, at the relevant time, a Nevada corporation with its principal place of +business in Bohemia, New York. eSafety sold disposable garments, industrial safety equipment, +and clean room equipment. In addition, eSafety started a new line of business, providing +consulting services to start-up companies, in 2000. At the relevant time, eSafety’s common stock +was registered with the Commission pursuant to Section 12(g) of the Exchange Act, and was listed +for trading on the NASDAQ SmallCap Market until October 22, 2001, when NASDAQ suspended +trading in its securities. + +C. On December 15, 2005, the Commission filed a complaint against Heil in a civil +action entitled Securities and Exchange Commission v. Edward Heil, et al., Civil Action Number +CV-05 5852, in the United States District Court for the Eastern District of New York. On January +27, 2006, the court entered a final judgment against Heil, permanently enjoining him from future +violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”) +and Rules 10b-5, 13b2-1 and 13b2-2 thereunder; and from aiding and abetting violations of +Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 13a-1, 13a-13, 12b- +20, and 12b-25 thereunder, and Section 232.302 of Regulation S-T. Heil was also ordered to pay a +$60,000 civil money penalty, and was barred as an officer or director of a public company for ten +years. + + D. The Commission’s complaint alleged th at, during 2000 and 2001, eSafety and Heil, +among others, violated the federal securities laws by: (1) making false and misleading statements +in public filings with the Commission about eSafety’s revenues and profits from consulting +contracts; (2) issuing a false and misleading press release that claimed eSafety had developed a +product to prevent the spread of anthrax spores while opening mail; and (3) engaging in a +manipulative scheme intended to create liquidity for, and increase the price of, eSafety stock. + 3 + +IV. + + In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Heil’s Offer. + + Accordingly, it is hereby ORDERED, effective immediately, that: + + A. Heil is suspended from appearing or practicing before the Commission as an +accountant. + + B. After 5 years from the date of this order, Respondent may request that the +Commission consider his reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: + + 1. a preparer or reviewer, or a pe rson responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that Respondent’s work in his practice before the +Commission will be reviewed either by the independent audit committee of the public company +for which he works or in some other acceptable manner, as long as he practices before the +Commission in this capacity; and/or + + 2. an independent accountant. Su ch an application must satisfy the +Commission that: + + (a) Respondent, or the public accounting firm with which he is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; + + (b) Respondent, or the registered public accounting firm with which he +is associated, has been inspected by the Board and that inspection did not identify any criticisms +of or potential defects in the Respondent’s or the firm’s quality control system that would +indicate that the Respondent will not receive appropriate supervision or, if the Board has not +conducted an inspection, has received an unqualified report relating to his, or the firm’s, most +recent peer review conducted in accordance with the guidelines adopted by the former SEC +Practice Section of the American Institute of Certified Public Accountants Division for CPA +Firms or an organization providing equivalent oversight and quality control functions; + (c) Respondent has resolved all di sciplinary issues with the Board, and +has complied with all terms and conditions of any sanctions imposed by the Board (other than +reinstatement by the Commission); and + + (d) Respondent acknowledges his responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not limited to, all + 4 +requirements relating to registration, inspections, concurring partner reviews and quality control +standards. + + +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that his state CPA license is +current and he has resolved all other disciplinary issues with the applicable state boards of +accountancy. However, if state licensure is dependant on reinstatement by the +Commission, the Commission will consider an application on its other merits. The +Commission’s review may include consideration of, in addition to the matters referenced +above, any other matters relating to Respondent’s character, integrity, professional conduct, +or qualifications to appear or practice before the Commission. + + + + By the Commission. + + + + N a n c y M . M o r r i s + S e c r e t a r y \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2378.txt b/raw/aaer/2006/AAER-2378.txt new file mode 100644 index 0000000000000000000000000000000000000000..7d01628e12bb581c0eeb2558219b8901e01bf2a8 --- /dev/null +++ b/raw/aaer/2006/AAER-2378.txt @@ -0,0 +1,96 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 53334 / February 17, 2006 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2378 / February 17, 2006 +ADMINISTRATIVE PROCEEDING +File No. 3-10528 + +In the Matter of +Scott K. Barton, CPA + +: +: +: +: +: +: +ORDER GRANTING APPLICATION FOR +REINSTATEMENT TO APPEAR AND PRACTICE +BEFORE THE COMMISSION AS AN ACCOUNTANT +RESPONSIBLE FOR THE PREPARATION OR +REVIEW OF FINANCIAL STATEMENTS REQUIRED +TO BE FILED WITH THE COMMISSION + +On July 2, 2001, Scott K. Barton ("Barton") was suspended from appearing or practicing +as an accountant before the Commission as a result of settled public administrative proceedings +instituted by the Commission against Barton pursuant to Rule 102(e) of the Commission's Rules +of Practice.1 Barton consented to the entry of the findings, and imposition of the remedial +sanctions set forth in the July 2, 2001 order, without admitting or denying the findings. Barton +also settled an injunctive action on which the 102(e) proceeding was based. +From 1981 through August 1996, Barton was employed as Controller of Paracelsus +Healthcare Corporation (“Paracelsus”). The Commission alleged, in its injunctive action, that +Barton participated in misconduct by which Paracelsus inflated its quarterly and annual earnings +in filings with the Commission from at least 1993 through August 1996. Specifically, the +Commission alleged that Barton and others created and used “cookie jar” reserves which were +inappropriate under generally accepted accounting principles (“GAAP”) because no probable +and reasonably estimable exposures justified their creation, and because their later decrease +artificially boosted Paracelsus’ earnings and concealed a decline in earnings. Additionally, the + +1 See Accounting and Auditing Enforcement Release No. 1417, dated July 2, 2001. + +Rule 102(e)(5)(i) provides: + +“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) +of this section may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a +hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated +by the Commission for good cause shown.” 17 C.F.R. § 201.102(e)(5)(i). +Commission alleged that Barton and others failed to disclose all material facts regarding the +misconduct to Paracelsus’ auditors. + +This order is issued in response to Barton's application for reinstatement to practice +before the Commission as an accountant responsible for the preparation or review of financial +statements required to be filed with the Commission. + + In any future capacity as a preparer or reviewer, or a person responsible for the +preparation or review of financial statements required to be filed with the Commission, Barton +has stated that he will have his work reviewed by the independent audit committee of any +company for which he works, or in some other manner acceptable to the Commission, while +practicing before the Commission in this capacity. Barton is not, at this time, seeking to appear +or practice before the Commission as an independent accountant. If he should wish to resume +appearing and practicing before the Commission as an independent accountant, he will be +required to submit an application to the Commission showing that he has complied and will +continue to comply with the terms of the original suspension order in this regard. Therefore, +Barton's suspension from practice before the Commission as an independent accountant +continues in effect until the Commission determines that a sufficient showing has been made in +this regard in accordance with the terms of the original suspension order. + +Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for +reinstatement, and provides that the Commission may reinstate the privilege to appear and +practice before the Commission “for good cause shown.” This “good cause” determination is +necessarily highly fact specific. + +On the basis of information supplied, representations made, and undertakings agreed to +by Barton, it appears that he has complied with the terms of the July 2, 2001 order suspending +him from appearing or practicing before the Commission as an accountant, that no information +has come to the attention of the Commission relating to his character, integrity, professional +conduct or qualifications to practice before the Commission that would be a basis for adverse +action against him pursuant to Rule 102(e) of the Commission's Rules of Practice, and that +Barton, by undertaking to have his work reviewed by the independent audit committee of any +company for which he works, or in some other manner acceptable to the Commission, in his +practice before the Commission as a preparer or reviewer of financial statements required to be +filed with the Commission, has shown good cause for reinstatement. Therefore, it is accordingly, + +ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that +Scott K. Barton, CPA is hereby reinstated to appear and practice before the Commission as an +accountant responsible for the preparation or review of financial statements required to be filed +with the Commission. + +By the Commission. + + +Nancy M. Morris +Secretary \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2387.txt b/raw/aaer/2006/AAER-2387.txt new file mode 100644 index 0000000000000000000000000000000000000000..8bf650eca1ee19b6ff0665aad54b5c82ab0a1343 --- /dev/null +++ b/raw/aaer/2006/AAER-2387.txt @@ -0,0 +1,1371 @@ + + + + + + + + + + + + + + + + SEC.gov | Jeffrey P. Jorissen, Gary A. Shiffman and Mary A. Petrella + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/498466","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Jorissen, Gary A. Shiffman and Mary A. Petrella + + + + + + + + + + + + Jeffrey P. Jorissen, Gary A. Shiffman and Mary A. Petrella + + + + + + + + + + + + + + + + + + + U.S. SECURITIES & EXCHANGE COMMISSION + + Litigation Release No. 19580 / February 27, 2006 + + Accounting and Auditing Enforcement Release No. 2387 / February 27, 2006 + + Securities and Exchange Commission v. Jeffrey P. Jorissen, Gary A. Shiffman and Mary A. Petrella, Civil Action NO. 2:06-CV-10845 (E.D. Mich.) (February 27, 2006) + + SEC Files Civil Action against the Chief Executive Officer, Chief Financial Officer and Former Controller of Sun Communities in Connection with Material Misstatements of Income; SEC Files Settled Proceeding with Sun Communities and Former Audit Engagement Partner + + On February 27, 2006, the Securities and Exchange Commission filed an injunctive action in the United States District Court for the Eastern District of Michigan against the Chief Executive Officer, Chief Financial Officer and former Controller of Sun Communities, Inc. ("Sun"). According to the complaint, Sun failed to properly account for losses resulting from Sun's investment in SunChamp, LLC, a joint venture involved in the development of manufactured housing communities. As a result, Sun materially overstated its income from January 2000 through December 2002. The complaint alleges that Sun violated generally accepted accounting principles by failing to report any of SunChamp's losses during seven quarters, and by improperly delaying or underreporting Sun's share of SunChamp's losses in four additional quarters. According to the complaint, Sun's chief financial officer, Jeffrey P. Jorissen, directed those accounting decisions. The complaint further alleges that Sun maintained an improper general reserve and improperly "smoothed" earnings by recording expenses in improper periods. According to the complaint, Gary A. Shiffman, the Chairman of Sun's Board of Directors, and its Chief Executive Officer and President, caused falsifications of Sun's records by providing false information regarding the timing of agreements entered into by Sun. The complaint also alleges that Mary A. Petrella, Sun's controller during the relevant period, falsified Sun's records by releasing funds from Sun's general reserve and recording expenses in improper periods. + + The complaint alleges that Jorissen violated Sections 17(a)(2) and (3) of the Securities Act of 1933 ("Securities Act"), Sections 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 13b2-1 and 13b2-2 thereunder, and aided and abetted 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, and seeks a permanent injunction, disgorgement, prejudgment interest and a civil penalty against him. Further, the complaint alleges that Shiffman violated Rule 13b2-1 of the Exchange Act and seeks a permanent injunction and civil penalty against him. Finally, the complaint alleges that Petrella violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, seeking a permanent injunction and civil penalty against her. + + In a related action, on February 27, 2006, the Commission issued a settled cease-and-desist order against Sun and its main operating subsidiary, Sun Communities Operating Limited Partnership ("SCOLP"). The Order finds that Sun and SCOLP violated Sections 17(a)(2) and (3) of the Securities Act and books and records, internal controls and periodic reporting provisions of the Exchange Act. The Order requires Sun and SCOLP to cease and desist from committing or causing any violations and any future violations of these provisions. In addition, Sun consented to undertakings to retain an independent consultant to perform a review of its internal controls, record-keeping and financial reporting policies and procedures and to make recommendations regarding improvements. Sun and SCOLP consented to the issuance of the Order without admitting or denying any of the findings therein. ( Rel. 33-8665; Rel. 34-53381; AAER Rel. 2386; File No. 3-12221 ) + + The Commission also instituted settled administrative proceedings against Sun's former auditor, Gregory G. Nelson. The Order finds that Nelson, the engagement partner on the Sun audit, engaged in improper professional conduct in connection with the 2000 and 2001 audits and the first quarter 2002 interim review of Sun's financial statements. The Order finds that Nelson failed to exercise due professional care and denies Nelson the privilege of appearing or practicing before the Commission as an accountant, with the right to apply to the Commission for reinstatement after two years from the date of the Order. Nelson consented to the issuance of the Order without admitting or denying any of the findings in the Order. ( Rel. 34-53380; AAER Rel. 2385; File No. 12220 ) + + + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + California Amplifier, Inc. + + + + + + + + + + + + California Amplifier, Inc. + + + + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19614 / March 20, 2006 + + Accounting and Auditing Enforcement Release No. 2394 / March 20, 2006 + + SEC v. Barry Richard Kusatzky , 1:04CV00700 (D.D.C. February 17, 2006) + + FINAL JUDGMENT ENTERED AGAINST FORMER CONTROLLER OF CALIFORNIA AMPLIFIER, INC. FOR FRAUD AND INSIDER TRADING + + + + On February 17, 2006, the United States District Court for the District of Columbia entered a settled final judgment against Barry Richard Kusatzky, former controller of California Amplifier, Inc., for falsifying the company's financial statements and books and records and insider trading. Kusatzky consented to the final judgment enjoining him from violating the antifraud provisions of the federal securities laws, imposing a permanent officer and director bar, and ordering payment of partial disgorgement of $25,000. + + The Commission filed a complaint on April 28, 2004, alleging that Kusatzky caused California Amplifier to materially overstate income and equity in its quarterly and annual financial statements for the period November 27, 1999, through November 25, 2000, by hiding $7.8 million in expenses. The Complaint alleged that Kusatzky fabricated California Amplifier's financial statements, falsified its books and records, and presented false records to the company's auditors. Further, according to the Complaint, in January 2000, Kusatzky sold 15,000 shares of California Amplifier stock while in possession of material, non-public information that the company's reported earnings were materially overstated. By selling his stock before the overstatement of California Amplifier's earnings was disclosed, Kusatzky avoided losses of over $350,000. + + In January 2005, Kusatzky pled guilty to two counts of securities fraud in a criminal proceeding filed by the United States Attorney's office for the Central District of California. On April 25, 2005, Kusatzky was sentenced to a prison term of eighteen months and three years of supervised release thereafter. + + Without admitting or denying the allegations in the Complaint, Kusatzky consented to the entry of a final judgment permanently enjoining him from violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5, 13b2-1, and 13b2-2 promulgated thereunder, as well as, aiding and abetting 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 promulgated thereunder. Kusatzky agreed to pay disgorgement of $25,000 and the final judgment waives Kusatzky's remaining liability of $333,000 in disgorgement and prejudgment interest thereon based on sworn representations in his Statement of Financial Condition and other documents and information submitted to the Commission. In addition, Kusatzky consented to an order barring him from serving as an officer or director of a public company. + + In a related action, the Commission previously instituted a settled administrative proceeding against California Amplifier. [In the Matter of California Amplifier, Inc. (Rel. 34-49630 ; File No. 3-11469)] + + For more information, see Litigation Release No. 18688 (April 29, 2004). + + + SEC Complaint in this matter --> + +   + + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Eric Tyra, Scott Wynne, Peter Berman, and Scott Carey , Civil Action No. CV-04-P-1052-S (N.D. Al.) + + + + The Securities and Exchange Commission announced that on March 28, 2006, the Honorable R. David Proctor, United States District Judge for the Northern District of Alabama, entered a Final Judgment As To Defendant Scott Wynne, enjoining him from future violations of Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and from aiding and abetting 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. Wynne consented to the entry of the judgment without admitting or denying the allegations of the Commission's Complaint. The court ordered a civil penalty in the amount of $25,000, and prohibited Wynne from acting as an officer or director of any issuer that has a class of registered securities for a period of six years. + + The Commission's Complaint, filed on May 21, 2004, alleged various fraudulent practices in connection with the financial statements of Just for Feet, Inc., a large shoe and sports apparel retailer formerly headquartered in Birmingham, Alabama. The Complaint alleged that Wynne, a vice president at Just for Feet, and others, among other things, recorded on Just for Feet's books unearned receivables and failed to create an adequate reserve for excess or obsolete inventory. The overstatement of income and assets resulting from this misconduct was reflected on Just for Feet's financial statements included in its Form 10-K filed for fiscal year 1998, Forms 10-Q filed for the first and second quarters of fiscal year 1999, and in its registration statements on Forms S-8 and S-4 filed in May and June of 1999, respectively. + +See also: L.R. 18139 (May 15, 2003); L.R. 18571 (February 6, 2004); L.R. 18575 (February 13, 2004); L.R. 18731 (June 1, 2004); and L.R. 19163 (March 31, 2005); L.R. 19438 (October 20, 2005); and L.R. 19533 (January 20, 2006). + + + + + + SEC Complaint in this matter --> + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2006/AAER-2403.pdf b/raw/aaer/2006/AAER-2403.pdf new file mode 100644 index 0000000000000000000000000000000000000000..3f46f1bf89fb4530cee04578c6380e5f1d2e80f6 Binary files /dev/null and b/raw/aaer/2006/AAER-2403.pdf differ diff --git a/raw/aaer/2006/AAER-2409.txt b/raw/aaer/2006/AAER-2409.txt new file mode 100644 index 0000000000000000000000000000000000000000..8f3433803cb5f351103fa2b5b08c4dafe3b23f4c --- /dev/null +++ b/raw/aaer/2006/AAER-2409.txt @@ -0,0 +1,876 @@ +UNITED STATES OF AMERICA +BEFORE THE +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES ACT OF 1933 +Release No. 8675 / APRIL 12, 2006 + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 53633 / April 12, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2409 / April 12, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12261 + + +In the Matter of + +PKF, ANTHONY FREDERICK JOHN +MEAD, FCA, and STUART JOHN +BARNSDALL, ACA, + +Respondents. + +ORDER INSTITUTING PUBLIC +ADMINISTRATIVE AND CEASE- + AND-DESIST PROCEEDINGS +PURSUANT TO SECTION 8A OF THE +SECURITIES ACT OF 1933, SECTION +21C OF THE SECURITIES EXCHANGE +ACT OF 1934, AND RULE 102(e) OF THE +COMMISSION’S RULES OF PRACTICE, +MAKING FINDINGS, AND IMPOSING +REMEDIAL SANCTIONS AND A +CEASE-AND-DESIST ORDER + + I. + + The Securities and Exchange Commission (“SEC” or “Commission”) deems it +appropriate that public administrative and cease-and-desist proceedings be, and hereby are, +instituted against PKF, Anthony Frederick John Mead, FCA, and Stuart John Barnsdall, ACA +(“Barnsdall”) (collectively “Respondents”) pursuant to Section 8A of the Securities Act of 1933 +(“Securities Act”), Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”), and +Rules 102(e)(1)(ii) and 102(e)(1)(iii) of the Commission’s Rules of Practice.1 + +1 Rule 102(e)(1)(ii) provides, in pertinent part, that: + +The Commission may ... deny, temporarily or permanently, the privilege of appearing or practicing before it ... to +any person who is found … to have engaged in … improper professional conduct. + +Rule 102(e)(1)(iii) provides, in pertinent part, that: + +The Commission may … deny, temporarily or permanently, the privilege of appearing or practicing before it ... to +any person who is found … to have willfully violated … any provision of the Federal securities laws or the rules and +regulations thereunder. + + +II. + + In anticipation of the institution of these proceedings, Respondents have submitted Offers +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 them and the subject matter of these +proceedings, which are admitted, Respondents consent to the entry of this Order Instituting Public +Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of +1933, Section 21C of the Securities Exchange Act of 1934, and Rule 102(e) of the Commission’s +Rules of Practice, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist +Order, as set forth below.2 + +III. + + On the basis of this Order and Respondents’ Offers, the Commission finds3 that: + +A. RESPONDENTS + +1. PKF, an accounting firm based in the United Kingdom, was AremisSoft +Corporation’s (“AremisSoft’s”) principal outside auditor from before AremisSoft was a public +company until January 23, 2002. PKF is the eighth largest firm of accountants and business +advisers in the United Kingdom, with more than 1,500 partners and staff operating from 25 +offices in the United Kingdom.4 PKF is a member firm of PKF International Ltd., a network of +independent firms of accountants and business advisers with more than 430 member firm offices, +which have 12,800 staff and partners in more than 100 countries. + +2. Anthony Frederick John Mead (“Mead”) , age 64, was a partner of PKF until +he took his standard retirement on April 6, 2002. He is a Fellow of the Institute of Chartered +Accountants (“FCA”) in England and Wales and was the audit partner for PKF’s audits of +AremisSoft while AremisSoft was a public company. Mead had specific responsibilities for +planning, supervising, and reviewing the audit work. + + +2 Simultaneously with this proceeding, the Commission filed a settled action in which PKF and Mead, without +admitting or denying the allegations in the Commission’s complaint, consented to the entry of final judgments by +the U.S. District Court for the Southern District of New York pursuant to Section 21(d) of the Exchange Act. The +Commission’s complaint alleges that PKF violated Section 10A of the Exchange Act, and that Mead violated +Section 10A(a) of the Exchange Act. The final judgment as to PKF (1) orders PKF to pay a $2 million civil penalty; +and (2) orders PKF to pay disgorgement of audit fees of $309,048 and to pay prejudgment interest thereon of +$87,090. The final judgment as to Mead orders Mead to pay a $50,000 civil penalty. + +3 The findings herein are made pursuant to Respondents’ Offers and are not binding on any other person or entity in +this or any other proceeding. + +4 On May 23, 2005, PKF converted to PKF (UK) LLP, a limited liability partnership. For purposes of this order +PKF will refer to PKF and PKF (UK) LLP. + - 2 - +3. Barnsdall, age 44, is an audit partner of PKF. He was the concurring partner on +PKF’s audit of AremisSoft’s fiscal year 2000 financial statements. Barnsdall is an Associate of +the Institute of Chartered Accountants (“ACA”) in England and Wales. + +B. OTHER RELEVANT PARTIES + +1. Savvides & Partners/PKF Cyprus (“PKF Cyprus”) is an accounting firm with +offices in Limassol, Cyprus and Nicosia, Cyprus. It is a member of PKF International Ltd. PKF +Cyprus performed audit work on several AremisSoft subsidiaries during the year 2000 audit of +AremisSoft. + +2. Pavlos Meletiou (“Meletiou”) was a partner of PKF Cyprus while AremisSoft +was a public company. Meletiou was responsible for the audits and reviews of the AremisSoft +subsidiaries that PKF Cyprus conducted. He was a certified accountant in Cyprus until his +license was revoked by the Institute of Certified Public Accountants of Cyprus (“ICPAC”) in +June 2005 for, among other things, failing to comply with independence rules and failing to +submit correct information to the ICPAC. + +3. AremisSoft Corporation, a Delaware corporation headquartered in London, was +an international software company with offices in New Jersey, London, Cyprus, and India. +AremisSoft became a public company in April 1999 through an initial public offering of 3.3 +million shares. Until trading in AremisSoft stock was halted on July 30, 2001, its shares +(symbol: AREM) traded on the Nasdaq National Market System. On August 29, 2001, Nasdaq +delisted AremisSoft’s common stock from the Nasdaq system. In a settlement with the +Commission, AremisSoft consented to a judgment enjoining it from violating the antifraud and +reporting provisions of the federal securities laws. The judgment, entered on July 22, 2002, +binds AremisSoft’s successor, Softbrands, Inc. In the settlement, AremisSoft consented to the +issuance of a Commission Order revoking the registration of its common stock. The +Commission’s Revocation Order was issued on July 31, 2002. AremisSoft’s fiscal year ended on +December 31. + +C. FACTS + +1. Summary of Fraud at AremisSoft + +AremisSoft went public in April 1999, and reported revenues of $52.6 million for 1998, +$73.4 million for 1999, and $123.6 million for 2000. In November 2000, AremisSoft had a +market capitalization of more than $1 billion. Eight months later, the company failed to file its +second quarter 2001 Form 10-Q with the Commission. Shortly thereafter, as part of an internal +investigation, PKF conducted a special forensic review, which found that AremisSoft could not +confirm receipt of $5.4 million in revenues on its most significant contract. Thereafter +AremisSoft announced that it could not substantiate approximately $90 million of the revenues +the company reported in 2000. On March 15, 2002 AremisSoft filed for bankruptcy. + +AremisSoft and its co-chairmen and co-CEOs Roys Poyiadjis (“Poyiadjis”) and +Lycourgos Kyprianou (“Kyprianou”) (sued by the Commission in SEC v. AremisSoft + - 3 - +Corporation, Roys Poyiadjis, Lycourgos Kyprianou, et al., Civil Action No. 01 CV 8903 +[S.D.N.Y.]) engaged in a number of fraudulent practices to make it appear as if AremisSoft was +a sprawling international software company with accelerating sales growth. AremisSoft booked +fictitious sales and accounts receivable and overstated earnings in two Cyprus-based subsidiaries, +AremisSoft (EE.ME.A.) Ltd. (“EEM”) and L.K. Global Information Systems B.V. (“LK +Global”). In its 2000 Form 10-K, AremisSoft reported that $97.5 million of its $123.6 million in +revenues (nearly 80%) came from these two Cyprus-based subsidiaries, when, in fact, together, +the two subsidiaries had just $1.7 million in revenues for the year. + +To hide its revenue and earnings shortfall in EEM and LK Global, AremisSoft reported +acquisitions at inflated prices, making it seem as if cash AremisSoft collected from customers +was used to purchase companies. In December 1999, AremisSoft announced that it had acquired +a company called e-nnovations.com for $14.5 million in cash. In its 2000 Form 10-K, +AremisSoft reported that it had acquired two companies in December 2000, e-ChaRM Pvt Ltd. +(“e-ChaRM”), for cash of $10.9 million and Denon International Ltd. (“Denon”), for cash of +$7.34 million. In September 2001, AremisSoft acknowledged in a press release that the three +acquisitions had been reported at amounts not substantiated by information developed in the +internal investigation. Rather than the $7.34 million to $14.5 million purchase prices reported, +the actual prices paid ranged from approximately $200,000 to $400,000. + +AremisSoft also grossly misstated its cash balance as of December 31, 2000. AremisSoft +claimed to have $33.33 million in cash, but $9.98 million of that cash was actually in +Kyprianou’s personal bank account and $10.7 million of it was received by AremisSoft in mid- +January 2001. Accordingly, AremisSoft should have reported no more than $12.65 million of +cash at December 31, 2000, and should have reported a $10.7 million reduction in stockholders’ +equity. +2. PKF’s Involvement with AremisSoft +At the time of the 2000 audit, PKF had been AremisSoft’s outside auditor for a number +of years, including the period before AremisSoft’s initial public offering in April 1999. PKF +audited AremisSoft’s annual financial statements and, beginning in 2000, conducted reviews of +its quarterly financial statements.5 AremisSoft was PKF’s only client to file with the +Commission. +PKF used the work and reports of other auditing firms to report on AremisSoft’s 2000 +consolidated financial statements. One of the firms, PKF Cyprus, a Cyprus-based accounting +firm, issued unqualified audit reports on EEM and LK Global. Meletiou, a PKF Cyprus partner, +signed or directed the issuance of the audit reports for PKF Cyprus. PKF assumed complete +responsibility under generally accepted auditing standards (“GAAS”) for the work of the other +auditing firms during the 2000 audit and did not refer to the work of other auditors in its audit +report or in AremisSoft’s 2000 filing with the Commission.6 + +5 PKF also reviewed AremisSoft’s financial statements as of and for the three months ended March 31, 2001, filed +with the Commission on May 15, 2001. + +6 GAAS require that an audit “report should contain a clear-cut indication of the auditor’s work, if any, and the +degree of responsibility the auditor is taking.” See AICPA, CODIFICATION OF STATEMENTS ON AUDITING +STANDARDS (“AU”) 150.02. PKF could have referred to the work done by PKF Cyprus and the other audit firms + - 4 - + +On March 22, 2001, PKF issued an unqualified audit report on AremisSoft’s 2000 +financial statements, which stated that PKF had conducted its audits in accordance with GAAS +and that AremisSoft’s financial statements presented AremisSoft’s consolidated financial +position fairly, in conformity with generally accepted accounting principles (“GAAP”). The +unqualified audit report was filed with the Commission as part of AremisSoft’s Form 10-K for +2000. + +Contrary to the representations in PKF’s audit report, AremisSoft’s 2000 financial +statements did not conform to GAAP and the audit was not conducted in accordance with GAAS +in effect at the time of the audit.7 On December 7, 2001, PKF advised AremisSoft that its audit +reports “must no longer be associated with [AremisSoft’s financial] statements and that such +auditors’ reports should no longer be relied on.” +3. PKF and Mead Engaged in Improper Professional Conduct + +With respect to accountants, Rule 102(e)(1) provides that “improper professional +conduct” includes “highly unreasonable conduct that results in a violation of applicable +professional standards in circumstances in which an accountant knows, or should know, that +heightened scrutiny is warranted.” PKF and Mead engaged in improper professional conduct in +connection with the audit of AremisSoft’s 2000 financial statements. PKF and Mead engaged in +highly unreasonable conduct that resulted in repeated violations of applicable professional +standards in circumstances in which PKF and Mead knew or should have known warranted +heightened scrutiny. + +(a) Failure to Adequately Staff the Audit +Under GAAS (AU 150.02), audits are required to be performed by a person or persons +having adequate technical training and proficiency as an auditor. The auditor having ultimate +authority for the audit should “know, at a minimum, the relevant professional accounting and +auditing standards and should be knowledgeable about the client.” The auditor “with final +responsibility is responsible for the assignment of tasks to, and supervision of, assistants.” (AU +230.06). + Partners and staff assigned to the AremisSoft audit had little, if any, experience in GAAS +or GAAP. Neither the audit partner, Mead, nor the concurring partner on the 2000 audit, +Barnsdall, had significant training or experience in GAAS or GAAP. The PKF staff person with +the most significant involvement with the 2000 audits of EEM and LK Global had limited +familiarity with GAAS or GAAP and no training in conducting audits of U.S. companies. +Likewise, PKF Cyprus had little knowledge of GAAS or GAAP or experience in conducting +U.S. company audits. Meletiou also had no significant training or experience in conducting + +in the audit report, thereby sharing audit responsibility with them. If a principal auditor refers to the work of another +auditor, the report is expanded to indicate the division of responsibility and magnitude of the portion of the financial +statements audited by the other auditor (AU 543, Part of Audit Performed by Other Independent Auditors). By not +referring to the work of PKF Cyprus or other accounting firms involved in the audit, PKF took full responsibility for +their work. + +7 In this order, GAAP and GAAS refer to U.S. GAAP and U.S. GAAS, respectively. + - 5 - +audits under GAAS or GAAP. PKF did not comply with GAAS, notwithstanding that a director +of another PKF International member firm in the United States provided certain advice +concerning GAAS and GAAP to PKF during its 2000 audit engagement in his role as filing +reviewer. The filing reviewer, however, was not aware of the nature and extent of the warning +signs, nor was he involved in all audit matters. + +(b) Failure to Obtain Sufficient Competent Evidential Matter +GAAS requires that an audit of the financial statements be planned and performed “to +obtain reasonable assurance about whether the financial statements are free of material +misstatement, whether caused by error or fraud.” (AU 316.01). Auditors must consider potential +fraud factors when planning and performing the audit. GAAS states that the “assessment of the +risk of material misstatement due to fraud is a cumulative process” and one that should be +ongoing throughout the audit. (See AU 316). Auditors must obtain sufficient competent +evidence to afford a basis for an opinion regarding the financial statements under audit. (AU +326.01). The validity and sufficiency of required evidence depends on the circumstances and the +auditors' judgment, but should be “persuasive” though it need not be “convincing.” (AU 326.02 +& .21-.23). With respect to such judgment, an auditor must maintain an attitude of professional +skepticism and assess the risk that errors and irregularities may cause the financial statements to +contain a material misstatement. (AU 316.13). An assessment of higher risk may cause the +auditor to expand the extent of procedures applied or modify the nature and/or the timing of +procedures to obtain more persuasive evidence. +PKF and Mead failed to comply with these requirements and failed to exercise the +required heightened degree of professional skepticism or to obtain sufficient competent +evidential matter concerning AremisSoft’s financial statements -- even after being confronted +with numerous warning signs before and during the performance of the audit that should have +alerted PKF and Mead to the possibility that AremisSoft’s financial statements were materially +misstated. +Anonymous Letter, Suspicious Contracts, and CFO Resignation + +PKF had been AremisSoft’s auditor until May 15, 1998, when the London office of a +“Big Four” accounting firm was engaged to audit AremisSoft’s financial statements in +connection with AremisSoft’s registration statement (Form S-1) filed with the Commission on +July 1, 1998.8 On July 14, 1998, the Big Four accounting firm received a copy of an anonymous +letter addressed to the SEC. According to the letter: + +AremisSoft wants to register statements to sell shares on the United +States Nasdaq exchange. These statements will contain fraudulent +information about revenue ... for large [sales] of management services +and contracts. The chairman and managing directors and [lawyers] in +the United Kingdom are [recording revenue] from some former +directors, some customers, some not, to issue purchase notes of one +million dollars or greater each for services to be provided .... This +done to make future look good for sells [sic] of shares. + +8 This registration statement never went effective. + - 6 - + +Review accounts and you will locate. + +When the Big Four firm reviewed AremisSoft’s draft financial statements for the six months +ended June 30, 1998, it found that the financial statements included revenue from three contracts +for more than $1 million each. The contracts were purportedly being performed in AremisSoft’s +Indian office (which had no significant previous sales), and the customers were allegedly in +Czechoslovakia and Croatia (where the company had not previously done business). The Big +Four firm immediately requested full details of the contracts, including agreements and customer +correspondence, and consulted the underwriters; they had no knowledge of the contracts, despite +having been provided a list of AremisSoft’s work in the pipeline just four months earlier. +Based on this information, the Big Four firm undertook an investigation into the three +contracts, which uncovered numerous irregularities, including: (1) all negotiations with +customers on the contracts were undertaken by Kyprianou and communications were claimed to +have been by e-mail, no copies of which were maintained; (2) copies of the contracts were held +in Kyprianou’s private office in Cyprus rather than the corporate offices in London; (3) all +information relating to the contracts was in India; (4) no cash was received from the customers; +(5) no payments were made to the consultants performing sub-contracting work on the contracts; +and (6) the customer addresses appeared to be small offices rather than industrial concerns. +Moreover, staff from one of the Big Four firm’s Indian offices raised doubts as to whether the +main subcontractor on the contracts was capable of performing the contract work. +As a result of its review, the Big Four firm concluded that AremisSoft’s “percentage of +completion” method of revenue recognition for the three contracts was improper. Rather, it +determined, the “completed contract” method should be used, resulting in deletion of all revenue +and gross profit related to the purported contracts from AremisSoft’s income statement and +deferred recognition until the contracts were completed and the related fees collected. +AremisSoft agreed to the change. +On October 9, 1998, the Big Four firm received a telefax from AremisSoft’s then chief +financial officer (“CFO”), complaining of his inability to get “access to … financial records” to +“ensure that the [financial statements] are objective, true and fair.” The CFO expressed concern +about Kyprianou’s “significant involvement and influence in the preparation of the [financial +statements].” In a telephone conversation with the Big Four firm audit partner, the CFO denied +having any knowledge of the three contracts prior to April 1998. + +On October 15, 1998, representatives from the Big Four firm met with Poyiadjis, +Kyprianou, AremisSoft’s then CFO, and others, to discuss the CFO’s allegations and the +accounting for the three contracts. Also attending the meeting and introduced as a prospective +director of AremisSoft was a corporate finance partner from PKF, who, according to +AremisSoft’s year 2000 Form 10-K, was then PKF’s head of the United Kingdom and European +mergers and acquisition group. There were heated exchanges concerning the contracts at the +meeting. The PKF corporate finance partner stated that the Big Four firm was unable to verify +the contracts because it did not understand AremisSoft’s business, and suggested that AremisSoft +re-engage PKF to perform the audit work. +Shortly thereafter, AremisSoft’s CFO resigned and Poyiadjis assumed the CFO duties. In +November 1998, the “Big Four” firm was informed that AremisSoft had made a decision to + - 7 - +re-appoint PKF as its independent auditor and the engagement of the “Big Four” firm was +discontinued as of December 16, 1998. PKF was then re-engaged as AremisSoft’s independent +auditor. The PKF corporate finance partner who attended the October 15 meeting became the +relationship partner and Mead became the audit partner on the AremisSoft audit engagement. +On or about this time, PKF obtained copies of the anonymous letter and the October 9 telefax +from AremisSoft’s CFO. +AremisSoft’s financial statements eventually filed in connection with its initial public +offering in April 1999 included the revenues and gross profit from the three large contracts, and +employed the percentage of completion method. These financial statements were audited by +PKF. AremisSoft continued to use that method throughout its existence as a public company. +The three large contracts were shams. AremisSoft never performed any services related +to the contracts and never collected any revenues from the purported customers. +AremisSoft’s Inadequate Accounting Staff +and Questionable Revenue Recognition + + In its 1999 management letter, issued in March 2000, PKF expressed concern that +AremisSoft’s internal “accounting function [relied] very heavily on its [outside] professional +advisers in connection with US reporting and disclosure requirements.” On May 2, 2000, the +Chairman of AremisSoft’s audit committee recommended in a memorandum to Kyprianou and +Poyiadjis -- forwarded to PKF’s Mead -- that AremisSoft hire a “senior financial person,” citing +a “few close calls with respect to our financial reporting,” which had been brought to the audit +committee’s attention. But in PKF’s 2000 audit checklist entitled “Consideration of Fraud and +Error,” the question whether there was “significant or prolonged under-staffing of [AremisSoft’s] +accounting department” was answered in the negative. + During PKF’s interim work during 2000, PKF saw additional warning signs that should +have further heightened concern about AremisSoft’s accounting. During PKF’s quarterly review +of AremisSoft’s June 30, 2000 financial statements, a PKF staff accountant wrote that an +AremisSoft employee had told him about “a potential cut-off problem,” i.e., improper delay of +revenue. The staff accountant’s notes say “the June 2000 quarter accounted for a large element +that should have been booked in the first quarter of the year.” + PKF and Mead did not appropriately consider how these risk factors affected the audit, +nor revise the audit plan, nor took any additional steps to gain an understanding of AremisSoft’s +operations sufficient to detect the ongoing fraud. +9 + +9 In addition, in December 2000, the filing reviewer from a PKF-member firm in the United States cautioned PKF +staff and Mead about potential improper revenue acceleration by AremisSoft in one of its UK divisions. In an e- +mail, he wrote: +It seems that [AremisSoft is] trying hard to recognize more revenue in the year +2000. My suggestion is that you include in your audit procedures additional +steps to ensure that revenue is being properly recorded. +PKF staff forwarded this e-mail to the PKF manager on the engagement, adding: “This came in from [the PKF +International Ltd. member firm director] last week—he seems quite concerned!” While PKF addressed this issue in +the context of its audit of the AremisSoft UK division, it never considered how this information affected other +AremisSoft divisions or the overall audit. + - 8 - +Warning Signs in Cyprus + Though AremisSoft’s Cyprus-run operations re presented just a fraction of its business +before it went public, they accounted for nearly 80% of AremisSoft’s revenues and over 50% of +its assets by the time of the 2000 audit. Accordingly, and because PKF took responsibility for +the entire audit, Mead assigned a PKF accountant to Cyprus in late January 2001 to work with +Meletiou, the PKF Cyprus partner, on the Cyprus-based subsidiaries. But that staff accountant +was relatively junior and had no training or background in GAAP or GAAS. +Although AremisSoft’s CEO and CFO had offices in Cyprus and EEM and LK Global +were both headquartered there, the staff accountant learned upon his arrival in Cyprus that the +contracts and accounting records for both subsidiaries were actually in India, not Cyprus. This +made it impossible for the staff accountant to conduct substantive revenue testing in Cyprus, +although the staff accountant did prepare audit work programs for Meletiou to use in performing +the audit. The staff accountant notes show that he told Mead that documents necessary for +testing were unavailable and alerted him to “shortcomings of the audits being performed, +particularly the lack of documented testing, and address [sic] of fundamental issues such as +debtor recoverability, cut-off testing, systems understanding, and post balance sheet event +reviews.” His notes also reflect that, when he advised Meletiou about his concerns, especially +the limited audit testing, Meletiou “suggested that the testing be carried out after the audit, i.e., +April/May 2001!!!” The staff accountant telephoned Mead regarding his conversation with +Meletiou. + In early February 2001, the staff accountant retu rned with Mead to Cyprus to conduct the +audit work he was previously unable to perform, including a review of previously unavailable +documents. But no one from PKF ever reviewed any cash receipts related to purported contracts. +Instead, PKF limited its testing based on its reliance on AremisSoft’s internal control system. +After the second trip to Cyprus, Mead sent a telefax to Meletiou enumerating a number of +outstanding steps required to be completed prior to the audit close and emphasizing that Meletiou +needed to travel to India to conduct audit tests on AremisSoft’s internal controls. Meletiou +agreed he or someone on his staff would go to India for the systems testing, but no one from PKF +determined whether such testing ever occurred. +Account Managers in 2000 + +PKF and Mead learned for the first time, during the January 2001 trip to Cyprus, that +neither EEM nor LK Global had any regular contact with their customers. Rather, since 2000, +both had purportedly used third party contractors -- called “account managers” -- to bill +customers, collect funds due, and remit the difference net of expenses to AremisSoft, making +“periodic reports” of gross sales and expenses for incorporation in AremisSoft’s books and +records. The EEM and LK Global general ledgers reflect that neither subsidiary recorded +accounts receivable by customer; both relied only on reports of the account managers. +Despite the account managers’ obvious importance to AremisSoft and their role as sole +source for EEM and LK Global sales and expense data, neither PKF nor Mead ever (a) +developed any audit procedures to examine transactions with the account managers; (b) reviewed +payments from account managers; (c) communicated with account managers; (d) saw any of the +“periodic reports;” (e) took any steps to audit transactions between AremisSoft and the account +managers or between the account managers and AremisSoft’s customers; or (f) designed any + - 9 - +procedures to test AremisSoft’s progress on contracts. Instead PKF and Mead relied solely on +AremisSoft’s representations with respect to the sham contracts and the review of the PKF +Cyprus audit files, which included false documentation. +EEM and LK Global Audit File Deficiencies +On March 9, 2001, Meletiou brought the EEM and LK Global audit files to PKF’s +London office. Mead spent five hours reviewing the EEM audit files and assigned a second PKF +partner, who had no knowledge of AremisSoft, to review the LK Global audit files.10 + Mead found numerous problems in the EEM a udit file, including serious deficiencies in +two significant audit areas -- cash and accounts receivable. Mead’s notes show the workpapers +included only copies, not originals, of cash confirmations, and both cash and accounts receivable +confirmations were “apparently not received directly by PKF [Cyprus].” Moreover, +confirmations of deposits and payables purportedly from numerous different customers and +vendors were “poor copies,” not originals, and inventory confirmations were provided by +AremisSoft management rather than third parties. +The second PKF partner found multiple problems in the LK Global audit file including +similar problems with cash and accounts receivable. His three page hand-written notes to Mead +noted that: +• LK Global had no bank account; + +• The file contained copies of accounts receivable confirmations, not +originals; + +• The file contained no evidence of how accounts receivable confirmations +were carried out; + +• The file contained no evidence of an overall analytical review; + +• The file contained no evidence of audit planning, an adopted audit +approach, or a risk assessment; + +• The file contained no evidence of a review of internal controls; + +• The file included no evidence of a subsequent events review; and + +• There was no engagement letter in the file. + +Late that same night, the second PKF partner wrote Mead an e-mail from his home computer that +concluded: + +10 Approximately two and one-half weeks earlier, on February 20, 2001, AremisSoft’s audit committee held a +telephone conference call concerning its earnings release for the 2000 year. PKF participated in the call and +expressed no objection to the release. The next day, February 21, AremisSoft issued its year 2000 earnings release. + + - 10 - +I suppose I am nervous about the fact that we have a company +generating $20 million + [sales] and quite significant profits, all of +it being on paper with no evidence of any cash – it just seems +suspicious. The more I think about it, the more unusual the whole +thing seems and I think we need convincing explanations before +sign off. +On March 20, 2001, Mead received an e-mail from Meletiou asserting that “[a]ll outstanding +points that should be dealt with before signing the report have been completed except the +management letter which is under preparation.” But no one from PKF ever collected any +documents or other evidence to support Meletiou’s contention. +EEM and LK Global General Ledger Irregularities +The EEM and LK Global general ledgers included in PKF’s files showed obvious +irregularities. Most of the ledger entries simply reflect assets netted against liabilities to +eliminate account balances. All of the entries appear to have been created at the same time -- +after AremisSoft’s year-end. Moreover, the ledgers reflected cash receipts of only $4.3 million +for the entire year, even though EEM and LK Global reported more than $97 million in +combined sales that year. +Questionable AremisSoft Acquisitions +AremisSoft reported in its 1999 and 2000 Forms 10-K that it paid over $32 million in +cash to acquire three companies -- e-nnovations.com., e-ChaRM, and Denon. However, PKF +and Mead failed to examine any documents purportedly evidencing the payments. Had PKF or +Mead matched the transactions to payment documents, it would have been discovered that, rather +than the $7 to $14.5 million purchase prices reportedly paid for these companies, the actual +prices ranged from approximately $200,000 to $400,000. +Inadequate Third Party Confirmations +At no time during its audit did PKF or Mead obtain original accounts receivable or cash +confirmations, verify that the confirmations had been sent directly to PKF Cyprus or PKF, or +review subsequent cash receipts to corroborate that the receivables in fact existed. No one from +PKF reviewed accounts receivable remittance advices or attempted to contact any of +AremisSoft’s purported customers. Had PKF or Mead taken any of these steps, they would have +learned that the accounts receivable and associated revenues were fraudulent. And while the +PKF Cyprus audit workpapers reviewed by PKF included confirmations from LK Global +creditors, in what should have been an obvious irregularity that should have warranted +heightened scrutiny, all creditors confirmed that they owed money to LK Global rather than the +other way around. + The accounts receivable confirmations in th e PKF Cyprus audit workpapers reviewed by +PKF and Mead evidence additional irregularities that should have warranted heightened scrutiny. +None are originals; many have identical or similar handwriting; and, according to the dates +printed on the top of each, eight of seventeen were returned on the same two dates -- February 2 +or February 5, 2001. The accounts receivable confirmations also were addressed to customers of +AremisSoft rather than to account managers -- despite the company’s claim that the account +managers, not the end users, were indebted to AremisSoft. + - 11 - + PKF and Mead understood from the PKF Cyprus audit files that EEM maintained a Swiss +bank account containing $9.98 million of AremisSoft’s cash (nearly 30% of total cash) on +December 31, but PKF and Mead did not obtain satisfactory audit evidence concerning the bank +account that was included as cash on AremisSoft’s consolidated financial statements. The +unnumbered Swiss bank account, which nowhere appears on EEM’s ledger until December 23, +2000, suddenly materialized immediately before AremisSoft’s year end. The only evidence +obtained by either PKF Cyprus or PKF from third parties related to the account is an irregular +confirmation letter to Meletiou from a Swiss bank dated March 20, 2001 -- the same day as +PKF’s audit report -- which states, without explanation, that “since 29th of December 2000, we +hold an amount of $9.980.000 blocked in favor of [EEM].” AremisSoft had no such account at +any time during or before 2000. But Kyprianou did have bank accounts at the Swiss bank. +Kyprianou deposited proceeds of his AremisSoft stock sales in those accounts. + Finally, neither PKF nor Mead obtained cash confirmations for AremisSoft’s cash held at +U.S. banks at December 31, 2000, even though the company reported $10.7 million in a U.S. +bank as of that date. But the $10.7 million was not in a U.S. bank account as of December 31, +2000. PKF’s workpapers show that the money was due to AremisSoft from Kyprianou and +Poyiadjis stock options exercises in mid-December 2000. PKF and Mead accepted the treatment +of these funds as cash “in transit” as of December 31. But the cash was not transferred from +Poyiadjis’ Swiss bank accounts until mid-January. Therefore those funds should not have been +included in AremisSoft’s cash balance at December 31, 2000. +(c) Failure to Obtain Sufficient Understanding of Internal Controls +PKF and Mead failed to comply with GAAS (AU 150.02), which requires an auditor to +obtain a sufficient understanding of a company’s system of internal controls to plan the audit and +determine the nature, extent, and timing of testing to be performed. +PKF and Mead relied on AremisSoft’s system of internal controls to limit substantive +testing of revenue reported by EEM and LK Global but neither obtained a sufficient +understanding of the internal controls for these subsidiaries. PKF and Mead did not obtain +evidence that the accounting systems in India existed or were tested by Meletiou, or travel to +India to test the systems. + +(d) Failure to Properly Plan the Audit + +GAAS requires that the auditor plan the audit “to obtain reasonable assurance about +whether the financial statements are free of material misstatement, whether caused by error or +fraud.” (AU 316.01). In planning, the auditor must assess the risk of material misstatement due +to fraud or error, which includes consideration of “conditions that may require extension or +modification of audit tests, such as the risk of material errors or irregularities or the existence of +related party transactions.” (AU 311.03; see also AU 316A (“Consideration of Fraud in a +Financial Statement Audit”)). In addition, the risk assessment process should “be ongoing +throughout the audit” and should consider whether the “nature of audit procedures performed +may need to be changed to obtain evidence that is more reliable or to obtain additional +corroborative information.” (AU 316.28). Contrary to GAAS, PKF and Mead failed to +adequately plan the 2000 audit after learning of numerous facts that, either standing alone or in +the context of other facts learned prior to the audit, warranted heightened scrutiny that should + - 12 - +have alerted them to the possibility that AremisSoft’s financial statements might be misstated +due to fraud. + +In December 1998, PKF concluded that Kyprianou’s control and influence was a +“general risk factor.” However, neither PKF nor Mead considered this factor in planning the +2000 audit and did not design or implement any audit procedures in consideration of +Kyprianou’s control in its audit of AremisSoft’s year 2000 financial statements. + +GAAS requires a specific substantive risk assessment and consideration of “that +assessment in designing the audit procedures to be performed.” (AU 312 & 316). But PKF and +Mead never undertook a substantive risk analysis in planning the 2000 audit; the audit planning +was perfunctory at best. PKF and Mead merely used standard checklist work programs that were +not modified to account for AremisSoft’s high risk environment. Despite being presented with +numerous warning signs during its audit, PKF and Mead failed to design audit procedures to test +AremisSoft’s revenues, accounts receivable, and cash accounts more extensively than originally +planned or to heighten the scrutiny in the audit of the Cyprus subsidiaries. Moreover, despite +numerous warning signs, PKF and Mead failed to reassess whether the “nature of audit +procedures performed [needed] to be changed to obtain evidence that is more reliable or to +obtain additional corroborative information.” (AU 316.52). + +(e) Failure to Exercise Due Professional Care and Professional +Skepticism + + GAAS requires that auditors exercise due prof essional care in performing an audit and in +preparing the audit report. (AU 230.01). Due professional care requires that the auditor exercise +professional skepticism in performing audit and review procedures and gathering and analyzing +audit evidence. (AU 230.07-.08). “In exercising professional skepticism, the auditor should not +be satisfied with less than persuasive evidence because of a belief that management is honest.” +(AU 230.09). Exercise of professional skepticism requires auditors to demonstrate a questioning +mind and to critically assess audit evidence. (AU 230; see also AU 316.13). + +For all the reasons stated in the paragraphs above, PKF and Mead acted unreasonably in +failing to exercise due professional care and professional skepticism in violation of this standard. + +(f) Failure to Issue Accurate Audit Reports + GAAS requires that the auditor’s report cont ain an opinion on the financial statements +taken as a whole and contain a clear indication of the character of the auditor’s work. (AU +508.04). The auditor can determine that he is able to issue an audit report containing an +unqualified opinion only if he has conducted his audit in accordance with GAAS and the +financial statements comply with GAAP. (AU 508.07 & .22). + In auditing AremisSoft’s financial statem ents, PKF and Mead acted unreasonably in +rendering audit reports containing unqualified opinions. Mead signed and transmitted to +AremisSoft's counsel PKF’s audit report on AremisSoft’s year 2000 financial statements before +Barnsdall conducted his concurring partner review. PKF partners and employees knew or should +have known that AremisSoft’s financial statements did not comply with GAAP and that PKF and +Mead did not conduct the audits in accordance with GAAS. Nevertheless, PKF and Mead issued + - 13 - +audit reports containing unqualified opinions that falsely stated that AremisSoft’s financial +statements conformed to GAAP and that they had conducted the audits in accordance with +GAAS. + +4. Barnsdall Engaged in Improper Professional Conduct + +With respect to accountants, Rule 102(e)(1) provides that “improper professional +conduct” includes “repeated instances of unreasonable conduct, each resulting in a violation of +applicable professional standards, that indicate a lack of competence to practice before the +Commission.” Barnsdall engaged in improper professional conduct. His conduct was +unreasonable and resulted in violations of applicable professional standards. + +As recited above at paragraph 3(e), AU 230.01, 230.07-.09, and 316.13, require auditors +to exercise due professional care and maintain an attitude of professional skepticism, rely solely +on persuasive audit evidence, demonstrate a questioning mind, and critically assess audit +evidence. GAAS also requires that auditors obtain sufficient competent evidential matter +through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an +audit opinion. (AU 326.01) + + Barnsdall was the concurring partner on PKF’s audit of AremisSoft’s year 2000 financial +statements but did not participate in PKF’s pre-2000 audits of AremisSoft. He was required, as +concurring partner, to be sufficiently involved in the review of the audit to reach informed +conclusions regarding the quality and sufficiency of the audit procedures performed. Barnsdall +conducted his concurring partner review the day after Mead signed and transmitted to +AremisSoft's counsel PKF’s audit report for inclusion in AremisSoft’s year 2000 Form 10-K. +But he backdated his sign-off to the date of the audit report. He did not, indeed could not, review +the EEM and LK Global files because they had already been returned to Cyprus by the time of +his file review. And although he reviewed the lists of notes prepared by Mead and the PKF +partner who reviewed the LK Global audit files, he did not sufficiently follow up to ensure that +the issues raised in those reviews were resolved. In fact, certain of the most significant issues +were not resolved. Barnsdall acted unreasonably in failing to exercise due professional care and +to maintain an attitude of professional skepticism, and to assure that the audit workpapers +evidenced that sufficient competent evidential matter had been obtained to support the audit +report, in violation of these standards. + +D. LEGAL ANALYSIS + + Section 17(a)(2) of the Secu rities Act prohibits obtaining money or property by means of +untrue statements of material fact or misleading omissions of material fact in the offer or sale of +securities. Section 17(a)(3) prohibits engaging in transactions, practices or courses of business +which operate or would operate as a fraud or deceit upon the purchaser in the offer or sale of +securities. Information is material where there is a substantial likelihood that a reasonable +investor would consider the information important in making an investment decision. Basic, Inc. +v. Levinson, 485 U.S. 224, 231-32 (1988). Establishing violations of Sections 17(a)(2) and +17(a)(3) does not require a showing of scienter. Aaron v. SEC, 446 U.S. 680, 697 (1980). + + - 14 - +Section 13(a) of the Exchange Act and Rule 13a-1 thereunder require all issuers with +securities registered under Section 12 of the Exchange Act to file annual reports. Exchange Act +Rule 12b-20 requires an issuer to provide any additional information in the reports necessary to +make the reports not misleading. The obligation to file these periodic reports includes the +requirement that they be complete and accurate in all material respects. See, e.g., United States +v. Bilzerian, 926 F.2d 1285, 1298 (2d Cir. 1991); SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 +(D.C. Cir. 1978). No showing of scienter is necessary to establish a violation of Section 13(a) of +the Exchange Act and Rules 13a-1 and 12b-20. See Savoy Indus., Inc., 587 F.2d at 1167; SEC v. +Wills, 472 F. Supp. 1250, 1268 (D.D.C. 1978). + + Section 13(b)(2)(A) of the Exchange Ac t requires issuers to “make and keep books, +records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions +and dispositions of the assets of the issuer.” Section 13(b)(2)(B) requires issuers to devise and +maintain a system of internal accounting controls sufficient to provide reasonable assurance that +transactions are recorded as necessary to permit the preparation of financial statements in +conformity with GAAP and to maintain the accountability of assets. No showing of scienter is +necessary to establish a violation of Sections 13(b)(2)(A) or 13(b)(2)(B). See SEC v. McNulty, +137 F.3d 732, 740-741 (2d Cir. 1998); SEC v. World-Wide Coin Investments, Ltd., 567 F. Supp. +724, 749-51 (N.D. Ga. 1983). + +Rule 13b2-1 of the Exchange Act prohibits any person from directly or indirectly +falsifying, or causing to be falsified, any book, record or account subject to Section 13(b)(2)(A). +Scienter is not an element of a violation of Rule 13b2-1. McNulty, 137 F.3d at 740-741. + +AremisSoft violated each of these provisions of the federal securities laws by, among +other things, including false and misleading financial statements and information in its 2000 +report filed with the Commission and in registration statements that incorporated that report and +financial information. + +PKF’s failure to comply with GAAS was a “cause of”11 AremisSoft’s violations. +Likewise, Mead’s failure to comply with GAAS was a “cause of” AremisSoft’s violations. PKF +issued an audit report signed by Mead containing an unqualified opinion stating that PKF had +conducted its audit of AremisSoft’s financial statements in accordance with GAAS, that +AremisSoft’s financial statements were consistent with GAAP, and that AremisSoft’s reported +results fairly represented its financial condition and results of operation. Mead consented on +behalf of PKF to the inclusion of this audit report in AremisSoft’s annual report on Form 10-K +and in registration statements filed or in effect for that period. However, the audit report was +misleading because PKF and Mead failed to conduct the audit in accordance with GAAS. PKF +and Mead knew or should have known that AremisSoft’s reported financial results did not fairly +present the company’s financial condition or its results of operations. + + +11 As described in this Order, the standard for liability as “a cause of” a violation under Section 21C of the +Exchange Act is negligence. See KMPG LLP v. SEC, 289 F.3d 109, 112 (D.C. Cir. 2002). In this instance, PKF and +Mead engaged in an act or omission that they knew or should have known would contribute to the primary violation. +See Section 8A(a) of the Securities Act; Section 21C(a) of the Exchange Act. + - 15 - +In auditing AremisSoft, PKF and Mead failed to exercise due professional care and +skepticism, failed to obtain sufficient competent evidential matter, failed to properly plan or +expand the procedures in the face of risk of material misstatement of the financial statements +including risk due to fraudulent accounting. + +Despite these accounting and auditing failures, and in further violation of GAAS, PKF +did not issue a qualified or adverse audit report, or disclaim an ability to express any opinion at +all, but instead issued an unqualified audit report signed by Mead on AremisSoft’s 2000 financial +statements. Accordingly, PKF’s failure to comply with GAAS was a cause of AremisSoft’s +violations of Section 17(a)(2) and (3) of the Securities Act and Sections 13(a) and 13(b)(2)(A) +and (B) of the Exchange Act and Rules 12b-20, 13a-1, and 13b2-1 thereunder. Likewise, +Mead’s failure to comply with GAAS was a cause of AremisSoft’s violations of Section 17(a)(2) +and (3) of the Securities Act and Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act +and Rules 12b-20, 13a-1, and 13b2-1 thereunder. + +Section 10A of the Exchange Act requires each audit to include procedures designed to +provide reasonable assurance of detecting illegal acts that would have a direct and material effect +on the determination of financial statement amounts and if, in the course of conducting an audit, +the auditor becomes aware of information indicating that an illegal act had or may have occurred, +the auditor is required to investigate and notify management, the board of directors, or the audit +committee. No showing of scienter is necessary to establish a violation of Section 10A. SEC v. +Solucorp Industries, Ltd., 197 F. Supp. 2d 4 (S.D.N.Y. 2002). Mead willfully violated Section +10A(a) of the Exchange Act by failing to design appropriate audit procedures to determine +whether or not senior management of AremisSoft had committed fraud. PKF willfully +12 violated +Section 10A of the Exchange Act because during its audit PKF became aware of information +indicating that illegal acts had or may have occurred but did not bring that information to the +attention of AremisSoft’s management, its board of directors, or its audit committee. + +E. FINDINGS + +Based on the foregoing, the Commission finds that: + +1. PKF willfully violated Section 10A of the Exchange Act and was a cause of +AremisSoft’s violations of Sections 17(a)(2) and (3) of the Securities Act and Sections 13(a) and +13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20, 13a-1, and 13b2-1 thereunder; + +2. PKF engaged in improper professional conduct within the meaning of Rule +102(e)(1)(ii) of the Commission’s Rules of Practice in connection with PKF’s 2000 audit of +AremisSoft’s financial statements, which were included in AremisSoft’s annual report on Form +10-K and in AremisSoft registration statements filed or in effect for that period; + + +12 “Willfully” as used in this Order means intentionally committing the act that constitutes the violation. See +Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000); Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965). There is no +requirement that the actor also be aware that he or she is violating one of the Rules or Acts. + - 16 - +3. Mead willfully violated Section 10A(a) of the Exchange Act and was a cause of +AremisSoft’s violations of Sections 17(a)(2) and (3) of the Securities Act and Sections 13(a) and +13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20, 13a-1, and 13b2-1 thereunder; + +4. Mead engaged in improper professional conduct within the meaning of Rule +102(e)(1)(ii) of the Commission’s Rules of Practice in connection with PKF’s 2000 audit of +AremisSoft’s financial statements, which were included in AremisSoft’s annual report on Form +10-K and in AremisSoft registration statements filed or in effect for that period; + +5. Barnsdall engaged in improper professiona l conduct within the meaning of Rule +102(e)(1)(ii) of the Commission’s Rules of Practice in connection with PKF’s 2000 audit of +AremisSoft’s financial statements, which were included in AremisSoft’s annual report on Form +10-K and in AremisSoft registration statements filed or in effect for that period. +F. UNDERTAKINGS BY PKF +PKF (and its successor PKF (UK) LLP, a limited liability partnership) undertakes and +agrees that it will not accept any audit engagements for new Commission registrant audit clients +for a period of one year from the date of the issuance of this Order. + +PKF further undertakes to: + +1. enhance and provide training concerning the proper level of professional +skepticism of staff and partners concerning high risk clients; + +2. develop and implement enhanced audit procedures concerning the assessment and +identification of fraud risk indicators at the planning stage and throughout the +audit engagement; and + +3. require the involvement of a Quality Control and Compliance Partner in all audit +engagements of Commission registrants identified as high risk. + +In determining whether to accept PKF’s Offer, the Commission has considered these +undertakings. + +IV. + + In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondents’ Offers. + + Accordingly, IT IS HEREBY ORDERED, pur suant to Section 8A of the Securities Act +and Section 21C of the Exchange Act that: + +A. Respondent PKF shall cease and desist from committing any violations and any +future violations of Section 10A of the Exchange Act; from committing or causing any violations +and any future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act; and from + - 17 - +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 and 13a-1 thereunder. + +B. Respondent PKF is censured pursuant to Rule 102(e) of the Commission’s Rules +of Practice. + +C. Respondent Mead shall cease and desist from committing any violations and any +future violations of Section 10A(a) of the Exchange Act; from committing or causing any +violations and any future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act; and +from 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 and 13a-1 thereunder. + +D. Respondent Mead is censured pursuant to Rule 102(e) of the Commission’s Rules +of Practice. + +E. It is also Ordered, pursuant to Rule 102(e) of the Commission’s Rules of Practice +that Respondent Mead is denied the privilege of appearing or practicing before the Commission +as an accountant. + +F. Respondent Barnsdall is censured pursua nt to Rule 102(e) of the Commission’s +Rules of Practice. + +G. It is also Ordered, pursuant to Rule 102(e) of the Commission’s Rules of Practice +that Respondent Barnsdall is denied the privilege of appearing or practicing before the +Commission as an accountant. + +H. After two years from the date of this order, Respondent Barnsdall may request +that the Commission consider his reinstatement by submitting an application (attention: +Office of the Chief Accountant) to resume appearing or practicing before the Commission as: + + 1. a preparer or reviewer, or a pe rson responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that Respondent Barnsdall’s work in his practice +before the Commission will be reviewed either by the independent audit committee of the public +company for which he works or in some other acceptable manner, as long as he practices before +the Commission in this capacity; and/or + + 2. an independent accountant. Su ch an application must satisfy the +Commission that: + + (a) Respondent Barnsdall, or th e public accounting firm with which he +is associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; + + (b) Respondent Barnsdall, or th e registered public accounting firm +with which he is associated, has been inspected by the Board and that inspection did not identify + - 18 - +any criticisms of or potential defects in Respondent’s or the firm’s quality control system that +would indicate that the Respondent will not receive appropriate supervision or, if the Board has +not conducted an inspection, has received an unqualified report relating to his, or the firm’s, most +recent peer review conducted in accordance with the guidelines adopted by the former SEC +Practice Section of the American Institute of Certified Public Accountants Division for CPA +Firms or an organization providing equivalent oversight and quality control functions; + (c) Respondent Barnsdall has resolv ed all disciplinary issues with the +Board, and has complied with all terms and conditions of any sanctions imposed by the Board +(other than reinstatement by the Commission); and + + (d) Respondent Barnsdall acknowledge s his responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not limited to, all +requirements relating to registration, inspections, concurring partner reviews and quality control +standards. + +I. The Commission will consider an application by Barnsdall to resume appearing or +practicing before the Commission provided that his practicing certificate is current and he has +resolved all other disciplinary issues with the applicable United Kingdom Institute of Chartered +Accountants. However, if licensure is dependent on reinstatement by the Commission, the +Commission will consider an application on its other merits. The Commission’s review may +include consideration of, in addition to the matters referenced above, any other matters related to +Barnsdall’s character, integrity, professional conduct, or qualifications to appear of practice +before the Commission. + +By the Commission. + + + + N a n c y M . M o r r i s + S e c r e t a r y + + + - 19 - \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2410.txt b/raw/aaer/2006/AAER-2410.txt new file mode 100644 index 0000000000000000000000000000000000000000..5bc706feeb2905b3371c9dcb1028a13b436a8b22 --- /dev/null +++ b/raw/aaer/2006/AAER-2410.txt @@ -0,0 +1,1417 @@ + + + + + + + + + + + + + + + + SEC.gov | PKF and Anthony Frederick John Mead + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/498821","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + PKF and Anthony Frederick John Mead + + + + + + + + + + + + PKF and Anthony Frederick John Mead + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19652 / April 12, 2006 + + Accounting and Auditing Enforcement Release No. 2410 / April 12, 2006 + + SEC Sues UK Accounting Firm PKF and Former Partner Anthony Mead in Connection with the AremisSoft Corporation Audit + + PKF to Pay $2 Million Penalty and Disgorge Audit Fees + + Mead Barred from SEC Practice, Fined $50,000 + + Second Partner Stuart Barnsdall Censured and Barred Two Years + + SEC v. PKF and Anthony Frederick John Mead , Civil Action No. 06 CV 2853 (S.D.N.Y) + + In the Matter of PKF, Anthony Frederick John Mead, FCA, and Stuart John Barnsdall, ACA, Exchange Act Release No. 34-53633 / April 12, 2006 + + Accounting and Auditing Enforcement Release No. 2409 / April 12, 2006 + + + + The Securities and Exchange Commission today announced that it filed a civil action in the United States District Court for the Southern District of New York and a related administrative proceeding against PKF, a United Kingdom based accounting firm, and its former partner Anthony Frederick John Mead ("Mead"), as a result of the failed year 2000 audit of AremisSoft Corporation. AremisSoft, a public company traded on the Nasdaq market, went bankrupt in March 2002 after announcing it was unable to substantiate approximately $90 million of revenues it reported in 2000. Subject to Court approval and without admitting or denying the allegations in the Complaint, PKF consents to disgorge $309,048 in fees plus interest and to pay a $2 million penalty which may be distributed to harmed investors pursuant to the Sarbanes-Oxley Act of 2002. Mead consents to a $50,000 penalty. In 2005, PKF converted to PKF (UK) LLP, a limited liability partnership. + + The Complaint charges that PKF became aware of information during the 2000 AremisSoft audit indicating that illegal acts had or may have occurred but did not bring that information to the attention of AremisSoft's management, board of directors, or audit committee and that Mead failed to design appropriate audit procedures to determine whether AremisSoft senior management had committed fraud, violations of Section 10A of the Securities Exchange Act of 1934 ("Exchange Act"). + + The Commission also instituted and simultaneously settled combined administrative and Rule 102(e) proceedings against PKF, Mead, and Stuart John Barnsdall ("Barnsdall"), concurring partner on the 2000 AremisSoft audit. PKF, Mead, and Barnsdall settled without admitting or denying the findings in the Commission's order. The Commission found PKF and Mead engaged in highly unreasonable conduct in connection with the audit of AremisSoft's 2000 financial statements that resulted in repeated violations of applicable professional standards in circumstances which each knew or should have known warranted heightened scrutiny. It found Barnsdall engaged in unreasonable conduct that resulted in violations of applicable professional standards. According to the Commission's order: + + PKF issued an audit report, signed by Mead, containing an unqualified opinion stating that PKF had conducted its audit of AremisSoft's 2000 financial statements in accordance with generally accepted auditing standards ("GAAS"), and that those financial statements were consistent with generally accepted accounting principles ("GAAP"), when each knew or should have known that the financial statements did not comply with GAAP and that the audit had not been conducted in accordance with GAAS. In its 2000 Form 10-K AremisSoft reported $97.5 million of its $123.6 million total revenue came from two Cyprus-based subsidiaries when, in fact, the subsidiaries together had just $1.7 million in revenue for the year. AremisSoft also claimed $33.3 million in cash at December 31, 2000, but in fact, $9.98 million was in the bank account of one its co-CEOs and $10.7 million was not received by AremisSoft until mid-January 2001; + + During the 2000 audit, a PKF staff accountant alerted Mead to shortcomings of the audits being performed on AremisSoft's two Cyprus based subsidiaries, particularly the lack of documented testing. When the PKF accountant advised the PKF Cyprus partner, Pavlos Meletiou, about his concerns, especially the limited audit testing, Meletiou suggested that the testing be carried out after the audit; + + In his review of the audit workpapers for one of the AremisSoft Cyprus-based subsidiaries, Mead found numerous problems, including serious deficiencies in two significant audit areas: cash and accounts receivable. According to his notes, the workpapers included copies, not originals, of cash confirmations, and both cash and accounts receivable confirmations were apparently not received directly by PKF Cyprus. Moreover, inventory confirmations were provided by AremisSoft management rather than third parties. A second PKF partner found multiple problems in the audit file related to the other AremisSoft Cyprus based subsidiary including similar problems with cash and accounts receivable; + + The accounts receivable confirmations in the PKF Cyprus audit workpapers reviewed by PKF and Mead evidence additional irregularities that should have warranted heightened scrutiny. None are originals; many have identical or similar handwriting; and, according to the dates printed on the top of each, eight of seventeen were returned on the same two dates. The accounts receivable confirmations also were addressed to customers of AremisSoft rather than to account managers, despite the company's claim that account managers, not its end users, were indebted to AremisSoft; + + PKF and Mead relied on AremisSoft's system of internal controls to limit substantive testing of revenue reported by AremisSoft's two Cyprus-based subsidiaries, but neither obtained sufficient understanding of the internal controls for those subsidiaries; and + + Barnsdall conducted his concurring partner review the day after Mead signed and transmitted PKF's audit report for inclusion in AremisSoft's year 2000 Form 10-K but backdated his sign-off to the date of the audit report. + The order finds that through these actions, PKF willfully violated Section 10A of the Exchange Act and was a cause of AremisSoft's violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 ("Securities Act") and Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13b2-1 thereunder; and that Mead willfully violated Section 10A(a) of the Exchange Act and was a cause of AremisSoft's violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13b2-1 thereunder. PKF and Mead each consented to the order that they cease and desist from committing and/or causing the violations charged as well as any future violations of these provisions. + + As part of the settlement, PKF agreed to disgorge $309,048 in audit fees plus pre-judgment interest and consented to a censure and an undertaking not to accept any audit engagements for new Commission registrant clients for one year. Mead consented to a censure and permanent bar from appearing or practicing before the Commission as an accountant pursuant to Rule 102(e) of the Commission's Rules of Practice. Barnsdall consented to a censure and two year bar from appearing or practicing before the Commission as an accountant pursuant to Rule 102(e). + + The Commission acknowledges the assistance provided in this matter by the United Kingdom Financial Services Authority. + + + + + + SEC Complaint in this matter --> + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2006/AAER-2417.txt b/raw/aaer/2006/AAER-2417.txt new file mode 100644 index 0000000000000000000000000000000000000000..d42ecd5d4a2836982a2980956cba2d3bcd9e819f --- /dev/null +++ b/raw/aaer/2006/AAER-2417.txt @@ -0,0 +1,165 @@ + + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION + + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 53716 / April 25, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2417 / April 25, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12272 + + +In the Matter of + +JAMES JARRETT, + +Respondent. + + +ORDER INSTITUTING CEASE-AND-DESIST +PROCEEDINGS, MAKING FINDINGS, AND +IMPOSING A CEASE-AND-DESIST ORDER +PURSUANT TO SECTION 21C OF THE +SECURITIES EXCHANGE ACT OF 1934 + + +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 James Jarrett (“Jarrett” or “Respondent”). + +II. + + In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) 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 him and the subject matter of these +proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease- +and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to +Section 21C of the Securities Exchange Act of 1934 (“Order”), as set forth below. + + 2 + +III. + + On the basis of this Order and Res pondent’s Offer, the Commission finds1 that: + +A. Facts + +Hayes Lemmerz International, Inc. (“Hayes”) is a Delaware corporation that is +headquartered in Northville, Michigan and has operations throughout the United States, South +America, and Europe. The company is a major global supplier of automotive and commercial +highway components (including wheels, brakes, powertrains, suspensions, and structural and other +lightweight components). During the relevant time period, Hayes was a publicly-held company +with securities registered with the Commission pursuant to Section 12(b) of the Exchange Act. +Hayes’ shares traded on the New York Stock Exchange until it was de-listed after the disclosure of +the fraudulent accounting scheme described below. Hayes’ common stock is now listed on the +NASDAQ National Market. +James Jarrett, age 60, is a resident of Indiana. From May 2000 through October 2001, he +was the Business Unit Controller for Hayes’ North American Aluminum Wheel Group (“AWG”), +which was a part of Hayes’ North American Wheel Group (“NAWG”). Jarrett’s responsibilities as +the Business Unit Controller involved ensuring that AWG’s books and records complied with +Generally Accepted Accounting Principles (“GAAP”) and Hayes’ internal accounting policies. + From at least 1999 through the first quarter of 2001, Hayes, acting through senior officers +and employees, engaged in a fraudulent scheme to achieve corporate earnings targets and mask +declining operating results. Specifically, the fraudulent accounting scheme was carried out at +certain Hayes plants and business units through three primary mechanisms: (1) inappropriately +deferring operating expenses to balance sheet accounts, (2) failing to process vendor invoices, and +(3) recording certain expenses as assets by improperly classifying expenses as gain contingencies +or inaccurately recording customer credits as receivables. Hayes employees, including senior +officers and accounting personnel, directed, ratified and/or knew of the above-listed practices. As +a result of Hayes’ fraudulent scheme, Hayes made materially false filings with the Commission in +fiscal years 1999 and 2000 and for the first quarter of 2001. In December 2001, Hayes restated its +results for fiscal years 1999, 2000 and for the first quarter of 2001. On December 5, 2001, Hayes +filed for Chapter 11 bankruptcy due, in part, to revelations about its improper accounting practices. +Hayes emerged from bankruptcy in June 2003. +As the AWG Business Unit Controller, Jarrett knew of and participated in at least some of +the improper accounting practices described above because he either authorized the action and/or +ratified the improper records that resulted from the practices. As the AWG Business Unit +Controller, Jarrett was responsible for reconciling various income statements and balance sheet +accounts and knew that these entries were false and that they misstated Hayes’ financial +statements. Specifically, Jarrett knew that in late 2000, approximately $2.9 million of operating + +1 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding +on any other person or entity in this or any other proceeding. + + 3 +expenses (such as utility costs, freight, and machine repairs) were improperly deferred to AWG +plant balance sheet accounts. Also, throughout 2000 and 2001, Jarrett failed to adequately accrue +customer discounts on AWG financial statements, causing AWG’s reported net sales to be +overstated. Jarrett knew that failing to adequately accrue these discounts resulted in false entries +on AWG’s balance sheet. In February 2001, Jarrett knew that approximately $3 million of +operating expenses were inappropriately deferred to an AWG plant balance sheet. Finally, in +2001, Jarrett was present during a meeting in which a Hayes’ executive directed an AWG plant +controller, for whom Jarrett had oversight as the AWG Business Unit Controller, to stop recording +supply invoices in months where the plant was not going to meet its internal earnings forecasts. +The controller complied and a significant amount of unrecorded supply invoices accumulated at +that plant. Jarrett knew that this directive would cause expenses not to be recorded and the plant’s +expenses to be understated. +B. Legal Analysis +As a result of the conduct described above, Jarrett violated Section 13(b)(5) of the +Exchange Act and Rule 13b2-1 thereunder, and caused violations of Sections 13(a), 13(b)(2)(A), +and 13(b)(2)(B) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder. +1. Record-Keeping Provisions: Section 13(b)(2)A) of the Exchange Act and Rule 13b2-1 +T h e r e u n d e r + Section 13(b)(2)(A) of the Ex change Act requires issuers with securities registered +pursuant to Section 12 of the Exchange Act to make and keep books, records, and accounts that +accurately and fairly reflect the transactions and dispositions of their assets. Rule 13b2-1 prohibits +the falsification of any book, record, or account subject to Section 13(b)(2)(A) of the Exchange +Act. + As AWG Business Unit Cont roller, Jarrett was responsible for reconciling various income +statements and balance sheet accounts and authorized and/or ratified entries in Hayes’ books and +records that he knew inaccurately reflected transactions and dispositions of the company’s assets. +Jarrett therefore caused Hayes’ violation of Section 13(b)(2)(A) of the Exchange Act and violated +Rule 13b2-1 under the Exchange Act. +2. Internal Controls Provisions: Sections 13(b)(2)(B) and 13(b)(5) of the Exchange Act + Section 13(b)(2)(B) of the Exchan ge Act requires issuers with securities registered pursuant +to Section 12 of the Exchange Act to devise and maintain a system of internal accounting controls +sufficient to reasonably assure, among other things, that transactions are recorded as necessary to +permit preparation of financial statements in conformity with GAAP. Section 13(b)(5) of the +Exchange Act prohibits any person from knowingly circumventing or knowingly failing to +implement a system of internal accounting controls or knowingly falsifying any book, record, or +account required to be made and kept pursuant to Section 13(b)(2) of the Exchange Act. + As AWG Business Unit Controller, Jarrett knew that the inappropriate accounting entries +he and others made at the AWG plants would be included in Hayes’ books, records, and financial +results. Jarrett therefore caused Hayes’ books and records to contain inaccurate and incomplete + 4 +descriptions of the accounting entries, which prevented Hayes from preparing financial statements +in conformity with GAAP. By engaging in such conduct, Jarrett violated Section 13(b)(5) of the +Exchange Act and caused Hayes’ violation Section 13(b)(2)(B) of the Exchange Act. +3. Reporting Provisions: Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 +T h e r e u n d e r + Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require that +issuers with securities registered under Section 12 of the Exchange Act file annual and quarterly +reports with the Commission and keep this information current. By engaging in the above- +described conduct, Jarrett caused Hayes to file inaccurate quarterly and annual reports with the +Commission. Accordingly, Jarrett caused Hayes’ violation of Section 13(a) of the Exchange Act +and Rules 13a-1 and 13a-13 thereunder. +IV. + + In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Jarrett’s Offer. + + Accordingly, it is hereby ORDERED that Respondent James Jarrett cease and desist from +(1) committing or causing any violations and any future violations of Section 13(b)(5) of the +Exchange Act and Rule 13b2-1 thereunder, and (2) 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 13a-1 and 13a-13 +thereunder. + + + + By the Commission. + + + + N a n c y M . M o r r i s + S e c r e t a r y + + \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2453.pdf b/raw/aaer/2006/AAER-2453.pdf new file mode 100644 index 0000000000000000000000000000000000000000..9da9cb9937d4067db84316501730fd31420ac25f Binary files /dev/null and b/raw/aaer/2006/AAER-2453.pdf differ diff --git a/raw/aaer/2006/AAER-2455.pdf b/raw/aaer/2006/AAER-2455.pdf new file mode 100644 index 0000000000000000000000000000000000000000..350b4b50a7c61865784e4c67dbd7988d6277fec6 Binary files /dev/null and b/raw/aaer/2006/AAER-2455.pdf differ diff --git a/raw/aaer/2006/AAER-2463.pdf b/raw/aaer/2006/AAER-2463.pdf new file mode 100644 index 0000000000000000000000000000000000000000..7c37f34f68bfdb93cee3b0bee1e80a81fbc5880b Binary files /dev/null and b/raw/aaer/2006/AAER-2463.pdf differ diff --git a/raw/aaer/2006/AAER-2474.pdf b/raw/aaer/2006/AAER-2474.pdf new file mode 100644 index 0000000000000000000000000000000000000000..f8ede235fea7b6c69329bd0a4758750a9d105c73 Binary files /dev/null and b/raw/aaer/2006/AAER-2474.pdf differ diff --git a/raw/aaer/2006/AAER-2491.pdf b/raw/aaer/2006/AAER-2491.pdf new file mode 100644 index 0000000000000000000000000000000000000000..310a6b5f360d1737ac79c1790a946517eba95b56 Binary files /dev/null and b/raw/aaer/2006/AAER-2491.pdf differ diff --git a/raw/aaer/2006/AAER-2494.txt b/raw/aaer/2006/AAER-2494.txt new file mode 100644 index 0000000000000000000000000000000000000000..27af686b1c59fb0edc8ee8f628b91fc876eee2af --- /dev/null +++ b/raw/aaer/2006/AAER-2494.txt @@ -0,0 +1,1378 @@ + + + + + + + + + + + + + + + + SEC.gov | Gregory A. Brady, et al. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/499921","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Brady, et al. + + + + + + + + + + + + Gregory A. Brady, et al. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19871 / October 16, 2006 + + Accounting and Auditing Enforcement Release No. 2494 / October 16, 2006 + + SEC v. Gregory A. Brady, et al. , Civil Action No. 3:05-CV-1416-D, United States District Court for the Northern District of Texas, Dallas Division + + SEC Settles Charges Against Former i2 Technologies CFO William M. Beecher + + + + On October 12, 2006, the Commission settled civil charges against William M. Beecher, the former chief financial officer of Dallas-based i2 Technologies, Inc. and a defendant in the Commission's July 2005 enforcement action against three former i2 officers arising from an alleged scheme to overstate i2's revenues. Without admitting or denying the Commission's allegations, Beecher has consented to the entry of a final judgment enjoining him from violating or aiding and abetting violations of the antifraud, record-keeping, reporting, internal-controls and false-statements-to-auditors provisions of the federal securities laws. Beecher also has consented to an order barring him from serving as a public company officer or director for a period of five years, and to pay a civil penalty and disgorgement, with prejudgment interest. The settlement is subject to approval by United States District Judge Sidney A. Fitzwater. + + The Commission's Complaint alleges that, over the four years ended December 31, 2001 and the first three quarters of 2002, i2 misstated approximately $1 billion of software license revenue, including over $125 million of revenue it never should have recognized. The Complaint further alleges that Beecher participated and assisted others in a fraudulent revenue-recognition scheme by, among other things, signing i2's public filings containing the misstated financial statements and approving earnings releases and participating in public conference calls at which materially false and misleading financial information was provided. The Commission's complaint also alleges that Beecher profited by trading i2 securities on the basis of material nonpublic information. + + The proposed Judgment to which Beecher has consented, without admitting or denying the Commission's allegations, enjoins him from violating or aiding and abetting violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13a-14, 13b2-1 and 13b2-2 thereunder. The proposed Judgment also prohibits Beecher from serving as an officer or director of a public company for five years, and orders him to pay disgorgement and prejudgment interest of $1,929,336 and a third-tier civil penalty of $250,000. The Commission intends ultimately to move the Court to establish a Fair Fund under Section 308 of the Sarbanes-Oxley Act of 2001, to hold the civil penalty, disgorgement and accrued interest, for ultimate distribution to injured i2 investors. + + For further information about the Commission's action against the former i2 executives, see Litigation Releases Nos. 19306 (July 18, 2005) and 19624 (March 28, 2006), and Accounting and Auditing Enforcement Releases Nos. 2279 (July 18, 2005) and 2400 (March 28, 2006). + + + + + + SEC Complaint in this matter +--> + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2006/AAER-2506.txt b/raw/aaer/2006/AAER-2506.txt new file mode 100644 index 0000000000000000000000000000000000000000..dc22328dc8e68bf53b850e10f6b2631d636eeb3d --- /dev/null +++ b/raw/aaer/2006/AAER-2506.txt @@ -0,0 +1,153 @@ + + + + + UNITED STATES OF AMERICA + before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54677 / October 31, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2506 / October 31, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12468 + + : + : + In the Matter of : ORDER INSTITUTING ADMINISTRATIVE + : PROCEEDINGS PURSUANT TO RULE + DOUGLAS W. MARCILLE, CPA, : 102( e) OF THE COMMISSION’S RULES OF + : PRACTICE, MAKING FINDINGS, AND + Respondent. : IMPOSING REME DIAL SANCTIONS + : +____________________________________ : + +I. + + The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against Douglas +Marcille, CPA (“Respondent” or “Marcille”) pursuant to Rule 102(e)(3) of the Commission’s +Rules of Practice.1 +II. + + In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the + +1 Rule 102(e)(3)(i) provides, in relevant part, that: + + The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. + 2 +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 him and the subject matter of these +proceedings, and the finding contained in paragraph III.3., below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) +of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. + +III. + + On the basis of this Order and Respondent’s Offer, the Commission finds that: + + 1. Marcille, age 49, is and has been a certified public accountant licensed to +practice in the State of Massachusetts. He served as Chief Financial Officer of U.S. Gas & Electric, +Inc. (“U.S. Gas”) from December 2002 until September 2004 when he became the company’s Chief +Executive Officer, a position he currently holds. + + 2. U.S. Gas is a Delaware corporation with its principal place of business in +North Miami, Florida. U.S. Gas is engaged in the business of retail sales of natural gas. At all +relevant times, U.S. Gas’s common stock was registered with the Commission pursuant to Section +12(g) of the Securities Exchange Act of 1934 (“Exchange Act”). + + 3. On September 27, 2006 the Commis sion filed a complaint against Marcille +in SEC v. U.S. Gas & Electric, Inc. et al., (Civil Action No. C-06-22440-CIV-LENARD). On +October 23, 2006 the court entered an order permanently enjoining Marcille, by consent, from +future violations of Sections 5(a), 5(c), 17(a)(2) and 17(a)(3) of the Securities Act of 1933. + +4. The Commission’s complaint alleged, among other things, that during the +time Marcille was its Chief Financial Officer, U.S. Gas, with the participation of its officers, +including Marcille, made material misstatements and omissions to investors in several unregistered +offerings concerning the use of proceeds. Specifically, the complaint alleges that U.S. Gas, with +the participation of its officers, including Marcille, failed to disclose to investors that excessive +commissions were being paid to telemarketers out of the offering proceeds, and made +misrepresentations to investors in one of the offerings regarding the amount of management fees +that would be paid out of investor funds. + +IV. + + In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Marcille’s Offer. + + Accordingly, it is hereby ORDERED, effective immediately, that: + + A. Marcille is suspended from appearing or practicing before the Commission as an +accountant. + 3 + + B. After three years from the date of this order, Respondent may request that the +Commission consider his reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: + + 1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that Respondent’s work in his practice before the +Commission will be reviewed either by the independent audit committee of the public company +for which he works or in some other acceptable manner, as long as he practices before the +Commission in this capacity; and/or + + 2. an independent accountant. Such an application must satisfy the +Commission that: + + (a) Respondent, or the public accounting firm with which he is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; + + (b) Respondent, or the registered public accounting firm with which he +is associated, has been inspected by the Board and that inspection did not identify any criticisms +of or potential defects in the Respondent’s or the firm’s quality control system that would +indicate that the Respondent will not receive appropriate supervision; + (c) Respondent has resolved all di sciplinary issues with the Board, and +has complied with all terms and conditions of any sanctions imposed by the Board (other than +reinstatement by the Commission); and + + (d) Respondent acknowledges his responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not limited to, all +requirements relating to registration, inspections, concurring partner reviews and quality control +standards. + + + + + + + + + + + + + 4 +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that his state CPA license is +current and he has resolved all other disciplinary issues with the applicable state boards of +accountancy. However, if state licensure is dependent on reinstatement by the +Commission, the Commission will consider an application on its other merits. The +Commission’s review may include consideration of, in addition to the matters referenced +above, any other matters relating to Respondent’s character, integrity, professional conduct, +or qualifications to appear or practice before the Commission. + + By the Commission. + + + + N a n c y M . M o r r i s + S e c r e t a r y \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2508.txt b/raw/aaer/2006/AAER-2508.txt new file mode 100644 index 0000000000000000000000000000000000000000..209e3643f33b750922e9c8f80896d11fbed510ba --- /dev/null +++ b/raw/aaer/2006/AAER-2508.txt @@ -0,0 +1,1426 @@ + + + + + + + + + + + + + + + + SEC.gov | Michael Moran, James Sievers, Martin Zaepfel, James Cannataro, John Steele, Michael Crusemann and Michael Otto + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/500051","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Michael Moran and James Sievers , No. 06-CV-5968, N.D. Ill., November 2, 2006 + + Securities and Exchange Commission v. Martin Zaepfel , No. 06-CV-5967, N.D. Ill., November 2, 2006 + + Securities and Exchange Commission v. James Cannataro , No. 06-CV-5961, N.D. Ill., November 2, 2006 + + Securities and Exchange Commission v. John Steele , No. 06-CV-5965, N.D. Ill., November 2, 2006 + + Securities and Exchange Commission v. Michael Crusemann and Michael Otto , No. 06-CV-5969, N.D. Ill., November 2, 2006 + + + + On November 2, 2006, the Securities and Exchange Commission filed settled enforcement actions against former officers and directors of Spiegel, Inc., an Illinois-based public company. During the relevant period, Spiegel owned and operated catalogue retailers Spiegel, Eddie Bauer and Newport News. + + The Commission filed settled charges against the former Co-Presidents of Spiegel, Michael Moran and James Sievers, former CEO Martin Zaepfel, former CFO James Cannataro, and former Treasurer John Steele, in connection with the overstatement of the performance of Spiegel's credit card receivables portfolio. In addition, the Commission settled with the former Chairman of Spiegel's Board of Directors, Michael Otto, and a former director, Michael Crusemann, and former CEO Martin Zaepfel in connection with the decision to withhold Spiegel's required financial reports to avoid issuance by its outside auditor of a "going concern" opinion. + + The Commission alleges in its complaints that Moran, Sievers, Zaepfel, Cannataro and Steele improperly increased inter-company fees between Spiegel's retail subsidiaries and Spiegel's bank subsidiary, which had the effect of hiding the deteriorating performance of the company's credit card receivables portfolio. Spiegel was thus able to benefit improperly from the securitization of that portfolio. + + The Commission also alleged that former Directors Otto and Crusemann and former CEO Zaepfel all participated in the decision to not file Spiegel's 2001 Form 10-K and first quarter 2002 Form 10-Q on a timely basis. Prior to the deadline for the filing of the Form 10-K, Spiegel's outside auditor informed the company that a "going concern" opinion would accompany the filing unless Spiegel was able to resolve its underlying financial problems. When it failed to resolve those problems by the April 15, 2002 deadline, the company improperly elected to withhold its filing rather than make the required disclosures to the investing public. + + In light of the above, the Commission alleged that Moran, Sievers, Zaepfel, Cannataro and Steele violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 and violated and aided and abetted violations of various books and records and financial reporting provisions of the Securities Exchange Act of 1934. The Commission also alleged that Otto, Crusemann and Zaepfel aided and abetted Spiegel's violations of the financial reporting provisions of the Exchange Act. + + Without admitting or denying the Commission's allegations, Moran, Sievers, Cannataro, Steele, Otto, Crusemann and Zaepfel have consented to the Court's issuance of an order of permanent injunction enjoining them from future violations of the federal securities laws. In addition, Moran, Sievers, Cannataro and Steele have consented to each pay a civil penalty of $120,000. Otto and Crusemann have consented to each pay a civil penalty of $100,000. Zaepfel has consented to pay a civil penalty of $170,000. + + + + + SEC Complaints in this matter + Michael Crusemann and Michael Otto + John R. Steele + Martin Zaepfel + James R. Cannataro + Michael R. Moran and James W. Sievers + +   + + + + + + + + + + + Resources + + + + + Complaint: Michael Crusemann and Michael Otto + + + + + Complaint: John R. Steele + + + + + Complaint: Martin Zaepfel + + + + + Complaint: James R. Cannataro + + + + + Complaint: Michael R. Moran and James W. Sievers + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Stansbury Holdings, et al. , Civil Action No. 06-cv-00088-REB-BNB + + + The Commission announced that on October 12, 2006, the United States District Court for the District of Colorado entered a default judgment against Defendant Stansbury Holdings Corporation. + + In its complaint, the Commission alleged that Stansbury Holdings defrauded investors by materially overstating its assets in annual and quarterly reports filed with the Commission and in a private placement memorandum. Stansbury fraudulently overvalued two if its mining properties known as Hamilton and Dillon despite numerous events demonstrating they were worth far less, including foreclosure actions on the properties. Stansbury also failed to adjust the value of these assets even after Stansbury changed its business plan and decided not to mine vermiculite, the activity for which it had purchased the two mining claims. Stansbury failed to create and maintain required books, records and accounts and to devise and maintain a required system of internal accounting controls. It failed to obtain quarterly reviews of its financial statements for several quarters and it failed to file two mandatory periodic reports with the Commission. + + By order of the court, Stansbury Holdings is permanently restrained and enjoined from violating, directly or indirectly, Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1, 13a-2 and 13b2-1 thereunder. + + + + + + SEC Complaint in this matter --> + +   + + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2006/AAER-2518.txt b/raw/aaer/2006/AAER-2518.txt new file mode 100644 index 0000000000000000000000000000000000000000..88346b166000142424e8d22c0003bf04649c6c28 --- /dev/null +++ b/raw/aaer/2006/AAER-2518.txt @@ -0,0 +1,430 @@ + + + + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54830 / November 29, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2518 / November 29, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12487 + ______________________________ + : +In the Matter of : ORDER INSTITUTING PROCEEDINGS + : PURSUANT TO SECTION 21C OF THE +ASHLAND INC. and : SECURITIES EXCHANGE ACT OF +WILLIAM C. OLASIN, : 1934, MAKING FINDINGS AND + : I M P O S I N G A CEASE-AND-DESIST ORDER + Respondents. : + : + + +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 Ashland Inc. (“Ashland”) and William C. Olasin +(“Olasin”) (collectively, “Respondents”). + +II. + + In anticipation of the institution of these proceedings, Ashland and Olasin each have +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 Respondents and the subject +matter of these proceedings, which Respondents admit, Respondents consent to the issuance of this +Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, +Making Findings and Imposing a Cease-and-Desist Order (“Order”), as set forth below. + +III. + +FACTS + + On the basis of this Order and Respondents’ Offers, the Commission finds that: + + A. Summary + +Between 1999 and 2001, William Olasin, Ashland Inc.’s Director of Environmental +Remediation, reduced the cost estimates for remediating environmental contamination at dozens of +chemical and refinery sites for which Ashland had responsibility. Ashland used those estimates to +determine its environmental reserve, which Ashland disclosed in the periodic reports that it filed +with the Commission. Olasin had no reasonable basis for reducing these cost estimates, which had +been developed by a team of Ashland engineers, an outside consultant, and a computer program. + +Ashland’s process for setting its environmental reserve did not establish adequate +guidelines for, or require documentation or review of, adjustments to the cost estimates. Ashland +included the estimates that Olasin had reduced in its reported environmental reserve. As a result, +Ashland materially understated its environmental reserve and overstated its net income in annual +and quarterly reports filed from 1999 to 2001. + +Ashland violated the reporting, books and records, and internal controls provisions of the +Exchange Act, Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 12b-20, 13a-1, and 13a-13 +thereunder. Olasin caused Ashland’s violations, and also violated Rule 13b2-1 of the Exchange +Act. + + B. Respondents + + 1. Ashland Inc. is a Fortune 500 chemical company incorporated in +Kentucky. Ashland’s common stock is registered with the Commission under Section 12(b) of the +Exchange Act and is listed on the New York and Chicago Stock Exchanges under the symbol +“ASH.” During the relevant period, Ashland’s primary businesses included chemical production +and distribution, such as its Valvoline motor oil division, highway and bridge construction, and +petroleum refining and marketing. Ashland is responsible for cleaning up environmental +contamination at locations throughout the country. Ashland’s fiscal year ends on September 30 +and, in 2005, Ashland reported revenue of $9.9 billion and operating income of $746 million. +Ashland’s environmental reserve was a significant item in its financial statements from 1998 to +2005, ranging from a low of $152 million to a high of $178 million. + + 2. William Olasin, age 55, resides in Dublin, Ohio. Olasin was Ashland’s +Director of Environmental Remediation from 1996 until April 2006, when Ashland reassigned +Olasin as a project manager within the Engineering Department. Olasin has a B.A. from Marietta +College, Ohio in biology and geology and a B.S. from the University of Michigan in natural +resources. + + + 2 + C. Relevant Accounting Principles + + As a public company, Ashland is required to fairly, accurately, and timely report its +financial results and condition. To ensure fair and accurate reports, the federal securities laws and +the Commission’s regulations require public companies, such as Ashland, to prepare and present +their reports and financial statements in conformity with Generally Accepted Accounting +Principles (“GAAP”). Under GAAP, items listed in financial statements must be reliable, i.e., +sufficiently faithful in their representation of the underlying obligations and sufficiently free of +error and bias to be useful to others making decisions based on the financial statements.1 Financial +statements filed with the Commission that are not prepared in accordance with GAAP are +presumed to be misleading or inaccurate. Ashland represented in its Commission filings that its +financial statements complied with GAAP. + +Ashland’s expenditures for environmental compliance have a significant effect on its +businesses. As required by GAAP, Ashland accrues an environmental reserve for future costs that +it expects to incur to remediate contamination.2 Ashland explained in its annual reports and the +notes to its financial statements that the reserve reflects the company’s “estimates of the most +likely costs which will be incurred over an extended period to remediate identified +environmental conditions for which the costs are reasonably estimable[.]” + + D. Ashland’s Process for Estimating the Environmental Reserve + +From 1999 through 2001, Ashland’s environmental remediation efforts were managed by +the Remediation Group within the company’s Environmental, Health and Safety Department +(“EH&S”). As the director of Ashland’s Remediation Group, Olasin was responsible for +Ashland’s determination of its future environmental liability. Olasin supervised a group of six +environmental engineers who managed remediation at various sites and determined the initial +liability estimates used to set the reserve. + +Although Olasin was responsible for the accuracy of all estimates, Olasin’s Remediation +Group provided estimates for only some categories, including the chemical and refinery sites. For +other categories, Olasin reviewed estimates forwarded to him by other Ashland divisions and +consultants. + +Olasin’s Remediation Group used a “decision tree” method for determining the cleanup +cost estimates for remediating the chemical and refinery sites. Each spring, the engineers in the + +1 FASB Concepts Statement No. 5, Recognition and Measurement in Financial Statements of +Business Enterprises, paragraphs 63 and 75. + +2 Financial Accounting Standard No. 5, Accounting for Contingencies (“FAS 5”), requires Ashland to +accrue for future remediation costs if it is probable that the company has incurred a liability and it can +reasonably estimate the amount of the loss. The American Institute of Certified Public Accountants’ +Statement of Position 96-1, Environmental Remediation Liabilities, identifies future remediation costs that +must be included in the company’s environmental reserve, such as pre-cleanup activities and performance of +remedial action. + 3 +Remediation Group met for two days with an independent, outside consultant to analyze each +remediation site. Olasin did not participate in these sessions because of the independent +consultant’s concern that Olasin could bias the input of the engineers. At the sessions, the +engineers presented possible remediation strategies for each site and the estimated costs for each +remedy. The group critiqued each strategy and cost estimate. The independent consultant, who +had a doctorate in engineering and 25 years of environmental remediation experience, facilitated +the discussion by asking for justifications for the engineers’ estimates and keeping the group within +a set of “ground rules,” which described the types of costs that should be accrued and listed +assumptions that Ashland used in the process. + +After the engineers reached a consensus for each site, the consultant entered the estimates +into a computer program called “Crystal Ball,” which generated a probability range of the total +future cost estimates for each site. The Crystal Ball output was forwarded to Olasin for his review. +Ashland considered it appropriate for Olasin to correct mistakes in the estimates or otherwise +adjust them, as long as he had a reasonable basis for doing so. After his review, Olasin provided +the cost estimates to an accountant who worked for Ashland as a contractor. The accountant +compiled all estimates into a single report, which Olasin then forwarded to an assistant controller. +The assistant controller used the estimates to determine Ashland’s environmental reserve, which +Ashland recorded in its books and records and reported in its Commission filings. + +Ashland conducted this process once each year, and recorded any resulting change to its +environmental reserve during the fourth quarter. In the first three quarters of each following year, +Ashland carried forward the prior year’s reserve estimate, after making adjustments based on +expenditures during the quarter and any unusual developments. + + E. Olasin’s Reductions + + Between 1999 and 2001, Olasin made multiple reductions to the cost estimates determined +by the team of engineers and the independent consultant that Ashland used to set its environmental +reserve. Olasin had no reasonable basis and no supporting documentation for these reductions, +which generally were across-the-board reductions of various sites by the same large percentage. + + In 1999, after reviewing the Crystal Ball output , Olasin directed the accountant to reduce +by 25% the Crystal Ball calculations for fourteen of the chemical and refinery sites whose costs +were estimated through the decision tree process – including seven of the ten largest sites. Olasin +then directed the accountant to reduce the reserve for all chemical and refinery locations whose +costs were estimated through the decision tree process (more than fifty sites) “across the board” by +an additional 25%, including the fourteen sites already reduced. There is neither a documented +basis for Olasin’s reductions nor any evidence that each site’s estimate was overstated by the same +percentage. + +Olasin’s reductions decreased Ashland’s reserve by over $12 million, which reduced the +reserve for Ashland’s chemical and refinery sites whose costs were estimated through the decision +tree process by 33% and decreased Ashland’s total reserve by 6.9% to $166 million. Ashland’s +annual report and financial statements for 1999 contained the misstated reserve. Olasin’s +reductions also increased Ashland’s fourth quarter net income by 6.7%, to $114 million. + 4 + + In 2000, Olasin used a two-step process to ad just the estimates for more than 40 chemical +and refinery sites whose costs had been estimated through the decision tree process. First, Olasin +reduced the estimates for 20 sites by approximately 25%, and reduced the estimates for an +additional five sites by approximately 44%, the equivalent of two 25% reductions. Olasin also +reduced the estimates for nine sites, including three of the five largest, by 38% to 73% to round +number estimates.3 Olasin also increased the estimates for five sites. Second, Olasin reduced the +estimates for 38 sites by an additional 3%. Revised Crystal Ball data reflecting the first series of +adjustments was maintained, but no documentation exists to justify the reductions, or to indicate +that multiple sites were overstated by the same percentage. + +Olasin’s reductions in 2000 decreased Ashland’s reserve by over $12 million, which +reduced the reserve for chemical sites whose costs were estimated through the decision tree process +by 41% and reduced Ashland’s total reserve by 7% to $163 million. The adjustment also increased +Ashland’s annual net income before charges for one-time items for 2000 by 2.65% to $292 million, +and increased net income after charges for one-time items by 12.1% to $70 million.4 The +adjustment increased Ashland’s fourth quarter net income by 9% to $96 million.5 + + In 2001, Olasin made an across-the-boar d, 10% reduction to estimates for 40 sites, +reducing the reserve by $1,904,000 to $176 million. There is no documentation supporting these +reductions. Olasin’s 10% reduction had the effect of keeping constant the total reserve for the +chemical sites that he managed, and reduced Ashland’s total environmental reserve by +approximately 1%. + +Olasin also considered both a 24% and a 10% reduction in 2002, but abandoned the +planned reduction when Ashland’s internal auditors commenced an internal audit at approximately +the time the reduction would have been finalized. A week before the internal auditors interviewed +Olasin, the Crystal Ball program was re-run to remove the planned adjustment. 6 + + + + +3 Olasin reduced three of the five largest estimates from $2,968,000, $2,446,000, and $2,324,000 to +$800,000, $1,000,000, and $1,000,000, respectively. +4 Ashland incurred one-time charges in 2000 for a discontinued operation and debt retirement. +5 The 2000 adjustment was carried forward during the first three quarters in 2001. Ashland began +disclosing its environmental reserve in quarterly reports in the second quarter of 2001. As a result, the +reduction in 2000 decreased the environmental reserve that Ashland reported in its quarterly reports for +the second and third quarters of 2001 by 7.5% in the second quarter and 6.3% in the third quarter. +6 Ashland’s reserve for the chemical sites that we re the subject of Olasin’s reductions increased +considerably when his reductions stopped after 2001. From 2001 to 2005, Ashland’s reserve for the +chemical onsite locations grew from $18 million to over $36 million. + 5 +F. Ashland’s Internal Controls + +During the relevant period, Ashland’s internal controls for setting the company’s +environmental reserve depended on detailed, documented support for the engineers’ estimates, as +well as the peer critique session led by the independent consultant. Ashland maintained specific, +written procedures describing this process. However, Ashland’s internal controls were inadequate +because they did not establish guidelines for, or require documentation or review of, adjustments to +the engineers’ cost estimates. Olasin helped design these controls. + +Prior to 2001, Ashland’s written procedures did not provide a process for adjusting the cost +estimates generated by the Crystal Ball process. In 2001, Ashland changed the written procedures +to indicate that the “management team” might adjust the estimates produced by the engineers. +However, the revised procedures did not identify the “management team” and did not establish any +guidelines setting forth when or how an adjustment could be made. In addition, unlike the +documented, factual basis required for the original estimates, the procedures did not require +documentation or review of any adjustments. + + G . Ashland Receives Complaints in 2002 + + In 2002, three engineers who worked for Olasin raised questions about Olasin’s conduct +regarding the process of setting the environmental reserve in their confidential responses to an +internal Code of Conduct Questionnaire and Certification Statement. One engineer specifically +alleged, among other things, that Olasin was improperly reducing the reserve through +“management adjustments.” + 7 + + In response to these reports, Ashland’s la w department informed the internal audit +department about the first engineer’s complaints and asked it to conduct an audit. Consistent with +the audit department’s normal practice, the internal audit was designed to evaluate internal +controls, not to determine whether Ashland’s reserve conformed with GAAP. The internal +auditors did nothing to familiarize themselves with the accounting rules for an environmental +reserve. + + The internal auditors reviewed only fiscal years 2001 and 2002, and discovered Olasin’s +10% reduction in 2001. The auditors asked Olasin about the 2001 reduction, and Olasin said that +he reduced the estimates because, in his judgment, they were approximately 10% too high and he +did not have time for a site-by-site review. The auditors asked Olasin for documentation or other +support for the reduction in 2001, but he said there was none. The auditors also reviewed +individual adjustments that Olasin made in 2002, and asked Olasin and the remediation engineers +responsible for the sites in question about the adjustments. Olasin explained the reasons for the +adjustments, and the engineers agreed that the adjustments were proper. The auditors did not find +the planned across-the-board reductions for 2002. The auditors concluded that the 10% reduction +in 2001 (which amounted to less than $2 million) was not quantitatively material and +recommended changes to Ashland’s environmental reserve process, including documentation and +tracking of all changes to cost estimates, and review and approval by the engineers of any change +made to site estimates. Ashland implemented these recommendations. + +7 Olasin himself referred to his reductions as “management adjustments.” + 6 + +A few days after responding to a preview of the internal audit report, Olasin told the first +engineer (whose identity he had learned) that his performance was suffering and that he should +spend the weekend thinking about whether he wanted to stay with the company. The engineer +ultimately left Ashland because he believed that he was being subjected to retaliation.8 Ashland +learned about the engineer’s concerns about retaliation, including Olasin’s instruction that the +engineer should consider whether he wanted to continue working at Ashland. Ashland did not +discipline Olasin for this conduct, but his supervisor told him that it was wrong. In April 2006, +after the Commission staff’s investigation was complete, Ashland reassigned Olasin as a project +manager within Ashland’s Engineering Department and removed him from the reserve setting +process. + + H. Legal Analysis + + 1. Reporting Violations + +Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require issuers +with securities registered under Section 12 of the Exchange Act to file annual and quarterly reports +with the Commission, and the obligation to file such reports includes the requirement that they be +true and correct. Rule 12b-20 further requires that such reports contain any additional information +necessary to ensure that the required statements in the reports are not, under the circumstances, +materially misleading. Financial statements in Commission filings that do not comply with GAAP +are presumed to be misleading. Regulation S-X, 17 C.F.R. 210.4-01(a)(1). + +GAAP required Ashland to maintain an environmental reserve, and Ashland identified the +reserve in its Commission filings as important to its business. As discussed above, Ashland’s +annual reports and notes to the company’s financial statements filed on Form 10-K for 1999 and +2000 materially understated Ashland’s environmental reserve and overstated its net income. +Ashland also materially understated the company’s environmental reserve in its quarterly reports +for the second and third quarters of 2001, filed on Form 10-Q. The misstatements ranged from 7% +to 12%. As a result of this conduct, Ashland violated Section 13(a) of the Exchange Act and Rules +12b-20, 13a-1, and 13a-13 thereunder. Olasin caused Ashland’s violations by improperly reducing +the cost estimates used to determine Ashland’s environmental reserve. + + 2. Record Keeping and Internal Controls Violations + +Section 13(b)(2)(A) of the Exchange Act requires Section 12 registrants to make and keep +books, records, and accounts that accurately and fairly reflect the transactions and dispositions of +their assets. Section 13(b)(2)(B) of the Exchange Act requires such registrants to devise and +maintain a system of internal accounting controls sufficient to provide reasonable assurances that, +among other things, transactions are recorded as necessary to permit preparation of financial +statements in conformity with GAAP and to maintain the accountability of assets. Exchange Act +Rule 13b2-1 prohibits the direct or indirect falsification of any book, record, or account subject to + +8 The engineer filed a complaint with the Depart ment of Labor under the whistleblower protection +provisions of Section 806 of the Sarbanes-Oxley Act of 2002, and eventually reached a settlement with +Ashland. + 7 +Section 13(b)(2)(A). + +Ashland violated Section 13(b)(2)(A) because its books and records contained inaccurate +cost estimates that were used to determine the company’s environmental reserve in fiscal years +1999, 2000, and 2001. Olasin caused Ashland’s violations by reducing the cost estimates without +a reasonable basis and documentation. Ashland’s internal controls were deficient, and the +company violated Section 13(b)(2)(B), because the company had no guidelines, documentation, or +review requirements for adjustments of the cost estimates developed by the team of Ashland +engineers. Olasin caused Ashland’s violations because he helped design Ashland’s controls for the +decision tree process. By reducing the engineers’ estimates without any reasonable basis, Olasin +also caused Ashland’s books and records to be falsified and thereby violated Exchange Act Rule +13b2-1. + +IV. + +UNDERTAKINGS + +A. Ashland undertakes to implement the following revisions that it has made to its +policies and procedures for determining its environmental reserve: + +1. Document all adjustments to the environmental remediation reserve +estimates and the reasons for each adjustment to create a clear audit trail of +the estimates. +2. Retain all records relating to environmental remediation reserve estimates +for a period of seven years following the period to which the reserve +estimates relate. +3. Require the manager of Ashland’s Environmental Remediation Group, or +his or her equivalent or successor, to consult with the remedial engineer or +other individual responsible for the environmental remediation estimate for +a given site before deciding whether to adjust the estimate of that site. +4. Include in Ashland’s Business Responsibility Questionnaire and +Certification (or equivalent or successor document) sent to the +Environmental Remediation Group and Accounting Department, or to their +equivalents or successors, questions concerning whether the individual is +aware of any failure to follow the Environmental Remediation Group’s (or +its equivalent’s or successor’s) reserve-setting procedures or of any +misstatement in Ashland’s books and records concerning any environmental +remediation reserve. +5. Conduct an annual best practices review with Ashland’s outside auditor for +the purpose of discussing and, when appropriate, modifying the company’s +policies and procedures for determining its environmental reserve, including +the policies and procedures identified in this Section IV.A or instituted as a +result of the undertaking identified in Section IV.C, below. This review + 8 +shall include a comparison of each site’s reserve estimate to the site’s +annual budget and historical expenditures. +6. Require a report to Ashland’s board of directors or an appropriate +committee of the board on an annual basis regarding compliance with these +provisions. +B. Ashland undertakes to preclude Olasin from participating in the determination of +Ashland’s environmental reserve, the creation and maintenance of Ashland’s books +and records, and the preparation of Ashland’s financial statements. +C. Ashland undertakes to retain PricewaterhouseCoopers LLP to review: +1. Ashland’s policies, procedures, and internal controls relating to the +company’s determination of its environmental reserve. +2. Ashland’s policies, procedures, and internal controls relating to solicitation +and investigation of internal complaints, and measures to prevent retaliation +against complainants. +Ashland will require PricewaterhouseCoopers to submit to the audit committee of +Ashland’s board of directors and the staff of the Division of Enforcement a written +report fully documenting its findings and proposed recommendations. Within 90 +days after receipt of such report, Ashland’s audit committee, or board of directors, +as appropriate, will adopt and implement such recommendations; provided, +however, that as to any recommendation that Ashland believes is unduly +burdensome or impractical, Ashland may suggest an alternative policy or procedure +designed to achieve the same objective, submitted in writing to +PricewaterhouseCoopers and the staff of the Division of Enforcement. Ashland +will require PricewaterhouseCoopers to reasonably evaluate any alternative policy +or procedure proposed by Ashland, and Ashland agrees that it will abide by the +decision of PricewaterhouseCoopers regarding such alternative proposals. +V. +Based on the foregoing, the Commission finds that: + +A. Respondent Ashland violated 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 Olasin violat ed Exchange Act Rule 13b2-1 and caused Ashland’s +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. + + + 9 +VI. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondents’ Offers. + +Accordingly, pursuant to Section 21C of the Exchange Act, it is hereby ORDERED, that: + + A. Respondent Ashland 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 Olasin cease and desist from committing or causing any violations and +any future violations of Exchange Act Rule 13b2-1 and from 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. + + C. Respondent Ashland shall comply with its undertakings set forth in Section IV +above. + + By the Commission. + + N a n c y M . M o r r i s + S e c r e t a r y + 10 \ No newline at end of file diff --git a/raw/aaer/2008/AAER-2765.txt b/raw/aaer/2008/AAER-2765.txt new file mode 100644 index 0000000000000000000000000000000000000000..e83d335d1c4f6fd9652e6d4ccdb2dfa80f9f7d34 --- /dev/null +++ b/raw/aaer/2008/AAER-2765.txt @@ -0,0 +1,84 @@ + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57092 / January 3, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2765 / January 3, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12920 +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +GREG A. GADEL (CPA), : 102(e) OF THE COMMISSION’S RULES OF +: PRACTICE, MAKING FINDINGS, AND +Respondent. : IMPOSING REMEDIAL SANCTIONS +: +____________________________________ : +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against Greg A. +Gadel (“Respondent” or “Gadel”) pursuant to Ru le 102(e)(3)(i) of t he Commission’s Rules of +Practice.1 +II. +In anticipation of the institution of these proceedings, Gadel has su bmitted an Off er of +Settlement (the “Offer”) 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 him and the subject matter of these procee dings, and the +findings contained in Section III.3. below, which are admitted, Gadel consents to the entry of this +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . +suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently +enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the +Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of +the rules and regulations thereunder. +Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission’s Rules +of Practice, Making Findings, and Imposing Remedial Sanctions (“Order”), as set forth below. +III. +On the basis of this Order and Gadel’s Offer, the Commission finds that: +1. Gadel, age 47, is a nd has been a certified public accountant who has ne ver +been licensed to practice in any st ate. He serv ed as Chie f Fina ncial Officer and Senior Vice +President of Buca, Inc (“Buca”) from 1997 until his resignation in February 2005. +2. Buca was, at all rel evant times, a Minnesota corporation with its principal +place of business in Minneapolis, Minnesota. Buca is the holding company for the Buca di Beppo +restaurant chain. Buca conducted an initial public offering of its stock in 1999. Since Buca’s initial +public offering, its common stock has been registered pursuant to Section 12(g) of t he Exchange +Act and traded on NASDAQ. +3. On June 7, 2006, the Commissi on filed a com plaint against Gadel in the +civil action entitled Securities and Exchange Commission v. Greg A. Gadel and Daniel J. Skrypek, +Civil Action Number 06-cv-2320, in the United States District Court for the District of Minnesota. +On December 21, 2007, the c ourt entered a final judgment against Gadel, permanently enjoining +him from future violations of Section 17(a) of the Securities Exchange Act of 1933 (“Securities +Act”) and Sections 10(b), 13(b)(5), and 14(a) of the Securities Exchange Act of 1934 (“Exchange +Act”) and Rules 10b-5, 13a-14, 13b2-1, 13b2- 2, 14a-3, and 14a-9 the reunder, and aiding and +abetting 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. Gadel was al so prohibited from acting as an officer or +director of any issuer that has a class of s ecurities registered pursuant to Section 12 of the +Exchange Act, or that is required to file reports pursuant to Section 15(d) of the Exchange Act. +4. The Commission’s complaint alleged, among other things, that Gadel +engaged in a fraudulent scheme which resulted in Buca f iling materially false and misleading +financial statements in the company’s annual reports on Form 10-K for the years ended 2000 to +2003, and in the company’s quarterly reports for every quarter in fiscal years 2000 to 2003 and +the first thr ee quarters of fis cal ye ar 2004. The complai nt a lleged that Gadel engaged i n +improper accounting practices that materially in creased Buca’s pre-tax income, in a departure +from Generally Accept ed Ac counting Principl es (“GAAP”). These practices included +improperly capitalizing expenses. The complain t also alleged that Ga del f ailed to ensure +disclosure of two related party transactions involving Buca’s Chief Executive Officer and a +series of related party transactions in which Gadel was involved. The complaint further alleged +that Gadel provide d fal se and misl eading information t o Buca’s audit ors concerning Buca’s +financial statements and falsely certi fied the acc uracy of Buca’s 2002 a nd 2003 For ms 10-K. +The c omplaint further alleged that Gadel was involve d i n dra fting and approvi ng proxy +statements that materially understated his co mpensation and the compensation of Buca’s Chief +Executive Officer. +2 + +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Gadel’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +Gadel is suspended from appearing or practicing before the Commission as an accountant. + By the Commission. + N ancy M. Morris + S ecretary +3 diff --git a/raw/aaer/2008/AAER-2766.pdf b/raw/aaer/2008/AAER-2766.pdf new file mode 100644 index 0000000000000000000000000000000000000000..80814b358db6b6010d975772f33341300b277cf3 Binary files /dev/null and b/raw/aaer/2008/AAER-2766.pdf differ diff --git a/raw/aaer/2008/AAER-2769.txt b/raw/aaer/2008/AAER-2769.txt new file mode 100644 index 0000000000000000000000000000000000000000..b781a6bf163390d5fe84f40ea7f84d65eb1a7532 --- /dev/null +++ b/raw/aaer/2008/AAER-2769.txt @@ -0,0 +1,135 @@ + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57177 / January 22, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2769 / January 22, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12789 +In the Matter of +CARL S. SANKO, CPA, +Respondent. +ORDER MAKING FINDINGS, AND +IMPOSING REMEDIAL SANCTIONS +PURSUANT TO SECTION 4C OF THE +SECURITIES EXCHANGE ACT OF 1934 +AND RULE 102(e) OF THE +COMMISSION’S RULES OF PRACTICE +I. +On September 13, 2007, the Securities and Exchange Commission (“Commission”) issued +an Order Instituting Administrative Proceedings Pursuant to Section 4C of the Securities Exchange +Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice, and Notice of Hearing against +Carl S. Sanko, CPA (“Sanko” or “Respondent”). +II. + Respondent has submitted an Offer of Settlement (“Offer”) 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 him and +the subject matter of these proceedings, which are admitted, Respondent consents to the entry of +this Order Making Findings and Imposing Remedial Sanctions Pursuant to Section 4C of the +Securities Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice +(“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds1 that: +A. RESPONDENT +1. Sanko, 51, of Tehachapi, California, is a certified public accountant licensed in +California since 1987. Sanko operates as a sole proprietorship. Sanko prepared and issued an +audit report dated June 3, 2004, in connection with his audit of Platina Energy Group, Inc. +(“Platina”). +B. FACTS +1. Platina is a Delaware corporation based in New Orleans, Louisiana. During the +relevant period, Platina’s common stock traded on the OTC Bulletin Board. Its common stock is +registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 +(“Exchange Act”). Platina reported $638 in revenue and total assets of $14,312 for its fiscal year +ended 2003. +2. Platina has at all relevant times been an issuer as defined by the Sarbanes-Oxley +Act of 2002 (the “Act”). Platina was known as Federal Protection Services, Inc. during the +relevant period. +3. Sanko audited Platina’s financial statements included in Platina’s annual report for +fiscal year 2003 on Form 10-KSB, filed with the Commission on June 29, 2004. Sanko prepared +and issued an audit report dated June 3, 2004, which was included in Platina’s Form 10-KSB. +4. Although Sanko was aware of the registration requirement, at no point was Sanko +registered with the Public Company Accounting Oversight Board (“PCAOB”). +5. Sanko received $7,500 for conducting an audit of Platina’s financial statements for +its fiscal year 2003, and for issuing an audit report on those financial statements. +C. VIOLATIONS +1. Section 4C(a) of the Exchange Act provides, in relevant part, that the Commission +“may censure any person, or deny, temporarily or permanently, to any person the privilege of +appearing or practicing before the Commission in any way, if that person is found by the +Commission … (1) not to possess the requisite qualifications to represent others … or (3) to ha ve +willfully violated, or willfully aided and abetted the violation of, any provision of the securities +laws or the rules and regulations issued thereunder.” +The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any +other person or entity in this or any other proceeding. +2 +1 +2. Rule 102(e)(1) of the Commission’s Rules of Practice provides that the +Commission “may censure a person or deny, temporarily or permanently, the privilege of +appearing or practicing before it in any way to any person who is found by the Commission ... (i) +not to possess the requisite qualifications to represent others … or ( iii) to have willfully violated … +any provision of the Federal securities laws or the rules and regulations thereunder.” +3. Section 102(a) of the Act provides that “it shall be unlawful for any person that is +not a registered public accounting firm to prepare or issue, or to participate in the preparation or +issuance of, any audit report with respect to any issuer.”2 +4. The provisions of Section 102(a) of the Act became effective on October 22, 2003.3 +5. Based on the conduct described above, Sanko willfully4 violated Section 102(a) of +the Act. +D. FINDI NGS +Based on the foregoing, the Commission finds that Sanko did not possess the requisite +qualifications to represent others and willfully violated Section 102(a) of the Sarbanes-Oxley Act +of 2002. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent’s Offer. +Accordingly, it is hereby ORDERED, effective immediately: +A. Sanko is denied the privilege of appearing or practicing before the +Commission as an accountant. +B. After one year from the date of this Order, Respondent may request that +the Commission consider its reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +2 A violation of the Act or any rule that the PCAOB issues under the Act is treated for all purposes in the +same manner as a violation of the Exchange Act, including with respect to penalties. Sarbanes-Oxley Act of 2002, +15 U.S.C.A. § 7202(b)(1) (West 2002). +3 Section 102(a) became effective “[b]eginning 180 days after the date of the determination of the +Commission under Section 101(d)” of the Act that the PCAOB was prepared to undertake its statutory +responsibilities. The Commission made the required determination on April 25, 2003. See Order Regarding Section +101(d) of the Sarbanes-Oxley Act of 2002, Securities Act of 1933 Release No. 8223, Exchange Act Release No. +47746, 2003 WL 1956164 (Apr. 25, 2003). +4 “Willfully” as used in this Order means intentionally committing the act that constitutes the violation. +There is no requirement that the actor also be aware that he is violating a rule or statute. See Wonsover v. SEC, 205 +F.3d 408, 414 (D.C. Cir. 2000); Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965). +3 + +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that Respondent’s work in Respondent’s practice +before the Commission will be reviewed either by the independent audit committee of the public +company for which Respondent works or in some other acceptable manner, as long as +Respondent practices before the Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent is registered with the PCAOB in accordance with +the Sarbanes-Oxley Act of 2002, and such registration continues to be effective. However, if +registration with the PCAOB is dependent upon reinstatement by the Commission, the +Commission will consider an application on its other merits; +(b) Respondent has resolved all disciplinary issues with the +PCAOB, and has complied with all terms and conditions of any sanctions imposed by the +PCAOB (other than reinstatement by the Commission); and +(c) Respondent acknowledges responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the PCAOB, including, but not limited to, +all requirements relating to registration, inspections, concurring partner reviews and quality +control standards. +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that Respondent’s state CPA license is +current and Respondent has resolved all other disciplinary issues with the applicable state boards +of accountancy. However, if state licensure is dependent on reinstatement by the Commission, +the Commission will consider an application on its other merits. The Commission’s review may +include consideration of, in addition to the matters referenced above, any other matters relating +to Respondent’s character, integrity, professional conduct, or qualifications to appear or practice +before the Commission. + By the Commission. + N ancy M. Morris + S ecretary +4 diff --git a/raw/aaer/2008/AAER-2770.txt b/raw/aaer/2008/AAER-2770.txt new file mode 100644 index 0000000000000000000000000000000000000000..93d951913bbb699f7137eab218b3281bb7f4620e --- /dev/null +++ b/raw/aaer/2008/AAER-2770.txt @@ -0,0 +1,158 @@ + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57178 / January 22, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2770 / January 22, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12791 +In the Matter of +FREDERICK A. KADEN & CO., +AND FREDERICK A. KADEN, +CPA, +Respondents. +ORDER MAKING FINDINGS AND +IMPOSING REMEDIAL SANCTIONS +PURSUANT TO SECTION 4C OF THE +SECURITIES EXCHANGE ACT OF 1934 +AND RULE 102(e) OF THE +COMMISSION’S RULES OF PRACTICE +I. +On September 13, 2007, the Securities and Exchange Commission (“Commission”) issued +an Order Instituting Administrative Proceedings Pursuant to Section 4C of the Securities Exchange +Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice, and Notice of Hearing against +Frederick A. Kaden & Co. (“the Firm”) and Frederick A. Kaden, CPA (“Kaden”). The Firm and +Kaden will be referred to hereafter collectively as “Respondents.” +II. +Respondents have submitted an Offer of Settlement (“Offer”) 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 them and +the subject matter of these proceedings, which are admitted, Respondents consent to the entry of +this Order Making Findings and Imposing Remedial Sanctions Pursuant to Section 4C of the +Securities Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice +(“Order”), as set forth below. +III. +On the basis of this Order and Respondents’ Offer, the Commission finds1 that: +A. RESPONDENTS +1. The Firm is a New York company and public accounting firm headquartered in +Brentwood, New York. The Firm prepared and issued an audit report dated March 17, 2004, in +connection with its audit of Daxor Corporation (“Daxor”). +2. Kaden has been a certified public accountant licensed in New York since 1982. As +engagement partner on the Daxor engagement, Kaden participated in the preparation and issuance +of the March 17, 2004 Daxor audit report. +B. FACTS +1. Daxor is a New York corporation based in New York, New York. During the +relevant period, Daxor’s common stock traded on the American Stock Exchange. Its common +stock is registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act +of 1934 (“Exchange Act”). +2. Daxor has at all relevant times been an issuer as defined by the Sarbanes-Oxley Act +of 2002 (the “Act”). +3. Daxor reported $3,165,437 in revenue and total assets of $48,300,532 for its fiscal +year ended 2003. +4. The Firm audited Daxor’s financial statement included in Daxor’s annual report for +fiscal year 2003 on Form 10-K, filed with the Commission on March 30, 2004. +5. The Firm prepared and issued an audit report dated March 17, 2004, which was +included in Daxor’s Form 10-K. +6. Kaden participated in auditing the financial statements included in Daxor’s annual +report for fiscal year 2003 on Form 10-K, filed with the Commission on March 30, 2004. +7. Kaden participated in the preparation and issuance of an audit report dated March +17, 2004, which was included in Daxor’s 10-K. +8. Although Respondents were aware of the registration requirement, at no point was +the Firm registered with the Public Company Accounting Oversight Board (“PCAOB”). +9. The Firm received $11,000 for conducting an audit of Daxor’s financial statements +for its fiscal year 2003, and for issuing an audit report on those financial statements. +The findings herein are made pursuant to Respondents’ Offer of Settlement and are not binding on any +other person or entity in this or any other proceeding. +2 +1 +C. VIOLATIONS +1. Section 4C(a) of the Exchange Act provides, in relevant part, that the Commission +“may censure any person, or deny, temporarily or permanently, to any person the privilege of +appearing or practicing before the Commission in any way, if that person is found by the +Commission … (1) not to possess the requisite qualifications to represent others … or (3) to ha ve +willfully violated, or willfully aided and abetted the violation of, any provision of the securities +laws or the rules and regulations issued thereunder.” +2. Rule 102(e)(1) of the Commission’s Rules of Practice provides that the +Commission “may censure a person or deny, temporarily or permanently, the privilege of +appearing or practicing before it in any way to any person who is found by the Commission ... (i) +not to possess the requisite qualifications to represent others … or ( iii) to have willfully violated … +any provision of the Federal securities laws or the rules and regulations thereunder.” +3. Section 102(a) of the Act provides that “it shall be unlawful for any person that is +not a registered public accounting firm to prepare or issue, or to participate in the preparation or +issuance of, any audit report with respect to any issuer.”2 +4. The provisions of Section 102(a) of the Act became effective on October 22, 2003.3 +5. Based on the conduct described above, the Firm willfully4 violated Section 102(a) +of the Act. +D. FINDI NGS +1. Based on the foregoing, the Commission finds that the Firm and Kaden did not +possess the requisite qualifications to represent others. +2. Based on the foregoing, the Commission finds that the Firm willfully violated +Section 102(a) of the Sarbanes-Oxley Act of 2002. +2 A violation of the Act or any rule that the PCAOB issues under the Act is treated for all purposes in the +same manner as a violation of the Exchange Act, including with respect to penalties. Sarbanes-Oxley Act of 2002, +15 U.S.C.A. § 7202(b)(1) (West 2002). +3 Section 102(a) became effective “[b]eginning 180 days after the date of the determination of the +Commission under Section 101(d)” of the Act that the PCAOB was prepared to undertake its statutory +responsibilities. The Commission made the required determination on April 25, 2003. See Order Regarding Section +101(d) of the Sarbanes-Oxley Act of 2002, Securities Act of 1933 Release No. 8223, Exchange Act Release No. +47746, 2003 WL 1956164 (Apr. 25, 2003). +4 “Willfully” as used in this Order means intentionally committing the act that constitutes the violation. +There is no requirement that the actor also be aware that he is violating a rule or statute. See Wonsover v. SEC, 205 +F.3d 408, 414 (D.C. Cir. 2000); Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965). +3 + +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondents’ Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +1. Frederick A. Kaden & Co +A. The Firm is denied the privilege of appearing or practicing before the +Commission as an accountant. +B. After one year from the date of this Order, the Firm may request that the +Commission consider its reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that the Firm’s work in the Firm’s practice before +the Commission will be reviewed either by the independent audit committee of the public +company for which the Firm works or in some other acceptable manner, as long as the Firm +practices before the Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) the Firm is registered with the PCAOB in accordance with the +Sarbanes-Oxley Act of 2002, and such registration continues to be effective. However, if +registration with the PCAOB is dependent upon reinstatement by the Commission, the +Commission will consider an application on its other merits; +(b) the Firm has resolved all disciplinary issues with the PCAOB, +and has complied with all terms and conditions of any sanctions imposed by the PCAOB (other +than reinstatement by the Commission); and +(c) the Firm acknowledges responsibility, as long as the Firm +appears or practices before the Commission as an independent accountant, to comply with all +requirements of the Commission and the PCAOB, including, but not limited to, all requirements +relating to registration, inspections, concurring partner reviews and quality control standards. +4 + +C. The Commission will consider an application by the Firm to resume +appearing or practicing before the Commission provided that the Firm’s state CPA license is +current and the Firm has resolved all other disciplinary issues with the applicable state boards of +accountancy. However, if state licensure is dependent on reinstatement by the Commission, the +Commission will consider an application on its other merits. The Commission’s review may +include consideration of, in addition to the matters referenced above, any other matters relating +to the Firm’s character, integrity, professional conduct, or qualifications to appear or practice +before the Commission. +2. Frederick A. Kaden, CPA +A. Kaden is censured. +B. Kaden may practice before the Commission as an independent accountant +provided that: +1. The public accounting firm with which he is associated is +registered with the PCAOB in accordance with the Act, and such registration continues to be +effective; and +2. He has submitted to the Commission staff (attention: Office of the +Chief Accountant) the PCAOB’s letter notifying the public accounting firm with which he is +associated that its registration application has been approved. + By the Commission. + N ancy M. Morris + S ecretary +5 diff --git a/raw/aaer/2008/AAER-2771.txt b/raw/aaer/2008/AAER-2771.txt new file mode 100644 index 0000000000000000000000000000000000000000..ebf874c2a4a5a4e814c6fc691934597ad1018ca4 --- /dev/null +++ b/raw/aaer/2008/AAER-2771.txt @@ -0,0 +1,203 @@ + + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57179 / January 22, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2771 / January 22, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12792 +In the Matter of +HALT, BUZAS & POWELL, +LTD., WAYNE A. POWELL, +CPA, AND STEVEN R. HALT, +CPA, +Respondents. +ORDER MAKING FINDINGS AND +IMPOSING REMEDIAL SANCTIONS +AND A CEASE-AND-DESIST ORDER +PURSUANT TO SECTIONS 4C AND 21C +OF THE SECURITIES EXCHANGE ACT +OF 1934 AND RULE 102(e) OF THE +COMMISSION’S RULES OF PRACTICE +I. +On September 13, 2007, the Securities and Exchange Commission (“Commission”) issued +an Order Instituting Administrative and Cease-And-Desist Proceedings Pursuant to Sections 4C and +21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of +Practice, and Notice of Hearing against Halt, Buzas & Powell, Ltd. (“the Firm” or “Halt, Buzas & +Powell”), Wayne A. Powell, CPA (“Powell”), and Steven R. Halt, CPA (“Halt”). The Firm, +Powell, and Halt will be referred to hereafter collectively as “Respondents.” +II. +Respondents have submitted an Offer of Settlement (“Offer”) 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 them and +the subject matter of these proceedings, which are admitted, Respondents consent to the entry of +this Order Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order +Pursuant to Sections 4C and 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the +Commission’s Rules of Practice (“Order”), as set forth below. +III. +On the basis of this Order and Respondents’ Offer, the Commission finds1 that: +A. RESPONDENTS +1. The Firm is a Virginia corporation and public accounting firm headquartered in +Alexandria, Virginia. The Firm prepared and issued audit reports dated August 11, 2004, and +October 11, 2004, in connection with its audits of American Utilicraft Corp. (“American +Utilicraft”). +2. Powell, 40, of Odenton, Maryland, is a certified public accountant licensed in +Maryland since 1989. As engagement partner on the American Utilicraft engagement, Powell +participated in the preparation and issuance of the August 11, 2004 and October 11, 2004 +American Utilicraft audit reports. +3. Halt, 55, of Fort Washington, Maryland, is a certified public accountant licensed in +Virginia since 1976. As concurring partner on the American Utilicraft engagement, Halt +participated in the preparation and issuance of the August 11, 2004 and October 11, 2004 +American Utilicraft audit reports. +B. FACTS +1. American Utilicraft is a Delaware Corporation based in Lawrenceville, Georgia. +During the relevant period, American Utilicraft’s common stock traded on the Pink Sheets. Its +common stock is registered with the Commission pursuant to Section 12(g) of the Securities +Exchange Act of 1934 (“Exchange Act”). American Utilicraft reported $286,550 in revenue and +total assets of $818,233 for its fiscal year ended 2003. +2. American Utilicraft has at all relevant times been an issuer as defined by the +Sarbanes-Oxley Act of 2002 (the “Act”). +3. Although Respondents were aware of the Public Company Accounting Oversight +Board (“PCAOB”) registration requirements, at no point did the Firm register with the PCAOB as +a public accounting firm. +4. The Firm audited the financial statements included in American Utilicraft’s annual +report for fiscal years 2001, 2002, and 2003 on Forms 10-KSB, filed with the Commission on +November 3, 2004 (for fiscal years 2001 and 2002) and on December 6, 2004 (for fiscal year +2003). +5. The Firm prepared and issued audit reports dated August 11, 2004, and October 11, +2004, which were included in American Utilicraft’s Forms 10-KSB. +The findings herein are made pursuant to Respondents’ Offer of Settlement and are not binding on any +other person or entity in this or any other proceeding. +2 +1 +6. Powell and Halt participated in auditing the financial statements included in +American Utilicraft’s annual reports for fiscal years 2001 through 2003 on Forms 10-KSB, filed +with the Commission on November 3, 2004 (for fiscal years 2001 and 2002) and on December 6, +2004 (for fiscal year 2003). +7. Powell and Halt participated in the preparation and issuance of audit reports dated +August 11, 2004, and October 11, 2004, which were included in American Utilicraft’s Form 10- +KSB. +8. Respondents were aware of the registration requirements and the October 22, 2003 +deadline for registration with the PCAOB when the Firm issued the August 11, 2004 and October +11, 2004 audit reports. +9. The Firm received $104,797 for conducting an audit of American Utilicraft’s +financial statements for its fiscal years 2001 through 2003, and for issuing an audit report on those +financial statements. +C. VIOLATIONS +1. Section 4C(a) of the Exchange Act provides, in relevant part, that the Commission +“may censure any person, or deny, temporarily or permanently, to any person the privilege of +appearing or practicing before the Commission in any way, if that person is found by the +Commission … (1) not to possess the requisite qualifications to represent others … or (3) to ha ve +willfully violated, or willfully aided and abetted the violation of, any provision of the securities +laws or the rules and regulations issued thereunder.” +2. Rule 102(e)(1) of the Commission’s Rules of Practice provides that the +Commission “may censure a person or deny, temporarily or permanently, the privilege of +appearing or practicing before it in any way to any person who is found by the Commission ... (i) +not to possess the requisite qualifications to represent others … or ( iii) to have willfully violated … +any provision of the Federal securities laws or the rules and regulations thereunder.” +3. Section 102(a) of the Act provides that “it shall be unlawful for any person that is +not a registered public accounting firm to prepare or issue, or to participate in the preparation or +issuance of, any audit report with respect to any issuer.”2 +A violation of the Act or any rule that the PCAOB issues under the Act is treated for all purposes in the +same manner as a violation of the Exchange Act, including with respect to penalties. Sarbanes-Oxley Act of 2002, +15 U.S.C.A. § 7202(b)(1) (West 2002). +3 +2 +4. The provisions of Section 102(a) of the Act became effective on October 22, 2003.3 +5. Based on the conduct described above, the Firm willfully4 violated Section 102(a) +of the Act. +D. FINDI NGS +1. Based on the foregoing, the Commission finds that the Firm, Powell and Halt did +not possess the requisite qualifications to represent others. +2. Based on the foregoing, the Commission finds that the Firm willfully violated +Section 102(a) of the Sarbanes-Oxley Act of 2002. +. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondents’ Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +1. Halt, Buzas & Powell, Ltd. +A. The Firm shall cease and desist from committing or causing any violations +and any future violations of Section 102(a) of the Act. +B. The Firm is denied the privilege of appearing or practicing before the +Commission as an accountant. +C. After one year from the date of this Order, the Firm may request that the +Commission consider its reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that the Firm’s work in the Firm’s practice before +the Commission will be reviewed either by the independent audit committee of the public +company for which the Firm works or in some other acceptable manner, as long as the Firm +practices before the Commission in this capacity; and/or +3 Section 102(a) became effective “[b]eginning 180 days after the date of the determination of the +Commission under Section 101(d)” of the Act that the PCAOB was prepared to undertake its statutory +responsibilities. The Commission made the required determination on April 25, 2003. See Order Regarding Section +101(d) of the Sarbanes-Oxley Act of 2002, Securities Act of 1933 Release No. 8223, Exchange Act Release No. +47746, 2003 WL 1956164 (Apr. 25, 2003). +4 “Willfully” as used in this Order means intentionally committing the act that constitutes the violation. +There is no requirement that the actor also be aware that he is violating a rule or statute. See Wonsover v. SEC, 205 +F.3d 408, 414 (D.C. Cir. 2000); Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965). +4 + +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) the Firm is registered with the PCAOB in accordance with the +Sarbanes-Oxley Act of 2002, and such registration continues to be effective. However, if +registration with the PCAOB is dependent upon reinstatement by the Commission, the +Commission will consider an application on its other merits; +(b) the Firm has resolved all disciplinary issues with the PCAOB, +and has complied with all terms and conditions of any sanctions imposed by the PCAOB (other +than reinstatement by the Commission); and +(c) the Firm acknowledges responsibility, as long as the Firm +appears or practices before the Commission as an independent accountant, to comply with all +requirements of the Commission and the PCAOB, including, but not limited to, all requirements +relating to registration, inspections, concurring partner reviews and quality control standards. +D. The Commission will consider an application by the Firm to resume +appearing or practicing before the Commission provided that the Firm’s state CPA license is +current and the Firm has resolved all other disciplinary issues with the applicable state boards of +accountancy. However, if state licensure is dependent on reinstatement by the Commission, the +Commission will consider an application on its other merits. The Commission’s review may +include consideration of, in addition to the matters referenced above, any other matters relating +to the Firm’s character, integrity, professional conduct, or qualifications to appear or practice +before the Commission. +E. IT IS FURTHER ORDERED that Halt, Buzas & Powell shall, within 21 +days of the entry of this Order, pay disgorgement of $83,837 and prejudgment interest of $17,874 +to the Securities and Exchange Commission. If timely payment is not made, additional interest +shall accrue pursuant to SEC Rule of Practice 600. Payment shall be: (A) made by 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-delivered or mailed to the Office of +Financial Management, Securities and Exchange Commission, Operations Center, 6432 General +Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies +Halt, Buzas & Powell 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 Christopher Conte, Division +of Enforcement, Securities and Exchange Commission, 100 F Street N.E., Washington, D.C. +20549-4631. +5 + +2. Wayne A. Powell, CPA +A. Powell is censured. +B. Powell may practice before the Commission as an independent accountant +provided that: +1. The public accounting firm with which he is associated is +registered with the PCAOB in accordance with the Act, and such registration continues to be +effective; and +2. He has submitted to the Commission staff (Attention: Office of the +Chief Accountant) the PCAOB’s letter notifying the public accounting firm with which he is +associated that its registration application has been approved. +3. Steven R. Halt, CPA +A. Halt is censured. +B. Halt may practice before the Commission as an independent accountant +provided that: +1. The public accounting firm with which he is associated is registered +with the PCAOB in accordance with the Act, and such registration continues to be effective; and +2. He has submitted to the Commission staff (Attention: Office of the +Chief Accountant) the PCAOB’s letter notifying the public accounting firm with which he is +associated that its registration application has been approved. + By the Commission. + N ancy M. Morris + S ecretary +6 diff --git a/raw/aaer/2008/AAER-2773.txt b/raw/aaer/2008/AAER-2773.txt new file mode 100644 index 0000000000000000000000000000000000000000..235b49fbddbce9b0c786b4b2862d64da7cffebc8 --- /dev/null +++ b/raw/aaer/2008/AAER-2773.txt @@ -0,0 +1,1369 @@ + + + + + + + + + + + + + + + + SEC.gov | Michael K. Openshaw + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/502761","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Openshaw + + + + + + + + + + + + Michael K. Openshaw + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20440 / January 25, 2008 + + Accounting and Auditing Enforcement Release No. 2773 / January 25, 2008 + + SEC v. Michael K. Openshaw , United States District Court for the District of Utah (Civil Action No. 2:07cv0977) (December 17, 2007) + + + + The Securities and Exchange Commission announced that on January 23, 2008, the United States District Court for the District of Utah entered a Final Judgment against Michael K. Openshaw for violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13a-14, 13b2-1 and 13b2-2 thereunder, and for aiding and abetting 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. + + The Complaint alleged that from September through December of 2004, Openshaw, who was then CFO of Q Comm International, a Utah corporation, completed five unauthorized bank wires, transferring a total of $1,525,000 to a Q Comm vendor. It is alleged that Openshaw wired these funds without approval and without disclosing the transfers to the other members of Q Comm's management or its auditors. The Complaint also alleged that Openshaw concealed the transfers through improper accounting entries and by altering documents. The Complaint further alleged that Openshaw's acts caused Q Comm's financial statements for the year ended December 31, 2004 and the quarter ended March 31, 2005 to be materially misleading and to deviate from Generally Accepted Accounting Principles. Finally, the Complaint alleged that Openshaw falsely certified Q Comm's annual report for the year ended December 31, 2004. + + Openshaw consented to the entry of the final judgment without admitting or denying the allegations in the Complaint. The final judgment permanently enjoined Openshaw from future violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13a-14, 13b2-1 and 13b2-2 thereunder, and from aiding and abetting 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 and barring him from serving as an officer or director of a publicly-held company. + + + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + James Charles Blue, Randy Cook, and Victor Campbell + + + + + + + + + + + + James Charles Blue, Randy Cook, and Victor Campbell + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20446 / February 1, 2008 + + Accounting and Auditing Enforcement Release No. 2780 / February 1, 2008 + + United States Securities and Exchange Commission v. James Charles Blue, Randy Cook, and Victor Campbell , 07-cv-00095-REB-MEH (D. Colo. filed January 16, 2007) + + RANDY COOK, FORMER PRESIDENT OF UNITED AGRI PRODUCTS NORTH AMERICAN OPERATIONS, SETTLES SEC LITIGATION BY CONSENTING TO A PERMANENT INJUNCTION AND AGREEING TO PAY $367,429.64 IN DISGORGEMENT AND PENALTIES + + The U.S. Securities and Exchange Commission (Commission) today announced that, on February 1, 2008, the Commission filed a Consent and proposed settled Final Judgment against Randy Cook, former President of North American Operations of United Agri Products ("UAP"), in United States Securities and Exchange Commission v. James Charles Blue, Randy Cook, and Victor Campbell , 07-cv-00095-REB-MEH (D. Colo. filed Jan. 16, 2007). + + The Commission's Complaint in this case alleged that Cook and his co-defendants, former UAP executives James Charles Blue and Victor Campbell, engaged in misconduct at UAP, a former subsidiary of ConAgra Foods, Inc., which resulted in the overstatement of UAP's operating results in 1999 and 2000. Specifically, the Complaint alleged that Cook participated in improper accounting practices at UAP, including: (1) the improper recognition of revenue from deferred delivery sales and associated rebates from UAP's suppliers; (2) the failure to record bad debt expenses when realized; and (3) the improper recognition of revenue from advance vendor rebates. As alleged, Cook's misconduct caused ConAgra, UAP's parent, to file materially false and misleading financial statements with the Commission in the company's annual reports for 1999 and 2000. According to the Complaint, Cook obtained inflated bonus and other profit-based compensation as a result of his misconduct. + + Cook, without admitting or denying the allegations in the Commission's Complaint, consented to the entry of a Final Judgment which would order Cook to pay $191,635 in disgorgement and pre-judgment interest thereon in the amount of $140,794.64, together with a civil money penalty in the amount of $35,000. The proposed Final Judgment also will permanently enjoin him from violating the internal controls and books and records provisions of the federal securities laws (Sections 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 13b2-1), and from aiding and abetting violations of the reporting, books and records, and internal controls provisions of the Exchange Act (Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20 and 13a-1). The SEC has moved to dismiss with prejudice the charges against Cook for violating and aiding and abetting violations of Exchange Act Section 10(b) and Rule 10b-5 contingent on entry of the Final Judgment and Cook's compliance with its terms and conditions. The settlement is subject to the Court's approval. + + Cook's co-defendants, James Charles Blue, the former President and Chief Operating Officer of ConAgra Agri Products Companies, and Victor Campbell, UAP's former Controller, previously agreed to settle the Commission's action without admitting or denying the allegations in the Complaint, and final judgments were entered as to them on January 17, 2007. + + See also Litigation Release No. 19969 (January 17, 2007). + + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Gardner, et al. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/502806","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Gardner, et al. + + + + + + + + + + + + Stephen P. Gardner, et al. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20449 / February 6, 2008 + + Accounting and Auditing Enforcement Release No. 2781 / February 6, 2008 + + Securities and Exchange Commission v. Stephen P. Gardner, et al. , Civil Action No. 04 CV 2002 JAH (RBB) (S.D. Cal.) (October 5, 2004) + + Former KPMG Consulting Principal Settles SEC Charges for Role in Peregrine Accounting Fraud + + The Securities and Exchange Commission today filed a settled enforcement action against a former principal and managing director of KPMG Consulting LLC for his role in deceiving investors in a major corporate accounting fraud. + + Larry A. Rodda was charged by the SEC in 2004 with aiding and abetting a massive financial fraud orchestrated by senior officers at Peregrine Systems, Inc., a San Diego software company that has since been acquired by Hewlett-Packard Company. According to the SEC's complaint, Rodda knowingly signed four sham software license agreements that allowed Peregrine to improperly record approximately $22 million in revenue. Rodda has agreed to pay an $80,000 financial penalty to settle the SEC's charges. + + According to the SEC's complaint, Rodda and eight other defendants fraudulently inflated the product revenues Peregrine reported in SEC filings and elsewhere from its fiscal year 2000 through the third quarter of its fiscal year 2002. In February 2003, Peregrine restated its financial results for 11 quarters, reducing previously reported revenue of $1.34 billion by more than $507 million. + + The sham software license agreements signed by Rodda made it appear that Peregrine had actually sold software to end-users through Rodda's employer, KPMG Consulting. In fact, based on oral side agreements with a Peregrine executive, Rodda knew that his firm would have no payment obligation on the software license agreements. The Commission also alleges that Rodda helped Peregrine conceal the true nature of one of these agreements from Peregrine's auditors at Arthur Andersen when he signed a false audit confirmation. + + Rodda pleaded guilty in November 2004 to criminal charges brought by the U.S. Attorney's Office for the Southern District of California. He pleaded guilty to one count of conspiracy to commit securities fraud, wire fraud, bank fraud and falsification of the books, records and accounts of a public corporation. On January 23, 2008, Rodda was sentenced to six months in the custody of the Bureau of Prisons, six months of home detention, and two years of supervised release. He was ordered to pay a $100 mandatory special assessment. Twelve other individuals - including Peregrine's former CEO and CFO - have pleaded guilty in the ongoing criminal case. + + Without admitting or denying the SEC's allegations, Rodda agreed to be enjoined from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, in addition to paying the financial penalty. The settlement is subject to the approval of the U.S. District Court for the Southern District of California. + + The Commission acknowledges the assistance of the U.S. Attorney's Office for the Southern District of California and the FBI. + + Additional materials: Litigation Release No. 18919 . + + + + + + + SEC Complaint in this matter --> + +   + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2782.txt b/raw/aaer/2008/AAER-2782.txt new file mode 100644 index 0000000000000000000000000000000000000000..330190d0956342bc13f449cb6ba90abd81eb110a --- /dev/null +++ b/raw/aaer/2008/AAER-2782.txt @@ -0,0 +1,105 @@ + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57282 / February 6, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2782 / February 6, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12949 +: +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +WILLIAM PATRICK : 102(e) OF THE COMMISSION’S RULES OF + BORCHARD (CPA), : PRACTICE, MAKING FINDINGS, AND +: IMPOSING REMEDIAL SANCTIONS + Res pondent. : +: +____________________________________ : +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against William +Patrick Borchard (“Respondent” or “Borchard”) pursuant to Rule 102(e)(3)(i) of the Commission’s +Rules of Practice.1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) 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 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. +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 him and the subject matter of these +proceedings, and the findings contained in Section III.2. below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) +of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Borchard, age 28, is and has been a certified public accountant licensed to +practice in the State of California since September 15, 2006. He worked at PricewaterhouseCoopers +LLP (“PWC”) from 2001 until 2007. +2. On January 15, 2008, the Commission filed a complaint against Borchard in +SEC v. Gregory B. Raben, et al. (Civil Action No. CV-08-0250-EMC). On January 25, 2008, the +court entered an order permanently enjoining Borchard, by consent, from future violations of +Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 +thereunder. Borchard was also ordered to pay a $20,835.57 civil money penalty. +3. The Commission’s complaint alleged, among other things, that Borchard +passed material, non-public information that Borchard learned through his job on to a PWC +colleague, who then traded on the inside information. Specifically, the complaint alleged that, +from February to October 2006, Borchard provided his PWC colleague with material, non-public +information about six publicly-held companies that Borchard had learned were potential +acquisition targets, and that Borchard’s PWC colleague then traded on the basis of Borchard’s +material, non-public information, reaping ill-gotten gains of over $20,000.00. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Borchard’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Borchard is suspended from appearing or practicing before the Commission as an +accountant. +B. After three years from the date of this order, Respondent may request that the +Commission consider his reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +2 + +an application must satisfy the Commission that Respondent’s work in his practice before the +Commission will be reviewed either by the independent audit committee of the public company +for which he works or in some other acceptable manner, as long as he practices before the +Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which he is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; +(b) Respondent, or the registered public accounting firm with which he +is associated, has been inspected by the Board and that inspection did not identify any criticisms +of or potential defects in Respondent’s or the firm’s quality control system that would indicate +that Respondent will not receive appropriate supervision; +(c) Respondent has resolved all disciplinary issues with the Board, and +has complied with all terms and conditions of any sanctions imposed by the Board (other than +reinstatement by the Commission); and +(d) Respondent acknowledges his responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not limited to, all +requirements relating to registration, inspections, concurring partner reviews and quality control +standards. +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that his state CPA license is +current and he has resolved all other disciplinary issues with the applicable state boards of +accountancy. However, if state licensure is dependent on reinstatement by the +Commission, the Commission will consider an application on its other merits. The +Commission’s review may include consideration of, in addition to the matters referenced +above, any other matters relating to Respondent’s character, integrity, professional conduct, +or qualifications to appear or practice before the Commission. + By the Commission. + N ancy M. Morris + S ecretary +3 diff --git a/raw/aaer/2008/AAER-2785.txt b/raw/aaer/2008/AAER-2785.txt new file mode 100644 index 0000000000000000000000000000000000000000..4c98bf2b7047c5be9a51c36573e48fca5947b821 --- /dev/null +++ b/raw/aaer/2008/AAER-2785.txt @@ -0,0 +1,258 @@ +UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57333 / February 14, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2785 / February 14, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12957 +ORDER INSTITUTING CEASE-AND-DESIST +In the Matter of PROCEEDINGS PURSUANT TO SECTION +21C OF THE SECURITIES EXCHANGE ACT +WESTINGHOUSE AIR BRAKE OF 1934, MAKING FINDINGS, AND +TECHNOLOGIES CORPORATION, IMPOSING A CEASE-AND-DESIST ORDER +Respondent. +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 Westinghouse Air Brake Technologies +Corporation ("Wabtec" or "Respondent"). +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer of +Settlement (the "Offer") 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 Respondent and the subject matter of these proceedings, +which are admitted, Respondent consents 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 ("Order"), as set forth below.1 +On February 14, 2008, the Commission filed a complaint against Wabtec in the United States District +Court for the Eastern District of Pennsylvania alleging violations of Sections 13(b)(2)(A), 13(b)(2)(B) and 30A of +the Exchange Act and seeking the imposition of a civil penalty. Without admitting or denying the Commission's +allegations, Wabtec has consented to the entry of a final judgment that requires Wabtec to pay a civil penalty of +$87,000. See SEC v. Westinghouse Air Brake Technologies Corporation, Civil Action No. 08-CV-706 (E.D.Pa.). +1 +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +Summary +1. This matter involves violations of the Foreign Corrupt Practices Act of 1977 +("FCPA") by Westinghouse Air Brake Technologies Corporation. From at least 2001 through +2005, Wabtec, through its Indian subsidiary, Pioneer Friction Limited ("Pioneer"), made +unlawful payments to employees of the Indian government in connection with Pioneer’s efforts +to obtain and retain business from the Indian national railway system. During this time period, +Pioneer made over $137,400 in improper cash payments to employees of the Indian government +in order to have its competitive bids for government business granted or considered. None of +these payments were accurately reflected on Wabtec’s books and records and Wabtec failed to +prevent or detect these payments. +Respondent + 2. Wabtec, incorporated in Delaware and headquartered in western Pennsylvania, +manufactures brake subsystems and related products for locomotives, freight cars and passenger +vehicles, among other things. Wabtec employs approximately 5,000 people in 40 manufacturing +plants, service centers, and sales offices located in the United States, Canada, Mexico, Europe, +Asia, Australia and South America. Wabtec's stock is registered pursuant to Section 12(b) of the +Exchange Act and is listed on the New York Stock Exchange. Wabtec files reports with the +Commission pursuant to Section 13 of the Exchange Act. +Other Relevant Entity +3. Pioneer Friction Limited, incorporated and headquartered in India, manufactures +low and high friction brake blocks for rail operations. Pioneer is a fourth tier, wholly-owned +subsidiary of Wabtec. Two of the intermediate subsidiaries are Australian companies which +are, in turn, owned by a U.S. holding company. Pioneer’s financial results are reported on a +consolidated basis as part of Wabtec’s consolidated financial statements. +Facts +A. The Unlawful Payments +4. Pioneer sells brake blocks in India to Original Equipment Manufacturers +("OEM") and aftermarket customers. The OEM market includes train car manufacturers owned +or controlled by the Indian government. The national railway system in India is controlled by +the Indian government through the Ministry of Railroads ("MOR"). The Indian Railway Board +("IRB") is the operating arm of the MOR. The IRB includes sixteen "Zonal Railways.” +2 + +5. The IRB and Zonal Railways solicit sealed bids for specific quantities of certain +low friction products from various companies located in India (the "tender process"). The IRB +and Zonal Railways award the contract to the lowest bidder (the "primary contract") and notify +the higher bidders of the lowest bid. Because the IRB's and Zonal Railways' requirements often +exceed the production capacity of any single manufacturer, after awarding the contract to the +lowest bidder, the IRB engages in negotiations with the higher bidders. In most cases, the IRB +will award the higher bidders some business at the low bidder's price. +6. From at least 2001 through 2005, employees of the IRB and Zonal Railways +solicited from Pioneer two types of cash payments in connection with the tender process. First, +during the times that the IRB was evaluating various bids received from Pioneer and others, +employees of the IRB and Zonal Railways solicited cash payments from Pioneer in order for the +IRB to approve Pioneer’s contract price (hereinafter referred to as the "IRB Payments"). For the +years 2001 through 2004, Pioneer paid approximately $85,000 in cash to employees of the IRB +to obtain business from the IRB. In 2005, Pioneer paid $21,217 in IRB payments to employees +of the IRB for the same purpose. +7. In addition, employees of the IRB and Zonal Railways solicited payments from +Pioneer to ensure that the IRB and Zonal Railways would consider Pioneer's bids in the tender +process and that Pioneer would be given the opportunity to sell additional quantities of certain +products at the awarded price without going through a new tender process (hereinafter referred to +as the "Ordering Payments"). For years 2001 through 2004, Pioneer paid approximately $25,000 +in cash in Ordering Payments to employees of the IRB and Zonal Railways for consideration of +its bids and to obtain other business. In 2005, Pioneer paid approximately $6,250 in cash in +Ordering Payments to employees of the IRB and Zonal Railways for the same purpose. +8. In 2005, the IRB awarded Pioneer the primary contract and other related +contracts. As a result of being awarded the contracts in 2005, Pioneer realized profits of +$259,000. +9. Pioneer’s Chairman, a non-U.S. citizen and resident who is also a Vice President +of Wabtec, knew about and did nothing to prevent the Ordering Payments and the IRB +Payments. +B. Improper Recording of the Unlawful Payments +10. Pioneer made the Ordering Payments and IRB Payments with cash accumulated +throughout the year primarily from "marketing agents." Marketing agents are typically +companies that send invoices and collect payment on behalf of another company that has +provided some service or sold some product. To generate the necessary cash, Pioneer asked +certain marketing agents to invoice it for services rendered in connection with particular IRB and +Zonal Railways contracts. In fact, the invoices were fictitious. No one rendered any services; +the sole purpose of the invoices was to generate cash to make the unlawful payments. Pioneer +issued checks to the marketing agent for the amount of the invoice less withholdings for taxes. +3 + +The marketing agent then returned cash to Pioneer, less a service commission. Other marketing +agents submitted invoices for materials that Pioneer did not receive in whole or in part. Pioneer +issued checks to the marketing agent for the amount of the invoice and the marketing agent +returned cash (less the service fee and any amount owed for any material actually received) to +Pioneer. +11. Pioneer maintained the cash generated through the use of marketing agents in a +locked metal box. Pioneer documented each unlawful payment on a voucher which was +maintained with the cash. Pioneer also kept track of the unlawful payments on a spreadsheet. +The vouchers and the spreadsheet were maintained separately from Pioneer's other books and +records and were not subject to review during annual audits. +12. Under Indian law, records generated in the normal course of business must be +maintained for ten years. Wabtec requires its foreign subsidiaries to follow applicable local laws +with respect to record retention. Despite these requirements, Pioneer destroyed all records +relating to the Ordering Payments and the IRB Payments after one year, and records do not exist +prior to 2005. +13. Pioneer failed to properly account for the unlawful payments in its books and +records. Pioneer recorded the marketing agents' invoices as "consulting" expenses and supplies. +In fact, Pioneer did not receive any services or supplies; the sole purpose of the invoice was to +raise cash. Moreover, although Pioneer maintained records regarding the unlawful payments, +Pioneer did not use those records to account for the unlawful payments. Wabtec’s financial +statements are prepared on a consolidated basis. Accordingly, Wabtec’s books, records and +accounts did not reflect the Ordering Payments or IRB Payments. +C. Wabtec’s Lack of Internal Controls +14. From 2001 through July 2006, although Wabtec's Code of Conduct prohibited +giving anything of value to improperly influence any person in a business relationship with +Wabtec, it did not have a FCPA policy or provide training or education to any of its employees, +agents or subsidiaries regarding the requirements of the FCPA. Wabtec also failed to establish a +program to monitor its employees, agents and subsidiaries for compliance with the FCPA. +15. In January 2006, Wabtec conducted an internal investigation of Pioneer and, upon +its completion, voluntarily disclosed the facts and documents relating to this matter to the +Commission staff. +Legal Analysis +16. The FCPA, enacted in 1977, added Section 30A to the Exchange Act in order to +prohibit public companies, or any officer, director, employee, or agent of a public company +from, among other things, making improper payments to foreign officials for the purpose of +influencing their decision in order to obtain or retain business. +4 + +17. In each of the transactions described above, Wabtec, through its subsidiary, +intended to make, and did make, the Ordering Payments and IRB Payments to employees of the +government of India in order to obtain or retain business for Wabtec. As a result, Wabtec +violated Section 30A of the Exchange Act. +18. The FCPA also added Exchange Act Section 13(b)(2)(A) to require public +companies to make and keep books, records, and accounts, which, in reasonable detail, +accurately and fairly reflect the transactions and dispositions of the assets of the issuer, and +Exchange Act Section 13(b)(2)(B) to require such companies to devise and maintain a system +of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions +are executed in accordance with management's general or specific authorization; and (ii) +transactions are recorded as necessary to permit preparation of financial statements in +conformity with generally accepted accounting principles or any other criteria applicable to +such statements, and to maintain accountability for assets. +19. As detailed above, Pioneer did not properly record the payments that it made to +employees of the government of India in its books. As a result, Wabtec’s books, records, and +accounts did not, in reasonable detail, accurately reflect its transactions and dispositions of the +assets. As a result, Wabtec violated Section 13(b)(2)(A) of the Exchange Act. +20. In addition, Wabtec failed to devise and maintain a system of internal accounting +controls sufficient to ensure that its employees complied with the FCPA. As a result, Wabtec +violated Section 13(b)(2)(B) of the Exchange Act. +Wabtec’s Remedial Efforts +21. In determining to accept the Offer, the Commission considered remedial acts +undertaken by Respondent and cooperation afforded the Commission staff. +IV. +Undertakings +Respondent undertakes to: + Independent Compliance Consultant +22. Retain within 60 days of the issuance of the Order, an independent compliance +consultant ("ICC"), not unacceptable to the staff of the Commission, to review and evaluate +Wabtec's internal controls, record-keeping, and financial reporting policies and procedures as they +relate to Wabtec's compliance with the books and records, internal accounting controls, and anti- +bribery provisions of the FCPA, codified at Sections 13(b)(2)(A), 13(b)(2)(B), and 30A of the +Exchange Act and other applicable foreign bribery laws. The ICC's compensation and all related +5 + +expenses shall be borne exclusively by Wabtec. Wabtec shall cooperate fully with the ICC and +shall provide the ICC with access to its files, books and records, and personnel as reasonably +requested for the review; +23. Require that the ICC issue a report, within 60 days after being retained, +summarizing the review and recommending policies and procedures reasonably designed to +ensure compliance with the federal securities laws as they relate to the FCPA. Wabtec shall +require that the ICC transmit a copy of the report to the Commission staff; +24. Adopt all recommendations in the report of the ICC; provided, however, that +within 60 days after the ICC serves that report, Wabtec shall, in writing, advise the ICC and the +Commission staff of any recommendation that it considers to be unduly burdensome, +impractical, or costly. With respect to any recommendation that Wabtec considers unduly +burdensome, impractical or costly, Wabtec need not adopt that recommendation at the time but +shall propose in writing an alternative policy, procedure or system designed to achieve the same +objective or purpose. As to any recommendation on which Wabtec and the ICC do not agree, +such parties shall attempt in good faith to reach an agreement within 60 days after Wabtec serves +the written advice. In the event Wabtec and the ICC are unable to agree on an alternative +proposal, Wabtec will abide by the determinations of the ICC; and +25. Require the ICC to enter into an agreement that provides that for the period of +engagement and for a period of two years from completion of the engagement, the ICC shall not +enter into any employment, consultant, attorney-client, auditing or other professional +relationship with Wabtec, or any of its present or former affiliates, directors, officers, employees, +or agents acting in their capacity. The agreement will also provide that the ICC will require that +any firm with which he/she is affiliated or of which he/she is a member, and any person engaged +to assist the ICC in performance of his/her duties under this Order shall not, without prior written +consent of the Philadelphia Regional Office, enter into any employment, consultant, attorney- +client, auditing or other professional relationship with Wabtec, or any of its present or former +affiliates, directors, officers, employees, or agents acting in their capacity as such for the period +of the engagement and for a period of two years after the engagement. +26. Wabtec: (i) shall not have the authority to terminate the ICC, without the prior +written approval of the staff of the Commission; (ii) shall compensate the ICC, and persons +engaged to assist the ICC, for services rendered pursuant to the Order at their reasonable and +customary rates; and (iii) shall not be in and shall not have an attorney-client relationship with +the ICC and shall not seek to invoke the attorney-client or any other doctrine or privilege to +prevent the ICC from transmitting any information, reports, or documents to the Commission or +the Commission’s staff. +Certification +27. Wabtec agrees to certify in writing to the staff (at the address set forth herein), +within twelve months of the issuance of the Order, that Wabtec has fully adopted and complied +6 + +in all material respects with the undertakings set forth in paragraphs 22 through 26 above and +with the recommendations of the ICC, or in the event of material non-adoption or non- +compliance shall describe such material non-adoption and non-compliance. +Recordkeeping +28. Wabtec shall preserve for a period of not less than six years from the end of the +fiscal year last used, the first two years in an easily accessible place, any record of its compliance +with the undertakings set forth in paragraphs 22 through 26 above. +Extension of Time +29. For good cause shown, the staff of the Commission may extend any of the +procedural dates set forth above. +V. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Wabtec's Offer. +Accordingly, it is hereby ORDERED that: +A. Respondent Wabtec cease and desist from committing or causing any violations and +any future violations of Sections 13(b)(2)(A), 13(b)(2)(B), and 30A of the Exchange Act. +B. Respondent shall comply with the undertakings enumerated in Section IV. above. +C. IT IS FURTHERED ORDERED that Respondent shall, within ten days of the +entry of this Order, pay disgorgement and prejudgment interest in the total amount of $288,351, +consisting of $259,000 in disgorgement and $29,351 in prejudgment interest, to the United States +Treasury. Such payment shall be: (A) made by 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-delivered or mailed to the Office of Financial Management, +Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, +Alexandria, VA 22312; and (D) submitted under cover letter that identifies Wabtec 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 Elaine C. Greenberg, Associate Regional +Director, Division of Enforcement, Securities and Exchange Commission, Philadelphia Regional +Office, 701 Market Street, Suite 2000, Philadelphia, PA 19106. +By the Commission. + N ancy M. Morris +7 + + S ecretary +8 diff --git a/raw/aaer/2008/AAER-2786.pdf b/raw/aaer/2008/AAER-2786.pdf new file mode 100644 index 0000000000000000000000000000000000000000..c84edad4791fd923c9c7336ae8c700e1ea20a73b Binary files /dev/null and b/raw/aaer/2008/AAER-2786.pdf differ diff --git a/raw/aaer/2008/AAER-2787.txt b/raw/aaer/2008/AAER-2787.txt new file mode 100644 index 0000000000000000000000000000000000000000..e2d867d76cb6c8a0fa27429bf35da5f9b442817e --- /dev/null +++ b/raw/aaer/2008/AAER-2787.txt @@ -0,0 +1,101 @@ + + + + + + + + + + +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57339 / February 15, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2787 / February 15, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-10354 +: ORDER GRANTING APPLICATION FOR +: REINSTATEMENT TO APPEAR AND PRACTICEIn the Matter of : BEFORE THE COMMISSION AS AN ACCOUNTANT +: RESPONSIBLE FOR THE PREPARATION OR Jeffrey M. Yonkers, CPA : REVIEW OF FINANCIAL STATEMENTS REQUIRED +: TO BE FILED WITH THE COMMISSION +On July 27, 2001, Jeffrey M. Yonkers, CPA (“Yonkers”) was denied the privilege of +appearing or practicing as an accountant before the Commission as a result of settled public +administrative proceedings instituted by the Commission against him pursuant to Rule 102(e) of +the Commission's Rules of Practice.1 Yonkers consented to the entry of the order without +admitting or denying the findings therein. This order is issued in response to Yonkers’ +application for reinstatement to appear and practice before the Commission as an accountant +responsible for the preparation or review of financial statements required to be filed with the +Commission. +The Commission alleged that the financial statements of Detour Magazine, Inc. +(“Detour”) contained in their filings with the Commission during 1997 and 1998, as audited by +Yonkers and others, materially misrepresented the company’s financial condition and results of +operation. Based upon his conduct dur ing the audits of Detour’s financial statement, the +Commission determined that Yonkers had willfully violated Section 10A of the Securities +Exchange Act of 1934 (“Exchange Act”) and willfully aided and abetted Detour’s violations of +Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder. The Commission +also determined that Yonkers engaged in improper professional conduct under Rule 102(e) of the +Commission’s Rules of Practice. +1 See Accounting and Auditing Enforcement Release No. 1428 dated July 27, 2001. Yonkers was permitted, +pursuant to the order, to apply for reinstatement after one year upon making certain showings. + + + + + + + + + + + + + + + + + + +In his capacity as a preparer or reviewer, or as a person responsible for the preparation or +review, of financial statements of a public company to be filed with the Commission, Yonkers +attests that he will undertake to have his work reviewed by the independent audit committee of +any company for which he works, or in some other manner acceptable to the Commission, while +practicing before the Commission in this capacity. Yonkers is not, at this time, seeking to appear +or practice before the Commission as an independent accountant. If he should wish to resume +appearing and practicing before the Commission as an independent accountant, he will be +required to submit an application to the Commission showing that he has complied and will +comply with the terms of the original suspension order in this regard. Therefore, Yonkers’ +suspension from practice before the Commission as an independent accountant continues in +effect until the Commission determines that a sufficient showing has been made in this regard in +accordance with the terms of the original suspension order. +Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for +reinstatement, and provides that the Commission may reinstate the privilege to appear and +practice before the Commission “for good cause shown.” +2 This “good cause” determination is +necessarily highly fact specific. +On the basis of information supplied, representations made, and undertakings agreed to +by Yonkers, it appears that he has complied with the terms of the July 27, 2001 order suspending +him from appearing or practicing before the Commission as an accountant, that no information +has come to the attention of the Commission relating to his character, integrity, professional +conduct or qualifications to practice before the Commission that would be a basis for adverse +action against him pursuant to Rule 102(e) of the Commission's Rules of Practice, and that +Yonkers, by undertaking to have his work reviewed by the independent audit committee of any +company for which he works, or in some other manner acceptable to the Commission, in his +practice before the Commission as a preparer or reviewer of financial statements required to be +filed with the Commission, has shown good cause for reinstatement. Therefore, it is accordingly, +ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that +Jeffrey M. Yonkers, CPA is hereby reinstated to appear and practice before the Commission as +an accountant responsible for the preparation or review of financial statements required to be +filed with the Commission. +By the Commission. +Nancy M. Morris +Secretary +2 Rule 102(e)(5)(i) provides: +“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) +of this section may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a +hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated +by the Commission for good cause shown.” 17 C.F.R. § 201.102(e)(5)(i). +2 + \ No newline at end of file diff --git a/raw/aaer/2008/AAER-2789.txt b/raw/aaer/2008/AAER-2789.txt new file mode 100644 index 0000000000000000000000000000000000000000..270b8abf9b7e49cd8e7b751490df73694ebc7ae1 --- /dev/null +++ b/raw/aaer/2008/AAER-2789.txt @@ -0,0 +1,84 @@ +UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57353 / February 19, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2789 / February 19, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12964 +: ORDER INSTITUTING +In the Matter of : ADMINISTRATIVE PROCEEDINGS +: PURSUANT TO RULE 102(e) OF THE + Michael K. Openshaw, CPA : COMMISSION’S RULES OF +: PRACTICE, MAKING FINDINGS, AND +Respondent. : IMPOSING REMEDIAL SANCTIONS +: +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against Michael +K. Openshaw, (“Respondent” or “Openshaw”) pursuant to Rule 102(e)(3)(i) of the Commission’s +Rules of Practice. 1 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) 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 him and the subject matter of these +proceedings, and the findings contained in Section III.C. below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant Rule 102(e) of +the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +A. Openshaw, age 48, became a certified public accountant licensed to practice +in the state of Utah in 1984. Openshaw’s CPA license expired on September 30, 1996. Openshaw +served as Chief Financial Officer of Q Comm International, Inc., from April 1, 2001, until May 31, +2005. Openshaw is a resident of Draper, Utah. +B. Q Comm International, Inc. was, at all relevant times, a Utah corporation +based in Orem, Utah. Q Comm is in the business of purchasing and reselling prepaid +telecommunication products and services, primarily prepaid wireless telephone talk time and +prepaid long distance minutes. In general, these prepaid products are sold in the form of a personal +identification number, or “PIN.” Q Comm purchases PINs from telecommunications carriers and +distributes them through a network of retail outlets. Q Comm stock was registered with the +Commission under Section 12(b) of the Exchange Act since January 13, 2000 and at all times +relevant to these proceedings. Q Comm stock traded on the American Stock Exchange under the +symbol “QMM” at all times relevant to these proceedings. +C. On December 17, 2007, the Commission filed a complaint against +Openshaw in SEC v. Michael K. Openshaw, (Civil Action No. 2:07-cv-0977 in the United States +District Court for the District of Utah). On January 23, 2008, the court entered an order +permanently enjoining Openshaw, by consent, from future violations of Sections 10(b) and +13(b)(5) of the Exchange Act and Rules 10b-5, 13a-14, 13b2-1 and 13b2-2 thereunder, and aiding +and abetting 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. Openshaw was not ordered to pay a civil money +penalty based on his sworn representations in his Statement of Financial Condition dated July 31, +2007. +D. The Commission’s complaint alleged, among other things, that from +September through December of 2004, Openshaw, who was then CFO of Q Comm, completed +five unauthorized bank wires, transferring a total of $1,525,000 to a Q Comm vendor. Openshaw +wired these funds without approval and without disclosing the transfers to other members of Q +2 + +Comm’s management or its auditors. Openshaw concealed the transfers from Q Comm and its +auditors for nearly nine months by mischaracterizing them through improper accounting entries +and by altering documents. The complaint further alleges that Openshaw’s acts caused Q Comm’s +financial statements for the year ended December 31, 2004 and quarter ended March 31, 2005 to +materially deviate from Generally Accepted Accounting Principles. In addition, Openshaw falsely +certified the annual report for the year ended December 31, 2004. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanctions agreed to in Respondent Openshaw’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +Openshaw is suspended from appearing or practicing before the Commission as an +accountant. + By the Commission. + N ancy M. Morris + S ecretary +3 diff --git a/raw/aaer/2008/AAER-2792.txt b/raw/aaer/2008/AAER-2792.txt new file mode 100644 index 0000000000000000000000000000000000000000..dd88635f8345dea1c3fa13f986b3c0571d4d4c90 --- /dev/null +++ b/raw/aaer/2008/AAER-2792.txt @@ -0,0 +1,323 @@ + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57381 / February 26, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2792 / February 26, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12971 +In the Matter of +NICHOLAS DIFAZIO, CPA, +Respondent. +ORDER INSTITUTING PUBLIC +ADMINISTRATIVE PROCEEDINGS +PURSUANT TO RULE 102(e) OF THE +COMMISSION’S RULES OF PRACTICE, +MAKING FINDINGS, AND IMPOSING +REMEDIAL SANCTIONS +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate that public +administrative proceedings be, and hereby are, instituted against Nicholas Difazio, CPA +(“Respondent” or “Difazio”) pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) 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 him and the subject matter of these +proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Public +1 Rule 102(e)(1)(ii) provides, in pertinent part, that: +The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before +it . . . to any person who is found . . . to have engaged in unethical or improper professional conduct. +Administrative Proceedings Pursuant to Rule 102(e) of the Commission’s Rules of Practice, +Making Findings, and Imposing Remedial Sanctions (“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds2 that: +A. SUMMARY +This Order concerns the conduct of Nicholas Difazio, an audit partner at Deloitte & Touche +LLP (“D&T”), in connection with fiscal year 2000 and 2001 audits of the financial statements of +Delphi Corporation (“Delphi”). On October 30, 2006, the Commission brought actions against +Delphi and 13 individuals in connection with their role in widespread accounting violations at +Delphi. Difazio, then the lead engagement partner on the Delphi audits, engaged in improper +professional conduct, as detailed below. +B. RESPONDENT +Nicholas Difazio, 44, a resident of Bloomfield, Michigan, has been an audit partner at +D&T since 1995 and served as lead client service partner on the Delphi engagement for the fiscal +year 1999 through 2002 audits of Delphi’s financial statements. In that role, Difazio was directly +responsible for providing audit services, and oversaw the provision of tax, mergers and +acquisitions and consulting services, to Delphi. He currently serves in D&T’s New York office. +Difazio has been licensed as a CPA in the State of Michigan since 1987 and in the State of New +York since 2003. +C. FACTS +1. Difazio’s Review and Audit of Delphi Warranty Costs Charged to Equity +In the second quarter of 2000, Delphi misclassified a $112 million increase in its warranty +reserves as a charge to stockholders’ equity, rather than to current-period warranty expenses, as +required by Generally Accepted Accounting Principles (“GAAP”). The misclassification was +reflected in Delphi’s second quarter 2000 Form 10-Q and in its fiscal year 2000 Form 10-K. +Delphi’s improper treatment of the warranty reserve allowed it to increase the reserve and avoid a +material increase in expenses. Later, Delphi restated the accounting for this transaction and D&T +signed off on the restatement. +Delphi was spun-off from its former parent effective January 1, 1999. By May 2000, +Delphi’s former parent company had asserted as much as $800 million in warranty claims under +Delphi’s supply agreement with the former parent company. Many claims related to parts that +Delphi had manufactured and the former parent company had incorporated into its products prior +to Delphi’s spin-off from the former parent company in 1999. Delphi disputed the former parent +company’s right to recover these warranty costs, but ultimately determined during the second +The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any +other person or entity in this or any other proceeding. +2 +2 +quarter of 2000 that it would likely offer the former parent company $100 million to settle the +claims. Delphi incorrectly accounted for the warranty claims using an accounting method afforded +to certain post-employment benefit liabilities that received special treatment under the agreement +governing the spin-off of Delphi from the former parent company. Payments from Delphi to the +former parent company made within one year of the spin-off to offset the “true up” of those post- +employment benefit liabilities were accounted for as a direct charge to Delphi’s shareholders’ +equity, rather than as a charge to income, and certain other adjustments were similarly charged +directly to equity because they were considered to be the resolution of open items in accordance +with the original intent of the agreement between Delphi and its former parent. Delphi treated the +warranty claims by the former parent company the same way: Delphi recorded an increase to its +warranty reserve of approximately $112 million, and improperly accounted for the accrual as a +charge to stockholders’ equity of $69 million, which was $112 million net of taxes. +Difazio should not have accepted Delphi’s view that it could use these special accounting +rules and not the accounting rules that apply broadly to contingencies and changes in estimates on +this warranty matter. Although Difazio provided a memorandum regarding the transaction to the +Concurring Review Partner with regard to this warranty matter, he did not consult with D&T’s +national office concerning Delphi’s application of the special spin-off accounting treatment to the +former parent company’s warranty claims. Delphi’s warranty liability did not qualify for such +special treatment. Although the warranty claims related to parts produced by Delphi prior to the +spin-off, and were referred to as such by the parties, they arose in the normal course of the +customer-supplier relationship between Delphi and the former parent company. The spin-off +agreement expressly provided that Delphi was liable for warranty defects, regardless of a part’s +date of manufacture, and did not include provisions comparable to the true-up mechanism for post- +employment benefits. Under these circumstances, changes in the estimated warranty liability +should have been accounted for through the income statement of the current period, in accord with +Statement of Financial Accounting Standards (“SFAS”) No. 5, “Accounting for Contingencies.” +Difazio did not correctly identify the appropriate accounting guidance for the warranty accrual and +unreasonably accepted Delphi’s method which avoided recognition of the warranty expense. For +these reasons, Difazio’s audit did not conform to Generally Accepted Auditing Standards +(“GAAS”). +2. Difazio’s Review and Audit of the September 2000 Settlement Agreement +In the third quarter of 2000, Delphi paid the former parent company $237 million to resolve +its warranty claims. Delphi misclassified $202 million of the $237 million payment to the former +parent company as relating to pension and other post-employment benefits rather than warranty +expense. This enabled Delphi to avoid recognizing the warranty expense in the third quarter and +instead to defer that charge over many years. By accounting for only $35 million of the payment +as settlement of warranty issues and the remaining $202 million as a pension “actuarial loss” that +would be amortized as a charge to earnings over the next decade or more, Delphi did not comply +with GAAP. +By September 2000, Delphi determined to pay the former parent company to settle 27 +identified warranty claims, and it drafted a settlement agreement according to which Delphi would +3 + +pay the former parent company $237 million, which, unknown to Difazio, was the parties’ estimate +of the present value of Delphi’s share of the former parent company’s anticipated warranty outlays. +Although the agreement negotiated orally between the parties covered only warranty claims, +Delphi’s management drafted and the former parent company signed a written settlement +agreement, dated September 22, 2000, that mischaracterized the $237 million settlement as +resolving two issues – warranty claims and increased pension and other post-employment benefit +costs due to changes in healthcare assumptions – instead of just warranty claims. Three weeks +before the agreement was executed, Delphi management discussed with Difazio a request by its +former parent for adjustments to offset certain healthcare and other cost trends. Prior to the +consultation, a Delphi manager had mentioned to Difazio that the former parent was expected to +raise such an issue. Difazio did not know, however, that the former parent company had never +asserted a claim involving changes in healthcare assumptions. In fact, the former parent company +believed the separation agreements governing Delphi’s spin-off from the former parent company +would not allow such a claim. Delphi management told Difazio that it intended to attribute +$202 million of the $237 million to the release of true-up assumption claims. 3 As support for its +valuation of the other post-employment benefit claims, Delphi furnished Difazio with the deceptive +written agreement and a September 6, 2000, letter from an actuarial consultant stating that $202 +million was a “rough estimate of the impact” of using certain updated and forecasted assumptions +for healthcare claims and health care trend rates in the calculation of the true-up between Delphi +and the former parent company. +When Delphi presented the executed agreement as simultaneously settling two issues, +Difazio should have made greater inquiry into Delphi’s representations supporting the allocation +which was now necessary. Difazio should have known that the separation agreements provided +that the 1998 assumptions should be used for the true-up calculations. Difazio did not request or +receive any documentation of the former parent company’s purported claim or any legal +assessment of its merits, and instead relied on the representations of members of Delphi +management whom he believed were knowledgeable about the negotiations. Difazio should have +known that updating the assumptions would result in Delphi’s paying that incremental cost for +employees assigned to the former parent company, even though the spin-off agreement limited +Delphi’s responsibility to benefits earned by its own employees who were active at the spin-off +date and had not retired during a brief period following the spin-off. +Difazio also placed undue reliance on Delphi’s actuarial consultant in support of the +reasonableness of the other post-employment benefit claim. Although he had oral discussions with +the actuary in which the actuary explained the calculation and his understanding of the agreement, +Difazio should have known that the actuary did not participate in any negotiations with the former +parent company and therefore could only be relaying information received from Delphi, and that +the actuary was not interpreting Delphi’s agreements with the former parent company, but merely +performing a requested calculation using inputs provided by Delphi. Moreover, D&T requested a +separate letter from the actuary during its year-end audit to confirm the valuation in the settlement +agreement and the approach used in determining the amount. In response, the actuary faxed a copy +True-up calculations were designed to restore Delphi to its initially agreed-upon capitalization as of +January 1, 1999, after adjustments for the post-employment liabilities recorded for employees that returned to +Delphi’s former parent company or retired as former parent company employees during a window period. +4 +3 +of its original September 6 letter with a cover sheet noting: “Attached is a note we prepared in +September regarding the impact of alternative actuarial assumptions on certain true-up amounts. +Please see [Delphi] for further information regarding the September agreement.” In accordance +with Delphi’s instruction, the actuary included the amount Delphi attributed to resolution of the +post-employment assumptions within the deferred pension balances in his year-end valuation. +Difazio unreasonably concluded that the actuary’s sending a copy of the original September 6 letter +and the year-end valuation was sufficient confirmation. +Additionally, in connection with the $237 million payment, Difazio unreasonably did not +object to Delphi’s method of allocating the settlement, and Difazio did not gather evidence as to +whether the $202 million allocation reflected the fair value of the release in the settlement +agreement. Further, Difazio unreasonably relied on Delphi’s warranty cost experience as a wholly +owned subsidiary as evidence supporting the residual attribution of $35 million to the 27 settled +warranty claims, despite his awareness that the parent company’s claims against Delphi as an +independent company could be different. +In addition, Difazio failed to apply adequate professional skepticism in light of indications +that the former parent company could be accounting for a much greater portion of the $237 million +as payment for the former parent company’s warranty claims against Delphi. First, Difazio did not +sufficiently scrutinize a “clawback” provision in the settlement agreement under which, if the +former parent company’s warranty expense turned out to be less than anticipated, Delphi might be +able to recover from the former parent company amounts in excess of the $35 million it supposedly +paid for warranty. Difazio also failed to recognize the implications of a side letter to the agreement +which was necessary only because the former parent company and Delphi both understood that the +former parent company would be treating the $237 million as a warranty payment and that this +would have certain tax implications relating to the spin-off. 4 Finally, Difazio did not perform any +additional procedures in response to a call from the lead D&T engagement partner on the audit of +the former parent company that he received after the opinion on Delphi’s fiscal year 2000 financial +statements had been issued. The engagement partner told Difazio to make sure he had +documentation for the accounting position taken by Delphi. In light of this call, Difazio should +have made further inquiries prior to the subsequent reissuance of D&T’s audit report for fiscal year +2000 in Delphi’s May 2001 prospectus offering debt securities. +In sum, Difazio’s performance on the Delphi audit was deficient because he did not +challenge sufficiently Delphi’s unreasonable approach to the allocation of the settlement amount or +gather sufficient evidence supporting the allocation. Difazio mistakenly assured the Delphi audit +committee regarding the completeness of D&T’s review of the settlement agreement and that D&T +For liquidity reasons, Delphi could not pay $237 million in addition to a previously agreed $800 million for +true-up. The former parent company was willing to defer part of the amount due from Delphi, but the tax-free status of +the spin-off would have been jeopardized if the amount deferred related to warranty reimbursement rather than the true- +up agreement. Therefore, the former parent company and Delphi executed a separate agreement in conjunction with +the settlement agreement specifying that $237 million of the $800 million true-up payment would be deferred, and that +Delphi would immediately pay the $237 million due under the settlement agreement. Difazio should have recognized +that this side agreement would not have been necessary had the former parent company also intended to account for the +bulk of the settlement payment as relating to true-up. +5 +4 +believed it had obtained sufficient evidence to conclude that “the accounting is reasonable.” In +reality, for the reasons given above, Difazio’s audit did not conform to GAAS. +3. Difazio’s Response to New Information Concerning the +Repurchase of Generator Cores and Batteries from the Consulting Company +In a December 27, 2000 transaction, Delphi purported to sell $70 million of bulk +inventories consisting of substantially all of Delphi’s inventories of generator cores and finished +automotive batteries to a company that was primarily engaged in providing consulting assistance to +troubled automotive industry suppliers and automotive companies engaged in turnaround efforts +(the “Consulting Company”). The written agreement between Delphi and the Consulting +Company expressly stated that it constituted the entire agreement, and that any oral discussions in +connection with the agreement were not enforceable. The written agreement contained no +commitment to repurchase the cores or batteries. Nevertheless, pursuant to an oral side agreement +made at the time of the original sale and not revealed to D&T or Difazio, Delphi purchased the +identical inventory of cores and batteries back from the Consulting Company on January 5, 2001, +at its original price, plus a transaction fee. Because Delphi committed to repurchase the cores and +batteries at a price that covered the Consulting Company’s costs and paid it a fee, GAAP +required the arrangement to be accounted for as a product financing under SFAS No. 49, but +Delphi improperly accounted for the transactions as a separate sale and purchase. Delphi did not +recognize any revenue or direct profit on the sale, but nevertheless recognized $27 million in last +in, first out (“LIFO”) inventory liquidation gains, which were included by Delphi as part of its +year-end disclosure of $96 million in LIFO gains that Delphi attributed in part to “aggressive +inventory management.” +A D&T partner other than Difazio performed and documented the year-end audit +procedures in connection with this transaction. However, Difazio was aware of the transaction and +his notes prepared for January and February 2001 audit committee meetings describe his +understanding that the sale of the generator cores was in anticipation of a sale of the generator +business with which the inventory was associated. +Later, however, in the course of D&T’s review of Delphi’s first quarter 2001 financial +statements, in April or May 2001, Difazio became aware that at least a significant portion of the +generator cores sold in the final days of 2000 had been repurchased during the first quarter. As +part of his quarterly review, Difazio asked senior members of Delphi’s management why a +repurchase had occurred, and was told that Delphi had changed its view as to its need for +possession of the cores in light of its plans regarding the sale of the generator business. Delphi +management also orally reaffirmed to Difazio that there had been no prior repurchase commitment +to the Consulting Company. Difazio accepted this explanation, based on the facts known to him, +but did not document his consideration of this issue, and performed no additional procedures. +The response of Difazio to the discovery of inventory repurchased in the first quarter so +soon after the year-end bulk sale, particularly in the face of a prior management representation that +there was no obligation to repurchase the inventory, was inadequate. It indicated insufficient +concern about facts that could have contradicted important management representations or +otherwise indicated the possible presence of fraud. Difazio recalls knowing that “some” inventory +6 + +was repurchased at some time in the first quarter, but had no recollection that the sale or repurchase +also involved batteries. Difazio had a duty in those circumstances to learn more about the +unexpected repurchase so that the inquiries of management could be sufficiently probative, but he +did not seek out additional facts. D&T’s work papers showed that the repurchase comprised all, or +substantially all, of the original bulk sale of both generator cores and batteries. The invoice for the +repurchase, which D&T neither requested nor received, showed that it occurred nine days after the +sale. The invoice price, compared to the original sale price, showed that the purported value of the +inventory increased over those nine days (representing the fee to the Consulting Company). In +addition, Delphi’s records reveal that Delphi itself had provided the cash with which the +Consulting Company purchased the inventories. In light of facts which were known to him, +GAAS required Difazio to make additional inquiries or conduct additional procedures. +D. VIOLATIONS +Rule 102(e)(1)(ii) provides that the Commission may temporarily or permanently +deny an accountant the privilege of appearing or practicing before it, if it finds, after notice +and opportunity for hearing, that the accountant engaged in “improper professional +conduct.” Such improper professional conduct includes, as applicable here, negligent +conduct, defined as “repeated instances of unreasonable conduct, each resulting in a +violation of applicable professional standards, that indicate a lack of competence to practice +before the Commission.” Rule 102(e)(1)(iv)(A)-(B). Difazio failed (i) to obtain sufficient +competent evidential matter to afford a reasonable basis for the opinion rendered, Auditing +Standards §AU 326, (ii) to exercise due professional care in the planning and performance +of the audit, Auditing Standards § AU 230, and (iii) in performing the audit to identify +material departures from GAAP in the financial statements, Auditing Standards § AU 410. +In addition, he wrongly stated that the audit conformed to GAAS, Auditing Standards § AU +508. As a result of the actions detailed above, for Delphi’s fiscal year 2000 and 2001, +Difazio engaged in improper professional conduct on the second and third quarter 2000 +warranty and batteries/cores transactions. +E. FINDINGS +Based on the foregoing, the Commission finds that Difazio engaged in improper +professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Difazio’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Difazio is denied the privilege of appearing or practicing before the Commission as +an accountant. +7 + +B. After three (3) years from the date of this order, Respondent may request that +the Commission consider his reinstatement by submitting an application (attention: Office of +the Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that Respondent’s work in his practice before the +Commission will be reviewed either by the independent audit committee of the public company +for which he works or in some other acceptable manner, as long as he practices before the +Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which he is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; +(b) Respondent, or the registered public accounting firm with which he +is associated, has been inspected by the Board and that inspection did not identify any criticisms +of or potential defects in the respondent’s or the firm’s quality control system that would indicate +that the respondent will not receive appropriate supervision; + (c) Respondent has resolved all disciplinary issues with the Board, and +has complied with all terms and conditions of any sanctions imposed by the Board (other than +reinstatement by the Commission); and +(d) Respondent acknowledges his responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not limited to, all +requirements relating to registration, inspections, concurring partner reviews and quality control +standards. +C. The Commission will consider an application by Respondent to resume appearing +or practicing before the Commission provided that his state CPA license is current and he has +resolved all other disciplinary issues with the applicable state boards of accountancy. However, +8 + +if state licensure is dependent on reinstatement by the Commission, the Commission will +consider an application on its other merits. The Commission’s review may include consideration +of, in addition to the matters referenced above, any other matters relating to Respondent’s +character, integrity, professional conduct, or qualifications to appear or practice before the +Commission. + By the Commission. + N ancy M. Morris + S ecretary +9 diff --git a/raw/aaer/2008/AAER-2794.txt b/raw/aaer/2008/AAER-2794.txt new file mode 100644 index 0000000000000000000000000000000000000000..6fb0a90690e2b461b5ae293296f50ab6cba7fd4a --- /dev/null +++ b/raw/aaer/2008/AAER-2794.txt @@ -0,0 +1,129 @@ +UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57428 / March 4, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2794 / March 4, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12974 +: +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE + Richard E. Fresia, CPA, : 102(e) OF THE COMMISSION’S RULES OF +: PRACTICE, MAKING FINDINGS, AND +Respondent. : IMPOSING REMEDIAL SANCTIONS +: +: +____________________________________ : +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against +Richard E. Fresia (“Respondent” or “Fresia”) pursuant to Rule 102(e)(3)(i) of the Commission’s +Rules of Practice.1 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) 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 him and the subject matter of these +proceedings, and the findings contained in Section III.D. below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) +of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +A. Fresia, age 52, is and has been a certified public accountant holding an inactive +license to practice in the State of Colorado. Fresia served as the chief financial officer of the +Expanets, Inc. (“Expanets”) subsidiary of NorthWestern Corporation (“NorthWestern”) from April +2002 through May 2003. +B. NorthWestern was, at all relevant times, a Delaware corporation with its principal +place of business in Sioux Falls, South Dakota. NorthWestern operates a regulated utility business +in South Dakota, Nebraska and Montana. During the period of conduct described herein, +NorthWestern consolidated the financial results of Expanets. At all relevant times, NorthWestern’s +common stock was registered with the Commission pursuant to Section 12(b) of the Securities +Exchange Act of 1934 (“Exchange Act”), and traded on the New York Stock Exchange. +C. Expanets, formerly headquartered in Englewood, Colorado, provided networked +telecommunications equipment and services to medium-sized businesses nationwide. Expanets +was comprised of approximately 26 small telecommunications equipment resellers and a former +sales division of Lucent Technologies. NorthWestern wrote off substantially all of its investment +in Expanets in its 2002 Form 10-K and announced its intent to sell Expanets in April 2003. In the +second quarter of 2003, Expanets’ operations were discontinued, and in May 2004, Expanets filed +for bankruptcy. Proceeds from the sale of Expanets’ assets were distributed in bankruptcy. +D. On July 23, 2007, the Commission filed a complaint against Fresia in Securities and +Exchange Commission v. Richard E. Fresia, Civil Action Number 1:07-CV-01549-JKL-BNB in +the United States District Court for the District of Colorado. On February 22, 2008 the court +entered a final judgment permanently enjoining Fresia, by consent, from future violations of +Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, and aiding and abetting +violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, +13a-11 and 13a-13 thereunder. Fresia was also ordered to pay a $20,000 civil money penalty. +2 + +E. The Commission’s Complaint alleged, among other things, that during the second +and third quarters of 2002, Respondent participated in concealing from the public Expanets’ +ongoing operational problems and poor financial performance. First, the Complaint alleged that +Respondent knew that Expanets improperly accounted for accounts receivable and adjustments to +customers’ bills, causing overstatements of NorthWestern’s reported income from continuing +operations of 90% and 109% in the second and third quarters of 2002, respectively. Second, the +Commission’s Complaint alleged that Respondent knew that NorthWestern had not disclosed the +nature of Expanets’ reported income during the second and third quarters of 2002, including the +magnitude of Expanets’ reserve reductions and its receipt of unusual non-compete payments. +Finally, the Commission’s Complaint alleged that the misstatement of Expanets’ and +NorthWestern’s financial results facilitated more than $800 million in securities offerings by +NorthWestern in September and October 2002, including an $87.5 million equity offering that +raised badly needed operating capital for the company. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Respondent is suspended from appearing or practicing before the Commission as an +accountant. +B. After three years from the date of this order, Respondent may request that the +Commission consider his reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that Respondent’s work in his practice before the +Commission will be reviewed either by the independent audit committee of the public company +for which he works or in some other acceptable manner, as long as he practices before the +Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which he is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; +(b) Respondent, or the registered public accounting firm with which he +is associated, has been inspected by the Board and that inspection did not identify any criticisms +3 + +of or potential defects in the Respondent’s or the firm’s quality control system that would +indicate that the Respondent will not receive appropriate supervision. +(c) Respondent has resolved all disciplinary issues with the Board, +and has complied with all terms and conditions of any sanctions imposed by the Board (other +than reinstatement by the Commission); and +(d) Respondent acknowledges his responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not limited to, all +requirements relating to registration, inspections, concurring partner reviews and quality control +standards. +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that his state CPA license is +current and he has resolved all other disciplinary issues with the applicable state boards of +accountancy. However, if state licensure is dependent on reinstatement by the +Commission, the Commission will consider an application on its other merits. The +Commission’s review may include consideration of, in addition to the matters referenced +above, any other matters relating to Respondent’s character, integrity, professional conduct, +or qualifications to appear or practice before the Commission. + By the Commission. + N ancy M. Morris + S ecretary +4 diff --git a/raw/aaer/2008/AAER-2795.pdf b/raw/aaer/2008/AAER-2795.pdf new file mode 100644 index 0000000000000000000000000000000000000000..baf2956bdcfcde98aec3bc82d44a75388f0240cf Binary files /dev/null and b/raw/aaer/2008/AAER-2795.pdf differ diff --git a/raw/aaer/2008/AAER-2795.txt b/raw/aaer/2008/AAER-2795.txt new file mode 100644 index 0000000000000000000000000000000000000000..e8e0a4fbd435cf2cba996813374834eeadb41608 --- /dev/null +++ b/raw/aaer/2008/AAER-2795.txt @@ -0,0 +1,48 @@ +____________________________________ +UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57443 / March 6, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2795 / March 6, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12983 +: +In the Matter of : + : ORDER OF FORTHWITH +WILLIAM J. RAUWERDINK, CPA, : SUSPENSION PURSUANT TO RULE + : 102(e)(2) OF THE COMMISSION’S +Respondent. : RULES OF PRACTICE +____________________________________: +I. +The Securities and Exchange Commission deems it appropriate to issue an order of +forthwith suspension of William J. Rauwerdink (“Rauwerdink”) pursuant to Rule 102(e)(2) of +the Commission=s Rules of Practice [17 C.F.R. ' 200.102(e)(2)].1 +II. +The Commission finds that: +1. Rauwerdink is a certified public accountant in Michigan. +2. On June 20, 2007, a judgment of conviction was entered against Rauwerdink in +United States v. Rauwerdink, No. 03 CR 80474-2, in the United States District Court for the +Eastern District of Michigan, finding him guilty of one count of conspiracy to commit mail +fraud, wire fraud, and bank fraud and to make false statements to a federal agency (the +Rule 102(e)(2) provides in pertinent part: AAny ... person who has been convicted of a felony or a +misdemeanor involving moral turpitude shall be forthwith suspended from appearing or practicing before the +Commission.” +1 +Commission), and to one count of making false statements to a federal agency. The conduct +occurred while Rauwerdink was Chief Financial Officer of Lason, Inc., a publicly traded +company. +3. As a result of this conviction, Rauwerdink was sentenced to 45 months +imprisonment in a federal penitentiary and 24 months supervised release, and ordered to pay +restitution in the amount of $ 285,162,957.00. +III. +In view of the foregoing, the Commission finds that Rauwerdink has been convicted of a +felony within the meaning of Rule 102(e)(2) of the Commission’s Rules of Practice. +Accordingly, it is ORDERED, that William J. Rauwerdink is forthwith suspended from +appearing or practicing before the Commission pursuant to Rule 102(e)(2) of the Commission=s +Rules of Practice. +By the Commission. +Nancy M. Morris +Secretary +2 diff --git a/raw/aaer/2008/AAER-2796.txt b/raw/aaer/2008/AAER-2796.txt new file mode 100644 index 0000000000000000000000000000000000000000..53d5c9211ea3c33bea932a8eba224ecfa4ac2440 --- /dev/null +++ b/raw/aaer/2008/AAER-2796.txt @@ -0,0 +1,121 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57444 / March 6, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2796 / March 6, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12984 +In the Matter of +RICHARD D. NYE, CPA, +Respondent. +ORDER INSTITUTING PUBLIC +ADMINISTRATIVE PROCEEDINGS PURSUANT +TO RULE 102(e) OF THE COMMISSION’S RULES +OF PRACTICE, MAKING FINDINGS, AND +IMPOSING REMEDIAL SANCTIONS +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against Richard +D. Nye (“Respondent” or “Nye") pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of +Practice.1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . +who has been by name . . . permanently enjoined by any court of competent jurisdiction, by +reason of his or her misconduct in an action brought by the Commission, from violating or +aiding and abetting the violation of any provision of the Federal securities laws or of the +rules and regulations thereunder. +1 + +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 him and the subject matter of these +proceedings, and the findings contained in Section III.3. below, which are admitted, Respondent +consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule +102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial +Sanctions (“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Respondent Richard D. Nye, age 52, has held a Texas CPA license since 1979. He served as +Cornerstone Propane Partners, L.P.’s (“Cornerstone’s”) vice president of finance and +administration from January 1998 until November 2002, and as acting CFO from July 2001 +until June 2002. +2. Cornerstone, a Delaware limited partnership, formerly with headquarters in Watsonville, +California, was at one time one of the nation's largest propane marketers, and at the time of +the alleged conduct discussed herein, its units were traded on the New York Stock Exchange +and were registered under Section 12(b) of the Securities Exchange Act of 1934 (“Exchange +Act”). +3. On February 22, 2008, a final judgment was entered against Respondent permanently +enjoining him from future violations of Sections 10(b) and 13(b)(5) of the Exchange Act and +Rules 10b-5 and 13b2-1 thereunder, and aiding and abetting 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 in +civil S.E.C. v. Keith Baxter, et. al. (Civil Action 05-3843 RMW, N.D. Cal.). Respondent +was ordered to pay a $25,000 civil money penalty and was barred as an officer or director of +a public company for three years. +4. The Commission's complaint alleged, among other things, that Respondent signed public +filings for Cornerstone during 2000 and 2001, including the Form 10-K for 2000 and three +Forms 10-Q for 2001. The complaint alleged that he knew or was reckless in not knowing +the public filings at issue failed to conform with Generally Accepted Accounting Principles +(“GAAP”). The complaint further alleged that Cornerstone's subsidiary Coast Energy Group +(“CEG”) had suffered a comprehensive failure to accurately and timely record transactions +on its books and records. The complaint further alleged that as a result Cornerstone’s +financial statements for the periods at issue were not presented in conformity with GAAP +because, among other things, CEG’s material transactions had not been properly recorded +and the company’s accounting records did not accurately reflect CEG’s transactions. The +complaint further alleged that Cornerstone issued a false press release and Form 10-K for +2001 that included materially false statements regarding the nature and origin of a $9.8 +million write-off associated with Cornerstone’s financial statement problems and that Nye +knew or was reckless in not knowing that the statements were false. +2 + +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Nye is suspended from appearing or practicing before the Commission as an +accountant. +B. After three years from the date of this Order, Nye may request that the Commission +consider his reinstatement by submitting an application (attention: Office of the Chief Accountant) +to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. +Such an application must satisfy the Commission that Nye’s work in his practice before +the Commission will be reviewed either by the independent audit committee of the public +company for which he works or in some other acceptable manner, as long as he practices +before the Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +a. Nye, or the public accounting firm with which he is associated, is +registered with the Public Company Accounting Oversight Board ("Board") in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues +to be effective; +b. Nye, or the registered public accounting firm with which he is +associated, has been inspected by the Board and that inspection did not identify +any criticisms of or potential defects in Nye’s or the firm’s quality control system +that would indicate that Nye will not receive appropriate supervision; +c. Nye has resolved all disciplinary issues with the Board, and has +complied with all terms and conditions of any sanctions imposed by the Board +(other than reinstatement by the Commission); and +d. Nye acknowledges his responsibility, as long as Nye appears or +practices before the Commission as an independent accountant, to comply with all +requirements of the Commission and the Board, including, but not limited to, all +requirements relating to registration, inspections, concurring partner reviews and +quality control standards. +C. The Commission will consider an application by Nye to resume appearing or +practicing before the Commission provided that his state CPA license is current and he has +resolved all other disciplinary issues with the applicable state boards of accountancy. However, +3 + +if state licensure is dependent on reinstatement by the Commission, the Commission will +consider an application on its other merits. The Commission’s review may include consideration +of, in addition to the matters referenced above, any other matters relating to Nye’s character, +integrity, professional conduct, or qualifications to appear or practice before the Commission. + By the Commission. +Nancy M. Morris +Secretary +4 diff --git a/raw/aaer/2008/AAER-2797.txt b/raw/aaer/2008/AAER-2797.txt new file mode 100644 index 0000000000000000000000000000000000000000..9372b9221aedfb3664f494eabf5ee76862735102 --- /dev/null +++ b/raw/aaer/2008/AAER-2797.txt @@ -0,0 +1,128 @@ + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57490 / March 13, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2797 / March 13, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12989 +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +GARY THOMAS SCHERPING, CPA +Respondent. +: +: +: +: +102(e) OF THE COMMISSION’S RULES OF +PRACTICE, MAKING FINDINGS, AND +IMPOSING REMEDIAL SANCTIONS +____________________________________ : +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in +the public interest that public administrative proceedings be, and hereby are, instituted against +Gary Thomas Scherping, CPA (“Respondent” or “Scherping”) pursuant to Rule 102(e)(3)(i) of +the Commission’s Rules of Practice.1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an +Offer of Settlement (the “Offer”) 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 him and the subject matter of +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary +hearing, may, by order, … suspend from appearing or practicing before it any . . . accountant +. . . who has been by name . . . permanently enjoined by any court of competent jurisdiction, +by reason of his or her misconduct in an action brought by the Commission, from violating or +aiding and abetting the violation of any provision of the Federal securities laws or of the rules +and regulations thereunder. +these proceedings, and the findings contained in paragraph III.3 below, which are admitted, +Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant +to Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing +Remedial Sanctions (the “Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Scherping, CPA, age 48, was a certified public accountant licensed to practice in +the State of Colorado from June 29, 1988 to May 31, 1998, when his license lapsed. He was +Executive Vice President of Finance and Chief Financial Officer of Quovadx, Inc. (“Quovadx” +or the “Company”) from approximately September 2000 until April 2004. +2. Quovadx, a Delaware corporation headquartered in Englewood, Colorado, was a +software company that licensed software and sold related services to the healthcare industry. At +all relevant times, Quovadx’s common stock was registered with the Commission under +Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”) and traded on the +NASDAQ. +3. On February 29, 2008, a final judgment was entered against Scherping, +permanently enjoining him from violating, directly or indirectly, Section 17(a) of the Securities +Act of 1933 (the “Securities Act”), Sections 10(b) and 13(b)(5) of the Exchange Act and +Rules 10b-5, 13a-14, 13b2-1 and 13b2-2 thereunder, and from aiding and abetting any violation +of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, +13a-11 and 13a-13 thereunder, in the civil action entitled Securities and Exchange Commission +v. Gary Thomas Scherping, Civil Action No. 1:07-cv-01511-WYD-MEH, in the United States +District Court for the District of Colorado. Scherping was also ordered to pay a $70,000 civil +money penalty and prohibited from acting as an officer or director for five years. +4. The Commission’s Complaint alleged, among other things, that between the +second and fourth quarters of 2003, Quovadx fraudulently recognized over $12 million in +software licensing revenue from transactions with three different third parties, overstating its +software licensing revenue by proportions ranging from approximately 9 percent to nearly 180 +percent. The Complaint alleged that Scherping knew or was reckless in not knowing that +Quovadx could not recognize the revenue from these transactions. The Complaint also alleged +that Quovadx prematurely recognized $250,000 in revenue into the third quarter of 2002, +overstating its software licensing revenue by 10 percent for that quarter. The Complaint +alleged that Scherping knowingly provided substantial assistance to Quovadx in improperly +accelerating this revenue. The Complaint further alleged that Scherping made false +representations in letters to Quovadx’s auditors about these transactions and that he signed +false disclosure certifications in connection with the Company’s reports on Form 10-Q for the +pertinent quarters and its annual report on Form 10-K for 2003. Finally, the Complaint alleged +that Scherping circumvented internal accounting controls and falsified books and records in +connection with these transactions. +2 + +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest +to impose the sanction agreed to in Respondent Scherping’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Scherping is suspended from appearing or practicing before the Commission as +an accountant. +B. After five years from the date of this order, Scherping may request that the +Commission consider his reinstatement by submitting an application (attention: Office of +the Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or review, of +any public company’s financial statements that are filed with the Commission. Such an +application must satisfy the Commission that Respondent’s work in his practice before the +Commission will be reviewed either by the independent audit committee of the public +company for which he works or in some other acceptable manner, as long as he practices +before the Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which he is associated, +is registered with the Public Company Accounting Oversight Board (the “Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be +effective; +(b) Respondent, or the registered public accounting firm with which he is +associated, has been inspected by the Board and that inspection did not identify any criticisms +of or potential defects in the Respondent’s or the firm’s quality control system that would +indicate that the Respondent will not receive appropriate supervision; +(c) Respondent has resolved all disciplinary issues with the Board, and has +complied with all terms and conditions of any sanctions imposed by the Board (other than +reinstatement by the Commission); and +(d) Respondent acknowledges his responsibility, as long as Respondent +appears or practices before the Commission as an independent accountant, to comply with all +requirements of the Commission and the Board including, but not limited to, all requirements +relating to registration, inspections, concurring partner reviews and quality control standards. +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that his state CPA license is +3 + +current and he has resolved all other disciplinary issues with the applicable state boards +of accountancy. However, if state licensure is dependent on reinstatement by the +Commission, the Commission will consider an application on its other merits. The +Commission’s review may include consideration of, in addition to the matters +referenced above, any other matters relating to Respondent’s character, integrity, +professional conduct, or qualifications to appear or practice before the Commission. + By the Commission. + N ancy M. Morris + S ecretary +4 diff --git a/raw/aaer/2008/AAER-2798.txt b/raw/aaer/2008/AAER-2798.txt new file mode 100644 index 0000000000000000000000000000000000000000..610d20a9228d5ee6dce7ea2776766010643f97aa --- /dev/null +++ b/raw/aaer/2008/AAER-2798.txt @@ -0,0 +1,1383 @@ + + + + + + + + + + + + + + + + SEC.gov | Lorine Sweeney and Gary Scherping + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/503026","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Lorine Sweeney and Gary Scherping , Civ. No. 07-CV-01511 (WYD-MEH) (D. Colo.) + + Former CEO and CFO of Quovadx, Inc., Lorine R. Sweeney and Gary T. Scherping, Agree to Settle SEC Action Charging Them With Fraudulent Revenue Recognition in 2003; Relief Includes Officer-And-Director Bars and Civil Penalties + + The Commission announced today that final judgments were entered on February 29, 2008, against Lorine R. Sweeney and Gary T. Scherping, the former CEO and CFO of Quovadx, Inc., in the SEC's enforcement action charging them with orchestrating a fraudulent revenue recognition scheme at the company during 2003. The final judgments permanently enjoin them from violating the antifraud provisions of the federal securities laws, circumventing internal controls, falsifying books and records, making false statements to an auditor, and falsely certifying public filings (Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1, 13b2-2, and 13a-14, thereunder), as well as aiding and abetting violations of the reporting, books and records, and internal control provisions of the Exchange Act (Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Rules 12b-20, 13a-1, 13a-11, and 13a-13). They also impose five-year officer and director bars and a $75,000 civil penalty against Sweeney and a $70,000 civil penalty against Scherping. Without admitting or denying the allegations of the Commission's previously-filed complaint, Sweeney and Scherping consented to the entry of the final judgments. + + The Commission's complaint alleges that Sweeney and Scherping orchestrated the fraudulent recognition of over $12 million in software licensing revenue between the second and fourth quarters of 2003, by Quovadx, then a Colorado-based software development and licensing company (now known as Healthvision). The complaint alleges that, as a result, Quovadx overstated its software revenue by approximately 9 percent to nearly 180 percent. The Complaint also alleges that Sweeney and Scherping aided and abetted Quovadx's premature recognition of $250,000 in revenue into the third quarter of 2002, overstating its software licensing revenue by 10 percent for that quarter. The Complaint further alleges that Sweeney and Scherping made false representations to Quovadx's auditor and signed false disclosure certifications in connection with Quovadx's reports on Form 10-Q for the pertinent quarters and its annual report on Form 10-K for 2003. Finally, the Complaint alleges that Sweeney and Scherping circumvented internal accounting controls and falsified books and records in connection with the improper transactions. + + In a related enforcement action, the Commission instituted today a settled proceeding against Scherping pursuant to Rule 102(e) of the Commission's Rules of Practice, suspending him from the privilege of appearing or practicing before the Commission as an accountant, with the right to apply for reinstatement after five years. Exchange Act Release No. 34- 57490 (March 13, 2008). + + The Commission had previously brought settled enforcement proceedings against Quovadx, the principal officers and employees of Quovadx involved in the revenue recognition fraud, and the principals of the third-parties who aided and abetted that fraud. The settlements with Sweeney and Scherping conclude the Commission's investigation into this matter. + + For additional information, see below: + + Litigation Release No. 20197 (July 18, 2007).   + + Securities Act Release No. 33-8825 (July 17, 2007) (Quovadx)   + + Exchange Act Release No. 34-56083 (July 17, 2007) (Renjilian)   + + Exchange Act Release No. 34-56084 (July 17, 2007) (Davis)   + + Exchange Act Release No. 34-56334 (August 29, 2007) (Collins)   + + SEC Complaint (Sweeney and Scherping) + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Monroe, William J. Rauwerdink, John R. Messinger and Robert T. Bassman + + + + + + + + + + + + Gary L. Monroe, William J. Rauwerdink, John R. Messinger and Robert T. Bassman + + + + + + + + + + + + + + + + + + + UNITED STATES SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20495 / March 13, 2008 + + Accounting and Auditing Enforcement Release No. 2799 / March 13, 2008 + + SECURITIES AND EXCHANGE COMMISSION v. GARY L. MONROE, WILLIAM J. RAUWERDINK, JOHN R. MESSINGER and ROBERT T. BASSMAN , Civil Action No. 03-71840 (E.D. Mich.) + + SEC Settles Financial Fraud Charges Against Former Officers Of Lason, Inc. + + The Securities and Exchange Commission announced that on March 7, 2008, the Honorable Arthur J. Tarnow of the U.S. District Court for the Eastern District of Michigan, entered Final Judgments against Gary L. Monroe, William J. Rauwerdink, John R. Messinger, and Robert T. Bassman, the former CEO, CFO, COO and Controller, respectively, of Lason, Inc., a document management company based in Troy, Michigan. The Final Judgments permanently enjoin the defendants from violating the anti-fraud and record-keeping provisions of the federal securities laws and bar the defendants from serving as officers or directors of public companies. In addition, the Final Judgment against Bassman orders him to pay disgorgement and prejudgment interest of $240,761.70, payment of all but $35,000 of which is waived on the basis of his financial condition. The defendants consented to the entry of the Final Judgments without admitting or denying the Commission's allegations against them. + + The Commission's complaint alleged that during 1998 and 1999, the defendants engaged in a fraudulent scheme to overstate Lason's earnings in order to meet or exceed Wall Street expectations. The scheme culminated in the third quarter of 1999, when Lason's earnings were overstated by approximately 65%. + + According to the complaint: + + In a scheme called "tailwind," Monroe and Rauwerdink instructed companies that were acquired by Lason to delay recognizing revenue until after the acquisition was completed and to pre-pay certain expenses before the acquisition, thereby artificially increasing Lason's earnings during the first, third and fourth quarters of 1998.   + + Monroe, Rauwerdink and Bassman improperly booked a forgiven loan as revenue for Lason in the fourth quarter of 1998.   + + Lason improperly claimed an invalid invoice as a legitimate receivable in the fourth quarter of 1998. When Lason's auditors questioned the legitimacy of the receivable, Monroe, Messinger and Bassman developed a scheme to obtain a check that improperly appeared to make payment on the receivable.   + + Lason made numerous fraudulent accounting entries in 1999, culminating in fraudulent Work in Process entries in the third quarter of 1999 that artificially boosted Lason's earnings by 65%.   + + The defendants profited from the scheme through their salaries as well as bonuses, stock options and executive loans that were affected by Lason's artificially inflated stock price. + + In 2007, in a related criminal action, Monroe and Messinger pled guilty to making false statements to a federal agency (the Commission) and Rauwerdink pled guilty to conspiracy and making false statements to a federal agency. Monroe, Messinger and Rauwerdink were sentenced to 15 months, 12 months, and 45 months imprisonment respectively. In addition, Monroe and Messinger were ordered to pay restitution of $20 million, and Rauwerdink was ordered to pay restitution of $285 million. + + In related administrative proceedings, Bassman consented to an order under Rule 102(e) of the Commission's Rules of Practice suspending him from appearing or practicing before the Commission as an accountant for three years based on the entry of an injunction against him, and the Commission suspended Rauwerdink forthwith based on his criminal conviction, pursuant to Rule 102(e)(2). + + The Commission wishes to thank the U.S. Attorney's Office for the Eastern District of Michigan and the Federal Bureau of Investigation for their assistance in this matter. + + + +  + + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2800.txt b/raw/aaer/2008/AAER-2800.txt new file mode 100644 index 0000000000000000000000000000000000000000..1717ad52b0f66b69547d06dfbb5c984dd96d1072 --- /dev/null +++ b/raw/aaer/2008/AAER-2800.txt @@ -0,0 +1,123 @@ + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57516 / March 18, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2800 / March 18, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12993 +: +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +ROBERT T. BASSMAN, CPA, : 102(e) OF THE COMMISSION’S RULES OF +: PRACTICE, MAKING FINDINGS, AND +Respondent. : IMPOSING REMEDIAL SANCTIONS +: +____________________________________ : +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against Robert +T. Bassman (“Respondent” or “Bassman”) pursuant to Rule 102(e)(3)(i) of the Commission’s +Rules of Practice.1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. +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 him and the subject matter of these +proceedings, and the findings contained in Section III. 3 below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) +of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Bassman, age 48, is and has been a certified public accountant licensed to +practice in the State of Michigan. He served as Assistant Controller of Lason, Inc. (“Lason”) from +September 1996 to 1997 and as Controller from 1997 until October 2000. +2. Lason was, at all relevant times, a Delaware corporation with its principal +place of business in Troy, Michigan. Lason was engaged in the business of data management, +copying, document imaging and mail sorting. At all relevant times, Lason’s common stock was +registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act of 1934 +(“Exchange Act”), and traded on the NASDAQ National Market. +3. On March 7, 2008, a final judgment was entered against Bassman, +permanently enjoining him from future violations of Sections 17(a)(1), 17(a)(2), and 17(a)(3) of +the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, +13b2-1 and 13b2-2 thereunder, and aiding and abetting 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, in the civil +action entitled Securities and Exchange Commission v. Gary L. Monroe, et al., Civil Action +Number 03-71840, in the United States District Court for the Eastern District of Michigan. +Bassman was also ordered to pay $240,761.70 in disgorgement and prejudgment interest, but +payment of all but $35,000.00 in disgorgement was waived and no civil money penalty was +imposed based on sworn representations made by Bassman in his Statement of Financial +Condition. +4. The Commission’s complaint alleged, among other things, that Bassman, +at the direction of the former President, Chief Financial Officer and Chief Operating Officer of +Lason, engaged in a fraudulent scheme which resulted in Lason filing materially false and +misleading financial statements in the company’s annual report on Form 10-K for the fiscal year +ended December 31, 1998, and in the company’s quarterly reports on Form 10-Q for the first and +third quarters of fiscal year 1999. The Complaint alleged that Bassman engaged in a number of +improper accounting practices that materially increased Lason’s annual and quarterly revenue and +net income in a departure from generally accepted accounting principles (“GAAP”). These +practices included, among other things, recognizing revenue on forgiven debt that should have +been used to reduce goodwill, recognizing revenue from an uncollectible invoice, and recognizing +revenue from unsupportable work in process estimates. In addition, the complaint alleged that +2 + +Bassman failed to disclose information in response to questions by Lason’s independent +auditors about certain of Lason’s fraudulent revenue recognition practices. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Bassman’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Bassman is suspended from appearing or practicing before the Commission as an +accountant. +B. After 3 years from the date of this order, Respondent may request that the +Commission consider his reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that Respondent’s work in his practice before the +Commission will be reviewed either by the independent audit committee of the public company +for which he works or in some other acceptable manner, as long as he practices before the +Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which he is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; +(b) Respondent, or the registered public accounting firm with which he +is associated, has been inspected by the Board and that inspection did not identify any criticisms +of or potential defects in the Respondent’s or the firm’s quality control system that would +indicate that the Respondent will not receive appropriate supervision; + (c) Respondent has resolved all disciplinary issues with the Board, and +has complied with all terms and conditions of any sanctions imposed by the Board (other than +reinstatement by the Commission); and +(d) Respondent acknowledges his responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not limited to, all +requirements relating to registration, inspections, concurring partner reviews and quality control +standards. +3 + +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that his state CPA license is +current and he has resolved all other disciplinary issues with the applicable state boards of +accountancy. However, if state licensure is dependent on reinstatement by the +Commission, the Commission will consider an application on its other merits. The +Commission’s review may include consideration of, in addition to the matters referenced +above, any other matters relating to Respondent’s character, integrity, professional conduct, +or qualifications to appear or practice before the Commission. + By the Commission. + N ancy M. Morris + S ecretary +4 diff --git a/raw/aaer/2008/AAER-2801.txt b/raw/aaer/2008/AAER-2801.txt new file mode 100644 index 0000000000000000000000000000000000000000..a8c33fa7d90083d9708f0c069cf71f12bff3867e --- /dev/null +++ b/raw/aaer/2008/AAER-2801.txt @@ -0,0 +1,1411 @@ + + + + + + + + + + + + + + + + SEC.gov | Biovail Corporation, Eugene Melnyk, Brian Crombie, John Miszuk, and Kenneth G. Howling + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/503091","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Share sensitive information only on official, secure websites. + + + + + + + + + + + + + + + + + SEC homepage + + + + + + + Menu + + + + + + + + + + + + + + Close + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + Search Filings + + + + + + + + + Search Filings + + + + + + + + + Full Text Search + + + + + + Latest Filings + + + + + + Mutual Fund Search + + + + + + Variable Insurance Products Search + + + + + + SIC Codes + + + + + + CIK Lookup + + + + + + Public Dissemination Service (PDS) + + + + + + Search Assistance + + + + + + + + + + + + + Submit Filings + + + + + + + + + Submit Filings + + + + + + + + + EDGAR Filer Management Portal + + + + + + EDGAR Filing Portal + + + + + + Online Forms Management Portal + + + + + + EDGAR Next + + + + + + Forms Index + + + + + + Filer Support & Resources + + + + + + + + + + + + + Data & Research + + + + + + + + + Data & Research + + + + + + + + + Data Library + + + + + + Statistics & Data Visualizations + + + + + + Structured Data + + + + + + Investment Management Data + + + + + + Open Data at the SEC + + + + + + + + + + + + + Rules, Enforcement, & Compliance + + + + + + + + + + + + + + + + + + + + Rules & Regulations + + + + + + + + + Rulemaking Activity + + + + + + Submit Public Comments + + + + + + Staff Guidance + + + + + + No-Action, Interpretive, and Exemptive Letters + + + + + + Self-Regulatory Organization Rulemaking + + + + + + Public Petitions for Rulemaking + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + + + Litigation Releases + + + + + + Administrative Proceedings + + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + + Trading Suspensions + + + + + + Distributions to Harmed Investors + + + + + + Receiverships + + + + + + + + + + + + + + + + + Compliance + + + + + + + + + Examination Priorities + + + + + + Risk Alerts + + + + + + Compliance Outreach Program + + + + + + + + + + + + + + + + + + + + + + + Proposed Rules + + + + + + What's New + + + + + + Whistleblower Program + + + + + + + + + + + + + + + + + + + Featured Topics + + + + + + + + + Featured Topics + + + + + + + + + Crypto Task Force + + + + + + Cybersecurity + + + + + + Market Structure Analytics + + + + + + Saving and Investing for Military Personnel + + + + + + Saving and Investing for Teachers + + + + + + SEC-CFTC Harmonization Initiative + + + + + + Treasury Clearing Implementation + + + + + + + + + + + + + About + + + + + + + + + About + + + + + + + + + Mission + + + + + + Commissioners + + + + + + Divisions & Offices + + + + + + Division & Office Directors + + + + + + Advisory Committees + + + + + + Budget & Performance + + + + + + Reports & Publications + + + + + + Commission Votes + + + + + + Contact the SEC + + + + + + Careers + + + + + + + + + + + + + Submit a Tip or Complaint + + + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + More in this Section + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + Biovail Corporation, Eugene Melnyk, Brian Crombie, John Miszuk, and Kenneth G. Howling + + + + + + + + + + + + Biovail Corporation, Eugene Melnyk, Brian Crombie, John Miszuk, and Kenneth G. Howling + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20506 / March 24, 2008 + + Accounting and Auditing Enforcement Release No. 2801 / March 24, 2008 + + SEC v. Biovail Corporation, Eugene Melnyk, Brian Crombie, John Miszuk, and Kenneth G. Howling , 08 Civ. 02979 (LAK) (S.D.N.Y. filed March 24, 2008) + + SEC Charges Biovail Corporation and Its Former CEO, CFO and Two Current Senior Executives With Securities Fraud + + Biovail Settles Charges and Agrees to Pay $10 Million Civil Penalty + + + + The Securities and Exchange Commission today charged Canadian pharmaceutical company Biovail Corporation and its former CEO, former CFO, and two current senior executives with engaging in a number of fraudulent accounting schemes and making a series of misstatements to analysts and investors. + + The Commission's complaint alleges that present and former senior Biovail executives, obsessed with meeting quarterly and annual earnings guidance, repeatedly overstated earnings and hid losses in order to deceive investors and create the appearance of achieving earnings goals. When it ultimately became impossible to continue concealing the company's inability to meet its own earnings guidance, Biovail actively misled investors and analysts about the reasons for the company's poor performance. + + Biovail settled the Commission's charges and will pay a $10 million penalty. Four current or former Biovail senior executives still face SEC charges: former chairman and chief executive officer Eugene Melnyk; former chief financial officer Brian Crombie; current controller John Miszuk; and current chief financial officer Kenneth G. Howling. + + The Commission's complaint alleges that in October 2003 Biovail and some of its executives schemed to deceive investors and analysts by falsely attributing nearly half of Biovail's failure to meet its third quarter 2003 earnings guidance to a truck accident involving a shipment of one of Biovail's products. Led by Melnyk, Biovail intentionally misstated both the effect of the accident on Biovail's third quarter earnings as well as the value of the product involved in the truck accident. The accident, in fact, had no effect on third quarter earnings. + + The Commission's complaint also alleges three accounting schemes that affected reporting periods from 2001 to 2003. + + Biovail, over several reporting periods in 2001 and 2002, improperly moved off its financial statements and onto the financial statements of a special purpose entity approximately $47 million in expenses incurred in the research and development of some of Biovail's products.   + + Biovail concocted a fictitious bill and hold transaction to record approximately $8 million in revenue in the second quarter of 2003.   + + Biovail intentionally misstated foreign exchange losses that caused its second quarter 2003 loss to be understated by about $3.9 million. + The Commission's complaint alleges that each of Biovail's fraudulent accounting schemes had a material effect on Biovail's financial statements for the relevant quarters and years and was engineered by Biovail's senior management in order to inflate Biovail's reported earnings. Biovail management also intentionally deceived the company's outside auditors as to the true nature of the transactions. The truck accident misstatements were intended to mislead investors about the significance of Biovail's failure to meet its own earnings guidance. + + According to the Commission's complaint, Melnyk violated shareholder disclosure provisions by failing to include in his Schedule 13D filings Biovail shares held by several off-shore trusts that Melnyk controlled. Because Melnyk exercised both investment and trading authority over the shares in the trusts, Melnyk was a beneficial owner of the securities and was required to disclose that ownership in his Schedule 13D filings with the Commission. + + The Commission seeks a final judgment permanently enjoining all defendants from future violations of the Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5; Melnyk, Crombie, Miszuk, and Howling from aiding and abetting violations of Section 10(b) of the Exchange Act and Rule 10b-5; Biovail from violating Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-16; Crombie and Biovail from violating Section 17(a) of the Securities Act of 1933 ("Securities Act"); Crombie from violating Rule 13a-14; Melnyk from violating Section 13(d) of the Exchange Act and Rules 13d-1 and 13d-2; Crombie and Miszuk from violating Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 and from aiding and abetting 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-16; and ordering them to pay civil penalties and disgorgement of any ill-gotten gains with prejudgment interest. The Commission also seeks a judgment barring Melnyk, Crombie, Howling, and Miszuk from serving as officers or directors of any public company. + + Without admitting or denying the allegations in the Commission's complaint, Biovail agreed to settle this matter by consenting to a final judgment requiring it to pay a penalty of $10 million and disgorgement of $1, ordering it to comply with certain undertakings, including the retention of an independent consultant, and permanently enjoining it from future violations of Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, and 13a-16, and Rule 302(b) of Regulation S-T. + + The Commission acknowledges the assistance of the Ontario Securities Commission in this matter. + + + + + SEC Complaint in this matter + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Cornmesser + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/503101","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Share sensitive information only on official, secure websites. + + + + + + + + + + + + + + + + + SEC homepage + + + + + + + Menu + + + + + + + + + + + + + + Close + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + Search Filings + + + + + + + + + Search Filings + + + + + + + + + Full Text Search + + + + + + Latest Filings + + + + + + Mutual Fund Search + + + + + + Variable Insurance Products Search + + + + + + SIC Codes + + + + + + CIK Lookup + + + + + + Public Dissemination Service (PDS) + + + + + + Search Assistance + + + + + + + + + + + + + Submit Filings + + + + + + + + + Submit Filings + + + + + + + + + EDGAR Filer Management Portal + + + + + + EDGAR Filing Portal + + + + + + Online Forms Management Portal + + + + + + EDGAR Next + + + + + + Forms Index + + + + + + Filer Support & Resources + + + + + + + + + + + + + Data & Research + + + + + + + + + Data & Research + + + + + + + + + Data Library + + + + + + Statistics & Data Visualizations + + + + + + Structured Data + + + + + + Investment Management Data + + + + + + Open Data at the SEC + + + + + + + + + + + + + Rules, Enforcement, & Compliance + + + + + + + + + + + + + + + + + + + + Rules & Regulations + + + + + + + + + Rulemaking Activity + + + + + + Submit Public Comments + + + + + + Staff Guidance + + + + + + No-Action, Interpretive, and Exemptive Letters + + + + + + Self-Regulatory Organization Rulemaking + + + + + + Public Petitions for Rulemaking + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + + + Litigation Releases + + + + + + Administrative Proceedings + + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + + Trading Suspensions + + + + + + Distributions to Harmed Investors + + + + + + Receiverships + + + + + + + + + + + + + + + + + Compliance + + + + + + + + + Examination Priorities + + + + + + Risk Alerts + + + + + + Compliance Outreach Program + + + + + + + + + + + + + + + + + + + + + + + Proposed Rules + + + + + + What's New + + + + + + Whistleblower Program + + + + + + + + + + + + + + + + + + + Featured Topics + + + + + + + + + Featured Topics + + + + + + + + + Crypto Task Force + + + + + + Cybersecurity + + + + + + Market Structure Analytics + + + + + + Saving and Investing for Military Personnel + + + + + + Saving and Investing for Teachers + + + + + + SEC-CFTC Harmonization Initiative + + + + + + Treasury Clearing Implementation + + + + + + + + + + + + + About + + + + + + + + + About + + + + + + + + + Mission + + + + + + Commissioners + + + + + + Divisions & Offices + + + + + + Division & Office Directors + + + + + + Advisory Committees + + + + + + Budget & Performance + + + + + + Reports & Publications + + + + + + Commission Votes + + + + + + Contact the SEC + + + + + + Careers + + + + + + + + + + + + + Submit a Tip or Complaint + + + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + More in this Section + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + Romulus S. Pereira, Robert B. Stanton, L. John Kern, Andrew D. Feldman, William F. McFarland, Lori H. Cornmesser + + + + + + + + + + + + Romulus S. Pereira, Robert B. Stanton, L. John Kern, Andrew D. Feldman, William F. McFarland, Lori H. Cornmesser + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20508 / March 25, 2008 + + Accounting and Auditing Enforcement Release No. 2802 / March 25, 2008 + + SEC v. Romulus S. Pereira et al. , Civil Action No. 3:06-CV-06384-MHP (N.D. Cal., filed October 12, 2006) + + SEC Settles With Former Officers of Riverstone Networks, Inc. + + + + The Securities and Exchange Commission ("Commission") announced today that the Honorable Charles R. Breyer of the United States District Court for the Northern District of California has entered, by consent, orders of permanent injunction and other relief ("Orders") in a civil action the Commission brought against five former officers and one former employee of Riverstone Networks, Inc. ("Riverstone"), a California-based company that formerly manufacture and market communications routers. In the lawsuit, the Commission alleged that from June 2001 through June 2002, these defendants participated in a scheme to inflate Riverstone's publicly-reported net revenues through improper revenue recognition on contingent sales (SEC Lit. Rel. No. 19869). The defendants, in consenting to the Orders, neither admitted nor denied the allegations of the Commission's complaint. + + Pursuant to the Orders, former Riverstone officers Romulus S. Pereira, chief executive officer, Robert B. Stanton, chief financial officer, L. John Kern, executive vice president of sales, Andrew D. Feldman, vice president of marketing, and William F. McFarland, vice president of finance, have been enjoined from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and from aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. Defendants Pereira, Stanton, and McFarland were further enjoined from aiding and abetting violations of Section 13(b)(2)(B)(ii) of the Exchange Act. Former Riverstone employee Lori H. Cornmesser, director of sales operations, was enjoined from violating Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, and from aiding and abetting violations of Section 13(b)(2)(A) of the Exchange Act and Rule 13b2-2 thereunder. The Orders also require defendants Pereira, Stanton, Kern, Feldman, and Cornmesser to pay disgorgement in the amount of $375,000, $175,000, $347,066, $289,507, and $17,054, respectively. Defendants Pereira, Stanton, and McFarland were further ordered to pay civil penalties in the amount of $75,000, $75,000, and $40,000, respectively. Finally, defendants Pereira, Stanton, and Kern have been barred for a period of five years from acting as an officer or director of a public company. + + In related criminal cases, defendants Kern and Feldman pled guilty to one felony count each of violating the internal accounting controls of a public company under the provisions of Sections 13(b)(5) and 32 of the Exchange Act. In December 2007, they were each sentence to three years of probation and fined $5,000. U.S. v. Kern , Case No. 3:0-CRr-00733 and U.S. v. Feldman , Case No. 3:07-CR-00731 (N.D. Cal.). + + + + + Order of Permanent Injunction Against Pereira Order of Permanent Injunction Against Stanton Order of Permanent Injunction Against Kern Order of Permanent Injunction Against Feldman Order of Permanent Injunction Against McFarland Order of Permanent Injunction Against Cornmesser + + +  + + + + + + + + + + + Resources + + + + + Order of Permanent Injunction Against Pereira + + + + + Order of Permanent Injunction Against Stanton + + + + + Order of Permanent Injunction Against Kern + + + + + Order of Permanent Injunction Against Feldman + + + + + Order of Permanent Injunction Against McFarland + + + + + Order of Permanent Injunction Against Cornmesser + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2805.txt b/raw/aaer/2008/AAER-2805.txt new file mode 100644 index 0000000000000000000000000000000000000000..d34733c221d1b5e9b4a3066bc6d7ffd7ec61110c --- /dev/null +++ b/raw/aaer/2008/AAER-2805.txt @@ -0,0 +1,75 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57563 / March 26, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2805 / March 26, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-11911 +: +In the Matter of +Steven H. Barry, CPA +: +: +: +: +ORDER GRANTING APPLICATION FOR +REINSTATEMENT TO APPEAR AND PRACTICE +BEFORE THE COMMISSION AS AN ACCOUNTANT +: +On April 26, 2005, Steven H. Barry (“Barry”) was denied the privilege of appearing or +practicing as an accountant before the Commission as a result of settled public administrative +proceedings instituted by the Commission against Barry pursuant to Rule 102(e) of the +Commission's Rules of Practice.1 Barry consented to the entry of the April 26, 2005 order +without admitting or denying the findings therein. This order is issued in response to Barry’s +application for reinstatement to practice before the Commission as an accountant. +Barry served as the engagement partner for Deloitte & Touche LLP’s audit of Just for +Feet, Inc.’s financial statements for the fiscal year ended January 30, 1999. Barry reasonably +should have known that the financial statements had not been prepared in accordance with +GAAP, but nonetheless issued, with others, an unqualified audit report that represented that the +financial statements were free from material misstatements and were presented in conformity +with GAAP and that the auditors had adhered to GAAS when the audit was performed. Barry +did not comply with GAAS in the conduct of the audit and engaged in improper professional +conduct within the meaning of Rule 102(e)(1)(ii) of the Commission’s Rules of Practice through +repeated instances of unreasonable conduct. +Barry has met all of the conditions set forth in the original order and, in his capacity as an +independent accountant, has stated that he will comply with all requirements of the Commission +and the Public Company Accounting Oversight Board, including, but not limited to all +1 See Accounting and Auditing Enforcement Release No. 2238 dated April 26, 2005. Barry was permitted, pursuant +to the order, to apply for reinstatement after two years upon making certain showings. +requirements relating to registration, inspections, concurring partner reviews and quality control +standards. In his capacity as a preparer or reviewer, or as a person responsible for the +preparation or review, of financial statements of a public company to be filed with the +Commission, Barry attests that he will undertake to have his work reviewed by the independent +audit committee of any company for which he works, or in some other manner acceptable to the +Commission, while practicing before the Commission in this capacity. +Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for +reinstatement, and provides that the Commission may reinstate the privilege to appear and +practice before the Commission “for good cause shown.”2 This “good cause” determination is +necessarily highly fact specific. + On the basis of the information supplied, representations made, and undertakings agreed +to by Barry, it appears that he has complied with the terms of the April 26, 2005 order denying +him the privilege of appearing or practicing before the Commission as an accountant, that no +information has come to the attention of the Commission relating to his character, integrity, +professional conduct or qualifications to practice before the Commission that would be a basis +for adverse action against him pursuant to Rule 102(e) of the Commission's Rules of Practice, +and that Barry, by undertaking to have his work reviewed by the independent audit committee of +any company for which he works, or in some other manner acceptable to the Commission, in his +practice before the Commission as a preparer or reviewer of financial statements required to be +filed with the Commission, and that Barry, by undertaking to comply with all requirements of the +Commission and the Public Company Accounting Oversight Board, including, but not limited to, +all requirements relating to registration, inspections, concurring partner reviews and quality +control standards, in his practice before the Commission as an independent accountant has shown +good cause for reinstatement. Therefore, it is accordingly, +ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that +Steven H. Barry, CPA is hereby reinstated to appear and practice before the Commission as an +accountant. +By the Commission. +Nancy M. Morris +Secretary +2 Rule 102(e)(5)(i) provides: +“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) +of this section may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a +hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated +by the Commission for good cause shown.” 17 C.F.R. § 201.102(e)(5)(i). \ No newline at end of file diff --git a/raw/aaer/2008/AAER-2806.txt b/raw/aaer/2008/AAER-2806.txt new file mode 100644 index 0000000000000000000000000000000000000000..987a5990db2acaeb32f8042318d5d3e65acc22c8 --- /dev/null +++ b/raw/aaer/2008/AAER-2806.txt @@ -0,0 +1,96 @@ + +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57612 / April 3, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2806 / April 3, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-11457 + +In the Matter of +John Luczycki, CPA + +: +: +: +: +: +: +ORDER GRANTING APPLICATION FOR +REINSTATEMENT TO APPEAR AND PRACTICE +BEFORE THE COMMISSION AS AN ACCOUNTANT +RESPONSIBLE FOR THE PREPARATION OR +REVIEW OF FINANCIAL STATEMENTS REQUIRED +TO BE FILED WITH THE COMMISSION + +On April 14, 2004, John Luczycki (“Luczycki”) was denied the privilege of appearing or +practicing as an accountant before the Commission as a result of settled public administrative +proceedings instituted by the Commission against Luczycki pursuant to Rule 102(e) of the +Commission's Rules of Practice.1 Luczycki consented to the entry of the order without admitting +or denying the findings therein. This order is issued in response to Luczycki’s application for +reinstatement to appear and practice before the Commission as an accountant responsible for the +preparation or review of financial statements required to be filed with the Commission. + During the period from December 2000 to July 2002, Luczycki served as Vivendi +Universal, S.A.’s (“Vivendi”) Chief Accounting Officer and controller. The Commission’s order +found that, in this capacity, Luczycki, along with other Vivendi senior executives, made +improper adjustments that allowed Vivendi to meet earnings targets that it had communicated to +the market. In addition, Luczycki knew or was reckless in not knowing that Vivendi improperly +failed to disclose a side agreement that Vivendi entered into in February 2001. Finally, Luczycki +participated in Vivendi’s failure to disclose in a timely manner all of the material facts about +Vivendi’s investment in a fund in June, 2001. + +In his capacity as a preparer or reviewer, or as a person responsible for the preparation or +review, of financial statements of a public company to be filed with the Commission, Luczycki +attests that he will undertake to have his work reviewed by the independent audit committee of + +1 See Accounting and Auditing Enforcement Release No. 1989 dated April 14, 2004. Luczycki was permitted, +pursuant to the order, to apply for reinstatement after three years upon making certain showings. +any company for which he works, or in some other manner acceptable to the Commission, while +practicing before the Commission in this capacity. Luczycki is not, at this time, seeking to +appear or practice before the Commission as an independent accountant. If he should wish to +resume appearing and practicing before the Commission as an independent accountant, he will +be required to submit an application to the Commission showing that he has complied and will +comply with the terms of the original suspension order in this regard. Therefore, Luczycki’s +denial of the privilege of appearing or practicing before the Commission as an independent +accountant continues in effect until the Commission determines that a sufficient showing has +been made in this regard in accordance with the terms of the original suspension order. + +Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for +reinstatement, and provides that the Commission may reinstate the privilege to appear and +practice before the Commission “for good cause shown.”2 This “good cause” determination is +necessarily highly fact specific. + +On the basis of information supplied, representations made, and undertakings agreed to +by Luczycki, it appears that he has complied with the terms of the April 14, 2004 order denying +him the privilege of appearing or practicing before the Commission as an accountant, that no +information has come to the attention of the Commission relating to his character, integrity, +professional conduct or qualifications to practice before the Commission that would be a basis +for adverse action against him pursuant to Rule 102(e) of the Commission's Rules of Practice, +and that Luczycki, by undertaking to have his work reviewed by the independent audit +committee of any company for which he works, or in some other manner acceptable to the +Commission, in his practice before the Commission as a preparer or reviewer of financial +statements required to be filed with the Commission, has shown good cause for reinstatement. +Therefore, it is accordingly, + +ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that John +Luczycki, CPA is hereby reinstated to appear and practice before the Commission as an +accountant responsible for the preparation or review of financial statements required to be filed +with the Commission. + +By the Commission. + + +Nancy M. Morris +Secretary + +2 Rule 102(e)(5)(i) provides: + +“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) +of this section may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a +hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated +by the Commission for good cause shown.” 17 C.F.R. § 201.102(e)(5)(i). + + 2 \ No newline at end of file diff --git a/raw/aaer/2008/AAER-2807.txt b/raw/aaer/2008/AAER-2807.txt new file mode 100644 index 0000000000000000000000000000000000000000..7c55332a243ce97e1fe24de48e57c00a53cd1c21 --- /dev/null +++ b/raw/aaer/2008/AAER-2807.txt @@ -0,0 +1,1398 @@ + + + + + + + + + + + + + + + + SEC.gov | John N. Milne + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/503151","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Milne + + + + + + + + + + + + John N. Milne + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20518 / April 7, 2008 + + Accounting and Auditing Enforcement Release No. 2807 / April 7, 2008 + + SEC v. John N. Milne, , Civil Action No. 3:08-CV-505 (VLB) (D.Ct.) + + SEC Charges John N. Milne, Former Vice-Chairman, President and CFO of United Rentals, Inc., with Financial Fraud + + The Securities and Exchange Commission announced the filing on April 4, 2008, of securities fraud charges against John N. Milne, a former Vice Chairman, President, and Chief Financial Officer of United Rentals, Inc. ("URI"). Milne is the second URI officer, and the third CFO, charged in connection with the alleged violations. On December 12, 2007, the Commission filed settled financial fraud charges against Michael J. Nolan, another former CFO of URI. On December 27, 2001, the Commission charged Joseph F. Apuzzo, a former CFO of Terex Corporation, with aiding and abetting the fraudulent scheme. + + The Commission's complaint, filed in the United States District Court for the District of Connecticut, alleges that, from 2000 through 2002, Milne engaged in a series of fraudulent transactions undertaken in order to meet URI's earnings forecasts and analyst expectations. The complaint alleges that Milne and Nolan carried out the fraud through a series of interlocking three-party transactions, structured as "minor sale-leasebacks," to allow URI to recognize revenue prematurely and to inflate profits generated from the sales. As a result of the fraud, URI materially overstated its financial results in its Forms 10-K for fiscal years 2000 and 2001, and its Forms 10-Q for the periods ended June 30, 2001 and March 31, 2002, as well as in other public releases. + + The complaint further alleges that shortly after URI announced 2001 and 2002 year-end results, Milne sold approximately $38 million of URI stock that he owned, knowing that the company's announced financial results were materially overstated. + + The Commission's complaint alleges that, as a result of his actions, Milne violated Section 17(a) of the Securities Act of 1933, and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934, and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and aided and abetted URI's 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. As part of this action, the Commission seeks a permanent injunction, an officer and director bar, disgorgement and prejudgment interest, civil penalties, and other equitable relief. + + The U.S. Attorney's Office for the District of Connecticut also announced that Milne was indicted on conspiracy, securities fraud, making false statements to the Commission and related charges in a parallel criminal action. + + The Commission acknowledges the assistance of the U.S. Attorney's Office for the District of Connecticut and the New Haven Field Office of the Federal Bureau of Investigation in the investigation of this matter. + + The Commission's investigation is continuing. + + For further information, see Litigation Release Nos. 20396 (December 12, 2007) and 20418 (December 31, 2007). + + + + + + + SEC Complaint in this matter + +   + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2808.txt b/raw/aaer/2008/AAER-2808.txt new file mode 100644 index 0000000000000000000000000000000000000000..6803f63a1dabc175174f6c7db4dd7fe0c41d5a7b --- /dev/null +++ b/raw/aaer/2008/AAER-2808.txt @@ -0,0 +1,357 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57662 / April 14, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2808 / April 14, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13006 +In the Matter of + MELVIN DICK, CPA, +Respondent. +ORDER INSTITUTING PUBLIC +ADMINISTRATIVE PROCEEDINGS +PURSUANT TO RULE 102(e) OF THE +COMMISSION’S RULES OF PRACTICE, +MAKING FINDINGS, AND IMPOSING +REMEDIAL SANCTIONS +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate +that public administrative proceedings be, and hereby are, instituted against Melvin Dick, +CPA (“Dick” or “Respondent”) pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules +of Practice.1 +II. +In anticipation of the institution of these proceedings, Dick has submitted an Offer +of Settlement (“Offer”) 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 him and the subject +matter of these proceedings, which are admitted, Dick consents to the entry of this Order +Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the +Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. + Rule 102(e)(1)(ii) provides, in pertinent part, that: +The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before +it in any way to any person who is found by the Commission . . . to have engaged in . . . improper +professional conduct. +1 +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +A. SUMMARY +1. This matter concerns improper professional conduct by Melvin Dick, an +audit partner with the public accounting firm Arthur Andersen LLP (“Andersen”), in +connection with the audit of the financial statements of WorldCom, Inc. (“WorldCom”) +for its fiscal year ended December 31, 2001. Dick was the lead engagement partner on +the audit. As the lead engagement partner, Dick was responsible for planning the conduct +and scope of the WorldCom audit and overseeing all of the services performed by the +Andersen staff, including reviewing the work performed by Andersen’s staff on the 2001 +audit. In the planning and performance of that audit, Dick failed to comply with +Generally Accepted Auditing Standards (“GAAS”) as described below. +B. RESPONDENT +2. Melvin Dick, age 54, resides in Sagle, Idaho. Dick was a partner with +Andersen from 1987 to 2002, and was the head of the firm’s Global +Telecommunications, Entertainment and Media industry practice at the time of +Andersen’s audit of WorldCom’s fiscal year 2001 financial statements. In 2003, Dick +allowed his CPA licenses in several jurisdictions to expire, and he currently is not a +licensed CPA. +C. RELATED PARTIES +3. Arthur Andersen LLP was, at all times relevant, a limited liability +partnership headquartered in Chicago, Illinois that performed, among other things, +accounting and consulting services, and was one of the so-called "Big Five" accounting +firms in the United States. +4. WorldCom, Inc. was, at all times relevant, a global telecommunications +company incorporated in Georgia with its principal offices in Jackson, Mississippi. +D. FACTS +WorldCom’s Fraudulent Accounting for +Capital Expenditures and Line Cost Expenses +5. From 1998 through 2001, WorldCom made substantial cash outlays to +enhance and expand its global telecommunications network. WorldCom recorded these +capital expenditures as assets on its balance sheet and grouped them into various +categories within Property, Plant & Equipment (“PP&E”), such as Transmission +Equipment, Communication Equipment and Furniture, Fixtures & Other. +2 + + +6. PP&E constituted the second largest category of assets on WorldCom’s +balance sheet. In any given year, a majority of WorldCom’s capital expenditures was +related to construction in progress (“CIP”), which represented the accumulated cost of +constructing assets before the assets are placed in service. Each of the CIP projects was +supposed to be approved through WorldCom’s budgetary Authorization for Expenditure +(“AFE”) process; when approved, AFE numbers were assigned to those projects. +WorldCom accumulated the costs incurred for each project in a CIP account. Once the +project was completed and ready for use, it was transferred from CIP into the appropriate +PP&E “in-service” account, where the asset would begin to be depreciated or expensed. +7. WorldCom tracked the acquisition, disposition, and transfer of its assets on +the PP&E Rollforward Schedule (“Rollforward”). Andersen received a copy of the +Rollforward each quarter in connection with its quarterly reviews and audit testing. +Respondent identified PP&E as a material account for the 2001 WorldCom audit, and +designated the capital expenditures cycle at WorldCom as a “critical process.” +8. Line costs comprised the largest single expense item on WorldCom’s +income statement. WorldCom’s line costs could be classified into domestic, international +and internet line costs, with domestic line costs being the largest of these three categories. +A major component of WorldCom’s line cost expenses were the fees it paid to third-party +telecommunications carriers under long term lease agreements for rights of access to their +telecommunications networks. These lease agreements required WorldCom to pay the +fees whether or not WorldCom used all of the leased capacity. During 2001, +WorldCom’s line costs had increased, in large part due to its obligations under the long- +term lease agreements it had entered into based on its incorrect anticipation of growth in +demand for telecommunications capacity. +9. U.S. Generally Accepted Accounting Principles (“GAAP”) required +WorldCom to expense its line costs in the period they were incurred because they +represented actual or expected cash outflows from ongoing major operations. During +2001, WorldCom improperly removed approximately $3 billion in its line cost expenses +from its income statement, improperly and fraudulently characterizing these expenses as +“assets” on its balance sheet. This improper accounting was accomplished by manual +journal entries to line cost and PP&E accounts. +Failure to Take Engagement Risks Into Consideration +10. In 2001 as well as in prior audits, Andersen utilized a risk assessment tool +it called the “SMART” tool to evaluate risks related to serving an audit client. +Application of Andersen’s SMART tool by the WorldCom engagement team resulted in a +“High” risk classification for the 2001 WorldCom audit. The engagement team, +however, manually increased the risk classification to “Maximum,” Andersen’s highest +risk rating, as Andersen had done in the prior year’s audit. WorldCom’s risk +classification was increased due to “the volatility of [its] industry, its future merger and +acquisition plans and its reliance on a high stock price to fund those acquisitions.” +3 + +11. At the time of the 2001 WorldCom audit, Respondent knew that +WorldCom’s CEO, Bernard Ebbers, owed substantial personal debt secured by the +WorldCom stock he owned. Respondent was also aware that Ebbers faced margin calls +on this indebtedness as WorldCom’s stock price rapidly declined. Respondent was also +aware that WorldCom had guaranteed more than $200 million of Ebbers’ personal debt. +However, the audit workpapers for the 2001 audit did not identify either the financial +pressure on Ebbers or the significant decline in WorldCom’s stock price as a fraud risk. +Respondent did not modify the audit plan to address this risk. +12. Respondent participated in an “Expanded Risk Discussion,” required under +Andersen policy for all Maximum risk clients, for the 2001 WorldCom audit. During that +process, Respondent became aware that in prior years Andersen had identified +WorldCom’s “aggressive accounting policies” and “desires to maintain high stock +valuations in anticipation of a security offering or a merger” as fraud risk factors. +13. At the time of the 2001 audit, Respondent had also learned that in the prior +year’s audit, Andersen had become aware that in the first quarter of 2000 WorldCom’s +then Controller had directed the making of a post-closing journal entry, which had no +documentary support, to reduce line cost expenses at WorldCom’s United Kingdom +subsidiary by approximately $33.6 million. +14. Respondent should have reasonably recognized that the deteriorating +market conditions in the telecommunications industry created a pressure that also +increased the risk of fraud. In 2001, the telecommunications industry experienced a +significant downturn, experiencing overcapacity, declining prices paid for services, and +declining stock prices. WorldCom’s own stock price had declined more or less steadily +from a high of $50 in February 2000 to $14 by the end of 2001, a decline of almost +seventy percent. WorldCom’s revenue growth was reduced, many of its customers were +financially ailing or failing. Despite reduced revenue growth, WorldCom had to service +massive amounts of debt it had issued. The Andersen audit workpapers, however, fail to +reflect consideration of these industry conditions in general or as experienced by +WorldCom and their implications on the risk of fraud in the financial statements. +15. Notwithstanding that Respondent knew that management had the ability to +override, and had overridden, WorldCom’s accounting controls, he failed to exercise due +professional care or maintain professional skepticism toward WorldCom in planning and +performing the audit. Despite the numerous fraud risks at WorldCom of which he was +aware or reasonably should have been aware, Respondent did not ensure the 2001 audit +of line costs and PP&E incorporated adequate procedures to obtain reasonable assurance +that the financial statements were free of material misstatements as required by GAAS. +Respondent’s failure to modify the 2001 audit plan, given the increased and significant +fraud risks existing at WorldCom, compromised Andersen’s ability to detect the massive +fraud occurring in WorldCom’s PP&E and line costs accounts in 2001. +4 + +Failures in Audit of PP&E Accounts +16. Even though Respondent’s audit team determined that PP&E was a critical +audit area, they failed to perform adequate testing in this area. The audit team’s testing +was inadequate to determine whether WorldCom’s controls were sufficient to prevent +material misstatements of PP&E through error or fraud, testing only a subset of the +additions to PP&E. Moreover, the auditors only performed testing of additions to PP&E +through the end of WorldCom’s third quarter, September 30, 2001, and not as of the end +of WorldCom’s fiscal year. +17. Respondent’s audit plan was premised on the inaccurate assumption that all +new recorded PP&E had been added through the AFE process and that no additions to +PP&E could be made outside of that process. Consequently, the Andersen audit team +tested accounting controls on additions to WorldCom’s PP&E by selecting a sample of +twenty-three open CIP projects identified by AFE numbers, and checked each project for, +among other things, the existence of an approved AFE form for the project and noting +whether open CIP projects were on schedule to be completed by the expected completion +date. +18. While Respondent tested the controls surrounding the segregation of duties +of employees involved in the AFE process, Respondent failed to obtain sufficient +evidence to determine whether additions to PP&E could be made outside of the AFE +process. Respondent also failed to test whether management could circumvent the AFE +controls to make potentially improper additions to PP&E, despite being aware of +management’s ability to manually override controls in place. +19. WorldCom’s third quarter Rollforward—which Andersen received in +performing the audit—showed to tal additions to PP&E of approximately $6.4 billion as +of September 30, 2001, a figure that included the improper entries made in the course of +the fraud. Respondent tested a smaller subset of additions to PP&E, selecting the twenty- +three projects from a population of $4.1 billion in open CIP. Had Respondent reconciled +the $4.1 billion population tested to the $6.4 billion in total PP&E additions reflected in +the third-quarter Rollforward, or in the General Ledger, Respondent would have +discovered that Andersen was merely testing a subset of total additions to PP&E. +Because the smaller population Respondent tested was only a subset of all additions to +PP&E, the testing necessarily could not, and did not, provide Respondent with sufficient +competent evidence regarding WorldCom’s accounting controls for additions to PP&E. +20. The audit team did not conduct any substantive testing of the PP&E +accounts following its testing of an incomplete subset of total PP&E additions as of the +end of WorldCom’s third quarter. WorldCom subsequently added $841 million in +improperly capitalized line costs to its PP&E in the fourth quarter of 2001. The +fraudulent additions amounted to nearly half of the total PP&E additions in that quarter. +As a result of Andersen’s failure to conduct further testing of PP&E balances as of year +5 + +end, or to examine PP&E activity as of the balance-sheet date subsequent to its interim +testing, these additional improper and fraudulent additions to PP&E were not subject to +auditing. +21. Respondent failed to adequately plan the audit to provide for adequate +substantive testing of the details of PP&E. Based on the deficient testing of PP&E +controls during the audit, Respondent improperly assessed the control risk at below a +maximum level and, as a result, planned and performed insufficient audit testing of +PP&E. +22. In failing to: take the fundamental step of ensuring that the population of +property additions his audit team tested was complete and corresponded to the total +property additions reflected in WorldCom’s balance sheet; ensure that appropriate testing +was done to provide a reasonable basis for extending conclusions regarding PP&E +account balances from the date of interim testing to the balance-sheet date; and conduct +adequate substantive testing of PP&E accounts, Respondent failed to exercise due +professional care (American Institute of Certified Public Accountants (“AICPA”), +Codification of Statements on Auditing Standards, (“AU”) §§ 150.02, 230.01)2 and +professional skepticism (AU § 230.07) in the planning and performance of the audit, and +failed to obtain sufficient evidential matter (AU §§ 150.02, 326.01) to provide him with a +reasonable assurance that WorldCom’s financial statements were free of material +misstatement. +Failures in Audit of Line Cost Accounts +23. Respondent failed to exercise due professional care in the planning and +performance of the audit (AU §§ 150.02, 230.01), and failed to obtain sufficient +competent evidential matter (AU §§ 150.02, 326.01), by failing to reconcile the line cost +expenses being audited to the Company’s financial statements and general ledger. +24. Had such a reconciliation been included in the audit plan or performed, +Respondent’s audit team would have discovered that the line cost expenses they were +testing were significantly larger than the line cost expenses reflected in WorldCom’s +financial statements and general ledger. This difference existed because the fraudulent +entries reducing those expenses were not included in the schedules Andersen received to +audit, but were reflected in the line cost expenses reported in the financial statements. +25. The audit that Respondent designed subjected line cost expenses to testing +through the identification and testing of WorldCom’s internal controls relevant to line +cost expenses. Based on the results of that testing of controls, Respondent determined the +control risk was below the maximum risk, and, consequently, insufficient testing of line +cost expenses was performed. +26. However, the audit workpapers Respondent reviewed in making his control +risk determination did not document how the controls identified and tested were relevant +2 The AU cites referenced throughout the document pertain to GAAS standards that were in effect in 2001. +6 + +to preventing or detecting misstatements in the assertions embodied in the line cost +expense account balance. The failure to link specific internal controls to the asserted line +cost expense account balance resulted in a failure by Respondent to obtain sufficient +evidential matter (AU §§ 150.02, 326.01), in violation of GAAS. +Failure to Review Non-Standard Journal Entries +27. The fraudulent reduction of WorldCom’s line cost expenses was +accomplished through the recording of large unsupported journal entries, known as on- +top or top-side entries, after the close of each quarter, in even monetary amounts ranging +from $38.5 million to $600 million. +28. Despite the fact that Respondent’s audit team had rated WorldCom as a +“Maximum” risk client, despite other risk factors that Respondent either knew or +reasonably should have known provided an incentive for fraudulent misstatement of +WorldCom’s financial statements, and despite Respondent’s awareness that management +had the ability to override accounting controls, Respondent did not exercise due +professional care in the planning and performance of the audit (AU §§ 150.02, 230.01) by +failing to design or implement audit procedures to identify and review non-standard +journal entries. +29. Respondent placed undue reliance on WorldCom’s management’s +representation that there were no significant top-side entries. Respondent failed to +exercise due professional care (AU §§ 150.02, 230.01), maintain an attitude of +professional skepticism (AU § 230.07), and to obtain sufficient competent evidential +matter (AU §§ 150.02, 326.01), by not planning and performing reasonable audit +procedures to identify potentially improper or fraudulent top-side journal entries and by +relying on management’s representation that there were no significant top-side journal +entries. +Inadequate Workpaper Documentation of the Audit +30. Respondent’s audit workpapers for the 2001 WorldCom audit did not +adequately document the audit procedures applied, tests performed, information obtained +and pertinent conclusions reached in the audit engagement and failed to show that the +accounting records agree or reconcile with the financial statements (AU § 339). +Additionally, key documents purportedly used in performing the audit are not included in +the workpapers. +E. VIOLATION +Dick failed to comply with GAAS in connection with the 2001 WorldCom audit +by unreasonably: (i) failing to exercise due professional care in the planning and +performance of the audit, AU §§ 150.02, 230.01; (ii) failing to exercise an attitude of +professional skepticism throughout the audit, AU § 230.07; (iii) failing to obtain +sufficient evidential matter to afford a reasonable basis for Andersen’s opinion regarding +WorldCom’s financial statements, AU §§ 150.02, 326.01; (iv) failing to consider +7 + +expanding the extent of the audit procedures applied, applying procedures closer to or as +of year end, particularly in critical audit areas, or modifying the nature of procedures to +obtain more persuasive evidence, in light of the significant risks of material misstatement +that existed at WorldCom, AU § 312.17; (v) failing to plan and perform the audit to +obtain reasonable assurance about whether the financial statements were free of material +misstatement, whether caused by error or fraud, AU § 110.02; and (vi) issuing an audit +report that falsely stated that the audit was conducted in accordance with GAAS and that +WorldCom’s financial statements were presented in conformity with GAAP, AU § +508.07. +Rule 102(e)(1)(ii) of the Commission’s Rules of Practice provides, in part, that +the Commission may censure or deny, temporarily or permanently, the privilege of +appearing or practicing before the Commission in any way to any person who is found by +the Commission to have engaged in improper professional conduct. Rule 102(e)(1)(iv) +defines improper professional conduct with respect to persons licensed to practice as +accountants. +As applicable here, improper professional conduct means a violation of applicable +standards that resulted from “repeated instances of unreasonable conduct, each resulting +in a violation of applicable professional standards, that indicate a lack of competence to +practice before the Commission.” (Rule 102(e)(1)(iv)(B)(2)). As a result of the conduct +described above, Respondent repeatedly acted unreasonably in failing to conduct or +supervise the audit of WorldCom’s financial statements for the year ended December 31, +2001 in accordance with GAAS. +F. FINDINGS +Based on the foregoing, the Commission finds that Respondent engaged in +improper professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules +of Practice. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the +sanctions agreed to in Respondent’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Respondent is denied the privilege of appearing or practicing before the +Commission as an accountant. +B. After four years from the date of this order, Respondent may request that +the Commission consider his reinstatement by submitting an application (attention: +Office of the Chief Accountant) to resume appearing or practicing before the +Commission as: +8 + +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. +Such an application must satisfy the Commission that Respondent’s work in his practice +before the Commission will be reviewed either by the independent audit committee of the +public company for which he works or in some other acceptable manner, as long as he +practices before the Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which he is +associated, is registered with the Public Company Accounting Oversight +Board (“Board”) in accordance with the Sarbanes-Oxley Act of 2002, and +such registration continues to be effective; +(b) Respondent, or the registered public accounting firm with +which he is associated, has been inspected by the Board and that +inspection did not identify any criticisms of or potential defects in the +Respondent’s or the firm’s quality control system that would indicate that +the Respondent will not receive appropriate supervision; +(c) Respondent has resolved all disciplinary issues with the Board, +and has complied with all terms and conditions of any sanctions imposed +by the Board (other than reinstatement by the Commission); and +(d) Respondent acknowledges his responsibility, as long as +Respondent appears or practices before the Commission as an independent +accountant, to comply with all requirements of the Commission and the +Board, including, but not limited to, all requirements relating to +registration, inspections, concurring partner reviews and quality control +standards. +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that his state CPA license is +current and he has resolved all other disciplinary issues with the applicable state boards +of accountancy. However, if state licensure is dependent on reinstatement by the +Commission, the Commission will consider an application on its other merits. The +Commission’s review may include consideration of, in addition to the matters referenced +above, any other matters relating to Respondent’s character, integrity, professional +conduct, or qualifications to appear or practice before the Commission. +By the Commission. +Nancy M. Morris +Secretary +9 diff --git a/raw/aaer/2008/AAER-2809.txt b/raw/aaer/2008/AAER-2809.txt new file mode 100644 index 0000000000000000000000000000000000000000..c3fc2589d34b44d03d2eab971528159ba10e9c0b --- /dev/null +++ b/raw/aaer/2008/AAER-2809.txt @@ -0,0 +1,375 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57663 / April 14, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2809 / April 14, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13007 +In the Matter of + KENNETH M. AVERY, CPA, +Respondent. +ORDER INSTITUTING PUBLIC +ADMINISTRATIVE PROCEEDINGS +PURSUANT TO RULE 102(e) OF THE +COMMISSION’S RULES OF PRACTICE, +MAKING FINDINGS, AND IMPOSING +REMEDIAL SANCTIONS +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate +that public administrative proceedings be, and hereby are, instituted against Kenneth M. +Avery, CPA (“Avery” or “Respondent”) pursuant to Rule 102(e)(1)(ii) of the +Commission’s Rules of Practice.1 +II. +In anticipation of the institution of these proceedings, Avery has submitted an +Offer of Settlement (“Offer”) 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 him and the +subject matter of these proceedings, which are admitted, Avery consents to the entry of +this Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the +Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. + Rule 102(e)(1)(ii) provides, in pertinent part, that: +The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before +it in any way to any person who is found by the Commission . . . to have engaged in . . . improper +professional conduct. +1 +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +A. SUMMARY +1. This matter concerns improper professional conduct by Kenneth M. Avery +an audit partner with the public accounting firm Arthur Andersen LLP (“Andersen”), in +connection with the audit of the financial statements of WorldCom, Inc. (“WorldCom”) +for its fiscal year ended December 31, 2001. Avery was promoted from manager to audit +partner during the 2001 audit of WorldCom. As an audit manager, he helped to plan the +conduct and scope of the WorldCom audit, and as an audit partner, he was responsible for +supervising the performance of the audit on a day-to-day basis. In the planning and +performance of that audit, Avery failed to comply with Generally Accepted Auditing +Standards (“GAAS”) as described below. +B. RESPONDENT +2. Kenneth M. Avery, age 41, was employed by Andersen from 1990 to May +2002 and became an audit partner in September 2001. Avery first served on the +WorldCom audit engagement in September 1998 and became one of the engagement +partners during 2001. Avery has been licensed as a CPA in the state of Mississippi since +1992. +C. RELATED PARTIES +3. Arthur Andersen LLP was, at all times relevant, a limited liability +partnership headquartered in Chicago, Illinois that performed, among other things, +accounting and consulting services, and was one of the so-called "Big Five" accounting +firms in the United States. +4. WorldCom, Inc. was, at all times relevant, a global telecommunications +company incorporated in Georgia with its principal offices in Jackson, Mississippi. +D. FACTS +WorldCom’s Fraudulent Accounting for +Capital Expenditures and Line Cost Expenses +5. From 1998 through 2001, WorldCom made substantial cash outlays to +enhance and expand its global telecommunications network. WorldCom recorded these +capital expenditures as assets on its balance sheet and grouped them into various +categories within Property, Plant & Equipment (“PP&E”), such as Transmission +Equipment, Communication Equipment and Furniture, Fixtures & Other. +6. PP&E constituted the second largest category of assets on WorldCom’s +balance sheet. In any given year, a majority of WorldCom’s capital expenditures was +2 + + +related to construction in progress (“CIP”), which represented the accumulated cost of +constructing assets before the assets are placed in service. Each of the CIP projects was +supposed to be approved through WorldCom’s budgetary Authorization for Expenditure +(“AFE”) process; when approved, AFE numbers were assigned to those projects. +WorldCom accumulated the costs incurred for each project in a CIP account. Once the +project was completed and ready for use, it was transferred from CIP into the appropriate +PP&E “in-service” account, where the asset would begin to be depreciated or expensed. +7. WorldCom tracked the acquisition, disposition, and transfer of its assets on +the PP&E Rollforward Schedule (“Rollforward”). Andersen received a copy of the +Rollforward each quarter in connection with its quarterly reviews and audit testing. +Respondent identified PP&E as a material account for the 2001 WorldCom audit, and +designated the capital expenditures cycle at WorldCom as a “critical process.” +8. Line costs comprised the largest single expense item on WorldCom’s +income statement. WorldCom’s line costs could be classified into domestic, international +and internet line costs, with domestic line costs being the largest of these three categories. +A major component of WorldCom’s line cost expenses were the fees it paid to third-party +telecommunications carriers under long term lease agreements for rights of access to their +telecommunications networks. These lease agreements required WorldCom to pay the +fees whether or not WorldCom used all of the leased capacity. During 2001 +WorldCom’s line costs had increased, in large part due to its obligations under the long- +term lease agreements it had entered into based on its incorrect anticipation of growth in +demand for telecommunications capacity. +9. U.S. Generally Accepted Accounting Principles (“GAAP”) required +WorldCom to expense its line costs in the period they were incurred because they +represented actual or expected cash outflows from ongoing major operations. During +2001, WorldCom improperly removed approximately $3 billion in its line cost expenses +from its income statement, improperly and fraudulently characterizing these expenses as +“assets” on its balance sheet. This improper accounting was accomplished by manual +journal entries to line cost and PP&E accounts. +Failure to Take Engagement Risks Into Consideration +10. Prior to the 2001 audit, Respondent was aware of several historical fraud +risk factors, at least one of which arose during the 2000 audit. In late 2000, Respondent +learned that in the first quarter of 2000 WorldCom’s then Controller had directed the +making of a post-closing journal entry, which had no documentary support, to reduce +line cost expenses at WorldCom’s United Kingdom subsidiary by approximately $33.6 +million. Respondent was aware of this event by the time of the 2001 audit. +11. Respondent knew from his WorldCom audit work prior to 2000 that there +was residual audit risk in the area of allowance for doubtful accounts since WorldCom’s +then Controller had the ability to manually override the computations prepared by +WorldCom’s staff. In connection with the 1998 audit, Respondent reviewed an audit +3 + +workpaper, stating that “A[ndersen] has determined that we will not be able to +completely rely on the client’s process for determining the adequacy of the allowance for +doubtful accounts as the process allows for manual override by senior management (i.e. +[WorldCom’s Controller]). This constitutes residual audit risk….” +12. Respondent also reviewed a workpaper from Andersen’s audit for fiscal +year 2000 that stated “that [WorldCom] company management will take a short-term +view of the business by attempting to manipulate business processes to achieve financial +targets. This problem becomes more important for WCOM as its shareholders, as +discussed earlier, have high expectations of earnings and growth.” +13. These risks still existed at WorldCom at the time of the 2001 audit. In +addition, during the 2001 audit, several additional fraud risks existed at WorldCom of +which Respondent was aware or should have been aware, as detailed below. +14. In 2001 as well as in prior audits, Andersen utilized a risk assessment tool +it called the “SMART” tool to evaluate risks related to serving an audit client. +Application of Andersen’s SMART tool by the WorldCom engagement team resulted in a +“High” risk classification for the 2001 WorldCom audit. The engagement team, +however, manually increased the risk classification to “Maximum,” Andersen’s highest +risk rating, as Andersen had done in the prior year’s audit. WorldCom’s risk +classification was increased due to “the volatility of [its] industry, its future merger and +acquisition plans and its reliance on a high stock price to fund those acquisitions.” +15. At the time of the 2001 WorldCom audit, Respondent knew that +WorldCom’s CEO, Bernard Ebbers, owed substantial personal debt secured by the +WorldCom stock he owned. Respondent was also aware that Ebbers faced margin calls +on this indebtedness as WorldCom’s stock price rapidly declined. Respondent was also +aware that WorldCom had guaranteed more than $200 million of Ebbers’ personal debt. +However, the audit workpapers for the 2001 audit did not identify either the financial +pressure on Ebbers or the significant decline in WorldCom’s stock price as a fraud risk. +Respondent did not modify the audit plan to address this risk. +16. Respondent participated in an “Expanded Risk Discussion,” required under +Andersen policy for all Maximum risk clients, for the 2001 WorldCom audit. During that +process, Respondent became aware that in prior years Andersen had identified +WorldCom’s “aggressive accounting policies” and “desires to maintain high stock +valuations in anticipation of a security offering or a merger” as fraud risk factors. +17. Respondent should have reasonably recognized that the deteriorating +market conditions in the telecommunications industry created a pressure that also +increased the risk of fraud. In 2001, the telecommunications industry experienced a +significant downturn, experiencing overcapacity, declining prices paid for services, and +declining stock prices. WorldCom’s own stock price had declined more or less steadily +from a high of $50 in February 2000 to $14 by the end of 2001, a decline of almost +seventy percent. WorldCom’s revenue growth was reduced, many of its customers were +4 + +financially ailing or failing. Despite reduced revenue growth, WorldCom had to service +massive amounts of debt it had issued. The Andersen audit workpapers, however, fail to +reflect consideration of these industry conditions in general or as experienced by +WorldCom and their implications on the risk of fraud in the financial statements. +18. Notwithstanding that Respondent knew that management had the ability to +override, and had overridden, WorldCom’s accounting controls, he failed to exercise due +professional care or maintain professional skepticism toward WorldCom in planning and +performing the audit. Despite the numerous fraud risks at WorldCom of which he was +aware or reasonably should have been aware, Respondent did not ensure the 2001 audit +of line costs and PP&E incorporated adequate procedures to obtain reasonable assurance +that the financial statements were free of material misstatements as required by GAAS. +Respondent’s failure to modify the 2001 audit plan, given the increased and significant +fraud risks existing at WorldCom, compromised Andersen’s ability to detect the massive +fraud occurring in WorldCom’s PP&E and line costs accounts in 2001. +Failures in Audit of PP&E Accounts +19. Even though Respondent’s audit team determined that PP&E was a critical +audit area, they failed to perform adequate testing in this area. The audit team’s testing +was inadequate to determine whether WorldCom’s controls were sufficient to prevent +material misstatements of PP&E through error or fraud, testing only a subset of the +additions to PP&E. Moreover, the auditors only performed testing of additions to PP&E +through the end of WorldCom’s third quarter, September 30, 2001, and not as of the end +of WorldCom’s fiscal year. +20. Respondent’s audit plan was premised on the inaccurate assumption that all +new recorded PP&E had been added through the AFE process and that no additions to +PP&E could be made outside of that process. Consequently, the Andersen audit team +tested accounting controls on additions to WorldCom’s PP&E by selecting a sample of +twenty-three open CIP projects identified by AFE numbers, and checked each project for, +among other things, the existence of an approved AFE form for the project and noting +whether open CIP projects were on schedule to be completed by the expected completion +date. +21. While Respondent tested the controls surrounding the segregation of duties +of employees involved in the AFE process, Respondent failed to obtain sufficient +evidence to determine whether additions to PP&E could be made outside of the AFE +process. Respondent also failed to test whether management could circumvent the AFE +controls to make potentially improper additions to PP&E, despite being aware of +management’s ability to manually override controls in place. +22. WorldCom’s third quarter Rollforward—which Andersen received in +performing the audit—showed to tal additions to PP&E of approximately $6.4 billion as +of September 30, 2001, a figure that included the improper entries made in the course of +the fraud. Respondent tested a smaller subset of additions to PP&E, selecting the twenty- +5 + +three projects from a population of $4.1 billion in open CIP. Had Respondent reconciled +the $4.1 billion population tested to the $6.4 billion in total PP&E additions reflected in +the third-quarter Rollforward, or in the General Ledger, Respondent would have +discovered that Andersen was merely testing a subset of total additions to PP&E. +Because the smaller population Respondent tested was only a subset of all additions to +PP&E, the testing necessarily could not, and did not, provide Respondent with sufficient +competent evidence regarding WorldCom’s accounting controls for additions to PP&E. +23. The audit team did not conduct any substantive testing of the PP&E +accounts following its testing of an incomplete subset of total PP&E additions as of the +end of WorldCom’s third quarter. WorldCom subsequently added $841 million in +improperly capitalized line costs to its PP&E in the fourth quarter of 2001. The +fraudulent additions amounted to nearly half of the total PP&E additions in that quarter. +As a result of Andersen’s failure to conduct further testing of PP&E balances as of year +end, or to examine PP&E activity as of the balance-sheet date subsequent to its interim +testing, these additional improper and fraudulent additions to PP&E were not subject to +auditing. +24. Respondent failed to adequately plan the audit to provide for adequate +substantive testing of the details of PP&E. Based on the deficient testing of PP&E +controls during the audit, Respondent improperly assessed the control risk at below a +maximum level and, as a result, planned and performed insufficient substantive audit +testing of PP&E. +25. In failing to: take the fundamental step of ensuring that the population of +property additions his audit team tested was complete and corresponded to the total +property additions reflected in WorldCom’s balance sheet; ensure that appropriate testing +was done to provide a reasonable basis for extending conclusions regarding PP&E +account balances from the date of interim testing to the balance-sheet date; and conduct +adequate substantive testing of PP&E accounts, Respondent failed to exercise due +professional care (American Institute of Certified Public Accountants (“AICPA”), +Codification of Statements on Auditing Standards, (“AU”) §§ 150.02, 230.01)2 and +professional skepticism (AU § 230.07) in the planning and performance of the audit, and +failed to obtain sufficient evidential matter (AU §§ 150.02, 326.01) to provide him with a +reasonable assurance that WorldCom’s financial statements were free of material +misstatement. +Failures in Audit of Line Cost Accounts +26. Respondent failed to exercise due professional care in the planning and +performance of the audit (AU §§ 150.02, 230.01), and failed to obtain sufficient +competent evidential matter (AU §§ 150.02, 326.01), by failing to reconcile the line cost +expenses being audited to the Company’s financial statements and general ledger. +2 The AU cites referenced throughout the document pertain to GAAS standards that were in effect in 2001. +6 + +27. Had such a reconciliation been included in the audit plan or performed, +Respondent’s audit team would have discovered that the line cost expenses they were +testing were significantly larger than the line cost expenses reflected in WorldCom’s +financial statements and general ledger. This difference existed because the fraudulent +entries reducing those expenses were not included in the schedules Andersen received to +audit, but were reflected in the line cost expenses reported in the financial statements. +28. The audit that Respondent designed subjected line cost expenses to testing +through the identification and testing of WorldCom’s internal controls relevant to line +cost expenses. Based on the results of that testing of controls, Respondent determined the +control risk was below the maximum risk, and, consequently, insufficient substantive +testing of line cost expenses was performed. +29. However, the audit workpapers Respondent reviewed in making his control +risk determination did not document how the controls identified and tested were relevant +to preventing or detecting misstatements in the assertions embodied in the line cost +expense account balance. The failure to link specific internal controls to the asserted line +cost expense account balance resulted in a failure by Respondent to obtain sufficient +evidential matter (AU §§ 150.02, 326.01), in violation of GAAS. +Failure to Review Non-Standard Journal Entries +30. The fraudulent reduction of WorldCom’s line cost expenses was +accomplished through the recording of large unsupported journal entries, known as on- +top or top-side entries, after the close of each quarter, in even monetary amounts ranging +from $38.5 million to $600 million. +31. Despite the fact that Respondent’s audit team had rated WorldCom as a +“Maximum” risk client, despite other risk factors that Respondent either knew or +reasonably should have known provided an incentive for fraudulent misstatement of +WorldCom’s financial statements, and despite Respondent’s awareness that management +had the ability to override accounting controls, Respondent did not exercise due +professional care in the planning and performance of the audit by failing to design or +implement audit procedures to identify and review non-standard journal entries. +32. Respondent placed undue reliance on WorldCom’s management’s +representation that there were no significant top-side journal entries. Respondent failed +to exercise due professional care (AU §§ 150.02, 230.01), maintain an attitude of +professional skepticism (AU § 230.07), and to obtain sufficient competent evidential +matter (AU §§ 150.02, 326.01), by not planning and performing reasonable audit +procedures to identify potentially improper or fraudulent top-side journal entries and by +relying on management’s representation that there were no significant top-side journal +entries. +7 + +Inadequate Workpaper Documentation of the Audit +33. Respondent’s audit workpapers for the 2001 WorldCom audit did not +adequately document the audit procedures applied, tests performed, information obtained +and pertinent conclusions reached in the audit engagement and failed to show that the +accounting records agree or reconcile with the financial statements (AU § 339). +Additionally, key documents purportedly used in performing the audit are not included in +the workpapers. +E. VIOLATION +Avery failed to comply with GAAS in connection with the 2001 WorldCom audit +by unreasonably: (i) failing to exercise due professional care in the planning and +performance of the audit, American Institute of Certified Public Accountants (“AICPA”), +Codification of Statements on Auditing Standards, (“AU”) §§ 150.02, 230.01; (ii) failing +to exercise an attitude of professional skepticism throughout the audit, AU § 230.07; (iii) +failing to obtain sufficient evidential matter to afford a reasonable basis for Andersen’s +opinion regarding WorldCom’s financial statements, AU §§ 150.02, 326.01; (iv) failing +to consider expanding the extent of the audit procedures applied, applying procedures +closer to or as of year end, particularly in critical audit areas, or modifying the nature of +procedures to obtain more persuasive evidence, in light of the significant risks of material +misstatement that existed at WorldCom, AU § 312.17; (v) failing to plan and perform the +audit to obtain reasonable assurance about whether the financial statements were free of +material misstatement, whether caused by error or fraud, AU § 110.02; and (vi) issuing +an audit report that falsely stated that the audit was conducted in accordance with GAAS +and that WorldCom’s financial statements were presented in conformity with GAAP, AU +§ 508.07. +Rule 102(e)(1)(ii) of the Commission’s Rules of Practice provides, in part, that +the Commission may censure or deny, temporarily or permanently, the privilege of +appearing or practicing before the Commission in any way to any person who is found by +the Commission to have engaged in improper professional conduct. Rule 102(e)(1)(iv) +defines improper professional conduct with respect to persons licensed to practice as +accountants. +As applicable here, improper professional conduct means a violation of applicable +standards that resulted from “repeated instances of unreasonable conduct, each resulting +in a violation of applicable professional standards, that indicate a lack of competence to +practice before the Commission.” (Rule 102(e)(1)(iv)(B)(2)). As a result of the conduct +described above, Respondent repeatedly acted unreasonably in failing to conduct or +supervise the audit of WorldCom’s financial statements for the year ended December 31, +2001 in accordance with GAAS. +8 + +F. FINDINGS +Based on the foregoing, the Commission finds that Respondent engaged in +improper professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules +of Practice. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the +sanctions agreed to in Respondent’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Respondent is denied the privilege of appearing or practicing before the +Commission as an accountant. +B. After three years from the date of this order, Respondent may request that +the Commission consider his reinstatement by submitting an application (attention: +Office of the Chief Accountant) to resume appearing or practicing before the +Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. +Such an application must satisfy the Commission that Respondent’s work in his practice +before the Commission will be reviewed either by the independent audit committee of the +public company for which he works or in some other acceptable manner, as long as he +practices before the Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which he is +associated, is registered with the Public Company Accounting Oversight +Board (“Board”) in accordance with the Sarbanes-Oxley Act of 2002, and +such registration continues to be effective; +(b) Respondent, or the registered public accounting firm with +which he is associated, has been inspected by the Board and that +inspection did not identify any criticisms of or potential defects in the +Respondent’s or the firm’s quality control system that would indicate that +the Respondent will not receive appropriate supervision; +(c) Respondent has resolved all disciplinary issues with the Board, +and has complied with all terms and conditions of any sanctions imposed +by the Board (other than reinstatement by the Commission); and +9 + +(d) Respondent acknowledges his responsibility, as long as +Respondent appears or practices before the Commission as an independent +accountant, to comply with all requirements of the Commission and the +Board, including, but not limited to, all requirements relating to +registration, inspections, concurring partner reviews and quality control +standards. +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that his state CPA license is +current and he has resolved all other disciplinary issues with the applicable state boards +of accountancy. However, if state licensure is dependent on reinstatement by the +Commission, the Commission will consider an application on its other merits. The +Commission’s review may include consideration of, in addition to the matters referenced +above, any other matters relating to Respondent’s character, integrity, professional +conduct, or qualifications to appear or practice before the Commission. +By the Commission. +Nancy M. Morris +Secretary +10 diff --git a/raw/aaer/2008/AAER-2813.pdf b/raw/aaer/2008/AAER-2813.pdf new file mode 100644 index 0000000000000000000000000000000000000000..69fdbb649afe8c09f76fdcace92e540d6ee8148e Binary files /dev/null and b/raw/aaer/2008/AAER-2813.pdf differ diff --git a/raw/aaer/2008/AAER-2815.txt b/raw/aaer/2008/AAER-2815.txt new file mode 100644 index 0000000000000000000000000000000000000000..fa92c4c3d6f065c78c4e429071ea3be192a83d33 --- /dev/null +++ b/raw/aaer/2008/AAER-2815.txt @@ -0,0 +1,789 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES ACT OF 1933 +Release No. 8912 / April 28, 2008 +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57725 / April 28, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2815 / April 28, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-10998 +In the Matter of +ROBERT A. PUTNAM, CPA, +Respondent. +ORDER MAKING FINDINGS, IMPOSING A +CEASE-AND-DESIST ORDER PURSUANT TO +SECTION 8A OF THE SECURITIES ACT OF +1933, AND IMPOSING REMEDIAL +SANCTIONS PURSUANT TO RULE 102(e) OF +THE COMMISSION’S RULES OF PRACTICE +I. +On December 23, 2002, the Securities and Exchange Commission (“Commission”) +instituted public administrative and cease-and-desist proceedings pursuant to Section 8A of the +Securities Act of 1933 (“Securities Act”), Section 21C of the Securities Exchange Act of 1934 +(“Exchange Act”) and Rule 102(e)(1) of the Commission’s Rules of Practice against Robert A. +Putnam (“Putnam” or “Respondent”).1 + Paragraph 1 of Rule 102(e) provides, in relevant part, that: The Commission may . . . deny, +temporarily or permanently, the privilege of appearing or practicing before it in any way to any +person who is found by the Commission after notice and opportunity for hearing in the matter: + . . . (ii) [t]o be lacking in character or integrity or to have engaged in unethical or improper +professional conduct. +1 +Following the institution of those proceedings, Putnam submitted an Offer of Settlement +(“Offer”), which the Commission has determined to accept. Solely for the purpose of these +proceedings and any other proceeding brought by or on behalf of the Commission or in which +the Commission is a party, Putnam consents to the entry of this Order Making Findings, +Imposing A Cease-and-Desist Order Pursuant to Section 8A of the Securities Act of 1933, and +Imposing Remedial Sanctions Pursuant to Rule 102(e) of the Commission’s Rules of Practice +(“Order”) without admitting or denying the findings set forth in this Order, except as to the +jurisdiction of the Commission over him and over the subject matter of these proceedings, which +are admitted. +The Commission has determined that it is appropriate to accept Putnam’s Offer and +accordingly is issuing this Order. +II. +On the basis of this Order and Respondent’s Offer, the Commission finds2 that: +III. +Respondent +1. Robert A. Putnam, age 53, is a resident of Duluth, Georgia, and was a certified +public accountant licensed in the State of Georgia from 1984 until December 31, 2002, when his +license expired and he did not renew it. From 1984 to 2002, Putnam worked in the Atlanta, +Georgia, office of Arthur Andersen LLP (“Andersen”), a national public accounting firm. At all +times relevant to this proceeding, Andersen was a member of the SEC Practice Section of the +American Institute of Certified Public Accountants. During all of the events described below, +Putnam was a partner in the firm. From September 1996 through July 1999, Putnam served as +the audit engagement partner for Andersen’s audit and quarterly reviews of HBO and Company, +Inc. (“HBOC”), an Atlanta-based maker of software for the healthcare industry. Putnam also +served as the audit engagement partner for Andersen’s audit of ebix.com, inc. (“Ebix”),3 a +Chicago-based maker of software for the insurance industry. +Nature of Proceeding +2. This matter involves Putnam’s conduct while performing accounting services, +including auditing services, for both HBOC and Ebix. In both matters Putnam failed to exercise + The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding +on any other person or entity in this or any other proceeding. +3 At the time of the conduct at issue here, Ebix was known as Delphi Information Systems, Inc. +In September 1999, the company changed its name to “ebix.com, Inc.” For the purposes of this +Order Instituting Proceedings, the company is referred to as Ebix. +- 2 - +2 +due professional care in the performance of the audits, failed to adequately plan and supervise +the audits, and failed to obtain sufficient competent evidential matter to afford a reasonable basis +for an opinion regarding the financial statements of each company. The HBOC matter also +involved a failure to follow appropriate procedures in reviews of interim financial information +and consents to the use of Andersen’s reports. +3. Putnam was the audit engagement partner for Andersen’s audit and quarterly +reviews of HBOC during 1997 and 1998. During this period, senior officers of HBOC were +engaged in a fraud in which they purposefully caused HBOC to recognize revenue on +transactions that failed to comply with GAAP. Through his audit and review work, Putnam +received information indicating that some of HBOC’s accounting for transactions did not +conform to GAAP. Nevertheless, without expanding the scope of Andersen’s reviews and audit, +Putnam approved Andersen’s issuance of six quarterly review reports and a 1997 audit report +concerning HBOC financial statements filed with the Commission. On three separate occasions, +Putnam met with HBOC's audit committee, but did not report any concerns that the company +was failing to conform with GAAP. +4. In January 1999, HBOC was acquired by McKesson Corporation (“McKesson”), +which changed its name to McKesson HBOC, Inc. (“McKesson HBOC”). HBOC became a +wholly owned subsidiary of McKesson HBOC. On April 28, 1999, McKesson HBOC +announced that it “had determined that software sales transactions aggregating $26.2 million in +the company’s fourth quarter ended March 31, 1999, and $16.0 million in the prior quarters of +the fiscal year, were improperly recorded because they were subject to contingencies, and have +been reversed. The audit process is ongoing and there is a possibility that additional contingent +sales may be identified.” Following this announcement, McKesson HBOC’s share prices +tumbled from approximately $65 to $34 a share, a decline of more than $9 billion in market +value. McKesson HBOC later restated its financial results for the prior three fiscal years, +primarily due to the fraud that occurred at HBOC. In total, the restatement reduced previously +reported revenues by approximately $ 327.4 million. +5. Putnam served as the audit engagement partner for Andersen’s audit of Ebix for +the nine-month period ended December 31, 1998 (“1998 transition period”).4 During his audit +work for the company, Putnam received indications of possible fraud at Ebix including earnings +management, high involvement in accounting decisions by non-financial management, +commitments made to analysts, the expectation of possible equity funding, the desire to maintain +a high stock price, Ebix’s very aggressive accounting policies, and possible opinion shopping by +Ebix among accounting firms, among others. In particular, Putnam became aware that Ebix’s +management had taken an extremely aggressive approach to recognizing revenue from the +company’s software sales. +6. In 1998, one of Ebix’s products was a software program it marketed to the +insurance industry called “cd.global.” While auditing Ebix’s revenues and accounts receivable +4 In March 1998, Ebix changed its fiscal year-end from March 31 to December 31, thus requiring +the company to file a Form 10-K with the Commission for the nine-month period which +commenced April 1, 1998 and ended December 31, 1998. +- 3 - + +for the 1998 transition period, Putnam learned that a number of Ebix’s cd.global customers +stated that they had not accepted the cd.global software for various reasons. Under GAAP, a +software vendor cannot recognize revenue on the sale of software the customer has not yet +accepted. Despite his awareness of the customers' complaints and their stated non-acceptance of +the cd.global product, Putnam failed to properly investigate the matter, and permitted Ebix to +recognize revenue on its purported sales of cd.global. Putnam then authorized the issuance of +Andersen’s unqualified audit opinion on Ebix’s 1998 transition period financial statements, +which included significant revenue relating to the purported cd.global sales. +7. Ebix’s original financial statements for the 1998 transition period, filed with the +Commission in April 1999, reported revenue of $19.2 million, and net income of $523,000. In +June 2000, Ebix filed revised and restated financial statements with the Commission for the 1998 +transition period. The revised and restated financial statements reported revenue of $13.4 +million and a net loss of $5.5 million for the 1998 transition period. Thus, Ebix’s original +financial statements, as audited by Putnam, overstated Ebix’s revenues by $5.8 million, or +approximately 43 percent, and overstated Ebix’s income by approximately $6 million. Over +$3.4 million of the overstated revenue on Ebix’s original financial statements was revenue that +Ebix had improperly recognized for sales of cd.global and related services. +Putnam’s Conduct in the HBOC Matter +8. HBOC principally sold large integrated healthcare management software systems. +In its press releases, HBOC separately reported revenue from software sales. HBOC established +an exceptional earnings track record. In each quarter between January 1996 and September +1998, HBOC beat quarterly earnings per share estimates by at least $ .02 per share. +9. Andersen considered HBOC a high risk client during 1997 and a maximum risk +client during 1998. Despite this assessment, Putnam failed to design review and audit +procedures commensurate with the level of risk Andersen identified at HBOC. Putnam also +failed to exercise due care in the conduct of Andersen’s reviews and audits by, among other +things, failing adequately to expand the scope of the reviews and audits as required under +Generally Accepted Auditing Standards (“GAAS”) in light of significant errors and other +indications that HBOC was not accounting for specific transactions in conformance with GAAP. + In particular, Putnam failed to expand the scope of Andersen’s work despite red flags that +HBOC’s management had failed to fulfill promises to comply with GAAP and continued to +recognize revenue on contracts with contingent terms for software sales to customers in side +letters. +10. A side letter or side agreement is any document or oral agreement containing +contract terms that are not a part of the formal contract. Andersen audit bulletin number 96-18 +(issued in 1996) warned its audit staff that side letters often are the cause of material revenue +misstatements, especially in the software industry. HBOC’s use of side letters increased the +audit risk because it heightened the potential for key contract terms affecting revenue recognition +(revenue contingencies) to be overlooked or deliberately hidden as part of a revenue recognition +fraud. Putnam had reason to be aware as early as 1996 that HBOC used side letters in its contract +negotiations with customers. +- 4 - + +The 1997 Quarterly Reviews +11. Beginning with his review of HBOC’s interim financial statements for the first +quarter of 1997, Putnam learned that HBOC’s management took the position that revenue could +be recognized on certain contracts where a software sale was contingent on later approval by a +customer’s board of directors (a “board contingency”). Under GAAP, it is improper to recognize +revenue on such a transaction until the contingency is satisfied. For example, some of HBOC’s +software sales contracts were contingent upon approval by the customer's board of directors (a +“board contingency”) and therefore those contracts were not enforceable by HBOC until the +customer’s board of directors actually approved the contracts. Under GAAP, a company may not +report revenue on any sales contract if the contract is unenforceable or performance of the +contract by the customer is in doubt. Putnam discussed this issue with Jay Gilbertson +(“Gilbertson”), HBOC’s chief financial officer, who claimed that such board contingencies were +merely perfunctory and that there was no real risk that the customer would cancel a contract +based on such a contingency. Gilbertson promised to provide some sort of documentation to +support his claim, but he never did so. +12. During the 1997 quarterly reviews, Putnam had reason to be skeptical concerning +HBOC’s accounting practices with respect to software revenue recognition. Andersen, during its +audit of HBOC’s 1996 year-end financial statements, identified at least one instance where a +board contingency was not contained in the contract, but instead in a side letter, and revenue had +been recognized. +13. Putnam also had reason to be concerned regarding the integrity of HBOC’s +management. In three of four quarters in 1997, Gilbertson represented in writing to Andersen +that HBOC had complied with the latest draft of the new software revenue recognition guidelines +that specifically prohibited revenue recognition if any board contingency existed. The new +authoritative literature, Statement of Position No. 97-2 (“SOP 97-2”), entitled Software Revenue +Recognition, effective January 1, 1998, specifically precluded revenue recognition if board +contingencies existed. Andersen’s review and audit work in the same period had revealed that +HBOC had continued to enter into some contracts with board contingencies. +14. Throughout 1997, HBOC’s management made public announcements of the +company’s revenues, net income and earnings per share prior to the completion of Andersen’s +audits or reviews. Putnam was aware of this practice. +Andersen’s Review of HBOC’s Financial Statements for the First Quarter 1997 +15. HBOC reported software revenue of $68 million in the first quarter of 1997 (“Q1 +1997”). During the first quarter review, Putnam’s audit team tested whether the company had +properly recorded revenue on $29 million in software sales and found that the company had +improperly recorded revenue totaling $14 million. This was a 48 percent error rate. According +to the Andersen working papers, HBOC overstated pretax income by 9.4 percent. Most of the +improperly recorded revenue related to contracts that were subject to board contingencies. +Andersen’s auditors also found an instance where HBOC had recognized revenue on a software +contract signed after quarter end. GAAP requires that revenues must be reported in the fiscal +- 5 - + +period in which they occur. HBOC’s management refused to eliminate this improperly recorded +revenue from its financial statements for the first quarter of 1997. +16. Putnam approved Andersen’s quarterly review report for the first quarter 1997, +which was incorporated into HBOC’s Form 10-Q filed with the Commission. Among other +things, Andersen's report stated: “We conducted our review in accordance with standards +established by the American Institute of Certified Public Accountants. . . . Based on our review, +we are not aware of any material modifications that should be made to the financial statements +referred to above for them to be in conformity with generally accepted accounting principles.” +17. HBOC’s improper recording of revenue and other accounting errors in the first +quarter of 1997 was material information for the company’s stockholders. In its quarterly +earnings releases, HBOC reported software revenue as a separate line item. HBOC’s software +revenue for the quarter was overstated by 21 percent. In addition, HBOC’s reported net income +was overstated by 10.3 percent. +18. Andersen’s review for the first quarter of 1997 revealed accounting errors that +were dramatically higher than previous periods. Despite the significant increase in the errors +found, Putnam did not direct his team to make additional inquiries or employ other procedures +for that quarter. +Andersen’s Review of HBOC’s Financial Statements for the Second Quarter 1997 +19. In the 1997 second quarter review, Putnam learned that HBOC continued to +recognize revenue on certain contracts containing board contingencies. He also learned that +HBOC recorded revenue improperly on software sales subject to other types of contingencies +including subsequent management or legal approval or a right to cancel the contract at a future +date. Moreover, Putnam learned that HBOC senior executives had written some of these +contingencies in side letters. Putnam learned that at least one HBOC contract included in first +quarter revenue had been canceled when a customer’s board of directors failed to approve the +deal. Additionally, Putnam’s audit team found another instance where HBOC had recognized +revenue on a contract that had not been executed until after quarter end. Andersen recommended +to HBOC’s management that the revenue from these contingent contracts be reversed. +20. Gilbertson again refused to make any adjustments in HBOC’s financial +statements to correct these errors. The errors were material to HBOC’s financial statements in +both type and amount. Based on these errors, the pretax income and net income reported by +HBOC in its earnings release and Form 10-Q were overstated by approximately 12 percent and +HBOC’s reported software revenue was overstated by almost 7 percent. +21. Despite the accounting errors found in the second quarter review, and despite +HBOC’s continued practice of putting revenue contingencies into side letters, Putnam did not +direct his team to make additional inquiries or employ other procedures for the quarter. +22. Putnam approved the issuance of Andersen’s unqualified quarterly review report +for the second quarter 1997, which was incorporated into HBOC’s Form 10-Q filed with the +Commission. Among other things, Andersen’s report stated: “We conducted our review in +- 6 - + +accordance with standards established by the American Institute of Certified Public +Accountants.... Based on our review, we are not aware of any material modifications that should +be made to the financial statements referred to above for them to be in conformity with generally +accepted accounting principles.” +Andersen’s Review of HBOC’s Financial Statements for the Third Quarter 1997 +23. In the third quarter of 1997, Putnam and his audit team continued to find instances +where HBOC recognized software revenue despite the existence of contingencies in the sales +contracts. The auditors found some contingencies in side letters written by HBOC senior sales +executives. Despite this, Putnam did not direct his team to make additional inquiries or employ +other procedures to test software revenue Andersen proposed to HBOC’s management that the +company make adjustments for certain errors found equal to 7 percent of pretax income. +Gilbertson refused to make these adjustments. Putnam did not pursue the issue further. +24. The accounting errors in HBOC’s financial statements for the third quarter of +1997 were material both in type and amount. The 1999 investigation in connection with +McKessonHBOC’s restatement revealed that HBOC, in its earnings release and Form 10-Q +report for the third quarter, overstated software revenue, pretax and net income by 15.5 percent, +15 percent and 15 percent, respectively, based on these errors. +25. Putnam authorized the issuance of Andersen’s unqualified quarterly review report +for the third quarter 1997, which was incorporated into HBOC’s Form 10-Q filed with the +Commission. Among other things, Andersen’s report stated: “We conducted our review in +accordance with standards established by the American Institute of Certified Public +Accountants.. . . Based on our review, we are not aware of any material modifications that +should be made to the financial statements referred to above for them to be in conformity with +generally accepted accounting principles.” +Andersen’s Audit of HBOC’s Financial Statements for the 1997 Year End +26. Andersen conducted an audit of HBOC’s financial statements for the year ended +December 31, 1997. Putnam was the engagement partner for this audit. The audit staff included a +manager and two associates. In addition, Andersen assigned a concurring partner to review the +results of the audit work. Field work for the audit was completed on February 6, 1998. On +March 9, 1998, Andersen issued an audit report concerning HBOC’s 1997 financial statements +and expressed an unqualified opinion concerning those financial statements. Andersen’s audit +report was dated February 6, 1998. +Failure to Adequately Test and Confirm Software Revenue +27. Andersen’s audit included testing of HBOC’s software revenue and trade +accounts receivable. The audit confirmation process was the primary audit test performed by +Putnam and his staff to ensure the completeness of HBOC’s customer contract files. Andersen +sent eight audit requests for confirmation of accounts receivable (eleven fewer than sent during +the 1996 audit) to selected HBOC customers. The confirmation requests asked the customers to +confirm any amounts owed to HBOC and that no revenue contingencies existed on software +- 7 - + +purchased from HBOC. Only three customers responded, two noting contingencies that were +contained in side letters (a 66 percent exception rate). +28. Although two customers had responded to Andersen that side letter contingencies +existed in their contracts, Putnam did not direct his staff to send out any additional confirmations +confirming software sales for this period to see if there were additional contingencies or other +problems that would further affect HBOC’s financial statements. Putnam did not direct his staff +to perform any other additional testing to ensure that HBOC’s contract files were complete. +Putnam and his staff did not significantly test the flow of documentation from the sales +department to the contract files maintained in the accounting department. Putnam and his staff +did not check with the sales department to find out if it possessed any other sales documents not +forwarded to the accounting department. Putnam and his staff did not gain a full understanding +of HBOC’s policies or practices for using side letters. Putnam and his staff did not ask whether +HBOC maintained a listing of side letters. Finally, Putnam and his staff did not obtain +representations from HBOC’s sales personnel concerning the existence of other side letters. +Failure to Examine Other Accounting Improprieties +29. During the 1997 audit, Putnam and his staff also identified other accounting +improprieties at HBOC. These included the premature recognition of revenue on software +maintenance arrangements and the accrual of excessive acquisition reserves (so called “cookie +jar” reserves). +30. HBOC sold many of its software systems together with a service agreement for +periodic maintenance. Under these software maintenance arrangements, HBOC provided +maintenance over a period of years. HBOC customers typically paid a lump sum during the first +year of the contract, which covered both the software license and the service and maintenance +provided in future years. GAAP requires that revenue that is to be earned over a period of years +be deferred until earned or when the service and maintenance is provided. Putnam told +Gilbertson that HBOC was recognizing too much maintenance revenue and that the company +needed to increase the percentage of maintenance revenue it deferred. Gilbertson refused to +make Andersen’s proposed adjustment to correct the premature recognition of revenue. Instead, +Gilbertson promised Putnam that he would increase HBOC’s deferral percentage in following +quarters until it was adequate. +31. During 1997, HBOC acquired other companies and, in its accounting for these +acquisitions, HBOC allocated funds for expected future costs and expenses of the acquisitions. +These “acquisition reserves” totaled $ 95.3 million. Andersen audited the acquisition reserves +and concluded that HBOC’s reserves were $ 16 million greater than was needed. Andersen +proposed to HBOC’s management, in accordance with GAAP, that $ 16 million should be +reversed. HBOC’s management refused to make the adjustment, but promised Andersen that it +would only use the reserve for acquisition related costs. Putnam did not pursue the matter +further. The amount of the excessive acquisition reserves was material. Those reserves +overstated HBOC’s reported nonrecurring expenses by 20 percent. +- 8 - + +32. On or about March 9, 1998, Putnam authorized Andersen to issue its audit report +for HBOC’s year ended December 31, 1997. In its report, Andersen stated: “We conducted our +audits in accordance with generally accepted auditing standards. . . . In our opinion, the financial +statements referred to above present, fairly, in all material respects, the financial position of +HBO & Company and subsidiaries... in conformity with generally accepted accounting +principles.” +Putnam Did Not Fully Inform HBOC’s Audit Committee Concerning the Results of the +Reviews and Audit +33. Putnam met with HBOC’s audit committee in November 1997 and again in +February 1998. At neither meeting did Putnam inform the audit committee that HBOC was +misapplying GAAP, except that Putnam informed the audit committee that HBOC was +recognizing too much maintenance revenue and that the company needed to increase the +percentage of maintenance revenue it deferred. Nor did Putnam report his disagreements with +Gilbertson regarding these practices. Instead, at each meeting Putnam reported that Andersen +found no significant problems or exceptions and that Andersen enjoyed the full cooperation of +HBOC management. Putnam also informed the audit committee that HBOC was in compliance +with the new authoritative literature governing software revenue recognition. Putnam failed to +disclose to the audit committee that HBOC’s practice of booking software sales when board and +other revenue contingencies existed was directly contrary to GAAP. Further, Putnam failed to +inform the audit committee that Andersen had identified not only board contingencies but other +types of revenue contingencies at HBOC and that these contingencies were sometimes found in +side letters. +34. Sometime after the February 1998 audit committee meeting, Andersen drafted a +letter to HBOC’s management, which Putnam reviewed. Among other topics, the letter +recommended that HBOC forbid its senior sales executives and sales representatives from +entering into side letter contingencies. Putnam’s staff delivered a copy of the draft letter to +HBOC’s management but did not provide a copy of the draft letter to the audit committee or +inform the audit committee of its contents. Putnam did not sign or deliver a final version of the +letter to HBOC’s management. +Andersen’s Review of HBOC’s Financial Statements for the First Quarter 1998 +35. Andersen conducted a review of HBOC’s interim financial statement for the +quarter ended March 31, 1998. During this first quarter review, Putnam discovered that HBOC +was misusing the acquisition reserve it accrued during 1997 to offset current period operating +expenses. This use of the acquisition reserve did not conform with GAAP and had the effect of +overstating HBOC’s reported net income. Such use of the acquisition reserve was contrary to +the representations of HBOC management to Putnam about how HBOC would use these +reserves. +36. During the first quarter review, Putnam and his team identified another instance +where HBOC had recognized revenue despite the existence of a revenue contingency contained +in a side letter. The side letter was signed by HBOC’s senior vice president of sales. Putnam +- 9 - + +proposed that the revenue from this transaction be reversed, but Gilbertson refused. Once again, +Putnam did not expand the scope of Andersen’s testing to see if there were additional side letters +containing revenue contingencies. Putnam and his team did not document in its working papers +any explanation why a software transaction containing a contingency was recorded as revenue, +nor did they obtain any explanation for why the senior vice president of sales entered into a side +letter that contained a revenue contingency despite Andersen’s written recommendation to stop +doing so. +37. Putnam approved the issuance of Andersen’s unqualified quarterly review report +for the first quarter of 1998, which was incorporated into HBOC’s Form 10-Q filed with the +Commission. Among other things, the report stated: “We [Andersen] conducted our review in +accordance with standards established by the American Institute of Certified Public Accountants. +...Based on our review, we are not aware of any material modifications that should be made to +the financial statements referred to above for them to be in conformity with generally accepted +accounting principles.” +38. By approximately April 1998, the engagement manager on the HBOC account +(Putnam's direct subordinate on the HBOC account) became concerned that HBOC was +managing earnings through its non-GAAP accounting. On several occasions, the engagement +manager stated these concerns to Putnam. Putnam shared these concerns. +39. In May 1998, Putnam and his engagement team called a special meeting with +Gilbertson and others at HBOC to again reiterate that HBOC needed to correct its non-GAAP +accounting practices. In response to Putnam’s criticisms in the 1997 year-end audit, Gilbertson +repeated promises to correct HBOC’s non-GAAP practices, including deferring the appropriate +revenue relating to software maintenance arrangements and using acquisition reserves only to +offset acquisition related expenses. +Andersen’s Review of HBOC’s Financial Statements for the Second Quarter 1998 +40. Andersen conducted a review of HBOC’s interim financial statements for the +quarter ended June 30, 1998. During this second quarter review, Andersen discovered a number +of accounting errors. Andersen found that HBOC had again applied its acquisition reserves to +current expenses, that HBOC continued to recognize too much revenue from software +maintenance arrangements, and that HBOC had understated its allowance for doubtful accounts. + Putnam told Gilbertson that if HBOC did not reverse the application of the acquisition reserves, +Andersen would not issue its review report. After a heated discussion, Gilbertson agreed to +reverse the recording of current expenses against the acquisition reserve. Putnam however, did +not confront HBOC management on the other accounting errors Andersen found and HBOC +made no correcting entries for those items. These remaining accounting errors were material in +amount and overstated HBOC’s reported pretax income for the quarter by 5.45 percent, not +including the understatement for doubtful accounts. Nonetheless, Putnam did not direct his team +to make additional inquiries or employ other procedures for the quarter. +41. Putnam approved the issuance of Andersen’s unqualified quarterly review report +for the second quarter of 1998, which was incorporated into HBOC’s Form 10-Q filed with the +- 10 - + +Commission. Among other things, the report stated: “We [Andersen] conducted our review in +accordance with standards established by the American Institute of Certified Public +Accountants.... Based on our review, we are not aware of any material modifications that should +be made to the financial statements referred to above for them to be in conformity with generally +accepted accounting principles.” +Andersen’s Review of HBOC’s Financial Statements for the Third Quarter 1998 +42. Andersen conducted a review of HBOC’s interim financial statements for the +quarter ended September 30, 1998. During that quarter review, Andersen discovered that HBOC +prematurely recognized revenue on software maintenance arrangements because Gilbertson had +not increased HBOC's deferral percentage as he had promised. Andersen proposed a $9.5 +million adjustment for this error. Andersen also proposed an adjustment to increase the reserve +for bad debt by $4.5 million. Ultimately, HBOC did not make the proposed adjustments and +Putnam did not pursue the issue. Based upon this error, HBOC overstated net income by $14 +million for the nine months ended September 30, 1998. This overstatement was material in +amount. This was 11 percent of HBOC's reported pretax income and net income for the quarter +or 3.8 percent of HBOC’s reported pretax income and net income for the nine-month period. +43. During the third quarter of 1998, based in part upon Gilbertson’s representation +that there were two transactions, Putnam approved HBOC’s accounting for a transaction in +which HBOC sold $30 million of its software and purchased $74 million of the same customer’s +product. Although documented as separate transactions, both the transactions were entered into +on September 28, 1998 (two days before the end of the third quarter). HBOC recorded $30 +million as a sale of software to the customer in the third quarter of 1998 and included that +amount in its reported revenue for the quarter. The transaction accounted for 20 percent of +software revenue recorded during the quarter. By recording $30 million in revenue from the +transaction, HBOC reported earnings of 19 cents per share, thus exceeding the consensus +expectation of Wall Street analysts that HBOC would earn 18 cents per share in the quarter. +Without the revenue from this transaction, HBOC could only have reported earnings of 16 cents +per share. +44. While the transaction was still being negotiated, Putnam had several +conversations with HBOC management about the structure of the deal. HBOC had never before +entered into a reseller arrangement of this magnitude, nor had it ever entered into an arrangement +where it was simultaneously selling and purchasing product from the same company. In a +discussion with Gilbertson, Putnam advised that this accounting for the transfer of HBOC +software to the customer would be correct if (a) the two transactions were not linked; and +(b) there was a defined end-user for the HBOC software. Gilbertson assured Putnam that the +sale and purchase from the customer were independent of each other, and that the customer was +donating the $30 million of software to charity hospitals, who were the end users. Both of these +statements by Gilbertson were false. In fact, the two transactions were completely dependent on +each other, and the customer had no intention of donating $30 million of software. Instead, the +customer expected HBOC to assist it in reselling the product to end-users. +- 11 - + +45. Putnam had reason to know that Gilbertson’s statements about the key elements +of the transaction were false. HBOC had never before entered into a reseller arrangement of this +magnitude and the transaction accounted for more than 20 percent of the net income for the +period. Although documented in two separate contracts, both the contract for HBOC’s sale to +the customer and the contract for the purchase from the same customer were signed on the same +day (two days before quarter end). Finally, Gilbertson’s explanation that the customer intended +to donate $ 30 million of highly complex software was so extraordinary and unusual that Putnam +reasonably should have confirmed the information with the customer. +46. Putnam approved the issuance of Andersen’s unqualified quarterly review report +for the third quarter of 1998, which was incorporated into HBOC’s Form 10-Q filed with the +Commission. Among other things, the report stated: “We [Andersen] conducted our review in +accordance with standards established by the American Institute of Certified Public +Accountants.... Based on our review, we are not aware of any material modifications that should +be made to the financial statements referred to above for them to be in conformity with generally +accepted accounting principles.” +47. In July 1999, McKesson HBOC restated HBOC’s revenues for the third quarter of +1998 and eliminated the $30 million transaction. +Putnam Failed to Fully Advise HBOC’s Audit Committee of Andersen’s Findings +48. Putnam attended a November 1998 meeting of HBOC’s audit committee, where +HBOC’s Chairman informed the audit committee that Gilbertson was resigning from his position +as CFO of HBOC. Gilbertson’s resignation was unexpected. The HBOC Chairman asked +Putnam if he had a “Cendant on his hands.” Cendant was a widely-reported financial fraud case. + In response to the Chairman’s question, Putnam responded that he didn’t know of anything. +Putnam did not report to the audit committee his continued disagreements with Gilbertson +regarding HBOC’s accounting, Gilbertson’s failure to make good on promises to Andersen with +respect to acquisition reserves and maintenance revenue, repeated discoveries by Andersen of +contingencies in its sales contracts that affected revenue recognition, any problems with HBOC’s +internal controls and management, nor any of the myriad other accounting errors and non-GAAP +accounting that Andersen had found over numerous periods. +Andersen Consented To Use Of Its Reports in McKesson’s Registration Statements +49. In October 1998, McKesson and HBOC announced that McKesson would acquire +HBOC. In preparation for the acquisition, McKesson made several filings with the Commission. +On October 30 and November 13, 1998, McKesson filed registration statements on Forms S-3 +and S-4, respectively. On November 23 and 27, 1998, McKesson filed amendments to its Form +S-3 and Form S-4 registration statements, respectively. Included in each of these McKesson +filings was Andersen’s consent to incorporation by reference of its report dated February 6, 1998 +with respect to HBOC’s consolidated financial statements for the period ended December 31, +1997. Putnam approved Andersen’s consent to the use of its report in these McKesson filings. +Despite a number of accounting errors that affected Andersen’s February 6, 1998 report, Putnam +- 12 - + +did not investigate the impact of such errors on HBOC’s financial statements as of December 31, +1997 and did not insist on appropriate revision of Andersen’s report. +Andersen’s Work on HBOC’s Quarter Ended December 31, 1998 +50. In December 1998, less than a month after his report to HBOC’s audit committee, +Putnam met with other Andersen personnel to discuss the HBOC engagement. In connection +with the audit planning of HBOC during the summer of 1998, Andersen assessed HBOC as a +maximum risk client. In accordance with Andersen’s internal risk policy an annual consultation +was required for all audit clients given a maximum risk rating. The consultation included an +exercise involving a “what if” fraud risk assessment. In an outline attached to a memo to the +file, dated December 7, 1998, the engagement manager assigned to HBOC documented the +“what ifs” that were to be discussed at the meeting. Among other things the memo stated: +Fraud would be reflected in the financial statements in the area . . . of improper +revenue recognition, . . . intentional understatement of the accounts receivable +reserve . . . and (other) indications of aggressive GAAP (which may be a prelude +to fraud) including acquisition reserves and deferred maintenance. Analyst +commitments (no missed earnings for 28 consecutive quarters) . . . and instances +of side agreements. +51. The topics addressed in the memo were precisely the types of items that would +later cause the massive restatement. Yet, Putnam never adequately disclosed these concerns to +HBOC’s audit committee. +52. In preparation for a 1998 year-end audit of HBOC, Andersen tested a portion of +HBOC’s accounts receivable in each quarter by requesting that certain customers confirm the +amounts they owed to HBOC and that there were no contingencies in their sales contracts. As +discussed above, customer responses to these requests revealed that HBOC entered into sales +contracts and recorded revenue on those sales although the contracts contained contingencies. In +approximately August 1998, Andersen received a response from an HBOC customer sent out in +the second quarter of 1998 in which the customer noted the existence of a side letter containing +revenue contingencies. Although the response from the customer was included in Andersen’s +working papers for the quarter, Andersen did not pursue the issue with either HBOC or the +customer. +53. Later, Putnam and his team identified numerous other side letters containing +revenue contingencies and instances where revenue had been improperly recognized in the first +three quarters of 1998. Despite these red flags, Putnam approved Andersen’s consent to +McKesson’s use of Andersen’s February 6, 1998 report on HBOC’s 1997 financial statements in +its registration statements filed in October and November 1998. +54. In January 1999 McKesson Corporation completed its acquisition of HBOC. +McKesson told Andersen that it would not be necessary for Andersen to complete the audit for +the period ended December 31, 1998, but asked Andersen to perform certain of the procedures +- 13 - + +that would have been done had the audit been completed. Putnam was the engagement partner +for this work. +55. During the work related to year-end 1998, Putnam learned that HBOC had +entered into more side letters with contingencies and improperly recorded revenue from those +transactions. Nonetheless, Putnam did not require his team to investigate the extent of +contingencies affecting contracts recorded in prior periods and to expand the scope of its +procedures to attempt to identify other contract contingencies and improper revenue recognition. +56. In or about April 1999, McKesson engaged Andersen to conduct an audit of +HBOC’s financial statements for periods ended March 31, 1997 and March 31, 1998. Putnam +was the engagement partner for this work. Putnam approved a report by Andersen, dated July +12, 1999, concerning HBOC’s March 31, 1997 and March 31, 1998 financial statements. +Andersen expressed an opinion that HBOC’s financial statements presented fairly, in all material +respects, the financial position of HBOC as of those dates and the results of operations and their +cash flows for the years then ended in conformity with GAAP. +57. On July 14, 1999, McKesson HBOC filed an annual report on Form 10-K +including consolidated financial statements for the companies and its subsidiaries as of +March 31, 1997, March 31, 1998 and March 31, 1999. The company also reported restatements +of certain income statement items for quarters in 1997 and 1998. For the year ended March 31, +1998, McKesson reported that $39.7 million in revenues was improperly reported due to +improper application of SOP 91-1 and $19 million in contingent revenues were improperly +recognized in prior filings by HBOC. For the three-month period ended June 30, 1998, +McKesson reported that $25.8 million in revenues was improperly reported due to improper +application of SOP 97-2 and $32.6 million in contingent revenues were improperly recognized in +prior filings by HBOC. For the three month period ended September 30, 1998, McKesson +reported that $20.8 million in revenues was improperly reported due to improper application of +SOP 97-2 and $22.9 million in contingent revenues were improperly recognized in prior filings +by HBOC. For the three-month period ended December 31, 1998, McKesson reported that $33.7 +million in revenues was improperly reported due to improper application of SOP 97-2 and $48.8 +million in contingent revenues were improperly recognized in prior filings by HBOC. +McKesson adjusted for these errors in its consolidated financial statements. +58. Putnam approved Andersen’s consent to the inclusion of its July 12, 1999, audit +report in McKesson’s Form 10-K filing. +Summary +59. In performing the HBOC quarterly reviews and annual audit, Putnam failed to +comply with GAAS, through his acts and omissions including but not limited to: +a. Failing to comply with generally accepted auditing standards in planning the +work, adequately supervising the work performed, and failing to obtain a +sufficient understanding of internal controls to plan the audit and to determine the +nature and extent of tests to be performed; +- 14 - + +b. Failing to exercise due professional care and maintain an attitude of professional +skepticism to provide reasonable assurance of detecting both material errors and +fraud in the financial statements; +c. Failing to obtain sufficient competent evidential matter to afford a reasonable +basis for Andersen’s opinion regarding the financial statements of HBOC; +d. Failing to follow appropriate procedures in reviews of interim financial +information; +e. Failing to follow appropriate procedures for consents to the use of Andersen’s +reports; +f. Failing to follow appropriate procedures for communications with HBOC’s audit +committee; +g. Failing appropriately to consider and assess the risk of material misstatement due +to fraud and fraud risk factors; +h. Failing to have a sufficient basis for Andersen’s statements in its quarterly review +reports that the firm was not aware of any material modifications that should be +made to HBOC’s financial statements for them to conform to GAAP; +i. Failing to have a sufficient basis for Andersen’s opinion that the firm’s audit of +HBOC’s financial statements had been performed in accordance with GAAS. +Putnam's Improper Professional Conduct in the Ebix Audit +Ebix’s Business +60. Ebix developed and marketed, through the use of license agreements, multi- +function software for the insurance industry. In the latter half of 1998, Ebix began marketing a +software product called “cd.global” to its U.S. and Canadian customers. Cd.global was a highly +sophisticated, complex program, which required a significant amount of customization and +installation before the customer could use the program. Among other things, cd.global was +supposed to allow electronic exchange of policy information between insurance agencies and +insurance carriers, and to convert such information into the standard forms used in the insurance +industry. These particular functions of cd.global were known as “AL3” in the domestic version +and “CSIO” in the Canadian version. +Increased Audit Risk Related to Ebix +61. Auditors are required to exercise professional skepticism when performing audit +procedures. +62. Putnam became the engagement partner for Andersen’s audit of Ebix’s 1998 +transition period financial statements in or about March 1999, replacing the first engagement +- 15 - + +partner who had been assigned to the 1998 transition period audit. At the time Putnam became +Ebix’s audit engagement partner, the previous engagement partner had been involved in a series +of meetings and discussions with Ebix’s management concerning various revenue recognition +issues encountered during the audit process. The previous engagement partner had +recommended several downward adjustments to the revenue that Ebix had recognized on its +1998 transition period financial statements. Over $3.4 million of the overstated revenue on +Ebix’s original 1998 transition period financial statements was sales and service revenue that +Ebix had improperly recognized concerning its cd.global product. +63. Soon after Putnam became the Ebix engagement partner, the Andersen audit staff +under his supervision prepared a memorandum dated March 15, 1999. The March 15, 1999 +memorandum recounted that during the audit process, Andersen had a number of concerns +related to Ebix’s positions on accounting matters, and, in particular, on Ebix’s handling of +revenue recognition on software sales. The memorandum noted that Ebix’s management had +taken “an extremely aggressive approach” in interpreting relevant GAAP standards relating to “a +significant amount of software revenue recognized.” +64. In addition to noting Ebix’s extremely aggressive approach to software revenue +recognition, the March 15, 1999 memorandum also observed that Andersen became aware of a +number of factors that increased the risk of fraud in Ebix’s financial statements: +The fraud indicators relate to such areas as possible earnings management, high +involvement in accounting decisions by non-financial management (i.e. CEO), +commitments made to analysts, expectation of possible equity funding, desire to +maintain a high stock price, very aggressive accounting policies, possible +“opinion shopping,” disputes over adjustments, etc. +65. The March 15, 1999 memorandum further stated that due to the existence and +nature of the fraud indicators described above, Andersen had “modified our audit approach to +substantially increase the amount of audit work we perform in the revenue recognition area.” +These modifications would include, among other things, “substantial contract confirmation +work” and “review of all contracts entered into during the year.” +The Failed Cd. Global Contract Confirmation Process +66. During its 1998 transition period, Ebix entered into approximately thirty license +agreements with its U.S. and Canadian customers for cd.global software. In conducting the +audit, Putnam and the audit team sent written confirmations to sixteen Ebix customers who had +purchased cd.global in the 1998 transition period to verify information concerning those license +agreements. Andersen received ten responses to its confirmation requests; seven of these were +“negative,” i.e., indicated that the customer took exception to the information being confirmed. +67. In general, each of Ebix’s cd.global license agreements contained similar +provisions concerning the customer’s obligation to pay for the software, which conditioned +payment on the successful installation and implementation of cd.global. The license agreements +generally conditioned the customer’s obligation to pay for the software upon, among other +- 16 - + +things, a successful test conversion of the customer’s data from its existing system to the +cd.global data format, and upon full functionality of cd.global, including the AL3/CSIO +component of the software. Despite these common provisions in the cd.global license +agreements, Andersen’s confirmations completely failed to address these pre-conditions to +payment. For example, none of the confirmations sent to cd.global customers requested +information concerning, among other things, the date upon which a successful test conversion of +the customer’s data to the cd.global data format had occurred, the number of individual “seat +licenses” accepted by a customer, or the date upon which the software’s AL3/CSIO component +had become functional. +68. Under Paragraph 20 of SOP 97-2, “[a]fter delivery, if uncertainty exists about +customer acceptance of the software, license revenue should not be recognized until acceptance +occurs.” +69. Each of the seven negative responses to Andersen’s confirmation requests +indicated that Ebix’s customers had not yet accepted the cd.global software due to functionality +problems with the software. In addition, one confirmation response indicated that a customer +had not accepted the number of individual “seat licenses” represented by the invoices for which +Andersen sought confirmation. +70. Despite the negative cd.global customer responses to Andersen’s confirmations, +Putnam failed personally to contact, or to have his staff contact, any of the customers who +responded to the confirmations. Nor did Putnam ask for, or review, Ebix’s customer +correspondence files to further investigate the nature of the problems raised by the confirmation +process. Putnam did not attempt to seek further information concerning the acceptance of the +cd.global software from any independent source. Instead, Putnam relied on Ebix’s +management’s representation that the cd.global software was fully functional, and allowed Ebix +to recognize significant revenue from purported sales of cd.global in the 1998 transition period, +including revenue from the customers who had submitted negative responses to Andersen’s +confirmations. In so doing, Putnam failed to exercise an appropriate degree of professional +skepticism and critical assessment of audit evidence in performing the Ebix audit. +71. On April 15, 1999, Ebix filed with the Commission a Form 10-K for the nine- +month period ended December 31, 1998. Ebix included financial statements in this Form 10-K +that reported revenue of $19.2 million and net income of $523,000. The financial statements +were accompanied by an Arthur Andersen audit report containing an unqualified opinion (with a +going concern emphasis paragraph) that Ebix’s financial statements presented fairly, in +conformity with generally accepted accounting principles, the results of Ebix’s operations for +that period. +72. On June 1, 2000, Ebix filed an amended Form 10-K containing revised and +restated financial statements for the 1998 transition period. In the restatement, Ebix reported +revenue of $13.4 million, and a net loss for the period of $5.5 million. Consequently, the +original financial statements overstated Ebix’s revenue by $5.8 million, or approximately 43 +percent, and overstated Ebix’s net income by approximately $6 million. +- 17 - + +73. The customers providing negative responses disputed a total of $638,955 that +Ebix claimed they owed December 31, 1998. In its restatement, Ebix reversed over $1.2 million +in revenues improperly recognized from the customers that provided negative responses to +confirmation requests. +Summary +74. In performing the Ebix audit, Putnam failed to comply with GAAS, through his +acts and omissions including but not limited to: +a. Failing to com ply with GAAS in pla nning the work, adequately supervising the +work perform ed, and failing to obtain a sufficient understanding of internal +controls to plan the audit and to determ ine the nature and extent of tests to be +performed; +b. Failing to exercise due prof essional care and m aintain an attitude of professional +skepticism to provide reasonable assurance of detecting both m aterial errors and +fraud in the financial statements; +c. Failing to obtain sufficient com petent evidential m atter to af ford a reasonable +basis for Andersen’s opinion regarding the financial statements of Ebix; +d. Failing to create, to im plement, to evaluate, and to interpret a conf irmation +process that would have led to the detection of improperly recognized revenue; +e. Failing appropriately to consider and assess the risk of m aterial misstatement due +to fraud and fraud risk factors; +f. Issuing an audit report containi ng an unqualified opinion without perform ing +audit steps sufficient to provide a basis for that opinion; and +g. Failing to have a sufficient basis for Andersen’s opinion that Ebix’s financial +statements conformed to GAAP, specifically SOP 97-2, relating to the recognition +of revenue. +Violations of the Federal Securities Laws and Rule 102(e) +75. In connection with the audits and reviews of the financial statements of HBOC, as +described above, Putnam was a cause of one or more of HBOC’s violations of Section 17(a)(2) +and (3) of the Securities Act. +76. Rule 102(e)(1)(ii) of the Commission’s Rules of Practice provides that the +Commission may deny the privilege of appearing or practicing before it to any person who is +found to have engaged in improper professional conduct. With respect to persons licensed to +practice as accountants, “improper professional conduct” may include negligent conduct +evidenced by “repeated instances of unreasonable conduct, each resulting in a violation of +- 18 - + +applicable professional standards, that indicate a lack of competence to practice before the +Commission.” Rule 102(e)(1)(ii), Rule 102(e)(1)(iv)(B)(2). +77. In connection with the audits and reviews of the financial statements of HBOC +and Ebix, as described above in Paragraphs 59 (a) through (i) and 74 (a) through (g), Putnam +engaged in improper professional conduct by repeatedly engaging in unreasonable conduct, +resulting in a violation of applicable professional standards that indicate a lack of competence to +practice before the Commission. +Findings +78. Based upon the foregoing, the Commission finds that Respondent Putnam was a +cause of one or more of HBOC’s violations of Section 17(a)(2) and (3) of the Securities Act. +79. Further, based upon the foregoing, the Commission finds that Respondent Putnam +engaged in improper professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission’s +Rules of Practice. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Putnam’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Respondent shall cease and desist from committing or causing any violations and +any future violations of Section 17(a)(2) and (3) of the Securities Act; +B. Respondent is denied the privilege of appearing or practicing before the +Commission as an accountant. +C. After five years from the date of this order, Respondent may request that the +Commission consider his reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or review, of +any public company’s financial statements that are filed with the Commission. +Such an application must satisfy the Commission that respondent’s work in his +practice before the Commission will be reviewed either by the independent audit +committee of the public company for which he works or in some other acceptable +manner, as long as he practices before the Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the Commission +that: +a. Respondent, or the public accounting firm with which he is associated, is +registered with the Public Company Accounting Oversight Board (“Board”) in +- 19 - + +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues +to be effective ; +b. Respondent, or the registered public accounting firm with which he is associated, +has been inspected by the Board and that inspection did not identify any +criticisms or potential defects in the respondent’s or the firm’s quality control +system that would indicate that the respondent will not receive appropriate +supervision or, if the Board has not conducted an inspection, has received an +unqualified report relating to his, or the firm’s, most recent peer review conducted +in accordance with the guidelines adopted by the former SEC Practice Section of +the American Institute of Certified Public Accountants Division for CPA Firms or +an organization providing equivalent oversight and quality control functions; +c. Respondent has resolved all disciplinary issues with the Board, and has complied +with all terms and conditions of any sanctions imposed by the Board (other than +reinstatement by the Commission); and +d. Respondent acknowledges his responsibility, as long as Respondent appears or +practices before the Commission as an independent accountant, to comply with all +requirements of the Commission and the Board, including, but not limited to, all +requirements relating to registration, inspections, concurring partner reviews and +quality control standards. +D. The Commission will consider an application by Respondent to resume appearing +or practicing before the Commission provided that his state CPA license is current and he has +resolved all other disciplinary issues with the applicable state boards of accountancy. However, +if state licensure is dependent on reinstatement by the Commission, the Commission will +consider an application on its other merits. The Commission’s review may include consideration +of, in addition to the matters referenced above, any other matters relating to Respondent’s +character, integrity, professional conduct, or qualifications to appear or practice before the +Commission. +By the Commission. + N ancy M. Morris + S ecretary +- 20 - diff --git a/raw/aaer/2008/AAER-2816.txt b/raw/aaer/2008/AAER-2816.txt new file mode 100644 index 0000000000000000000000000000000000000000..68816f1760de13414d8e5c39638c90369602e394 --- /dev/null +++ b/raw/aaer/2008/AAER-2816.txt @@ -0,0 +1,87 @@ + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57733 / April 29, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2816 / April 29, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13028 +In the Matter of +MICHAEL J. NOLAN, +Respondent. +: +: +: +: +: +: +: +: +: +: +CORRECTED +ORDER INSTITUTING +ADMINISTRATIVE +PROCEEDINGS PURSUANT TO RULE +102(e) OF THE COMMISSION’S RULES +OF PRACTICE, MAKING FINDINGS, +AND IMPOSING REMEDIAL +SANCTIONS +___________________________________ : +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against Michael +J. Nolan (“Nolan” or “Respondent”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of +Practice.1 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . +suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently +enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the +Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of +the rules and regulations thereunder. +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement of Michael J. Nolan (“Offer”) 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 him and the subject matter of these +proceedings, and the findings contained in Section III.3 below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) +of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Nolan, age 47, was a certified public accountant licensed to practice in the +State of New Jersey from 1985 until 2005. He served as Chief Financial Officer of United Rentals, +Inc. (“URI”) from September 1997 until December 2002, when he was terminated. +2. URI is a Delaware corporation based in Greenwich, Connecticut. URI is a +holding company that primarily conducts operations through its wholly owned subsidiary, United +Rentals (North America), Inc. URI is one of the largest equipment rental companies in the world +with a network of rental locations in the United States, Canada, and Mexico. URI’s common stock +is registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act of +1934 (“Exchange Act”) and trades on the New York Stock Exchange. +3. On December 12, 2007, the Commission filed a complaint against Nolan in +the United States District Court for the District of Connecticut (SEC v. Michael J. Nolan (Civil +Action No. 03:07-cv-01833-AHN)). On April 8, 2008, the court entered an order permanently +enjoining Nolan, by consent, from future violations of Section 17(a) of the Securities Act of 1933, +Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, +and from aiding and abetting 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, 13a-11 and 13a-13 thereunder. +4. The Commission’s complaint alleged, among other things, that over a two +year reporting period from 2000 through 2002, Nolan engaged in a series of fraudulent sale- +leaseback transactions designed both to recognize revenue prematurely and to inflate profit +generated from the sales. The complaint alleges that as a result of Nolan’s actions, URI +materially misstated its financial condition and operating results in filings with the Commission, +in offering documents, and in other statements to investors. +2 + +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Nolan’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that Nolan is suspended from +appearing or practicing before the Commission as an accountant. + By the Commission. + N ancy M. Morris + S ecretary +3 diff --git a/raw/aaer/2008/AAER-2818.txt b/raw/aaer/2008/AAER-2818.txt new file mode 100644 index 0000000000000000000000000000000000000000..757e449e7490626eae1f898aeeb74818ddba12c2 --- /dev/null +++ b/raw/aaer/2008/AAER-2818.txt @@ -0,0 +1,1423 @@ + + + + + + + + + + + + + + + + SEC.gov | Interpublic Group of Companies, Inc. and McCann-Erickson Worldwide, Inc.; Salvatore LaGreca and Brian Watson + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/503296","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Salvatore LaGreca and Brian Watson + + + + + + + + + + + + Interpublic Group of Companies, Inc. and McCann-Erickson Worldwide, Inc.; Salvatore LaGreca and Brian Watson + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20547 / May 1, 2008 + + Accounting and Auditing Enforcement Release No. 2819 / May 1, 2008 + + SEC v. Interpublic Group of Companies, Inc. and McCann-Erickson Worldwide, Inc., No. 08-CV-4075 (GBD)(S.D.N.Y.) (May 1, 2008) + + SEC v. Salvatore LaGreca and Brian Watson, No. 08-CV-4076 (GBD) (S.D.N.Y.) (May 1, 2008) + + SEC CHARGES McCANN- ERICKSON WORLDWIDE, INC., INTERPUBLIC GROUP OF COMPANIES AND TWO FORMER EXECUTIVES + + DEFENDANTS AGREE TO SETTLE; McCANN AGREES TO PAY $12 MILLION PENALTY + + The Securities and Exchange Commission today filed a civil injunctive action against McCann-Erickson Worldwide, Inc. ("McCann") and the Interpublic Group of Companies, Inc. ("IPG"). The Commission alleged that McCann committed securities fraud when it misstated its financial results by failing to expense properly intercompany charges. IPG negligently failed to address the intercompany problems at its largest subsidiary, McCann. IPG also violated the reporting, internal controls and books and records provisions of the securities laws in connection with a variety of issues that were reflected in various restatements IPG issued from August 2002 through September 2005 totaling more than $600 million. IPG and McCann agreed to settle the Commission's charges, and McCann agreed to pay a $12 million civil penalty. + + The Commission's complaint named the following defendants. + + IPG is a holding company that owns numerous advertising, marketing and associated companies, including the advertising agency, McCann.   + + McCann is a Delaware corporation that IPG wholly owns. McCann owns hundreds of regional and local operating agencies throughout the world. + + The Commission also brought settled charges against Salvatore LaGreca and Brian Watson (in a separate complaint) for their role in failing to reconcile intercompany accounts that resulted in the 2002 restatement. + + LaGreca, 55, a resident of Port Washington, New York. LaGreca served as McCann's Vice-Chairman, Finance and Operations and CFO from January 1996 to October 2002. LaGreca is a CPA licensed in the State of New York. LaGreca, among other things, oversaw McCann's accounting, financial reporting, strategic planning, mergers and acquisitions, and budgeting.   + + Watson, age 60, a resident of the United Kingdom. Watson joined McCann's European-Middle-East-Asia region ("EMEA") as Director of Operations in 1996, from 2000 served as Chief Operating Officer and in approximately May 2002 became Deputy Regional Director of EMEA. Although Watson was not an accountant, from approximately the middle of 1998 until January 2000, and from early 2001 to May 2002, when EMEA did not have a Finance Director, Watson handled many aspects of the Finance Director's responsibilities. + + The Commission's complaints alleged the following: + + From August 2002 through September 2005, IPG issued numerous restatements that together totaled more than $600 million. The restatements corrected misstatements in IPG's financial statements that emanated from numerous substantive areas in a variety of geographic regions, and reflected conduct ranging from inaccurate books and records and lack of internal controls to fraud. + + Initially, in the Fall of 2002, IPG restated its financial results in an amount of $181 million for the period 1997 to 2002. The largest component of this restatement (approximately $101 million) was attributable generally to the fact that McCann recorded as receivables intercompany charges that should have been expensed. McCann officers and employees, including LaGreca and Watson, failed to ensure McCann reconciled its intercompany accounts for at least six years. At times, LaGreca and Watson purposely delayed reconciling intercompany accounts because they knew a reconciliation would result in write-offs that would interfere with McCann's efforts to hit internal annual profit targets. Because McCann never fully reconciled its intercompany accounts and failed to expense properly intercompany charges, McCann's financial results were inaccurate. By 2002, McCann's intercompany accounts were misstated by approximately $101 million. As LaGreca and Watson knew, IPG then incorporated McCann's financial results in IPG's consolidated financial statements. + + IPG's financial management negligently ignored indications McCann was improperly accounting for intercompany transactions. Accordingly, IPG negligently ignored the risk that McCann's results were materially misstated, with the result that IPG's own financial results were materially misstated. + + IPG's financial reporting problems were not resolved in 2002. In September 2005, IPG again restated its pre-tax income for the years 2000 through 2003, and the nine months ended 2004, in the amount of $420 million. According to the complaint, a large portion of this restatement was related to $199 million of improperly recognized revenue related to Agency Volume Bonifications (AVBs) and other vendor discounts and credits that IPG took in violation of its contracts with certain of its clients. The 2005 restatement was necessary because there had been a substantial breakdown of internal controls at IPG, and its numerous subsidiaries, including McCann. + + IPG filed numerous Forms 10-K, Forms 10-Q, Forms 8-K, and registration statements that contained misrepresentations due to the intercompany issues, the AVB issues, and the various other issues that were reflected in the 2002 and 2005 restatements. For example, in its 2002 Form 10-K, IPG reported net income of $99.5 million. This figure, however, was improperly inflated by $82.8 million, and IPG's actual income, as reflected in the restatements, was only $16.7 million (a 496% overstatement). + + IPG, McCann, LaGreca and Watson settled the Commission's charges without admitting or denying the allegations in the Commission's complaints. IPG agreed to consent to a final judgment permanently enjoining it from future violations of Sections 17(a)(2) and (3) of the Securities Act of 1933 (Securities Act) and Sections 13(a) and 13(b)(2)(A) and (B) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder + + McCann agreed to consent to a final judgment permanently enjoining it from future violations of Sections Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and aided and abetted IPG's violations of Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-11 and 13a-13. McCann also agreed to pay a $12 million penalty and $1 in disgorgement for its role regarding intercompany accounts resulting in the 2002 restatement. + + LaGreca and Watson agreed to settle this matter by consenting to final judgments permanently enjoining them from future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and from aiding and abetting violation of Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13. LaGreca and Watson also agreed to pay a civil penalty, in the amounts of $25,000 and $50,000, respectively, and to disgorge all gains derived from their violative conduct plus pre-judgment interest, in the amounts of $46,947 and $17,325, respectively. + + In related administrative proceedings, LaGreca consented to an order under Rule 102(e) of the Commission's Rules of Practice suspending him from appearing or practicing before the Commission as an accountant for five years based on the entry of an injunction against him. + + SEC Complaint re: LaGreca SEC Complaint re: IPG + + + + +  + + + + + + + + + + + Resources + + + + + LaGreca + + + + + and IPG + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Huff, Thomas Y. Jimenez and Lawrence E. Lynch + + + + + + + + + + + + GlobeTel Communications Corp., Timothy J. Huff, Thomas Y. Jimenez and Lawrence E. Lynch + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20550 / May 1, 2008 + + Accounting and Auditing Enforcement Release No. 2822/ May 1, 2008 + + Securities and Exchange Commission v. GlobeTel Communications Corp., Timothy J. Huff, Thomas Y. Jimenez and Lawrence E. Lynch , Case No. 08-CV-60647 (S.D. Fla., filed May 1, 2008) + + SEC Charges Florida Company and Three Former Officers For Accounting Fraud and Unregistered Stock Sales + + On May 1, 2008, the Securities and Exchange Commission filed a civil action in the United States District Court for the Southern District of Florida against GlobeTel Communications Inc. and three former officers of the company, Timothy J. Huff, Thomas Y. Jimenez and Lawrence E. Lynch. GlobeTel is a publicly-traded telecommunications company headquartered in Fort Lauderdale, Florida. Huff was GlobeTel's chief executive officer, and Jimenez and Lynch were its chief financial officers during the relevant period. According to the SEC's complaint, Jimenez and Lynch participated in a scheme to inflate GlobeTel's revenue and then hide millions of dollars of unpaid receivables and liabilities between 2004 and 2006. The SEC alleges that GlobeTel recorded $119 million in revenue on the basis of fraudulent invoices created by two individuals in charge of its wholesale telecommunications business. Jimenez and Lynch are alleged to have made, or caused to be made, entries on GlobeTel's general ledger that improperly offset the receivables associated with those revenues against the liabilities, thereby concealing the revenue fraud from investors. Huff is alleged to have caused GlobeTel to sell $1.6 million worth of GlobeTel common stock in 2005 in violation of the registration provisions of the federal securities laws. + + The SEC alleges that GlobeTel violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder, and seeks as relief a permanent injunction, civil penalties, and disgorgement with prejudgment interest. The SEC alleges that Jimenez and Lynch violated Section 17(a) of the Securities Act, violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and aided and abetted violations of those provisions by GlobeTel, violated Rules 13a-14 and 13b2-1 of the Exchange Act and aided and abetted violations of Sections 13(a) and 13(b)(2)(A) & (B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder by GlobeTel, and seeks as relief permanent injunctions, civil penalties, disgorgement with prejudgment interest and officer and director bars. The SEC alleges that Huff violated Sections 5(a) and 5(c) of the Securities Act of 1933 and seeks as relief a permanent injunction and a civil penalty. + + Without admitting or denying the charges against him, Lynch consented to final judgment permanently enjoining him from future violations of Section 17(a) of the Securities Act and Sections 10(b), 13(a) and 13(b)(2)(A) & (B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13a-14 and 13b2-1 thereunder, imposing a five year officer and director bar and ordering him to pay a civil penalty in an amount to be determined by the court. Without admitting or denying the charges against him, Huff consented to final judgment permanently enjoining him from future violations of Sections 5(a) and 5(c) of the Securities Act and ordering him to pay a $30,000 civil penalty. + + SEC Complaint in this matter + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2823.txt b/raw/aaer/2008/AAER-2823.txt new file mode 100644 index 0000000000000000000000000000000000000000..f715b228a7652f6a6b0903134a6c730462b4c3ef --- /dev/null +++ b/raw/aaer/2008/AAER-2823.txt @@ -0,0 +1,177 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57756 / May 1, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2823 / May 1, 2008 +ADMINISTRATIVE PROCEEDING +FILE NO. 3-13033 +In the Matter of +SAVVIDES & PARTNERS/PKF +CYPRUS +Respondent. +ORDER INSTITUTING PUBLIC +ADMINISTRATIVE PROCEEDINGS +PURSUANT TO RULE 102(e) OF THE +COMMISSION’S RULES OF PRACTICE, +MAKING FINDINGS AND IMPOSING +REMEDIAL SANCTIONS + I. +The Securities and Exchange Commission ( “Commission”) deems it appropriate and in +the public interest that public administrative proceedings be instituted against Respondent +Savvides & Partners/PKF Cyprus (“PKF Cyprus” or “Respondent”) pursuant to Rule 102(e)(3)(i) +of the Commission’s Rules of Practice.1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) 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, prior to a hearing pursuant to the +Commission’s Rules of Practice, 17 C.F.R. § 201.1 et seq., and without admitting or denying the +findings herein, except as to the Commission’s jurisdiction over them, the subject matter of these + Rule 102(e)(3)(i) provides, in pertinent part, that: The Commission, with due regard to the public interest and +without preliminary hearing, may, by order, … su spend from appearing or practicing before it any … a ccountant … +who has been by name … pe rmanently enjoined by any court of competent jurisdiction, by reason of his or her +misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any +provision of the Federal securities laws or of the rules and regulations thereunder. +1 +proceedings, and the findings contained in Section III subsection (2) below, which are admitted, +Respondent consents to the entry of this Order Instituting Public Administrative Proceedings +Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing +Remedial Sanctions (“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. PKF Cyprus is a Limassol, Cyprus accounting firm operating in the form of a partnership. +The firm’s primary address is Meliza Court, 229, Arch. Makarios III Avenue, Limassol, +Cyprus. PKF Cyprus is a member of PKF International Ltd., a network of independent +firms of accountants and business advisors with more than 430 offices and 12,800 staff +and partners in more than 100 countries. +2. On March 21, 2006, the Commission filed a complaint against Respondent in SEC v. +Savvides & Partners/PKF Cyprus, et al. Civil Action No. 06 CV 2223 (S.D.N.Y.) +naming Savvides & Partners/PKF Cyprus, Pavlos Meletiou (“Meletiou”), R.K. Dhawan +and Co., and R.K. Dhawan as defendants. On March 7, 2008, Respondent, without +admitting or denying the allegations in the complaint, consented to the entry of a final +judgment against it, permanently enjoining it from future violations of Section 17(a) of +the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 +(“Exchange Act”) and Exchange Act Rule 10b-5 and from aiding and abetting future +violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and +Exchange Act Rules 12b-20, 13a-1 and 13b2-1. On April 29, 2008, the Court entered the +aforementioned permanent injunction. The final judgment also orders PKF Cyprus to +pay total disgorgement of $155,052 (including prejudgment interest of $48,539), and to +pay a $106,513 civil penalty. +3. The Commission’s complaint alleged, among other things, that PKF Cyprus issued +unqualified audit reports for one AremisSoft Corporation (“AremisSoft”) subsidiary in +1999 and two AremisSoft subsidiaries in 2000 that falsely stated that its audits were +conducted in accordance with U.S. Generally Accepted Auditing Standards (“GAAS”) +and that the AremisSoft subsidiaries’ financial statements were fairly presented in +accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). The +complaint further alleged that Meletiou was a partner of PKF Cyprus while AremisSoft +was a public company, that he was responsible for the audits and reviews conducted by +PKF Cyprus of the three AremisSoft subsidiaries, and that he had no training or +experience in GAAS or GAAP. +4. The complaint also alleged that PKF Cyprus failed to meet numerous GAAS +requirements in that Meletiou: (a) did not obtain sufficient competent evidential matter +to afford a reasonable basis for an opinion regarding the financial statements under audit; +(b) did not exercise due professional care in the performance of the audits and the +preparation of the audit reports; (c) did not have adequate technical training and +proficiency with respect to GAAS and GAAP; (d) did not consider the risk of +misstatement arising from fraudulent financial reporting during the planning of the audits +2 + +and the performance of substantive audit procedures; and (e) did not obtain a sufficient +understanding of the internal controls of the two AremisSoft subsidiaries that PKF +audited in 2000 to plan the audit. +5. The complaint further alleged that Meletiou knew or was reckless in not knowing that the +statements in PKF Cyprus’ 2000 audit reports of two AremisSoft subsidiaries were +materially false and misleading. The complaint also alleged that the false financial +statements of the two AremisSoft subsidiaries were included in AremisSoft’s +consolidated financial statements for 2000, AremisSoft’s 2000 Form 10-K, and in +AremisSoft’s registration statements that incorporated the financial information. +6. In addition, the complaint alleged that PKF Cyprus issued an unqualified audit report on +an AremisSoft subsidiary covering the period 1997 through 1999 that stated PKF Cyprus +had conducted its audit in accordance with GAAS and that the subsidiary’s financial +statements presented the subsidiary’s consolidated financial position fairly, in conformity +with GAAP. The complaint also alleged that the PKF Cyprus audit report was included +in AremisSoft’s 1999 Annual Report on Form 10-K filed with the Commission. The +complaint further alleged that contrary to the representations in PKF Cyprus’ audit report, +the subsidiary’s financial statements did not conform to GAAP and the audit was not +conducted in accordance with GAAS in effect at the time of the audit. The complaint +also alleged that, among other things, the PKF Cyprus audit report stated that the +subsidiary had more than three million dollars of revenues in 1999, when in fact the +company had virtually no assets, business, revenues, or income and, according to its own +corporate records, had not even begun business operations as of March 31, 2000. +7. The complaint also alleged that the PKF Cyprus audit workpapers prepared by Meletiou +during the 2000 audits of two AremisSoft subsidiaries, which were found in a trash heap +outside AremisSoft's Indian offices, included phony customer and bank confirmations. +IV. +UNDERTAKINGS BY PKF CYPRUS +PKF Cyprus undertakes to: +1. maintain for a period of not less than seven years, all audit work papers and other +information with respect to any issuer2 audit report filed with the Commission prior to the +date of this Order; +2. produce to the SEC within 10 days upon request all audit or review documentation +associated in any way with any issuer audit report filed with the Commission prior to the +date of this Order; and + As used in this order, the term “issuer”' has the same meaning as in Section 2(a)(7) of the Sarbanes-Oxley Act of +2002. +3 +2 +3. obtain an independent partner review on any future engagements associated in any way +with any issuer audit report. +In determining whether to accept PKF Cyprus’ Offer, the Commission has considered these +undertakings. +V. +In view of the foregoing, the Commission deems it appropriate and in the public interest +to impose the sanctions agreed to in Respondent’s Offer. +Accordingly, IT IS HEREBY ORDERED, effective immediately, that: +A. PKF Cyprus is censured pursuant to Rule 102(e) of the Commission’s Rules of Practice. +B. PKF Cyprus is suspended from appearing or practicing before the Commission as an +accountant. +C. After five years from the date of this order, Respondent PKF Cyprus may request that the +Commission consider its reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as an independent +accountant. Such an application must satisfy the Commission that: +1. Respondent PKF Cyprus is registered with the Public Company Accounting +Oversight Board (“Board”) in accordance with the Sarbanes-Oxley Act of 2002, and such +registration continues to be effective. However, if registration with the Board is dependant upon +reinstatement by the Commission, the Commission will consider an application on its other +merits; +2. Respondent PKF Cyprus has hired an independent CPA consultant (“consultant”), +who is not unacceptable to the staff of the Commission and is affiliated with a public accounting +firm registered with the Board, that has conducted a review of PKF Cyprus’s quality control +system and submitted to the staff of the Commission a report that describes the review conducted +and procedures performed, and represents that the review did not identify any criticisms of or +potential defects in the firm’s quality control system that would indicate that any of PKF Cyprus’ +employees will not receive appropriate supervision. PKF Cyprus agrees to require the +consultant, if and when retained, to enter into an agreement that provides that for the period of +review and for a period of two years from completion of the review, the consultant shall not enter +into any employment, consultant, attorney-client, auditing or other professional relationship with +PKF Cyprus, or any of its present or former affiliates, directors, officers, employees, or agents +acting in their capacity. The agreement will also provide that the consultant will require that any +firm with which he/she is affiliated or of which he/she is a member, and any person engaged to +assist the consultant in performance of his/her duties under this Order shall not, without prior +written consent of the staff, enter into any employment, consultant, attorney-client, auditing or +other professional relationship with PKF Cyprus, or any of its present or former affiliates, +4 + +directors, officers, employees, or agents acting in their capacity as such for the period of the +review and for a period of two years after the review. +3. Respondent PKF Cyprus has resolved all disciplinary issues with the Board, and +has complied with all terms and conditions of any sanctions imposed by the Board (other than +reinstatement by the Commission); and +4. Respondent PKF Cyprus acknowledges its responsibility, as long as Respondent +PKF Cyprus appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not limited to, all +requirements relating to registration, inspections, concurring partner reviews and quality control +standards. +D. The Commission will consider an application by Respondent PKF Cyprus to resume +appearing or practicing before the Commission provided that its licenses with the Institute of +Certified Public Accountants of Cyprus (“ICPAC”) or the successor regulatory organization are +current and it has resolved any disciplinary issues with ICPAC. The Commission’s review may +include consideration of, in addition to the matters referenced above, any other matters relating +to Respondent’s character, integrity, professional conduct, or qualifications to appear or practice +before the Commission. +By the Commission. +Nancy M. Morris +Secretary +5 diff --git a/raw/aaer/2008/AAER-2826.txt b/raw/aaer/2008/AAER-2826.txt new file mode 100644 index 0000000000000000000000000000000000000000..38eca488a241fc4bf38eb569a3da727e7a881fc6 --- /dev/null +++ b/raw/aaer/2008/AAER-2826.txt @@ -0,0 +1,1403 @@ + + + + + + + + + + + + + + + + SEC.gov | Willbros Group, Inc., et al. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/503416","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Share sensitive information only on official, secure websites. + + + + + + + + + + + + + + + + + SEC homepage + + + + + + + Menu + + + + + + + + + + + + + + Close + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + Search Filings + + + + + + + + + Search Filings + + + + + + + + + Full Text Search + + + + + + Latest Filings + + + + + + Mutual Fund Search + + + + + + Variable Insurance Products Search + + + + + + SIC Codes + + + + + + CIK Lookup + + + + + + Public Dissemination Service (PDS) + + + + + + Search Assistance + + + + + + + + + + + + + Submit Filings + + + + + + + + + Submit Filings + + + + + + + + + EDGAR Filer Management Portal + + + + + + EDGAR Filing Portal + + + + + + Online Forms Management Portal + + + + + + EDGAR Next + + + + + + Forms Index + + + + + + Filer Support & Resources + + + + + + + + + + + + + Data & Research + + + + + + + + + Data & Research + + + + + + + + + Data Library + + + + + + Statistics & Data Visualizations + + + + + + Structured Data + + + + + + Investment Management Data + + + + + + Open Data at the SEC + + + + + + + + + + + + + Rules, Enforcement, & Compliance + + + + + + + + + + + + + + + + + + + + Rules & Regulations + + + + + + + + + Rulemaking Activity + + + + + + Submit Public Comments + + + + + + Staff Guidance + + + + + + No-Action, Interpretive, and Exemptive Letters + + + + + + Self-Regulatory Organization Rulemaking + + + + + + Public Petitions for Rulemaking + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + + + Litigation Releases + + + + + + Administrative Proceedings + + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + + Trading Suspensions + + + + + + Distributions to Harmed Investors + + + + + + Receiverships + + + + + + + + + + + + + + + + + Compliance + + + + + + + + + Examination Priorities + + + + + + Risk Alerts + + + + + + Compliance Outreach Program + + + + + + + + + + + + + + + + + + + + + + + Proposed Rules + + + + + + What's New + + + + + + Whistleblower Program + + + + + + + + + + + + + + + + + + + Featured Topics + + + + + + + + + Featured Topics + + + + + + + + + Crypto Task Force + + + + + + Cybersecurity + + + + + + Market Structure Analytics + + + + + + Saving and Investing for Military Personnel + + + + + + Saving and Investing for Teachers + + + + + + SEC-CFTC Harmonization Initiative + + + + + + Treasury Clearing Implementation + + + + + + + + + + + + + About + + + + + + + + + About + + + + + + + + + Mission + + + + + + Commissioners + + + + + + Divisions & Offices + + + + + + Division & Office Directors + + + + + + Advisory Committees + + + + + + Budget & Performance + + + + + + Reports & Publications + + + + + + Commission Votes + + + + + + Contact the SEC + + + + + + Careers + + + + + + + + + + + + + Submit a Tip or Complaint + + + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + More in this Section + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + Willbros Group, Inc., et al. + + + + + + + + + + + + Willbros Group, Inc., et al. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20571 / May 14, 2008 + + Accounting and Auditing Enforcement Release No. 2826 / May 14, 2008 + + Securities and Exchange Commission v. Willbros Group, Inc., et al. , Civil Action No. 4:08-CV-01494 U.S.D.C./Southern District of Texas (Houston Division) + + SEC Files Settled FCPA Action Against Willbros Group, Inc. and Several Former Employees + + Today, the United States Securities and Exchange Commission (Commission) filed a settled civil action against Willbros Group, Inc. and several former employees alleging that they violated, among other things, the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA) and the antifraud provisions of the federal securities laws. The complaint also names Jason Steph, a former supervisory employee in Nigeria, Gerald Jansen, a former administrative supervisor in Nigeria, Lloyd Biggers, a former employee in Nigeria and Carlos Galvez, a former accounting employee in Bolivia. According to the complaint, the company also violated the reporting, books and records and internal controls provisions of the Securities Exchange Act. Willbros Group, Steph, Jansen, Biggers and Galvez have agreed to settle the charges against them, without admitting or denying the Commission's allegations. + + The Commission alleges in its complaint that Willbros Group, through the actions of others acting on its behalf, engaged in multiple schemes to bribe foreign officials. First, the complaint alleges that, beginning by at least 2003, Willbros Group, through the conduct of a former executive officer, Steph and others, engaged in a scheme to pay over $6 million in bribes to Nigerian government officials and to employees of an operator of a joint venture majority-owned by the Nigerian government in order to obtain a significant contract. A similar scheme was used to help obtain a second significant contract. Together, these contracts resulted in net profits of approximately $8,900,000. In 2005, according to the complaint, Steph assisted in the payment of $850,000 to satisfy a portion of these earlier commitments. The complaint further alleges that Willbros Group, through acts by a former executive officer, Steph, Jansen, Biggers and others, employed a long-running scheme using fabricated invoices to procure cash from the company's administrative headquarters in Houston to, among other things, bribe Nigerian tax and court officials. This fraudulent cash abuse was also used to fund in part the bribes paid in 2005. + + Second, Willbros Group, through the conduct of the same former executive officer and others schemed to pay a $300,000 bribe to officials of an oil and gas company owned by the Ecuador government in order to obtain a $3 million contract. + + Finally, Willbros Group, through the actions of the same former executive officer, an outside consultant and Galvez implemented a fraudulent tax avoidance scheme in Bolivia. This fraudulent scheme resulted in material misstatements in Willbros Group's financial statements. + + The Commission alleges that, through these activities, Willbros Group violated Sections 30A, 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder, as well as Section 17(a) of the Securities Act. Willbros Group agreed to consent to the entry of a judgment that permanently enjoins it from future violations of these provisions and that orders it to pay disgorgement of $8.9 million, plus prejudgment interest of $1.4 million. + + The Commission further alleges that Steph, through his actions in Nigeria, violated Sections 30A and 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, and aided and abetted violations of Sections 13(b)(2)(A), 13(b)(2)(B) and 30A of the Exchange Act. Steph consented to the entry of a judgment that permanently enjoins him from future violations of these provisions. Pursuant to the judgment, the Court will determine later whether Steph will pay a civil penalty and what the amount of such penalty will be. + + Jansen, for his role in Nigeria, is alleged to have violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder and to have aided and abetted violations of Sections 13(b)(2)(A), 13(b)(2)(B) and 30A of the Exchange Act. He has consented to the entry of a judgment that permanently enjoins him from future violations of these provisions and orders him to pay a civil penalty of $30,000. + + Biggers, based on his actions in Nigeria, is alleged to have violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder and to have aided and abetted violations of Sections 13(b)(2)(A) and 30A of the Exchange Act. He has consented to the entry of a judgment that permanently enjoins him from future violations of these provisions. + + Finally, the Commission alleges that Galvez, through his conduct in Bolivia, violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder and aided and abetted violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder. Galvez has agreed to consent to the entry of a judgment that permanently enjoins him from future violations of these provisions and orders him to pay a civil penalty of $35,000. + + The Commission acknowledges Willbros Group's cooperation in the investigation. + + In a related criminal proceeding, the United States Department of Justice filed a criminal Information and Deferred Prosecution Agreement in the Southern District of Texas relating to the criminal FCPA charges against Willbros Group and its subsidiary, Willbros International, Inc. ("Willbros International"). In that case, Willbros Group and Willbros International accepted responsibility for its employees that had violated the FCPA and agreed to pay a criminal penalty of $22 million. Pursuant to the Deferred Prosecution Agreement, the Department of Justice agreed to defer prosecution of these companies for three years and the companies agreed to retain for a period of three years an independent compliance monitor to assess the company's implementation of and compliance with new internal policies and procedures. If Willbros Group and Willbros International abide by the terms of the agreement, the Department will dismiss the Information when the term of the agreement ends. + + The Commission acknowledges the assistance of the Department of Justice, Fraud Section, in the Commission's investigation. + + + SEC Complaint in this matter + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Ruehle, and David Dull + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/503431","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Nicholas III, Henry Samueli, William J. Ruehle, and David Dull + + + + + + + + + + + + Henry T. Nicholas III, Henry Samueli, William J. Ruehle, and David Dull + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20574 / May 14, 2008 + + Accounting and Auditing Enforcement Release No. 2827 / May 14, 2008 + + Securities and Exchange Commission v. Henry T. Nicholas III, Henry Samueli, William J. Ruehle, and David Dull, , United States District Court for the Central District of California, Civil Action No. SACV 08-539 CJC (RNBx) + + SEC Charges Four Current and Former Broadcom Officers for Backdating Options + + The Securities and Exchange Commission today charged two current and two former top officers of Irvine, Calif.-based Broadcom Corporation for their alleged participation in a five-year systematic scheme to secretly backdate stock options granted to virtually all Broadcom officers and employees. + + The SEC's complaint, filed in federal district court for the Central District of California, alleges that Broadcom's former chief executive officer Henry T. Nicholas, chairman and chief technology officer Henry Samueli, former chief financial officer William J. Ruehle, and general counsel David Dull perpetrated a scheme from 1998 to 2003 to fraudulently backdate stock option grants, failing to record billions of dollars of compensation expenses and falsifying documents to further the fraud. As a result of the scheme, Broadcom restated its financial results in January 2007 and reported more than $2 billion in additional compensation expenses. +The SEC alleges that, through this scheme, the four officers made it appear that the options were granted at times corresponding to low points of the closing price of Broadcom's stock - despite the fact that the purported grant date bore no relation to when the grant was actually approved. This resulted in artificially and fraudulently low exercise prices for those options. The SEC also alleges that the unrecorded compensation expenses and hidden backdating practices led Broadcom to provide false and misleading disclosures to Broadcom's shareholders in filings with the SEC through 2005. + + According to the SEC's complaint, Nicholas and Samueli served on the two-member option committee that had authority to approve options to employees and all but the most senior officers, whose grants were to be decided by two independent directors comprising Broadcom's compensation committee. The SEC alleges that the option committee approved as many as 88 grants during the relevant period, but for many of the grants the committee neither held meetings nor made decisions on the dates the grants were supposedly approved. Instead, Ruehle allegedly selected most of the grant dates retroactively based on a comparison of Broadcom's historical stock prices, and Nicholas and Samueli allegedly concealed the backdating by signing false committee written consents stating that the grant had been approved "as of" the retroactive date. + + In addition, the SEC alleges that Nicholas, Samueli, and Ruehle - not the compensation committee - decided on option grants to Broadcom's senior officers and used hindsight to select the dates for them. Dull allegedly knew about and participated in the backdating scheme and was involved in the preparation, review, and approval of false board and compensation committee meeting documents to conceal two backdated grants in 2001, one of which awarded him options to purchase 300,000 shares. +The SEC is alleging that Ruehle and Dull each personally benefited from the backdating scheme by receiving and exercising backdated grants that were in-the-money by more than $100,000 for Ruehle and $1.8 million for Dull. + + The SEC's complaint alleges that Nicholas, Samueli, Ruehle and Dull violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5 and 13b2-1 thereunder, and aided and abetted Broadcom's 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. In addition, the SEC alleges that: (i) Nicholas, Ruehle, and Dull violated Section 14(a) of the Exchange Act and Rule 14a-9 thereunder; (ii) Nicholas and Ruehle violated Rules 13a-14 and 13b2-2 of the Exchange Act; (iii) Ruehle and Dull violated Section 16(a) and Rules 13a-11 and 16a-3 of the Exchange Act; and (iv) Dull aided and abetted Broadcom's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC is seeking permanent injunctions, civil monetary penalties, and officer-and-director bars against each of the individuals, disgorgement with prejudgment interest against Ruehle and Dull, and reimbursement of bonuses and profits from stock sales from Nicholas and Ruehle pursuant to Section 304 of the Sarbanes-Oxley Act of 2002. + + Previously, the Commission brought enforcement actions against Broadcom (see Litigation Release No. 20532 (April 22, 2008)) and Broadcom's former vice president of human resources, Nancy M. Tullos (see Litigation Release No. 20476 (March 4, 2008)), in connection with the option backdating scheme. The Commission's investigation in this matter is continuing. + + The Commission acknowledges the assistance of the U.S. Attorney's Office for the Central District of California and the Federal Bureau of Investigation. + + + + + + + SEC Complaint in this matter + +   + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Rindner, Joseph A. Ripp, and Mark Wovsaniker; David M. Colburn, Eric L. Keller, James F. MacGuidwin, and Jay B. Rappaport + + + + + + + + + + + + John Michael Kelly, Steven E. Rindner, Joseph A. Ripp, and Mark Wovsaniker; David M. Colburn, Eric L. Keller, James F. MacGuidwin, and Jay B. Rappaport + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20586 / May 19, 2008 + + Accounting and Auditing Enforcement Release No. 2829 / May 19, 2008 + + SEC v. John Michael Kelly, Steven E. Rindner, Joseph A. Ripp, and Mark Wovsaniker , Civil Action No. 08 CV 4612 (S.D.N.Y.) + + SEC v. David M. Colburn, Eric L. Keller, James F. MacGuidwin, and Jay B. Rappaport , Civil Action No. 08 CV 4611 (S.D.N.Y.) + + SEC Charges Eight Former Executives of AOL Time Warner for the Company's Accounting Fraud + + On May 19, 2008, the Securities and Exchange Commission filed civil fraud charges against eight former executives of AOL Time Warner Inc. for their roles in a fraudulent scheme that caused the company to overstate its advertising revenue by more than $1 billion. + + In SEC v. John Michael Kelly, Steven E. Rindner, Joseph A. Ripp, and Mark Wovsaniker , filed in the United States District Court for the Southern District of New York, the SEC alleges that from at least mid-2000 to mid-2002, John Michael Kelly, former Chief Financial Officer of AOL Time Warner; Steven E. Rindner, former senior executive in the company's Business Affairs unit; Joseph A. Ripp, former Chief Financial Officer of the company's AOL division; and Mark Wovsaniker, former head of Accounting Policy, engineered, oversaw, and executed fraudulent round-trip transactions in which AOL Time Warner effectively funded its own advertising revenue by giving purchasers the money to buy online advertising that they did not want or need. Online advertising revenue was a key measure by which analysts and investors evaluated the company. The defendants made or substantially contributed to statements to investors that included the company's fraudulent financial results. Kelly and Wovsaniker, both certified public accountants, also are charged with misleading the company's external auditor about the fraudulent transactions. + + The complaint charges Kelly, Wovsaniker, Ripp, and Rindner with violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), Exchange Act Rules 10b-5 and13b2-1, and with aiding and abetting AOL Time Warner's violations of Sections 10(b), 13(a), and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, and 13b2-1 and charges Kelly and Wovsaniker with violations of Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-2. The complaint seeks injunctive relief, disgorgement of ill-gotten gains plus prejudgment interest, civil monetary penalties, and officer and director bars against each of them. + + The Commission also filed a complaint today in SEC v. David M. Colburn, Eric L. Keller, James F. MacGuidwin, and Jay B. Rappaport in the United States District Court for the Southern District of New York against four former AOL Time Warner executives who participated in the scheme to artificially inflate the company's reported online advertising revenue. The four defendants have agreed to settle that action, without admitting or denying the allegations in the complaint. David M. Colburn, former the head of the Business Affairs unit; Eric L. Keller, former senior manager in the Business Affairs unit; James F. MacGuidwin, former Controller; and Jay B. Rappaport, former senior manager in the Business Affairs unit, have agreed to permanent injunctions against future violations of Section 17(a) of the Securities Act, Section 10(b) the Exchange Act and Exchange Act Rules 10b-5 and 13b2-1, and from aiding and abetting violations of Sections 10(b), 13(a), and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13. MacGuidwin also agreed to be enjoined from future violations of Exchange Act Rule 13b2-2. All of them have agreed to pay disgorgement and prejudgment interest and civil penalties. Colburn will pay disgorgement and prejudgment interest of $3,222,107 and a penalty of $750,000; MacGuidwin will pay disgorgement and prejudgment interest of $2,100,000 and a penalty of $300,000; Rappaport will pay disgorgement and prejudgment interest of $493,629 and a penalty of $250,000; and Keller will pay disgorgement and prejudgment interest of $699,868 and a penalty of $250,000. Colburn and MacGuidwin have agreed to be barred from serving as officers or directors of a public company for ten years and seven years, respectively. The settlements are subject to court approval. + + For related actions, see http://sec.gov/litigation/litreleases/lr19147.htm . + + + Complaint SEC v. Kelly et al. Complaint SEC v. Colburn et al. + + +  + + + + + + + + + + + Resources + + + + + Complaint SEC v. 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Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2831.txt b/raw/aaer/2008/AAER-2831.txt new file mode 100644 index 0000000000000000000000000000000000000000..bbb38e4d6b22fe4712ce0e9f54ee5ace73bffb82 --- /dev/null +++ b/raw/aaer/2008/AAER-2831.txt @@ -0,0 +1,77 @@ + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57846 / May 21, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2831 / May 21, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13043 +In the Matter of +MICHAEL RESNICK, CPA +Respondent. +ORDER INSTITUTING ADMINISTRATIVE +PROCEEDINGS PURSUANT TO RULE 102(e) +OF THE COMMISSION’S RULES OF +PRACTICE, MAKING FINDINGS, AND +IMPOSING REMEDIAL SANCTIONS +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against Michael +Resnick (“Resnick” or “Respondent”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of +Practice.1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) 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 him and the subject matter of these +proceedings, and the findings contained in Section III.4 below, which are admitted, Respondent +Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, may, by +order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . +permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an +action brought by the Commission, from violating or aiding and abetting the violation of any provision of +the Federal securities laws or of the rules and regulations thereunder. +1 +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) +of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Michael Resnick, age 46, was at the relevant time a certified public accountant +licensed to practice in the State of Maryland. Resnick served as Chief Financial Officer of U.S. +Foodservice, Inc. (“USF”) in its Columbia, Maryland headquarters. Resnick joined USF in 2000, +and served as Director of Internal Audit until his promotion to CFO in late 2001. He was +terminated by USF in 2003. +2. Royal Ahold (Koninklijke Ahold N.V.) (“Ahold”) is a publicly-held company +organized in the Netherlands with securities that, at the relevant times, were registered with the +Commission pursuant to Section 12(b) of the Exchange Act. Ahold’s common stock traded in the +United States on the New York Stock Exchange under the symbol AHO as evidenced by American +Depositary Receipts. +3. At the relevant times, USF, a foodservice and distribution company with +headquarters in Columbia, Maryland, was a wholly-owned subsidiary of Ahold. +4. On May 16, 2008, a final judgment was entered against Resnick, permanently +enjoining him from future violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules +10b-5 and 13b2-1 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and +13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder, in the civil action +entitled Securities and Exchange Commission v. Michael Resnick, Civil Action Number 05-cv- +1254 (CBB), in the United States District Court for the District of Maryland. +5. The Commission’s complaint alleged, among other things, that Ahold’s net income +for fiscal years 2001 and 2002 was materially overstated by approximately $700 million in +Commission filings and other public announcements as a result of a fraud at USF in which Resnick +was a participant. The Complaint further alleged that Resnick made or directed others to make +entries, including releases of reserves and accruals, in USF’s books and records that he knew, or +was reckless in not knowing, were false, without basis in fact, and did not comply with Generally +Accepted Accounting Principles. +2 + +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanctions agreed to in Respondent Resnick’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that Resnick is suspended +from appearing or practicing before the Commission as an accountant. + By the Commission. +Nancy M. Morris +Secretary +3 diff --git a/raw/aaer/2008/AAER-2832.pdf b/raw/aaer/2008/AAER-2832.pdf new file mode 100644 index 0000000000000000000000000000000000000000..79808fa919b2d54f262093625ba3b1ec9baa8ace Binary files /dev/null and b/raw/aaer/2008/AAER-2832.pdf differ diff --git a/raw/aaer/2008/AAER-2832.txt b/raw/aaer/2008/AAER-2832.txt new file mode 100644 index 0000000000000000000000000000000000000000..43c1f7e4ba465b762d069ceeab8810665001bd0e --- /dev/null +++ b/raw/aaer/2008/AAER-2832.txt @@ -0,0 +1,244 @@ +UNITED STATES OF AMERICA +BEFORE THE +SECURITIES AND EXCHANGE COMMISSION + + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57889 / May 30, 2008 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2832 / May 30, 2008 + +ADMINISTRATIVE PROCEEDING +File No. 3-13047 + + + +In the Matter of + +PAULA J. NORBOM, CPA, + +Respondent. + +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 + + +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 Paula J. Norbom, CPA (“Norbom” or +“Respondent”). + +II. + + In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (“Offer”) 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 her and the subject matter of these proceedings, which are +admitted, Respondent consents 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” (“Order”), as set forth below. + + + + + + +III. + +On the basis of this Order and Respondent’s Offer, the Commission finds that:1 + +A. RESPONDENT + +1. From at least April 2002 until October 2003, Norbom, age 42, served as the Vice +President of Finance for the SpineTech Division of Centerpulse Ltd. (“Centerpulse” or the +“Company”), a Swiss medical devices manufacturer. The SpineTech Division (“Division”) was +one of four Centerpulse Divisions. In this position, Norbom was responsible for, among other +things, maintaining accurate books and records at the Division, and for devising and maintaining +an adequate system of internal accounting controls at the Division. In addition, Norbom is a +Certified Public Accountant licensed in Wisconsin and was so while she was employed at +Centerpulse. + +B. SUMMARY + + +2. This matter arises out of a reserve release that Norbom directed during +Centerpulse’s fiscal third quarter 2002.2 On September 17, 2002, Norbom improperly directed +her staff to release $2.4 million from a sales, use and property tax reserve which was being +maintained on the SpineTech Division’s books and records. The release, which was rolled up +into the Company’s consolidated financial statements, did not conform with Generally Accepted +Accounting Principles in the United States (“U.S. GAAP”), +3 and it caused a 12 percent +overstatement of Centerpulse’s consolidated fiscal third quarter 2002 pretax income. The +overstatement was reported in the financial statements the Company included in the Form 6-K it +furnished to the Commission on November 12, 2002. + +3. By virtue of her conduct, Norbom violated Exchange Act Rule 13b2-1 by +falsifying certain books and records. She also caused Centerpulse to violate Exchange Act +Sections 13(b)(2)(A) and 13(b)(2)(B) by failing to keep accurate books and records, and by +failing to devise and maintain an adequate system of internal accounting controls at the +SpineTech Division. +4 + + + +1 The findings herein are made pursuant to Respondent’s Offer and are not binding on any other person or +entity in this or any other proceeding. +2 Centerpulse’s fiscal year ended on December 31 of each calendar year, and acco rdingly its fiscal third +quarter 2002 ended on September 30, 2002. +3 While Centerpulse disclosed that its financial statements, which were consolidated in Switzerland, were +reported in accordance with International Financial Reporting Standards, Centerpulse’s accounting controls, and +Norbom’s practice, were to maintain the Division’s accounts in accordance with U.S. GAAP. +4 The Commission filed a lawsuit against Urs Kamber , Stephan Husi and Richard Jon May (respectively, +Centerpulse’s former Chief Financial Officer, former Controller, and the former Group Vice President of Finance, +Tax Counsel and Treasurer of Centerpulse USA Holding Company), alleging that they engaged in various improper +accounting practices at Centerpulse during the third and fourth quarters of 2002. SEC v. Urs Kamber et al., Civil +Action No. 1:07-CV-01867 (JDB) (D.D.C.) (Oct. 17, 2007); see also Litigation Release No. 20336 (Oct. 17, 2007). + -2- +C. BACKGROUND + +4. Originally named Sulzer Medica AG, Centerpulse was a publicly traded +corporation headquartered in Switzerland that manufactured a variety of medical devices, +including hip, knee, spine and dental implants. From at least January 2001 through October +2003, Centerpulse’s American Depository Shares were registered with the Commission pursuant +to Exchange Act Section 12(b) and were traded on the New York Stock Exchange under the +symbol “CEP.” As a foreign private issuer, Centerpulse filed annual reports with the +Commission on Form 20-F and furnished other periodic reports to the Commission on Form 6-K. +In October 2003, the Company was acquired by and merged with Zimmer Holdings, Inc., a U.S. +medical devices company. + +D. DESCRIPTION OF THE IMPROPER RESERVE RELEASE + + +5. Between at least 1997 and 2001, prior to Norbom’s tenure at the SpineTech +Division, the SpineTech Division did not comply with state laws regarding the collection and +remittance of sales, use and property taxes to various jurisdictions. As a result, during the year- +end 2001 closing process, certain SpineTech employees increased the reserve covering this tax +exposure from $200,000 to approximately $6 million, which was the low end of their estimated +range of liability. The reserve was increased periodically in the following months. + +6. Norbom joined the SpineTech Division in April 2002. Around July 2002, +Norbom and others at Centerpulse began to review the SpineTech Division’s sales, use and +property tax exposure. As part of this process, they engaged the services of an outside consulting +firm. In late July 2002, tax consultants with the outside firm informed Norbom and others that +SpineTech lacked exemption certificates, the filing of which was necessary to reduce the +Company’s sales tax exposure, in 49 of the 50 states. As a result, the Company still faced full +tax exposure in these jurisdictions, plus penalties and interest. + +7. A July 19, 2002 status report, which Norbom and others received from the outside +tax consultants, stated that “there are very few exemption certificates on file for SPT +[SpineTech] customers” and that “the only certificates found on file at SPT were for the state of +Illinois and were in conjunction with a sales tax audit that occurred. Depending on the results of +the taxability research, this could increase SPT’s sales and use tax exposure in the states.” + +8. A July 26, 2002 status report, which Norbom and others received, likewise stated +that the tax consulting firm “has received verification that the only exemption certificates +available and on file for SPT are for the state of Illinois.” This lack of exemption certificates +was listed as one of the “Important issues/concerns” in the status report and was assigned a +“High” priority. + +9. On August 2, 2002, Norbom attended a meeting with the outside tax consultants +and others. According to Norbom’s hand-written notes from this meeting, the consultants +informed her that the “#1 problem” with SpineTech’s sales and use tax exposure was that “there +are no exempt certs on file,” and there was a “$6.25M liability because there are not certs. on +file.” At this time, the tax consultants provided Norbom and others at Centerpulse with a report +that estimated the SpineTech Division’s sales and use tax exposure at $6.25 million, not + -3- +including penalties and interest. At this time, the SpineTech Division’s sales, use and property +tax reserve was just over $6.4 million. + +10. On August 30, 2002, Norbom was informed by email that the SpineTech +Division’s sales for August were going to miss the budgeted amount by approximately $2.8 +million, and that Centerpulse’s Chief Financial Officer, Urs Kamber, had informed Norbom’s +superior that the result was “not very satisfactory.” Among other things, the $2.8 million sales +miss was going to negatively affect the Company’s anticipated revenue, operating income and +pretax income for the third quarter of 2002. Norbom was also aware at that time that +Centerpulse’s financial results were being reviewed by a group of banks because the Company +was seeking financing for the settlement of a massive products liability litigation. + +11. On September 16, 2002, Richard May (the Group Vice President of Finance, Tax +Counsel and Treasurer of Centerpulse USA Holding Company) wrote an email to Norbom after +he learned of her intention to reduce the reserve to $3 million. May wrote, “I am not sure I +understand the $3M number--I think it is more like $4M. But in any regard, I do not think we +can or want to reverse any of it yet--we should revisit this at yearend--but for now, without the +exemption certificates in place, we still have the full exposure (or most of it anyway).” + +12. On or about September 17, 2002, Norbom instructed a SpineTech employee to +release over $2.4 million from the reserve, which took the reserve below the SpineTech +Division’s estimated liability of over $6.4 million. There was no supporting documentation or +analysis attached to the journal entry under which the release was made. + +13. The release was improper because it was contrary to the quantification of the +liability that the tax consultants had given Norbom. + +14. Although it was released on September 17, 2002, Norbom directed that the release +be given a “list date” of August 23, 2002, which was the last fiscal day of August 2002 and, thus, +the last day the release could be included in SpineTech’s August financial results. + +15. An internal Centerpulse e-mail sent by Norbom’s superior to Kamber on +September 22, 2002 indicated that the $2.4 million reserve release was one of the “changes to +our earlier reported August results” which had been discussed with Norbom. The email also +noted that the release increased SpineTech’s August 2002 operating income by $415,000 and its +net income by nearly $2 million. The release offset much of the negative effects on SpineTech’s +operating income and pretax income that had been caused by the $2.8 million shortfall in August +sales. + +16. As a result of the reserve release, Centerpulse falsely reported in an interim report +for the third quarter of 2002 that it had earned approximately $21.9 million in pretax income for +the third quarter of 2002 instead of at most approximately $19.5 million, an overstatement of +approximately 12 percent. That interim report was subsequently furnished to the Commission on +November 12, 2002 in a Form 6-K. + + + -4- + -5- + E. LEGAL DISCUSSION + +17. Exchange Act Section 13(b)(2)(A) requires issuers with securities registered +under Exchange Act Section 12 to make and keep books, records and accounts that accurately +and fairly reflect the transactions and dispositions of their assets. Exchange Act Section +13(b)(2)(B) requires such registrants to devise and maintain a system of internal accounting +controls sufficient to provide reasonable assurances that, among other things, transactions are +recorded as necessary to permit preparation of financial statements in conformity with GAAP or +any other criteria applicable to such statements, and to maintain the accountability of assets. +Exchange Act Rule 13b2-1 prohibits any person from directly or indirectly falsifying or causing +the falsification of any book, record, or account subject to Exchange Act Section 13(b)(2)(A). +No showing of scienter is necessary to establish violations of these provisions. See +, e.g., SEC v. +McNulty, 137 F.3d 732, 740-41 (2d Cir.), cert. denied sub nom., Shanklin v. SEC, 525 U.S. 931 +(1998). + +18. Norbom violated Exchange Act Rule 13b2-1 and caused Centerpulse to violate +Exchange Act Section 13(b)(2)(A) when she directed her staff to improperly release $2.4 million +from the SpineTech Division’s sales, use and property tax reserve. As a result, Centerpulse’s +third quarter 2002 books and records were false because they reflected an overstatement of the +Company’s consolidated income. The improper release also constituted a failure to devise and +maintain an adequate system of internal accounting controls at the SpineTech Division which in +turn caused Centerpulse to violate Exchange Act Section 13(b)(2)(B). + + IV . + +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent’s Offer. + +Accordingly, it is hereby ORDERED that: + +Pursuant to Section 21C of the Exchange Act, Respondent Norbom cease and desist from +committing or causing any violations and any future violations of Exchange Act Rule 13b2-1 and +from causing any violations and any future violations of Exchange Act Sections 13(b)(2)(A) and +13(b)(2)(B). + + By the Commission. + + + +Florence E. Harmon +Acting Secretary \ No newline at end of file diff --git a/raw/aaer/2008/AAER-2833.txt b/raw/aaer/2008/AAER-2833.txt new file mode 100644 index 0000000000000000000000000000000000000000..8f8fdd06d2c7bff44d0f48cc26881284a6d848f5 --- /dev/null +++ b/raw/aaer/2008/AAER-2833.txt @@ -0,0 +1,234 @@ +UNITED STATES OF AMERICA +BEFORE THE +SECURITIES AND EXCHANGE COMMISSION + + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57890 / May 30, 2008 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2833 / May 30, 2008 + +ADMINISTRATIVE PROCEEDING +File No. 3-13048 + + +In the Matter of + +CHRISTOPHER W. KELFORD, + +Respondent. + +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 + + +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 Christopher W. Kelford (“Kelford” +or “Respondent”). + +II. + +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (“Offer”) 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 him and the subject matter of these proceedings, which are +admitted, Respondent consents 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” (“Order”), as set forth below. + + + + + + +III. + +On the basis of this Order and Respondent’s Offer, the Commission finds that:1 + +A. RESPONDENT + +1. From June 2002 to April 2004, Kelford, age 57, served as the Vice President of +Finance for the Dental Division of Centerpulse Ltd. (“Centerpulse” or the “Company”), a Swiss +medical devices manufacturer. In this position, Kelford was responsible for, among other things, +maintaining accurate books and records at the Division, and for devising and maintaining an +adequate system of internal accounting controls at the Division. + +B. SUMMARY + +2. This matter arises out of a reserve release that Kelford directed during +Centerpulse’s fiscal third quarter 2002.2 In particular, pursuant to instructions he received from +Urs Kamber (Centerpulse’s then-Chief Financial Officer) and Stephan Husi (Centerpulse’s then- +Controller), Kelford improperly directed his staff to make an unsupported $1 million release +from an inventory revaluation reserve kept on the Dental Division’s books and records, which +then rolled up into the Company’s consolidated financial statements, and which had the effect of +improving Centerpulse’s reported earnings for the third quarter. This release was not in +conformity with Generally Accepted Accounting Principles in the United States (“U.S. +GAAP”),3 and it caused Centerpulse’s consolidated pretax income that quarter to be overstated +by approximately 4.6 percent, as it was reported in the financial statements the Company +included in the Form 6-K it furnished to the Commission on November 12, 2002. + +3. By virtue of his conduct, Kelford violated Exchange Act Section 13(b)(5) and +Rule 13b2-1 thereunder by knowingly falsifying certain books and records and knowingly +circumventing certain internal accounting controls. Kelford also caused Centerpulse to violate +Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B) by failing to keep accurate books and +records, and by failing to devise and maintain an adequate system of internal accounting controls +at the Dental Division. + +C. BACKGROUND + + +4. Originally named Sulzer Medica AG, Centerpulse was a publicly traded +corporation headquartered in Switzerland that manufactured a variety of medical devices, +including hip and knee implants. From at least January 2001 through October 2003, +Centerpulse’s American Depository Shares were registered with the Commission pursuant to +Exchange Act Section 12(b) and were traded on the New York Stock Exchange under the +symbol “CEP.” As a foreign private issuer, Centerpulse filed annual reports with the + +1 The findings herein are made pursuant to Respondent’s Offer and are not binding on any other person or +entity in this or any other proceeding. +2 Centerpulse’s fiscal year ended on December 31 of each calendar year, and acco rdingly its fiscal third +quarter 2002 ended on September 30, 2002. +3 While Centerpulse disclosed that its financial statements were reported in acco rdance with International +Financial Reporting Standards, Centerpulse’s accounting controls, and Kelford’s practice, were to maintain the +Division’s accounts in accordance with U.S. GAAP. +-2- +Commission on Form 20-F and furnished other periodic reports to the Commission on Form 6-K. +In October 2003, the Company was acquired by and merged with Zimmer Holdings, Inc., a U.S. +medical devices company. + +5. In 2001, Centerpulse was named as a defendant in over 1,980 products liability +and personal injury lawsuits filed in federal and state courts in the United States, as well as +courts in other foreign jurisdictions, which alleged various defects in certain hip and knee +implants that the Company had recalled (the “recall litigation”). By May 2002, Centerpulse had +obtained court approval for a global settlement of the recall litigation. The final settlement +agreement established a trust of approximately $1.1 billion to fund payments to individual +plaintiffs and claimants. Centerpulse contributed $725 million in cash to the trust in 2002, $635 +million of which was funded through a credit facility arranged by a consortium of banks. + +6. During Centerpulse’s fiscal third quarter 2002, as Centerpulse was attempting to +secure the $635 million credit facility, Centerpulse employees improperly released certain +reserves, did not record certain expenses, and made other accounting entries that did not comply +with U.S. GAAP, and that had the effect of improving the Company’s reported financial results. +Pursuant to instructions he received from Kamber and Husi, Kelford directed the improper +release described in this Order. + +D. DESCRIPTION OF THE IMPROPER RESERVE RELEASE + + +7. In 2001, Centerpulse’s outside auditors observed that the Company was not +recording variances on a monthly basis for the difference between standard and actual costs +associated with purchase prices, labor and overhead at the Dental Division. Centerpulse +management agreed that going forward they would record such variances each month in +accordance with the correct accounting treatment. However, during the first half of 2002, certain +members of the Dental Division’s finance department did not consistently record manufacturing +and inventory variances in this manner. Kelford was not employed by Centerpulse during this +time period. + +8. After becoming Vice President of Finance for the Dental Division in June 2002, +Kelford recognized that inventory variances had not been recorded regularly during the first six +months of the year. He directed that inventory variances be recorded monthly going forward. +Pursuant to Kelford’s instructions, the Dental Division’s accounting staff made journal entries +for variances in June, July and August 2002, with accompanying support and analyses. These +adjustments increased the Dental Division’s inventory revaluation reserve by approximately $1.2 +million, which had the effect of reducing the Division’s third quarter income (and, thus, +Centerpulse’s earnings) by approximately $1.2 million. + +9. On October 17, 2002, one day after the Dental Division’s third quarter books had +been closed, Kelford received an e-mail from Kamber, who complained that the inventory +revaluation adjustments had eroded the Dental Division’s profitability. Specifically, Kamber +stated: + + “I have been going through the numbers for the third quarter this year with +Stephan Husi. When analyzing the Dental numbers very strange things appear. +-3- +Sales rose as we expected at almost 20% where as the profitability has decreased +y.o.y. [year over year]. Stephan [Husi] informed me that this is due to ‘special’ +adjustments in inventory…. + + Chris this is not acceptable at this time. I cannot show a decreasing +profitability while the revenue increased at 20%. In theory, your Gross Profit and +bottom line should go through the roof. We will all be in deep problems if I +present this to the banks which give [sic] me $635 million to pay the [recall] +settlement. + + I ask you to immediately contact Stephan Husi and go through item by +item of what was booked. I cannot accept any reserves building, revaluation of +inventory, etc. at this point. This has to be postponed to December.” + +10. In a telephone conversation later that day, Kelford and Husi agreed to release $1 +million from the inventory revaluation reserve. Kelford then directed his staff to make a $1 +million adjustment to the Dental Division’s inventory revaluation reserve. Kelford directed the +adjustment over the objection of one of his subordinates who refused to book the entry, and +Kelford provided no documentation or support for the entry. The individual who recorded the +entry wrote “Per Chris Kelford” on the journal entry form. + +11. The reserve release was not in conformance with U.S. GAAP or the Dental +Division’s policy for accounting for inventory variances. The release also effectively reversed +the prior variance entries for June, July and August that had been made at Kelford’s instruction +and that contained accompanying support and analyses. Moreover, the release was made based +on corporate direction and had the effect of improving Centerpulse’s reported income in the third +quarter of 2002. + +12. As a result of the improper accounting practices set forth above, Centerpulse +falsely reported in an interim report for the third quarter of 2002 that it had earned approximately +$21.9 million in pretax income for the third quarter of 2002 instead of at most approximately +$20.9 million, an overstatement of approximately 4.6 percent. That interim report was +subsequently furnished to the Commission on November 12, 2002 in a Form 6-K. + +E. LEGAL DISCUSSION + + +13. Exchange Act Section 13(b)(2)(A) requires issuers with securities registered +under Exchange Act Section 12 to make and keep books, records and accounts that accurately +and fairly reflect the transactions and dispositions of their assets. Exchange Act Section +13(b)(2)(B) requires such registrants to devise and maintain a system of internal accounting +controls sufficient to provide reasonable assurances that, among other things, transactions are +recorded as necessary to permit preparation of financial statements in conformity with GAAP or +any other criteria applicable to such statements, and to maintain the accountability of assets. +Exchange Act Rule 13b2-1 prohibits any person from directly or indirectly falsifying or causing +the falsification of any book, record, or account subject to Exchange Act Section 13(b)(2)(A). +No showing of scienter is necessary to establish violations of these provisions. See +, e.g., SEC v. +McNulty, 137 F.3d 732, 740-41 (2d Cir.), cert. denied sub nom., Shanklin v. SEC, 525 U.S. 931 +-4- +-5- +(1998). Exchange Act Section 13(b)(5) prohibits a person from knowingly falsifying any book, +record, or account or knowingly circumventing internal controls. + +14. Kelford violated Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1, +and caused Centerpulse to violate Exchange Act Section 13(b)(2)(A), when he directed his staff +to make an unsupported and improper $1 million release from the Dental Division’s inventory +revaluation reserve. As a result, Centerpulse’s third quarter 2002 books and records were false +because they reflected an overstatement of the Company’s consolidated income. The improper +release also constituted a failure to devise and maintain an adequate system of internal +accounting controls at the Dental Division which in turn caused Centerpulse to violate Exchange +Act Section 13(b)(2)(B). + +IV. + +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent’s Offer. + +Accordingly, it is hereby ORDERED that: + +Pursuant to Section 21C of the Exchange Act, Respondent Kelford cease and desist from +committing or causing any violations and any future violations of Exchange Act Section 13(b)(5) +or Rule 13b2-1 thereunder and from causing any violations and any future violations of +Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B). + + By the Commission. + + + +Florence E. Harmon +Acting Secretary \ No newline at end of file diff --git a/raw/aaer/2008/AAER-2836.txt b/raw/aaer/2008/AAER-2836.txt new file mode 100644 index 0000000000000000000000000000000000000000..3a14f1db71f73054d60145f52828d8b73aeddaa9 --- /dev/null +++ b/raw/aaer/2008/AAER-2836.txt @@ -0,0 +1,286 @@ + + + + +_________________________________ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57933 / June 5, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2836 / June 5, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13059 +: ORDER INSTITUTING CEASE-AND- +In the Matter of : DESIST PROCEEDINGS, MAKING +: FINDINGS, AND IMPOSING A CEASE- +Faro Technologies, Inc. : AND-DESIST ORDER PURSUANT TO +: SECTION 21C OF THE SECURITIES +Respondent. : EXCHANGE ACT OF 1934 +: +: +_________________________________: +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 Faro Technologies, +Inc. (“Faro” or “Respondent”). +II. +In anticipation of the institution of these proceedings, Respondent has submitted +an Offer of Settlement (the “Offer”) 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 it and the +subject matter of these proceedings, which are admitted, Respondent consents to the entry +of this Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a +Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange Act of 1934 +(“Order”), as set forth below. +III. +On the basis of the Order and Respondent’s Offer, the Commission finds that1: +A. SUMMARY +This matter involves Faro’s violations of the anti-bribery, books and records, and +internal controls provisions of the Foreign Corrupt Practices Act (“FCPA”) through over +twenty improper payments made to Chinese government officials by Faro’s wholly- +owned Chinese subsidiary, Faro Shanghai Co., Ltd. (“Faro-China”). From 2004 through +2006, Faro-China paid a total of $444,492 in bribes to employees of numerous Chinese +state-owned companies in order to obtain sales contracts. The improper payments, which +were authorized by a Faro executive, generated approximately $4.5 million in sales, from +which Faro realized a net profit of $1,411,306. None of these improper payments were +accurately reflected in Faro’s books and records. Additionally, Faro’s system of internal +accounting controls failed to prevent or detect the payments. +B. RESPONDENT +1. Faro Technologies, Inc. is a software development and manufacturing +company with its headquarters in Lake Mary, Florida. Faro conducts operations in a +number of foreign jurisdictions, including China. Faro operates in China through its +wholly-owned subsidiary, Faro Shanghai Co., Ltd. Faro’s common stock is registered +with the Commission pursuant to Section 12(b) of the Exchange Act, and is listed on the +NASDAQ. +C. FACTS +1. Faro Hired a Country Sales Manager for Faro-China, Despite +His Request to “Do Business the Chinese Way” +In early 2003, Faro established Faro-China to sell its products in China. +Previously, Faro relied on a Chinese distributor to sell Faro products to Chinese +customers. Shortly after establishing Faro-China, Faro promoted its Vice-President of +Sales for the Asia-Pacific region to the post of Director of Asia-Pacific Sales (“Sales +Director”). In this capacity, the Sales Director had oversight responsibility for sales at +Faro-China, as well as other Faro subsidiaries and distributors in the region. +The Sales Director recommended a former employee of Faro’s Chinese distributor +for the new Country Sales Manager position (“Country Manager”) at Faro-China, and in +May 2003, Faro offered that individual an employment contract. After receiving the +proposed employment contract, the Country Manager communicated to three Faro +officers, including the Sales Director, requesting permission to “do business [on behalf of +Faro] the Chinese way.” After receiving that request, the Sales Director explained to the +1 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not +binding on any other person or entity in this or any other proceeding. +2 + +other two Faro officers that the Country Manager was requesting permission to pay +kickbacks or other things of value to potential customers in order to obtain sales contracts +with those customers. +After learning of the Country Manager’s request to do business “the Chinese +way,” certain Faro officers sought a legal opinion from Faro’s Chinese counsel as to +whether such payments to customers violated Chinese law. Members of Faro +management, including the Sales Director, learned that such payments to customers +likely violated China’s anti-bribery laws, particularly where Faro-China’s customers were +Chinese state-owned companies. After receiving this legal advice that noted the +prevalence of state-owned companies in China, the same Faro officers orally directed +both the Sales Director and the Country Manager not to make any such payments. +2. Faro, through its Sales Director, Authorized Improper +Payments to Chinese State-Owned Customers in Exchange for +Sales Contracts +Soon after beginning Faro-China’s operations, the Sales Director authorized the +Country Manager to make illegal cash payments, termed “referral fees,” to employees of +Chinese state-owned companies in order to obtain contracts. For example, in a +November 2004 e-mail to the Sales Director, the Country Manager requested permission +to give a $13,300 payment to an employee of a state-owned company. In the same e- +mail, the Country Manager reiterated that “to have a good relationship with customers in +China” you have to give them “money.” The Country Manager explained that taking +customers to dinner or giving them travel opportunities was not enough to promote a +good relationship with the potential customer in China. Instead, employees of +companies, including state-owned companies, wanted cash in order “to cooperate with +[Faro] and help [Faro] get the order.” The Sales Director responded to the Country +Manager by e-mail, saying that he has “always understood” that this is how business was +done in China, and approving the improper payment. +Throughout 2004 and 2005, the Sales Director approved additional corrupt +payments to employees of state-owned or state-controlled businesses in China in order to +obtain sales contracts. The Sales Director never instructed the Country Manager to cease +the payments. Instead, the Sales Director merely expressed concern that they would be +caught making the payments. In the same November 2004 e-mail, the Sales Director +stated that the 20-30% “referral fee” is “a lot of money in China and someone will notice +that one day and we may all be in trouble.” The Sales Director instructed the Country +Manager to “be careful” when making the improper payments, but to make the improper +payments when he “really needed to do it.” +3 + +3. The Sales Director Instructed Faro-China Staff to Alter +Accounts and Conceal the True Nature of the Improper +Payments and Approved the Use of Third-Party +Intermediaries to Avoid Detection +The Sales Director further instructed Faro-China’s staff to alter account entries in +order to delete the actual recipient of the improper payments. In an April 2004 e-mail, +the Sales Director instructed Faro-China staff: “please do not use the words ‘customer +referral fee’ but only ‘referral fee’” when describing the improper payments in the +company’s books and records. In the same e-mail, the Sales Director explained that the +reason for his instruction was that he “did not want to end up in jail” as a result of “this +bribery.” +In February 2005, a new Faro officer e-mailed a news article to all international +business units describing the prosecution of another U.S. company for payment of bribes +in China, and stated that the article highlighted the fact that Faro must take precautions to +“observe U.S. law” in their dealings in China. The Faro officer specifically forwarded +the e-mail to the Sales Director and instructed him to have it translated for Faro-China’s +staff. After reading the translated e-mail, the Country Manager e-mailed the Sales +Director and requested authorization to continue making the improper payments, albeit +through third-party intermediaries or “distributors.” In a February 16, 2005 e-mail +response, the Sales Director approved the Country Manager’s proposed use of an +intermediary to funnel payments to customers, including state-owned customers, in order +“to avoid exposure.” Faro-China funneled cash payments through these intermediaries +for nearly one year, from early 2005 until early 2006. +The bribes continued until early 2006. In total, from 2004 through 2006, Faro +made $444,492 in improper corrupt payments to Chinese state-owned customers through +Faro-China in order to obtain and retain contracts from which it realized a net profit of +$1,411,306. Faro lacked a system of internal accounting controls sufficient to provide +reasonable assurances that the transactions were executed in accordance with +management’s authorization, and the corrupt payments were improperly recorded as +legitimate “selling expenses” in Faro’s books and records. During the period of the +improper payments described above, Faro provided no training or education to any of its +employees, agents, or subsidiaries regarding the requirements of the FCPA. Faro also +failed to establish a program to monitor its employees, agents, and subsidiaries for +compliance with the FCPA. +D. VIOLATIONS +The FCPA, enacted in 1977, added Section 30A of the Exchange Act to prohibit +issuers, and certain other persons including agents of issuers, from, among other things, +making improper payments to foreign officials for the purpose of influencing their +decisions in order to obtain or retain business. The FCPA also added Exchange Act +Section 13(b)(2)(A) to require public companies to make and keep books, records, and +accounts, which, in reasonable detail, accurately and fairly reflect the transactions and +4 + +dispositions of the assets of the issuer. The FCPA also added Exchange Act Section +13(b)(2)(B) to require such companies to devise and maintain a system of internal +accounting controls sufficient to provide reasonable assurances that: (i) transactions are +executed in accordance with management’s general or specific authorization; and (ii) +transactions are recorded as necessary to permit preparation of financial statements in +conformity with generally accepted accounting principles or any other criteria applicable +to such statements and to maintain accountability for assets. +The Sales Director, a Faro executive, explicitly directed and authorized the illegal +payments made through Faro-China. Throughout the relevant period, employees of the +Chinese state-owned companies were foreign officials within the meaning of the FCPA. +Accordingly, Faro violated the anti-bribery provisions of Section 30A of the Exchange +Act. +Moreover, in connection with these improper payments to Chinese government +officials, Faro failed to make and keep accurate books, records, and accounts as required +by Section 13(b)(2)(A) of the Exchange Act. Further, as evidenced by the extent and +duration of improper payments to Chinese government officials, and the improper +recording of these payments in its subsidiary’s books and records, Faro failed to devise +and maintain an effective system of internal controls sufficient to prevent violations of +the FCPA, as required by Section 13(b)(2)(B) of the Exchange Act. As a result of the +conduct described above, Faro violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the +Exchange Act. +Faro’s Remedial Efforts and Cooperation +In determining to accept the Offer, the Commission considered remedial acts +promptly undertaken by Respondent and cooperation afforded the Commission staff. +IV. +Respondent Faro Technologies, Inc. has undertaken to: +1. Retain, through Faro’s Board of Directors, within 60 days after the entry +of this order, an independent consultant (“Independent Consultant”), not unacceptable to +the staff of the Commission for a period of two (2) years to review and evaluate Faro’s +internal controls, record-keeping, and financial reporting policies and procedures as they +relate to its compliance with the anti-bribery, books and records, and internal accounting +controls of the FCPA, codified at Sections 30A, 13(b)(2)(A), 13(b)(2)(B) of the +Exchange Act. Faro shall cooperate fully with the Independent Consultant and shall +provide the Independent Consultant with access to its files, books, records, and personnel +as reasonably requested for review; +2. Require that the Independent Consultant issue a report, within one +hundred twenty (120) days after being retained, summarizing the review and +recommending policies and procedures reasonably designed to ensure compliance with +the federal securities laws as they related to the FCPA. Simultaneously with providing +5 + +that report to Faro’s Board of Directors, the Independent Consultant shall transmit a copy +to Charles E. Cain, Assistant Director, Division of Enforcement, Securities and Exchange +Commission, 100 F Street, N.E., Washington, DC 20549; +3. Adopt all recommendations in the report of the Independent Consultant; +provided, however, that within sixty (60) days after the Independent Consultant serves +that report, Faro shall advise the Independent Consultant and the Commission in writing +of any recommendations that it considers to be unduly burdensome, impractical, or +costly. With respect to any recommendations that Faro considers unduly burdensome, +impractical, or costly, Faro need not adopt that recommendation at that time but shall +propose in writing an alternative policy, procedure, or system designed to achieve the +same objective or purpose. As to any recommendation on which Faro and the +Independent Consultant do not agree, such parties shall attempt in good faith to reach an +agreement within sixty days after Faro serves the written advice. In the event that Faro +and the Independent Consultant are unable to agree on an alternative proposal, Faro will +by abide by the determinations of the Independent Consultant; +4. Require the Independent Consultant to undertake a review, which shall be +completed within one year of the entry of this order, of Faro’s policies and procedures +regarding compliance with the federal securities laws as they related to the FCPA. +During the review of Faro’s compliance program, the Independent Consultant shall (i) +certify that Faro’s policies and procedures are appropriately designed to accomplish their +goals, (ii) monitor Faro’s implementation and compliance with the policies and +procedures, and (iii) report on the Independent Consultant’s findings as to the +effectiveness of the policies and procedures to Faro’s Audit Committee. Should the +Independent Consultant, during this period, determine that there is a reasonable +likelihood that corrupt payments have been offered, promised, paid, or authorized by any +Faro entity, including agents, consultants, and joint ventures, shareholders acting on +Faro’s behalf, and contractors and sub-contractors working directly or indirectly for Faro, +the Consultant shall promptly report such payments to Faro’s Audit Committee, and Faro +shall then be obligated to promptly report the same to the staff of the Commission at the +address listed above. Further, the Independent Consultant shall disclose to the staff of the +Commission in the event that Faro, or its officers, employees, agents, consultants, and +joint ventures, or shareholders acting on Faro’s behalf, or contractors and sub-contractors +working directly or indirectly for Faro, refuse to provide information necessary for the +performance of the Independent Consultant’s responsibilities. Faro agrees that it will not +take any action to retaliate against the Independent Consultant for such disclosures. +During the period, Faro shall immediately disclose to the staff of the Commission, at the +address listed above, any information of which it learns that suggests there is a reasonable +likelihood that corrupt payments were offered, promised, paid, or authorized by any Faro +entity, including agents, consultants, and joint ventures, or shareholders acting on Faro’s +behalf, or contractors and sub-contractors working directly or indirectly for Faro; and +5. Require the Independent Consultant to enter into an agreement with Faro +which provides that for the period of engagement and for a period of two years from +completion of the engagement, the Independent Consultant shall not enter into any +6 + +employment, consultant, attorney-client, auditing or other professional relationship with +Faro, or any of its present or former affiliates, directors, officers, employees, or agents +acting in their capacity. The agreement will also provide that the Independent Consultant +will require that any firm with which she/he is affiliated or of which she/he is a member, +and any person engaged to assist the Independent Consultant in performance of her/his +duties under this Order shall not, without prior written consent of the Securities and +Exchange Commission’s Division of Enforcement, enter into any employment, +consultant, attorney-client, auditing or other professional relationship with Faro, or any of +its present of former affiliates, directors, officers, employees, or agents acting in their +capacity as such for the period of the engagement and for a period of two years after the +engagement. +6. These undertakings shall be binding upon any acquirer or successor in +interest to Faro or substantially all of Faro’s assets and liabilities or business. For good +cause shown, the Commission’s staff may extend any of the procedural dates set forth +above. +V. +Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, +that: +(i) Respondent Faro will cease and desist from committing or causing any +violations and any future violations of Exchange Act Sections 30A, +13(b)(2)(A), and 13(b)(2)(B); +(ii) Respondent shall comply with the undertakings enumerated in Section IV +above; +(iii) IT IS FURTHER ORDERED that Respondent shall, within ten days of +the entry of this Order, pay disgorgement of $1,411,306 and prejudgment +interest of $439,637.32 to the United States Treasury. If timely payment +is not made, additional interest shall accrue pursuant to SEC Rule of +Practice 600. Payment shall be: (A) made by 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- +delivered or mailed to the Office of Financial Management, Securities and +Exchange Commission, Operations Center, 6432 General Green Way, +Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that +identifies Faro Technologies, Inc. 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 Christopher Conte, Associate +Director, Division of Enforcement, Securities and Exchange Commission, +100 F St., N.E., Washington, D.C. 20549. +By the Commission. + F lorence E. Harmon + Acting Secretary +7 diff --git a/raw/aaer/2008/AAER-2837.txt b/raw/aaer/2008/AAER-2837.txt new file mode 100644 index 0000000000000000000000000000000000000000..993d3f3bb87f020f686c4a93bcc5c724251e5cd9 --- /dev/null +++ b/raw/aaer/2008/AAER-2837.txt @@ -0,0 +1,128 @@ + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57944 / June 10, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2837 / June 10, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13062 +: +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +SALVATORE LAGRECA, CPA, : 102(e) OF THE COMMISSION’S RULES OF +: PRACTICE, MAKING FINDINGS, AND +Respondent. : IMPOSING REMEDIAL SANCTIONS +: +: +____________________________________ : +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against +Salvatore LaGreca (“Respondent” or “LaGreca”) pursuant to Rule 102(e)(3)(i) of the +Commission’s Rules of Practice.1 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) 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 him and the subject matter of these +proceedings, and the findings contained in Section III.4. below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) +of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Salvatore LaGreca, age 55, a resident of Port Washington, New York, +served as McCann-Erickson Worldwide’s (“McCann”) Vice-Chairman, Finance and Operations +and Chief Financial Officer from January 1996 to October 2002. LaGreca is a Certified Public +Accountant licensed in the State of New York, although his license is currently inactive. LaGreca +oversaw McCann’s accounting, financial reporting, strategic planning, mergers and acquisitions, +and budgeting. +2. Interpublic Group of Companies, Inc. (“IPG”) is an advertising and media +holding company that owns over 600 advertising agencies and other companies in approximately +130 countries. IPG is headquartered in New York, New York, and its stock is listed on the New +York Stock Exchange. +3. McCann is a Delaware corporation that IPG wholly owns. (IPG owns +100% of McCann’s voting securities.) McCann maintains its headquarters in New York. +McCann’s revenues during the relevant period constituted approximately one-third to over one-half +of IPG’s revenues. McCann is organized into regional divisions: North America, EMEA, Asia +Pacific and Latin America. In terms of number of operating agencies, which were generally all +separately incorporated companies, EMEA was McCann’s largest region with 193 operating +agencies in 40 countries. +4. On May 6, 2008, a final judgment was entered by consent against LaGreca, +permanently enjoining him from future violations of Section 10(b) of the Exchange Act and Rule +10b-5 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and +13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder, in the +civil action entitled Securities and Exchange Commission v. Salvatore LaGreca et. al, Civil Action +Number 08-CV-4076 (GBD), in the United States District Court for the Southern District of New +York. LaGreca was also ordered to pay $36,000 in disgorgement of ill-gotten gains, $10,947 in +prejudgment interest, and a $25,000 civil money penalty. +2 + +5. The Commission’s complaint alleged, among other things, in the Fall of +2002, IPG restated its financial results in the amount of $181 million for the period 1997 to 2002. +The largest component of this restatement, approximately $101 million, was due to the failure of +McCann and its officers and employees, including LaGreca, to eliminate properly imbalances in +McCann’s intercompany accounts. LaGreca oversaw the financial reporting and consolidation +process at McCann, and he knew IPG consolidated McCann’s financial results into its own +financial results. For six years, LaGreca failed to ensure McCann’s financial staff fully reconciled +intercompany accounts, and then eliminated intercompany charges. McCann financial +management failed to take these actions at least in part so that McCann would hit internal annual +profit projections. Among other things, LaGreca ignored the red flags that McCann’s misstated +intercompany accounts would have a material impact on IPG’s financial results. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent LaGreca’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. LaGreca is suspended from appearing or practicing before the Commission as an +accountant. +B. After five (5) years from the date of this order, Respondent may request that +the Commission consider his reinstatement by submitting an application (attention: Office of +the Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that Respondent’s work in his practice before the +Commission will be reviewed either by the independent audit committee of the public company +for which he works or in some other acceptable manner, as long as he practices before the +Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which he is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; +(b) Respondent, or the registered public accounting firm with which he +is associated, has been inspected by the Board and that inspection did not identify any criticisms +of or potential defects in the respondent’s or the firm’s quality control system that would indicate +that the respondent will not receive appropriate supervision; +3 + + (c) Respondent has resolved all disciplinary issues with the Board, and +has complied with all terms and conditions of any sanctions imposed by the Board (other than +reinstatement by the Commission); and +(d) Respondent acknowledges his responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not limited to, all +requirements relating to registration, inspections, concurring partner reviews and quality control +standards. +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that his state CPA license is +current and he has resolved all other disciplinary issues with the applicable state boards of +accountancy. However, if state licensure is dependent on reinstatement by the +Commission, the Commission will consider an application on its other merits. The +Commission’s review may include consideration of, in addition to the matters referenced +above, any other matters relating to Respondent’s character, integrity, professional conduct, +or qualifications to appear or practice before the Commission. + By the Commission. + F lorence E. Harmon + A cting Secretary +4 diff --git a/raw/aaer/2008/AAER-2839.txt b/raw/aaer/2008/AAER-2839.txt new file mode 100644 index 0000000000000000000000000000000000000000..88bf9ffa4f52bb77cdb8b5bedb6120688600ffe9 --- /dev/null +++ b/raw/aaer/2008/AAER-2839.txt @@ -0,0 +1,197 @@ + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57974 / June 17, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2839 / June 17, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13071 +In the Matter of +NEC CORPORATION, +Respondent. +ORDER INSTITUTING PUBLIC +ADMINISTRATIVE AND CEASE- +AND-DESIST PROCEEDINGS +PURSUANT TO SECTIONS 12(j) AND +21C OF THE SECURITIES +EXCHANGE ACT OF 1934, MAKING +FINDINGS, REVOKING +REGISTRATION OF SECURITIES, +AND IMPOSING A CEASE-AND- +DESIST ORDER +I. +The Securities and Exchange Commission (“Commission”) deems it necessary and +appropriate for the protection of investors that proceedings be, and hereby are, instituted +pursuant to Sections 12(j) and Section 21C of the Securities Exchange Act of 1934 +(“Exchange Act”) against NEC Corporation (“NEC” or “Respondent”). +II. +In anticipation of the institution of these proceedings, Respondent has submitted an +Offer of Settlement (the “Offer”) 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 it and the subject +matter of these proceedings, Respondent consents to the entry of this Order Instituting +Public Administrative and Cease-and-Desist Proceedings Pursuant to Sections 12(j) and +21C of the Securities Exchange Act of 1934, Making Findings, Revoking Registration of +Securities, and Imposing a Cease-and-Desist Order (“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds1 that: +Respondent +NEC Corporation (“NEC”) is a Japanese corporation with its headquarters in +Tokyo, Japan. NEC is a foreign private issuer that is required to file annual reports on +Form 20-F with the Commission. As a foreign private issuer, NEC elected to prepare its +financial statements in accordance with Generally Accepted Accounting Principles in the +United States (“GAAP”). At all relevant times, NEC’s common stock, in the form of +American Depository Receipts (“ADRs”),2 has been registered with the Commission +pursuant to Exchange Act Section 12, and was traded on the NASDAQ National Market +under the symbol “NIPNY” until September 27, 2007, when NASDAQ suspended trading.3 +Summary +For fiscal years 2000 through 2005, NEC filed annual reports with the +Commission that misstated revenues, net income, or net loss. Specifically, NEC +improperly recognized revenues from contracts with customers that included the +provision of hardware, software, and customer support. In accordance with GAAP, NEC +should have deferred a substantial portion of these revenues pending future performance. +From 2000 through 2006, NEC also did not maintain accurate books and records, and had +deficient internal accounting controls. As a result of these deficiencies, NEC is unable to +restate prior financial statements and to file with the Commission annual reports on Form +20-F for the fiscal years ended March 31, 2006 and March 31, 2007. Accordingly, NEC +violated Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rule 13a­ +1 thereunder. +Accounting For Certain Software Arrangements Under GAAP +When an issuer enters into a multi-element arrangement to provide hardware, +software, and customer support, GAAP requires the issuer to allocate the revenue from the +entire arrangement to the individual elements based upon evidence of the fair value of each +of those elements.4 This evidence is referred to as vendor-specific objective evidence of +1 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not +binding on any other person or entity in this or any other proceeding. +2 ADRs are stocks of foreign companies that trade in the U.S. markets. Each ADR represents one +or more shares of foreign stock or a fraction of a share. +3 Currently, NEC’s ADRs are quoted on the Pink Sheets under the symbol, “NIPNY.” +4 American Institute of Certified Public Accountants (“AICPA”) Statement of Position 97-2 +Software Revenue Recognition (“SOP 97-2”) ¶10. +2 + +fair value (“VSOE”).5 Under GAAP, VSOE is not established by relying solely on the +prices stated in the contract.6 Instead, VSOE is determined by the price the issuer would +ordinarily charge for each particular element if the issuer had sold that element separately.7 +If the issuer cannot establish VSOE, then revenue should be recognized over the entire term +of the customer support element of the arrangement.8 +NEC Failed to File Annual Reports with the Commission +NEC has not filed an annual report with the Commission since it filed its Form 20-F +for fiscal year 2005 and, therefore, is delinquent in filing annual reports for fiscal years +2006 and 2007. NEC’s inability to make these or other annual reports stems from NEC’s +violations of GAAP, as well as certain record keeping and internal accounting control +deficiencies. +From 2000 through 2006, NEC routinely entered into multi-element arrangements +with its customers to provide hardware, software, and customer support.9 During the +relevant period, NEC’s practice was to recognize revenue from multi-element +arrangements with customers in the following manner: for the hardware and software +elements, NEC recognized revenue, upon delivery, in an amount equal to the prices stated +in the hardware and software contracts; and as to the customer support element, NEC +recognized revenue over the term of that agreement, in an amount equal to the price stated +in that contract. +In violation of GAAP, NEC recorded revenue from these contracts without +establishing VSOE for any of the elements in those arrangements. By failing to establish +VSOE for any of the elements in these arrangements, NEC was required to recognize +revenue for each element - including hardware and software, in addition to customer +support-over the term of the customer support contract. Because NEC did not properly +recognize revenue for these multi-element arrangements, NEC filed annual reports with the +5 Id. +6 SOP 97-2 ¶10 and ¶12. +7 SOP 97-2 ¶10. +8 SOP 97-2 ¶12 and ¶58. +9 During this period, NEC’s practice was to enter into separate contracts with its customers for each +element of a multi-element arrangement (e.g., separate contracts for the hardware, software, and customer +support components) and record them as stand-alone contracts. NEC, however, should have recorded these +contracts as part of a multi-element arrangement. As a result of this recordkeeping deficiency, NEC cannot +identify which of its contracts originated as part of a multi-element arrangement. Further, NEC has been +unable to determine the number of multi-element arrangements that it executed, the timing and terms of those +arrangements, and the prices that it charged for each element of those arrangements during the relevant period. +This deficiency contributed to NEC’s inability to establish VSOE. +3 + +Commission for fiscal years 2000 through 2005 that misstated revenues, net income, or net +loss. +These deficiencies contributed to NEC’s inability to restate prior financial +statements and to file annual reports for fiscal years 2006 and 2007. +NEC’s Violations +NEC’s Violations of the Reporting Provisions +Section 13(a) of the Exchange Act and Rule 13a-1 thereunder require issuers whose +securities are registered with the Commission pursuant to Section 12 of the Exchange Act +to file annual reports with the Commission. NEC violated Section 13(a) of the Exchange +Act and Rule 13a-1 thereunder since it has not filed with the Commission annual reports on +Form 20-F for the fiscal years ended March 31, 2006 and March 31, 2007. +NEC’s Violations of the Books and Records and Internal Control Provisions +Section 13(b)(2)(A) of the Exchange Act requires issuers to make and keep books, +records, and accounts which, in reasonable detail, accurately and fairly reflect their +transactions and dispositions of their assets. Section 13(b)(2)(B) of the Exchange Act +requires issuers to devise and maintain a system of internal accounting controls sufficient to +provide reasonable assurances that transactions are recorded as necessary to permit +preparation of financial statements in accordance with GAAP. +From 2000 through 2006, NEC did not maintain accurate books and records +because NEC improperly recorded revenue on certain transactions involving multi-element +arrangements. NEC’s books and records did not identify which of its contracts originated +as a part of a multi-element arrangement, which contributed to NEC’s inability to establish +VSOE for those contracts. As a result, NEC’s books and records also did not accurately +reflect the company’s revenues, net income, or net loss for these years. In addition, NEC +failed to devise and maintain a system of internal accounting controls sufficient to provide +reasonable assurances that it recognized revenue from multi-element arrangements in +accordance with GAAP. +Based on the foregoing, the Commission finds that Respondent violated Sections +13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rule 13a-1 thereunder. +IV. +Revocation of Securities’ Registration Pursuant to Section 12(j) of the Exchange Act +Section 12(j) of the Exchange Act provides that: +The Commission is authorized, by order, as it deems necessary or appropriate for +the protection of investors to deny, to suspend the effective date of, to suspend for a +period not exceeding twelve months, or to revoke the registration of a security, if +4 + +the Commission finds, on the record after notice and opportunity for hearing, that +the issuer of such security has failed to comply with any provision of this title or the +rules and regulations thereunder. No member of a national securities exchange, +broker, or dealer shall make use of the mails or any means of instrumentality of +interstate commerce to effect any transaction in, or to induce the purchase or sale +of, any security the registration of which has been and is suspended or revoked +pursuant to the preceding sentence. +As discussed above, NEC has not filed with the Commission annual reports on +Form 20-F for the years ended March 31, 2006 and March 31, 2007, and, therefore the +Commission finds that it is necessary and appropriate for the protection of investors to +revoke the registration of NEC’s securities. +V. +NEC’s Undertakings +Respondent has undertaken that, in connection with this action and any related +Commission investigation, or judicial or administrative proceeding commenced by the +Commission or to which the Commission is a party, Respondent (i) agrees to appear and be +interviewed by Commission staff at such times and places as the staff requests upon +reasonable notice; (ii) will accept service by mail or facsimile transmission of notices or +subpoenas issued by the Commission for documents or testimony at investigative +testimony, depositions, hearings, or trials; (iii) appoints Respondent’s attorney in this +matter as agent to receive service of such notices and subpoenas; (iv) with respect to such +notices and subpoenas (excluding ones relating to a Commission investigation), waives the +territorial limits on service contained in Rule 45 of the Federal Rules of Civil Procedure +and any applicable local rules, provided that the party requesting the testimony reimburses +Respondent’s travel, lodging, and subsistence expenses at the then-prevailing U.S. +Government per diem rates; (v) consents to personal jurisdiction over Respondent in any +United States District Court for purposes of enforcing any such subpoena; and (vi) consents +to the production by any third party of any documents, records, or other information in the +third party’s possession, custody, or control that the Commission seeks from the third party, +by subpoena or otherwise. In determining whether to accept the Offer, the Commission has +considered these undertakings. +VI. +In view of the foregoing, the Commission deems it appropriate to impose the +sanctions agreed to in Respondent NEC’s Offer. +Accordingly, it is hereby ORDERED that: +A. Pursuant to Section 21C of the Exchange Act, that Respondent NEC 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 Rule 13a-1 thereunder. +5 + +B. IT IS FURTHER ORDERED pursuant to Section 12(j) of the Exchange +Act, that the registration of each class of Respondent NEC’s securities registered pursuant +to Section 12 of the Exchange Act be, and hereby is, revoked. + By the Commission. + F lorence E. Harmon + A cting Secretary +6 diff --git a/raw/aaer/2008/AAER-2840.txt b/raw/aaer/2008/AAER-2840.txt new file mode 100644 index 0000000000000000000000000000000000000000..90d0d6e628c1b866f82037f9788da94ac2690445 --- /dev/null +++ b/raw/aaer/2008/AAER-2840.txt @@ -0,0 +1,209 @@ +UNITED STATES OF AMERICA + Bef ore the + SECURITIES AND EXCHANGE COMMISSION +SECURITIES ACT OF 1933 +Release No. 8930 / June 17, 2008 +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57978 / June 17, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2840 / June 17, 2008 +Administrative Proceeding +File No. 3-13072 +In the Matter of +Preston D. Hopper, CPA +Respondent. +ORDER INSTITUTING CEASE-AND- +DESIST PROCEEDINGS PURSUANT +TO SECTION 8A OF THE SECURITIES +ACT OF 1933 AND SECTION 21C OF +THE SECURITIES EXCHANGE ACT +OF 1934, MAKING FINDINGS AND +IMPOSING A CEASE-AND-DESIST +ORDER +I. +The S ecurities and Exchang e Co mmission (“Commission”) dee ms it appropriate that +cease-and-desist proceedings be , and hereby are, instituted pursuant to Section 8A of the +Securities Act of 1933 (the “Securit ies Act”) and Section 21C of the Securities Exchange Act of +1934 (the “Exchange Act”) against Preston D. Hopper (“Hopper” or “Respondent”). +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (“Offer”), 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 Co mmission is a pa rty, a nd withou t a dmitting or de nying the findings c ontained +herein, except that Res pondent adm its the Comm ission’s jurisdiction over hi m a nd over the +subject matter of th ese proceedings, Respondent consents to the entry of this Order Instituting +Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and +Section 21C of the Se curities Exchange Ac t of 1934, Making Findings and I mposing a Cease- +and-Desist Order. +III. +FINDINGS +On the basis of this Order and Respondent’s Offer, the Commission finds1 that: +A. RESPONDENT +Preston D. Hopper, 57, resides in Michigan and, duri ng the relevant period, was Chief +Accounting Officer of CMS Energy Corp. (“CMS”). Hopper was formerly licensed as a CPA in +Michigan, but his licens e laps ed. CMS is a Mi chigan cor poration w ith its prin cipal place of +business in Jackson, Michigan. CMS’s shares are registered with the Commission under Section +12(b) of the Exchange Act a nd tr ade on the New York Stoc k Exchange under the sy mbol +“CMS.” During the relevant period, CMS’s energy-trading division, CMS Marketing Services & +Trading (“MS&T”), was active in retail marketing of gas and wholesale trading of electricity and +natural gas. +B. FACTS +1. Overview of Round Trip Trades. +The round trip trades 2 were trans actions conducted by CMS and counterp arties including +Reliant Energy S ervices, Inc. ( “Reliant”) whereby the parties essen tially agr eed to +simultaneously both purch ase and sel l electric power or na tural gas for th e same volume and a t +the same price, with no delivery contemplated and with neither party making any profit. The +transactions were intended solely to i mprove each company’s standing in industry publications +that r anked en ergy m arketing co mpanies b ased on volu mes repor ted to th e F ederal En ergy +Regulatory Co mmission (“F ERC”). However, th e tr ades also had the effect of causing th e +companies t o over state th e r evenues and exp enses reported in each co mpany’s re spective +Commission filings as the tr ansactions w ere reported on a gross basis in each co mpany’s +financial statements. +2. Round Trip Trades at CMS. +CMS m aterially overstated its revenues and expenses in 20 00 and 2001 as a r esult of +round trip energy tran sactions conducted by its Houston-based ener gy-trading subsidiary , +MS&T. These overstatements appeared in certain 10-Qs a nd 10-Ks filed with the Co mmission. +1 The findings herein are made pursuant to Respondent’s Offer and are not binding on any other person or entity +in this or any other proceeding. + Round t rip trades at CMS and Reliant were referred to variously as “Brag-a-Watts,” “volumetric” deals, +“back-to-back” trades, “net-zero” trades, “no margin” trades and “ze ro-margin” trades. The press coined the term +“round trip” to describe the trades in articles reporting on the practice first published in May 2002 and it will be used +in this Order. +-2- +2 +During the relevant period, CMS al so filed with the Co mmission several registration statements +in connection with offeri ngs of its securities. 3 The regis tration statem ents in corporated by +reference the materially misleading Forms 10-Q and the 2000 Form 10-K, including the financial +statements incorporated in the filings. The round trip tr ades had no i mpact on CMS’s net +earnings. +CMS’s sole purpose for engaging in the r ound trip trades was to elevate MS&T’s +standing in certain industry publications that ranked energy marketing companies based on total +FERC-reported volumes. Specifically, CMS sought to be am ong the top 20 tier (“Top 20”) in +such industr y publications in or der to attr act requests for pr oposals fro m municipalities that +considered such indus try rankings as a useful m eans of identi fying which co mpanies should +receive requests for proposals. +Although the purpose of the round trip trades was to boost CMS’s rankings, the tr ades +also h ad th e ef fect of ar tificially inf lating CMS’s revenues and expens es. CMS reported al l +trades on a gross basis, which meant that its re ported revenue figures we re not netted agains t +offsetting expenses. As a result, the round trip transactions conveyed an inaccurate picture of the +company’s revenues and expenses. +For example, on July 12, 2000, MS&T and Relian t entered into a round trip trade with a +September 2000 ter m i nvolving 10,000,000 MWH of power and $380 million in revenue and +expense. Before its execution, this transaction was reviewed by MS& T’s Director of Credit +Management, CMS’s Chief Risk Office r, and CMS’s Chief Financial Officer who approved th e +practice. On or before Octo ber 20, 2000, CMS’s outside auditor learned about the trans action +from its audit team in Houston responsible for MS&T. During this same period, Respondent and +CMS’s Audit Committee Chairman discussed th e accounting for the $380- million dollar round +trip trade in a conference call on October 25, 2000 with CMS’s outside auditor who advised that +accounting for the trade on a gross basis was a ppropriate. The $380- million dollar round trip +trade also ca me to th e attention of the CMS Director of Financia l Reporting in con nection with +the preparation of the MS&T Results of Operations for the CMS 2000 third quarter 10-Q.4 +Separately, MS &T staff infor med CMS ’s accounting d epartment th at the $380- million +dollar round trip trade was th e source of a substantial increase in current assets and liabilities for +CMS for the month ended Septe mber 30, 2000. CMS’s accounting staff, in turn, prepared an +internal va riance re port for tha t sam e month that was distr ibuted to CM S’s executive office rs +(including CMS’s Chie f Exe cutive Office r, Chie f Financial Offic er, Chie f Ope rating Office r, +3 CMS filed t he following registration statements during t he rele vant pe riod: a Form S-3 on December 15, +2000, December 22, 2000, and December 12, 2001, and a Form S-8 on April 11, 2001. +4 The initial draft of the MS&T Results of Operations for the CMS 2000 third quarter 10-Q prepared by MS&T +staff did not include references to gross revenues or volumes. CMS’s financial reporting staff subsequently revised +the proposed draft to include references to total volumes and volume percentage increases. In response, MS&T staff +specifically disclosed to the CMS Director of Financial Reporting that the trades generating the increased volumes +did not contemplate physical delivery, made no margin, and were being done only for the purpose of “puffing up the +volumes” and specifically su ggested t hat he del ete t he volume refere nces. Nevertheless, C MS i ncluded volume +references in t he M S&T Res ults of O perations for the CMS 20 00 t hird q uarter 10-Q and eve ry 10-Q therea fter +during the relevant time period. +-3- + +General Counsel, and Vice President in Charge of Investor Rela tions) and the entire CMS Board +of D irectors th at at tributed CMS ’s incr ease in receivables and p ayables to MS &T’s “electric +wholesale activities with Reliant Energy.” Thereafter, through July 2001, every time MS&T did +round trip trades, MS&T staff w ould identify t he round trip trades by dol lar a mounts as th e +source of the corresponding increases in current assets and liabilities and CMS’s accounting staff +would then attribu te those increases to “buy/sale” “deals” with Reliant in th e monthly variance +reports given to the CMS executive officers and Board. +During its audit of the 2001 fi rst quarter financial statements, MS&T disclosed to CMS’s +outside auditor three “no- margin” transactions with Reliant with revenues and corresponding +expenses of $1.2 billion. CMS’s outside auditor, in turn, brought the round trip trades to the +attention of CMS’s Au dit Co mmittee Chair man w ho discusse d the tra des first w ith MS&T’s +Chief Executive Offic er a nd CMS’s Chie f Exec utive Office r5 and then with CMS’s outside +auditor and Respondent. At the request of the CMS Audit Committee Chairman, MS&T’s Chief +Executive O fficer expl ained to the CMS Boar d of D irectors w hat MS &T’s round trip trad es +were, their purpose, and how they worked and answered the questions asked by the Board. +The outside auditor’s review of the round trip trades continue d into the second quarter of +2001.6 A t that time, a member of the MS&T audit team concluded that revenues and expenses +from the round trip tr ades should be recorded on a net basis – c ontrary to MS&T’s (and CMS’s) +practice and the audit team’s prior guidance. Neither Respondent, others at CMS, nor the CMS +audit team, however, were apprised of this conclusion. +A few days prior to October 2001 (prior to the filing of CMS’s third quarter Form 10-Q), +CMS’s outside auditor reco mmended to CMS that i t r ecord the r evenues and exp enses f rom +round trip trades only if: +♦ The parties to the trade bear both credit and performance risk; +♦ Title to the related commodity transfers to the buyer; and +♦ Settlement i s for the gross proceeds (checks must be exchanged and cashed f or the gross +amount of the transaction). +The round trip trades – which involved no risk, no net transfer of title and no exchange of +cash – could not satisfy these cr iteria. On or about October 2, 2001, Respondent infor med +MS&T’s Chief Executive Officer and MS&T’s Controller that CMS had decided to change the +way it accounted for th e round-trip tr ades in the financial statements it filed with the SEC. +Nevertheless, CMS repo rted in the third quarter of 2001 the revenues and expenses fro m +MS&T’s third quarter round trip trades, resulting in material financial misstatements. +5 CMS’s Audit Committee Chairm an aske d CMS’s C hief Exec utive Officer a nd MS&T’s Chief Ex ecutive +Officer a bout the “zero-m argin” tra des. CMS’s Chief Executive Officer re sponded that the tra des were: (i) +commonly done in the industry, (ii) done to establish MS&T on league tables as a means of showing MS&T as a +viable co mmodities trad er, and (iii) th at su ch trad ing did no t affect earn ings, cash flow or th e b alance +sheet/shareholders’ equity. MS&T’s Chief Ex ecutive Officer told the CMS Aud it Co mmittee Ch airman that the +trades were ongoing, arranged transactions with RES that represented “more than half” of MS&T’s volume. +6 This review included round trip trades that MS&T had done for that quarter that were disclosed by MS&T to +the outside auditors. +-4- + +By recording revenues and expenses from the round trip trades, CMS overstated its +revenues and expenses by a total of $5.2 billion over a one- year period: $1.0 billion (10%) in +2000, and $4.2 billion (36%) for the first thr ee quarters of 2001. On March 24, 2002, CMS’s +auditors advised CMS that the f inancial results of the round trip trades conducted in 2001 would +have to be reclassified to record them all on a net bas is, which CMS did in its a nnual report for +2001.7 However, CMS did not reclassify the financial results of the round trip trades conducted +in 2000 until May 29, 2002. +On March 17, 2004, the Commission issued a settled cease-and-desist order against CMS +Energy Corp. and MS&T’s Contr oller, finding that each had violated Section 17(a) of the +Securities Act and Sections 10(b), 13(a) and 13(b)(2) of the Exchange Act and Rules 10b-5, 12b- +20, 13a-1 and 13a-13 thereunder. In the Matter of CMS Energy Corp. and Terry Woolley , +Administrative Proceeding File No. 3-11436. +Respondent’s Conduct +In his role a s Chie f Ac counting Offic er of CMS, Hopper maintained oversight +responsibility for recording MS&T’s co mmodities trans actions. The inclusion of those +transactions caused C MS’s financial state ments to pr esent a materially misleading picture of +CMS’s actual business acti vity. Additionally, after CMS’s au ditors deter mined that the round +trip trades should be recorded on a net basis in October 2001, Hopper did not ensure that CMS’s +quarterly report, which was f iled with the Comm ission, om itted these transactions. Finally, +Hopper had responsibility for properly disclosing the nature and extent of CMS’s restatement of +earnings to exclude the round trip trades in the explanation included in its March 29, 2002 For m +10-K, which failed adequately to disclose the f acts and circ umstances of MS &T’s round trip +trades. +Respondent’s conduct with respect to the round trip trades was negligent and, as such, he +was a caus e of CMS’ filing of re ports, including offering m aterials, that included revenues and +expenses related to round trip trades. Respondent was also a ca use of CMS’s misstatement of +the company’s transactions in its books, records, and accounts. +As a result of the conduct described above, Respondent Hopper was a ca use of CMS’s +violations of Sections 17(a)(2) and (3) of the Se curities Act, Sections 13(a) and 13(b)(2)(A) of +the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.8 +IV. +In view of the foregoing, the Co mmission deems it appr opriate to impose the sanctions +specified in the Respondent’s Offer. +7 MS&T conducted additional round trip trades in November and December of 2 001. However, the revenues +and expenses from those trades were not included in Commission filings. +8 KPMG, LLP. v. SEC, 289 F.3d 109, 120 (D.C. Cir. 2002) (negligence alone is sufficient to establish causing +liability for non-scienter violations under Section 21C of the Exchange Act). +-5- + +Accordingly, IT IS HE REBY ORDERED, pursu ant to Section 8A of the Secur ities Act +and Section 21C of the Exchange Act, that +Respondent Hopper ceas e and desist from committing or causing any violation and an y +future violation of Sections 17(a)(2) a nd (3) of the Sec urities Act, and ceas e and desis t f rom +causing any violation or future violation of Sections 13(a) and 13(b)(2)(A) of the Exchange Act +and Rules 12b-20, 13a-1 and 13a-13 thereunder. +By the Commission. +Florence E. Harmon +Acting Secretary +-6- diff --git a/raw/aaer/2008/AAER-2841.txt b/raw/aaer/2008/AAER-2841.txt new file mode 100644 index 0000000000000000000000000000000000000000..b6477a0574f474b86376a6a0d5c3a7ddddd73ff1 --- /dev/null +++ b/raw/aaer/2008/AAER-2841.txt @@ -0,0 +1,297 @@ +UNITED STATES OF AMERICA + Bef ore the + SECURITIES AND EXCHANGE COMMISSION +SECURITIES ACT OF 1933 +Release No. 8931 / June 17, 2008 +SECURITIES EXCHANGE ACT OF 1934 +Release No. 57979 / June 17, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2841 / June 17, 2008 +Administrative Proceeding +File No. 3-13073 +In the Matter of +Tamela Pallas, +Respondent. +ORDER INSTITUTING CEASE-AND- +DESIST PROCEEDINGS PURSUANT +TO SECTION 8A OF THE SECURITIES +ACT OF 1933 AND SECTION 21C OF +THE SECURITIES EXCHANGE ACT +OF 1934, MAKING FINDINGS AND +IMPOSING A CEASE-AND-DESIST +ORDER +I. +The S ecurities and Exchang e Co mmission (“Commission”) dee ms it appropriate that +cease-and-desist proceedings be , and hereby are, instituted pursuant to Section 8A of the +Securities Act of 1933 (the “Securit ies Act”) and Section 21C of the Securities Exchange Act of +1934 (the “Exchange Act”) against Tamela Pallas (“Pallas” or “Respondent”). +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (“Offer”), 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 Co mmission is a pa rty, a nd withou t a dmitting or de nying the findings c ontained +herein, except that Res pondent admits the Comm ission’s jurisdiction over he r and over the +subject matter of th ese proceedings, Respondent consents to the entry of this Order Instituting +Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and +Section 21C of the Se curities Exchange Ac t of 1934, Making Findings and I mposing a Cease- +and-Desist Order. +III. +FINDINGS +On the basis of this Order and Respondent’s Offer, the Commission finds1 that: +A. RESPONDENT + Tamela Pallas, 50, resides in Texas and, during the relevant period, was Chief Operating +Officer and lat er Chief Executive Officer of CMS Marketing Services & Tr ading (“MS&T”), a +subsidiary of CMS Energy Corp. (“CMS”). CMS is a Michig an corporation with its princip al +place of business in Jackson, Michigan. CMS’s shares are registered with the Commission under +Section 12(b) of the Exchange Act and trade on the New York Stock Exchange under the symbol +“CMS.” During the relevant period, MS&T was active in retail marketing of gas and wholesale +trading of electricity and natural gas. Pallas is no longer employed at MS&T. +Prior to joining MS&T on Nove mber 1, 1999, Pa llas s erved as an officer of Reliant +Energy Services, Inc. (“RES”), a subsidiary of Reliant Energy, Inc., that was a part of Reliant’s +Wholesale Group and that, a mong other things, traded in and m arketed power, natu ral gas, and +other energy-related commodities. Until August 31, 2002, Reliant was an electric and gas public +utility holding co mpany exe mpt from r egistration under Section 3( a)(2) of the Public Utility +Holding Company Act of 1935 (the “1935 Act”). Reliant's common stock was registered with +the Commission under Section 12( b) of the Exchange Act, and traded on th e New York Stock +Exchange under the symbol REI until October 1, 2002. +B. FACTS +1. Overview of Round Trip Trades. +The round trip trades 2 were tr ansactions conducted by Reliant and CM S (a mong others) +whereby Reliant and CMS essentially agreed w ith one another (or with other counterparties) to +simultaneously both purch ase and sel l electric power or na tural gas for th e same volume and a t +the sa me pr ice, w ith no deliv ery conte mplated and w ith n either party making any profit. 3 A t +both Reliant and CMS, the tran sactions were intended s olely to i mprove each co mpany’s +standing in industry publicati ons that r anked ener gy m arketing co mpanies bas ed on volu mes +reported to the Federal Energy Regulatory Commission (“FERC”). However, in both cases, the +trades also had the ef fect of causi ng th e co mpanies to o verstate the r evenues and exp enses +reported in each company’s respective Commission filings as the transactions were reported on a +gross basis in each company’s financial statements. +1 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any other +person or entity in this or any other proceeding. + Round t rip trades at CMS and Reliant were referred to variously as “Brag-a-Watts,” “volumetric” deals, +“back-to-back” trades, “net-zero” trades, “no margin” trades and “ze ro-margin” trades. The press coined the term +“round trip” to describe the trades in articles reporting on the practice first published in May 2002 and will be used +in this Order. +3 Typically, the round trip trades had no impact on CMS’s net earnings. However, in at least one instance, RES +paid a counterparty a nominal accommodation fee as part of the transaction. +-2- +2 +2. Round Trip Trades at Reliant. +In late 1998 or early 1999 a ser ies of inform al str ategy meetings were held within the +Wholesale Group of Reliant to find ways to increase trading volume. One option considered was +to do frequent day trades in and out of power or gas positions. The Wholesale Group rejected +this sort of transactional churni ng, however, after receiving an es timate of the tr ansaction costs +associated with each trade. Ultimately, Reliant officials decided to arrange a s maller number of +offsetting large volume trades with willing counterparties. +Reliant officials initia lly considered booking the round trip trades at a pric e of zero, but +rejected the id ea becau se i t w ould skew th e market pr ices reported to F ERC. Instead, th e +company booked the round trip trades at m arket prices. Based on Reliant’s practice at the ti me +of recording all trades on a gross basis, the revenues and expe nses associated with the round trip +trades were recorded in Reliant’s books and records. Recording all trades on a gross basis meant +that Reliant’s reported revenue figures were not netted against o ffsetting expenses. As a result, +the round trip trans actions conve yed an inaccurate picture of the com pany’s revenues and +expenses. +In 1999 Reliant entered into fi ve power round trip trades totaling 29.75 m illion megawatt +hours with three counterparties: PanCanadian Energy Services, Inc. (“PanCanadian”), Merchant +Energy Gr oup of the A mericas, I nc. ( “MEGA”), and Public Service Co mpany of Colorado. +MEGA requested and Reliant paid an acco mmodation fee of $50,000 for its trade. Reliant also +entered into a series of round trip gas trades th at year for 182 billion cu bic feet, valued at $364 +million, with Cokinos Energy . In total, the 1999 power and gas round trip trades added over +$1.4 billion in offsetting gross revenue and expenses to Reliant’s books. +Reliant's first series of round trip trades was with Cokinos Energy for an aggr egate $364 +million in natur al gas to be de livered from April to June 1999. The trades were not initially +entered into Reliant's computerized trading system or its accounting and ge neral ledger system. +In Jul y 1999, the RES Senior Vice President of Gas Tradi ng, who reported to Respondent, +brought the trades to the attention of Reliant’s Chief Risk Officer. As a result of discussions +involving, at various times, Reliant’s Chief Risk Officer, Manager of SEC Reporting, Director of +Financial Reporting, and C ontroller, the tr ades were brought to the attention of Reliant’s Chief +Accounting Officer. These discussions involved, among other things, the structure of the trades , +their purpose, and whether and ho w to accoun t for the tr ades. Thereafter, Reliant entered the +round trip trades into its books after the close of the second quarter of 1999 using a post-clos ing +adjustment.4 Respondent did not par ticipate in these or any other di scussions or decis ions at +Reliant regarding how to account for the round trip trades. +In the fourth quarter of 1999 an individual in Reliant’s credit group brought to the +attention of the RES Vice Pres ident of Risk Control a round tr ip trade that exceeded the +counterparty's cr edit li mit. The RES Vice President of Ris k Control brought th e trade to the + R eliant al so pr ovided d ocumentation co ncerning t he $ 364 m illion p ost-closing ad justment t o i ts out side +auditor as part of the SEC reporting binders for the second quarter of 1999. I n February 2000, Reliant’s outside +auditor reviewed and approved the post-closing adjustment as part of their annual audit. +-3- +4 +attention of Reliant’s Chief Risk Officer la ter that same afternoon. Reliant’s Chief Risk Officer +told this individual th at the trade was a pprovable so long as it did not create a m argin or credit +risk to Reliant. Because round trip trades had exactly offsetting buy and sell positions, they did +not give rise to margin or credit risk to the company. Following this dis cussion, Reliant’s credit +department did not generate exception reports for subsequent round trip trades. +These round trip trades continued at Reliant in 2000 and through the third quarter of 2001 +when they were discontinued. However, Reliant did not re state its fina ncial statements for th e +affected years until May 2002, after press reports of round trip trading at Dynegy and CMS led to +the disclosure that Reliant had also done the trades. +On May 12, 2003, the Commission issued a settled cease-and-desist order against Reliant +Resources, Inc. and Reliant En ergy, Inc. finding that each had violated Section 17(a) of the +Securities Act and Sections 10( b), 13(a), and 13(b)(2) of the Exchange Act a nd Rules 10b-5, +12b-20, 13a-1 and 13a- 13 ther eunder. In the Matter of R eliant Resources, Inc. and Reliant +Energy, Inc., Administrative Proceeding File No. 3-11110 (May 12, 2003). +3. Round Trip Trades at CMS. +As with Reliant, CMS m aterially overstated its revenues and ex penses in 2000 and 2001 +as a result of round trip energy transactions conducted by its Houst on-based energy -trading +subsidiary, MS&T. These overstatements appeared in cer tain 10-Qs and 10-Ks filed with the +Commission. During the rele vant period, CMS also fi led with the Co mmission severa l +registration statements in connection with offerings of its securities.5 The registration statements +incorporated by reference th e m aterially m isleading Forms 10-Q and the 2000 For m 10-K, +including the financial statements incorporated in the filings. +CMS’s sole purpose for engaging in the r ound trip trades was to elevate MS&T’s +standing in certain industry publications that ranked energy marketing companies based on total +FERC-reported volumes. Specifically, CMS sought to be am ong the top 20 tier (“Top 20”) in +such industr y publications in or der to attr act requests for pr oposals fro m municipalities that +considered such indus try rankings as a useful m eans of identi fying which co mpanies should +receive requests for proposals. +Although the purpose of the round trip trades was to boost CMS’s rankings, the tr ades +also h ad th e ef fect of ar tificially inf lating CMS’s revenues and expens es. CMS reported al l +trades on a gross basis, which meant that its re ported revenue figures we re not netted agains t +offsetting expenses. As a result, the round trip transactions conveyed an inaccurate picture of the +company’s revenues and expenses. +On July 12, 2000, MS&T and RES entered into a round trip trade with a September 2000 +term involving 10,000,000 MWH of pow er and $380 million in revenu e and expense. As at +Reliant, Respondent and her staff at MS&T communicated the structure, magnitude and purpose +of the trans actions to CMS. Before its execution, this transaction was reviewed by MS&T’s +5 CMS filed t he following registration statements during t he rele vant pe riod: a Form S-3 on December 15, +2000, December 22, 2000, and December 12, 2001, and a Form S-8 on April 11, 2001. +-4- + +Director of Credit M anagement, CMS’s Chief Risk Officer, and CMS’s Chief Financial Officer +who approved the practice. 6 On or before October 20, 200 0, CMS’s outside auditor learned +about the tr ansaction from its a udit team in Houston responsible for MS&T. During this s ame +period, CMS’s Chief Accounting Officer and CMS’s Audit Co mmittee Chairman discussed the +accounting for the $380-million dollar round trip tr ade in a conf erence call on October 25, 2000 +with CMS’s outside auditor w ho advised that acc ounting for the trade on a gross basis was +appropriate. Respondent did not participate in such discuss ions or decisions on how to account +for the trades. The $380-million dollar round trip trade also came to the at tention of the CMS +Director of Financial Reporting in conn ection w ith th e pr eparation of the MS &T Resu lts of +Operations for the CMS 2000 third quarter 10-Q.7 +Separately, Respondent’s sta ff inform ed CMS’s accounting department that the $380 - +million dollar round trip trade was the sour ce of a substantial increase in current assets and +liabilities for CMS for the month ended Septe mber 30, 2000. CMS’s accounting staff, in turn, +prepared an internal variance report for that same month that was distributed to CMS’s executive +officers (including CMS’s Chie f Exec utive Office r, Chie f Fina ncial Office r, Chie f Ope rating +Officer, General Couns el, and Vice President in Charge of Investor Relati ons) and the entire +CMS Board of Director s that attributed CMS’s increase in r eceivables and payables to MS&T’s +“electric wholesale activities with Reliant Energy.” Thereafter, through Jul y 2001, every time +MS&T did round trip trades, Resp ondent’s staff would identify the round trip trades by dollar +amounts as the source of the corresponding increase s in current ass ets and liabilities and CMS’s +accounting staff would then attribute those in creases to “bu y/sale” “deals” with R eliant in th e +monthly variance reports given to the CMS executive officers and Board. +During its audit of the 2001 fi rst quarter financial statements, MS&T disclosed to CMS’s +outside auditor thr ee “no- margin” transactions with RES w ith revenues and corresponding +expenses of $1.2 billion. CMS’s outside auditor, in turn, brought the round trip trades to the +attention of CMS’s Audit Committee Chairman who disc ussed the tr ades first with Respondent +and CMS’s Chief Executive Officer8 and then with CMS’s outside auditor and Chief Accounting +6 Respondent also discussed the proposed marketing strategy with MS&T’s Vice President of Power Trading & +Marketing and MS&T’s Vice President of Wholesale Power Trading, both of whom supported the strategy. +7 Th e i nitial d raft of th e MS&T Resu lts of Operation s for t he CMS 2000 t hird qu arter 10 Q prep ared by +Respondent’s staff did not i nclude re ferences t o g ross r evenues or v olumes. CMS’s financial re porting st aff +subsequently revised the proposed draft to include references to total volumes and volume percentage increases. In +response, Res pondent’s staff specifically disclose d to t he CMS Directo r of Fi nancial Rep orting that th e trad es +generating the increased volumes did not contemplate physical delivery, made no margin, and were being done only +for t he purpose of “p uffing up t he volumes” an d s pecifically suggest ed t hat he delete t he v olume refe rences. +Nevertheless, CMS included volume references in the MS&T Results of Operations for the CMS 2000 third quarter +10Q and every 10Q thereafter during the relevant time period. Respondent did not participate in drafting CMS’s +third quarter earn ings release o r an y su bsequent earn ings release or C ommission filin g. Later, aft er read ing a +published press release or Commission filing, Respondent asked CMS’s Chief Financial Officer why CMS used the +phrase “lower margin” to e xplain certain revenue increases when the transactions contributing significantly to the +revenue increases were “zero margin.” CMS’s Chief Financial Officer dismissed Respondent’s concern. +8 CMS’s Audit Committee Chairm an asked CMS’s Chief Executive Officer and Respondent about the “zero - +margin” trades. CMS’s Chief Executive Officer responded that the trades were: (i) commonly done in the industry, +(ii) done to establish MS&T on league tables as a means of showing MS&T as a viable commodities trader, and (iii) +that such trading did not affect earnings, cash flow or the balance sheet/shareholders’ equity. Respondent told the +-5- + +Officer. At the reques t of the CMS Audit Comm ittee Chairman, Respondent explained to the +CMS Board of Director s what MS&T’s round trip tr ades were, their purpose, and how they +worked and answered the questions asked by the Board. +The outside auditor’s review of the round trip trades continue d into the second quarter of +2001.9 A t that time, a member of the MS&T audit team concluded that revenues and expenses +from the round trip tr ades should be recorded on a net basis – c ontrary to MS&T’s (and CMS’s) +practice and the audit team’s prior guidance. Neither Respondent, others at CMS, nor the CMS +audit team, however, were apprised of this conclusion. +A few days prior to October 2001 (prior to the filing of CMS’s third quarter Form 10-Q), +CMS’s outside auditor reco mmended to CMS that i t r ecord the r evenues and exp enses f rom +round trip trades only if: +♦ The parties to the trade bear both credit and performance risk; +♦ Title to the related commodity transfers to the buyer; and +♦ Settlement i s for the gross proceeds (checks must be exchanged and cashed f or the gross +amount of the transaction). +The round trip trades – which involved no risk, no net transfer of title and no exchange of +cash – could not s atisfy these cr iteria. Respondent first learne d of this guidance on or about +October 2, 2001 when CMS’s Chie f Accounting Officer infor med Respondent and MS&T’s +Controller that CMS had decided to change the wa y it accounted for the r ound-trip trades in th e +financial state ments it f iled w ith the SEC. Thereafter, Respondent wa s advised on sever al +occasions both before and after the filing of the CMS third quarter earnings release and Form 10- +Q that revenues a nd expenses for the round tr ip trades were not incl uded “in the numbers being +reported for the fina ncial/SEC re porting purpos es.” Nevertheless, CMS reported in th e third +quarter of 2001 the reve nues and expens es from MS&T’s th ird quarter round trip trades, +resulting in material financial misstatements. +By recording revenues and expenses from the round trip trades, CMS overstated its +revenues and expenses by a total of $5.2 billion over a one- year period: $1.0 billion (10%) in +2000, and $4.2 billion (36%) for the first thr ee quarters of 2001. On March 24, 2002, CMS’s +auditors advised CMS that the f inancial results of the round trip trades conducted in 2001 would +have to be reclassified to record them all on a net bas is, which CMS did in its a nnual report for +2001.10 However, CMS did not reclassify the financial results of the round trip trades conducted +in 2000 until May 29, 2002. +On March 17, 2004, the Commission issued a settled cease-and-desist order against CMS +Energy Corp. and MS&T’s Contr oller, finding that each had violated Section 17(a) of the +CMS Audit Committee Chairm an that the trades were ongoi ng, arra nged tr ansactions with RES t hat represented +“more than half” of MS&T’s volume. +9 This review included round trip trades that MS&T had done for that quarter that were disclosed by MS&T to +the outside auditors. +10 MS&T conducted additional round trip trades in November and December of 2001. However, the revenues +and expenses from those trades were not included in Commission filings. +-6- +Securities Act and Sections 10(b), 13(a) and 13(b)(2) of the Exchange Act and Rules 10b-5, 12b- +20, 13a-1 and 13a-13 thereunder. In the Matter of CMS Energy Corp. and Terry Woolley , +Administrative Proceeding File No. 3-11436. +Respondent’s Conduct +Respondent participated in and approved of the decision to do the round trip trades while +she was Senior Vice President of Reliant’s Wholesale Group and as the Chief Operating Officer +and later Chief Executive Officer of MS&T. Before her resignation in October 1999, Reliant +completed a total of six round trip trades. After Respondent joined CM S, she agreed at the +request of Reliant’s Senior Vice President of Power Trading to do round trip trades with Reliant. +Thereafter, traders at MS&T under Respondent’s supervis ion executed round trip trades +beginning with the third quarter of 2000 and ending with the fourth quarter of 2001, the sol e +purpose of which was at all times to raise MS&T’s profile in industry league tables by improving +MS&T’s FERC-reported volumes.11 Although Respondent neither participated in discussions or +decisions r egarding how to account for the tr ansactions nor participated in drafting earnings +releases or Co mmission filings at either Reliant or CMS, 12 Respondent should have known that +the revenues and expenses associ ated with the round tr ip trades would be included in each +company’s financial statements, including filings made with the Commission. +Respondent’s conduct with respec t to the round trip trades was negligent and, as s uch, +was a caus e of the f iling of reports, including offering materials, which included revenues and +expenses related to round trip trades. Respondent’s negligent conduct was also therefore a cause +of the related misstatement of the transactions in each company’s books, records and accounts. +C. +As a result of the conduct de scribed above, Respondent Pall as was a cause of Reliant’s +and CMS’s violations of Sections 17(a )(2) a nd (3) of the Se curities A ct, S ections 13( a) an d +13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.13 +IV. +In view of the foregoing, the Co mmission deems it appr opriate to impose the sanctions +specified in the Respondent’s Offer. +Accordingly, IT IS HE REBY ORDERED, pursu ant to Section 8A of the Secur ities Act +and Section 21C of the Exchange Act, that +11 Respondent an d others at CM S believed that MS&T remained relatively unknown outside Michigan and th at some of +CMS’s municipal customers co nsidered i ndustry rank ings of FERC-reported volume as a useful means of identif ying which +companies should receive requests for proposals and, therefore, round trip trades could improve MS&T’s industry profile. +12 Respondent an d her respectiv e staffs di d communicate the structure, magnitude and purpose of the tr ansactions to their +respective parent companies and to the pers ons responsible for financial repor ting at those companies, as early as the first ro und +trip trades conducted at each company. +13 KPMG, LLP. v. SEC, 289 F.3d 109, 120 (D.C. Cir. 2002) (negl igence alone is sufficient to establish causing liability for +non-scienter violations under Section 21C of the Exchange Act). +-7- + +Respondent Pallas ceas e and desist from co mmitting or ca using any viol ation and any +future violation of Section 17(a)(2) a nd (3) of the Sec urities Act, and ceas e and d esist f rom +causing any violation and any future violation of Sections 13(a) and 13(b)(2)(A) of the Exchange +Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. +By the Commission. +Florence E. Harmon +Acting Secretary +-8- diff --git a/raw/aaer/2008/AAER-2842.pdf b/raw/aaer/2008/AAER-2842.pdf new file mode 100644 index 0000000000000000000000000000000000000000..a78ba2e4ecbda61ace09324f7f4c5a1d6e7e913e Binary files /dev/null and b/raw/aaer/2008/AAER-2842.pdf differ diff --git a/raw/aaer/2008/AAER-2844.txt b/raw/aaer/2008/AAER-2844.txt new file mode 100644 index 0000000000000000000000000000000000000000..132a16649bf03b8700aef41491f5743b3d522dee --- /dev/null +++ b/raw/aaer/2008/AAER-2844.txt @@ -0,0 +1,1400 @@ + + + + + + + + + + + + + + + + SEC.gov | El Paso Corporation, et al. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/503766","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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El Paso Corporation, et al. , Civil Action No. 4:08-CV-02191 U.S.D.C./Southern District of Texas (Houston Division) + + SEC Settles Securities Fraud Case With El Paso Corporation, Its Subsidiaries, and Several Former Employees + + Today, the United States Securities and Exchange Commission (Commission) filed a civil action against El Paso Corporation (El Paso), its subsidiaries El Paso CGP Company LLC (CGP) and El Paso Exploration & Production Co. (EPPH), and several former employees alleging that they inflated, or participated in the inflation of, the companies' proved natural gas and oil reserves in violation of the federal securities laws. The complaint names Rodney D. Erskine, the former president of El Paso's Exploration and Production Business Segment, Randy L. Bartley, the former senior vice president of El Paso's Exploration and Production Business Segment, and Steven L. Hochstein, John D. Perry, and Bryan T. Simmons, former vice presidents of El Paso's Exploration and Production Business Segment. According to the complaint, the defendants violated the antifraud provisions of the federal securities laws. The Commissions also alleges that El Paso, CGP, and EPPH violated, and Erskine, Bartley, Hochstein, Simmons, and Perry aided and abetted violations of, the reporting, books and records, and internal controls provisions of the Exchange Act. All defendants have agreed to settle the charges against them, without admitting or denying the Commission's allegations. + + In 2004, El Paso restated its financial statements for years 1999 through 2002, and for the first nine months of 2003, reducing its previously reported proved natural gas and oil reserves at December 31, 2002, 2001, and 2000 by 2.2 trillion cubic feet equivalent of natural gas (TCFe), 3.3 TCFe, and 3.3 TCFe, respectively, and materially reducing its previously reported standardized measures of future cash flows. The total cumulative impact of the restatements reduced El Paso's stockholders' equity as of September 30, 2003 by $1.7 billion. CGP and EPPH also restated their previously issued financial statements to correct their material overstatements of proved natural gas and oil reserves, standardized measures of future cash flows, and capitalized costs relating to their natural gas and oil producing activities. The Commission's complaint alleges that, between 1998 and the quarter ended September 30, 2003, El Paso and its subsidiaries, with the assistance of the individual defendants, inflated its proved natural gas and oil reserves, overstated its standardized measure of future cash flows, and overstated its capitalized costs relating to its natural gas and oil producing activities. + + Specifically, the Commission alleges that El Paso violated Section 17(a)(2) of the Securities Act, and 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. El Paso consented to a judgment that permanently enjoins it from future violations of these provisions. + + The Commission alleges that CGP violated Section 17(a) of the Securities Act, and Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder. CGP consented to a judgment that permanently enjoins it from future violations of these provisions. + + The Commission alleges that EPPH violated Section 17(a) of the Securities Act, and Sections 10(b), 13(b)(2)(A), 13(b)(2)(B), and 15(d) of the Exchange Act and Rules 10b-5, 12b-20, 15d-1, and 15d-13 thereunder. EPPH consented to a judgment that permanently enjoins it from future violations of these provisions. + + The Commission alleges that Erskine and Bartley violated Section 17(a)(2) of the Securities Act, and Exchange Act Rules 13b2-1 and 13b2-2, and aided and abetted: i) El Paso and CGP's 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; and ii) EPPH's violations of Sections 13(b)(2)(A), 13(b)(2)(B), and 15(d) of the Exchange Act and Rules 12b-20, 15d-1, and 15d-13 thereunder. Erskine and Bartley consented to judgments that permanently enjoin them from future violations of these provisions and order them to pay civil penalties of $75,000 and $40,000, respectively. + + The Commission alleges that Hochstein violated Section 17(a) of the Securities Act, and Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and aided and abetted: i) El Paso and CGP's 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; and ii) EPPH's violations of Sections 13(b)(2)(A), 13(b)(2)(B), and 15(d) of the Exchange Act and Rules 12b-20, 15d-1, and 15d-13 thereunder. Hochstein consented to a judgment that permanently enjoins him from future violations of these provisions and orders him to pay a $40,000 civil penalty. + + The Commission alleges that Perry violated Section 17(a) of the Securities Act, and Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and aided and abetted: i) El Paso and CGP's 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; and ii) EPPH's violations of Sections 13(b)(2)(A), 13(b)(2)(B), and 15(d) of the Exchange Act and Rules 12b-20, 15d-1, and 15d-13 thereunder, and iii) CGP and EPPH's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Perry consented to a judgment that permanently enjoins him from future violations of these provisions and orders him to pay a $40,000 civil penalty. + + The Commission alleges that Simmons violated Section 17(a) of the Securities Act, and Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and aided and abetted El Paso and CGP's 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. Simmons consented to a judgment that permanently enjoins him from future violations of these provisions and orders him to pay a $40,000 civil penalty. + + + + + + SEC Complaint in this matter + +   + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2845.txt b/raw/aaer/2008/AAER-2845.txt new file mode 100644 index 0000000000000000000000000000000000000000..385f99234ad3ec6eb3e8de34f644b4e6a29b39df --- /dev/null +++ b/raw/aaer/2008/AAER-2845.txt @@ -0,0 +1,123 @@ +UNITED STATES OF AMERICA +before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58186 / July 17, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2845 / July 17, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13091 +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +Michael J. Delargy, CPA, +Respondent. +: +: +: +: +102(e) OF THE COMMISSION’S RULES OF +PRACTICE, MAKING FINDINGS, AND +IMPOSING REMEDIAL SANCTIONS +_____________________________ : +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest to institute public administrative proceedings against Michael J. Delargy (“Delargy” +or “Respondent”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of Practice.1 +II. +In anticipation of the institution of these proceedings, Delargy has submitted an Offer of +Settlement (the “Offer”), 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 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, may, by +order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . +permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action +brought by the Commission, from violating or aiding and abetting the violation of any provision of the +Federal securities laws or of the rules and regulations thereunder. +the Commission’s jurisdiction over him and the subject matter of these proceedings, and the +findings contained in Section III(3) below, which are admitted, Delargy consents to the entry of this +Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission’s Rules of +Practice, Making Findings, and Imposing Remedial Sanctions (“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Delargy, age 44, currently resides in Bangor, Maine. He is a Certified Public +Accountant, with an inactive license in California. From July 1999 to May 2001, he was an officer of +iGo Corporation (“iGo”). He was the Chief Financial Officer of iGo from July 1999 through +December 2000, and Chief Operating Officer from December 2000 to May 2001. From 1999 +through the third quarter of 2000, he signed iGo’s Forms 10-Q and Forms 10-K. From 1999 +through the first quarter of 2001, he signed management representation letters that were provided to +iGo’s independent auditor, Deloitte & Touche LLP, in connection with their audits of iGo’s +financial statements. +2. iGo, a Delaware corporation with headquarters formerly in Reno, Nevada, +manufactured and distributed parts and accessories for mobile technology products such as laptops, +cellular phones, and wireless devices. iGo conducted its initial public offering on October 15, 1999. +During the relevant period, iGo’s common stock was registered with the Commission pursuant to +Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”), and traded on the +NASDAQ National Market System. iGo was acquired by Mobility Electronics, Inc. on September +4, 2002 and is no longer a public company. +3. On March 24, 2005, the Commission filed a complaint against Delargy in +Securities and Exchange Commission v. Kenneth Hawk, et al., Civil Action Number 3:05-CV- +00172-LRH-VPC (D. Nev.). On July 15, 2008, the Court entered a final judgment permanently +enjoining Delargy, by consent, from future violations of Sections 10b and 13(b)(5) of the Exchange +Act and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and from aiding and abetting 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. The Court also entered an order barring Delargy from serving as an officer or +director of a public company for a period of three years and ordered him to pay a civil penalty of +$50,000. +4. The Commission’s complaint alleges that Delargy knowingly and/or +recklessly caused iGo to materially overstate its revenues, and understate its losses, in the fourth +quarter of 1999, and the third and fourth quarters of 2000, by improperly recording revenue on nine +sales transactions, some of which were fraudulent. The complaint also alleges that Delargy +misrepresented material facts about the improper sales transactions to iGo’s independent auditors in +connection with their audits of iGo’s financial statements in fiscal years 1999 and 2000, and caused +iGo to fail to maintain proper internal controls and accurate books and records. Additionally, the +Complaint alleged that Delargy violated, and aided and abetted iGo’s violations of, the provisions +of the federal securities laws as noted in Section III(3) above. +2 + +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Delargy’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Delargy is suspended from appearing or practicing before the Commission as an accountant. +B. After three (3) years from the date of this order, Respondent may request that the +Commission consider his reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or review, +of any public company’s financial statements that are filed with the Commission. Such an +application must satisfy the Commission that Respondent’s work in his practice before the +Commission will be reviewed either by the independent audit committee of the public company for +which he works or in some other acceptable manner, as long as he practices before the Commission +in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which he is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; +(b) Respondent, or the registered public accounting firm with which he is +associated, has been inspected by the Board and that inspection did not identify any criticisms of or +potential defects in the respondent’s or the firm’s quality control system that would indicate that the +respondent will not receive appropriate supervision; + (c) Respondent has resolved all disciplinary issues with the Board, and +has complied with all terms and conditions of any sanctions imposed by the Board (other than +reinstatement by the Commission); and +(d) Respondent acknowledges his responsibility, as long as Respondent +appears or practices before the Commission as an independent accountant, to comply with all +requirements of the Commission and the Board, including, but not limited to, all requirements +relating to registration, inspections, concurring partner reviews and quality control standards. +3 + +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that his state CPA license is current +and he has resolved all other disciplinary issues with the applicable state boards of +accountancy. However, if state licensure is dependent on reinstatement by the Commission, +the Commission will consider an application on its other merits. The Commission’s review +may include consideration of, in addition to the matters referenced above, any other matters +relating to Respondent’s character, integrity, professional conduct, or qualifications to appear +or practice before the Commission. +By the Commission. + Florence E. Harmon, + A cting Secretary +4 diff --git a/raw/aaer/2008/AAER-2846.txt b/raw/aaer/2008/AAER-2846.txt new file mode 100644 index 0000000000000000000000000000000000000000..f8d022212948fcfb424cb2acaf3fcfbdae4675c6 --- /dev/null +++ b/raw/aaer/2008/AAER-2846.txt @@ -0,0 +1,1381 @@ + + + + + + + + + + + + + + + + SEC.gov | Kenneth W. Hawk, Michael J. Delargy, and Thomas R. De Jong + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/503791","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Hawk, Michael J. Delargy, and Thomas R. De Jong + + + + + + + + + + + + Kenneth W. Hawk, Michael J. Delargy, and Thomas R. De Jong + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20647 / July 17, 2008 + + Accounting and Auditing Enforcement Release No. 2846 / July 17, 2008 + + SEC v. Kenneth W. Hawk, Michael J. Delargy, and Thomas R. De Jong , Civil Action No. 3:05-CV-0172-LRH-VPC (D. Nev. March 24, 2005) + + Former iGo Corporation Officers Are Enjoined and Agree to Pay Civil Penalties + + Between June 9, 2008 and July 15, 2008, the United States District Court for the District of Nevada entered final judgments in a financial fraud action brought by the Securities and Exchange Commission against Kenneth W. Hawk, the founder and former Chief Executive Officer, President, and Chairman of iGo Corporation; Michael J. Delargy, iGo's former Chief Financial Officer and Chief Operating Officer; and Thomas R. de Jong, iGo's former Senior Vice President of Sales, respectively. Hawk, Delargy, and de Jong each consented to a final judgment without admitting or denying the allegations in the Commission's complaint. These settlements conclude the Commission's enforcement action regarding iGo. + + The court permanently enjoined the three former iGo executives from violating the antifraud, books and records, and false statements to auditors provisions of the federal securities laws. The final judgments bar Hawk and de Jong from acting as officers and directors of any public company for five years and bar Delargy from acting as an officer or director for three years. In addition, Hawk will pay a $75,000 civil penalty, de Jong will pay a $55,000 civil penalty, and Delargy will pay a $50,000 civil penalty. As part of the settlement, Delargy also consented to the issuance of an administrative order suspending him from appearing or practicing before the Commission as an accountant, with a right to apply for reinstatement after three years. + + iGo, a former Reno, Nevada manufacturer and distributor of parts and accessories for mobile technology, was acquired by Mobility Electronics, Inc. on September 4, 2002, and no longer is a public company. The Commission's March 24, 2005, complaint alleged that Hawk, Delargy, and de Jong knowingly or recklessly caused iGo to engage in fraudulent sales practices that resulted in the company materially overstating its revenue, and understating its losses, in fiscal years 1999 and 2000. +The Commission's complaint alleges: + + Hawk and Delargy knowingly or recklessly caused iGo to materially overstate its fourth quarter 1999 revenue by approximately $912,100, or 12.9%. + + Hawk, Delargy, and de Jong knowingly or recklessly caused iGo to materially overstate its third quarter 2000 revenue by approximately $688,000 or 6.6%. + + Hawk, Delargy, and de Jong knowingly or recklessly caused iGo to improperly recognize approximately $1.18 million in revenue in the fourth quarter of 2000 and, as a result, iGo overstated its fourth quarter 2000 revenue in an earnings release by approximately 9.8%. + + Hawk, Delargy, and de Jong knowingly circumvented or knowingly failed to implement a system of internal accounting controls; knowingly falsified iGo's books and records; made or caused to be made materially false or misleading statements or omissions of material fact to iGo's independent auditor; and aided and abetted iGo's violations of the reporting, internal controls, and books and records provisions of the Securities Exchange Act of 1934 (the "Exchange Act"). + Specifically, in addition to the officer and director bars and the civil penalties, the judgments entered by the court enjoin Hawk, Delargy, and de Jong from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5, 13b2-1 and 13b2-2, as well as from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1 and 13a-13. Hawk's judgment also enjoins him from controlling any person who violates Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1 and 13a-13. + + In related proceedings, on July 17, 2008, the Commission instituted settled administrative proceedings against Delargy, suspending him from appearing as an accountant before the Commission, with a right to apply for reinstatement after three years. + + For more information, see Litigation Release No. 19156 (March 24, 2005), and Administrative Proceeding Release No. 34-58186 (July 17, 2008). + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2849.txt b/raw/aaer/2008/AAER-2849.txt new file mode 100644 index 0000000000000000000000000000000000000000..b5441b1c1340596839261c5e5c4f91e24c43a44b --- /dev/null +++ b/raw/aaer/2008/AAER-2849.txt @@ -0,0 +1,160 @@ +UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58239 / July 29, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2849 / July 29, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12790 +In the Matter of +CHOI DOW IAN HONG & LEE +ACCOUNTANCY +CORPORATION AND ERNEST +E. DOW, CPA, +Respondents. +ORDER MAKING FINDINGS AND +IMPOSING REMEDIAL SANCTIONS +PURSUANT TO SECTION 4C OF THE +SECURITIES EXCHANGE ACT OF 1934 +AND RULE 102(e) OF THE +COMMISSION’S RULES OF PRACTICE +I. +On September 13, 2007, the Securities and Exchange Commission (“Commission”) +issued an Order Instituting Administrative Proceedings Pursuant to Section 4C of the Securities +Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice, and Notice of +Hearing against Choi Dow Ian Hong & Lee Accountancy Corporation (the “Firm”) and Ernest E. +Dow (“Dow”) The Firm and Dow will be referred to hereafter collectively as “Respondents.” +II. +Respondents have submitted an Offer of Settlement (“Offer”) 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 them and the subject matter of these proceedings, which are admitted, Respondents consent to +the entry of this Order Making Findings and Imposing Remedial Sanctions Pursuant to Section 4C +of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice +(“Order”), as set forth below. +III. +On the basis of this Order and Respondents’ Offer, the Commission finds1 that: +A. RESPONDENTS +1. The Firm is a California corporation and public accounting firm headquartered in +Los Angeles, California. The Firm prepared and issued an audit report dated December 2, 2004 in +connection with its audit of VALCAPX Acquisition Corp. (“VALCAPX”). +2. Dow, 58, of Los Angeles, California, is a certified public accountant licensed in +California since 1983. As engagement partner on the VALCAPX engagement, Dow participated +in the preparation and issuance of the December 2, 2004 VALCAPX audit report. +B. FACTS +1. VALCAPX is a Nevada corporation based in Los Angeles, California. Its common +stock is registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act +of 1934 (“Exchange Act”). VALCAPX reported no revenue and no assets for the fiscal years +ended June 30, 2002, 2003, and 2004. +2. VALCAPX has at all relevant times been an issuer as defined by the Sarbanes- +Oxley Act of 2002 (the “Act”). +3. The Firm audited VALCAPX’s 2002, 2003, and 2004 financial statements included +in VALCAPX’s annual report for the fiscal years ended June 30, 2002, 2003, and 2004 on Form +10-KSB, filed with the Commission on December 9, 2004. +4. The Firm prepared and issued an audit report dated December 2, 2004, which was +included in VALCAPX’s Form 10-KSB for the fiscal years ended June 30, 2002, 2003, and 2004 +filed with the Commission on December 9, 2004. +5. Dow participated in auditing the 2002, 2003, and 2004 financial statements +included in VALCAPX’s annual report for fiscal years ended June 30, 2002, 2003, and 2004 on +Form 10-KSB, filed with the Commission on December 9, 2004. +6. Dow participated in the preparation and issuance of an audit report dated December +2, 2004, which was included in VALCAPX’s Form 10-KSB. +7. Even though the Firm had failed to register with the Public Company Accounting +Oversight Board (“PCAOB”), the Firm issued, and Dow participated in the issuance of, an audit +report on the financial statements of VALCAPX after the October 22, 2003 deadline. +The findings herein are made pursuant to Respondents’ Offer of Settlement and are not +binding on any other person or entity in this or any other proceeding. +2 +1 +8. The Firm received $3,600 for conducting an audit of VALCAPX’s financial +statements for fiscal years 2002, 2003, and 2004, and for issuing an audit report on those +statements. +C. VIO LATIONS +1. Section 4C(a) of the Exchange Act provides, in relevant part, that the Commission +“may censure any person, or deny, temporarily or permanently, to any person the privilege of +appearing or practicing before the Commission in any way, if that person is found by the +Commission … (1) not to possess the requisite qualifications to represent others … or (3) to have +willfully violated, or willfully aided and abetted the violation of, any provision of the securities +laws or the rules and regulations issued thereunder.” +2. Rule 102(e)(1) of the Commission’s Rules of Practice provides that the +Commission “may censure a person or deny, temporarily or permanently, the privilege of +appearing or practicing before it in any way to any person who is found by the Commission ... (i) +not to possess the requisite qualifications to represent others … or ( iii) to have willfully violated … +any provision of the Federal securities laws or the rules and regulations thereunder.” +3. Section 102(a) of the Act provides that “it shall be unlawful for any person that is +not a registered public accounting firm to prepare or issue, or to participate in the preparation or +issuance of, any audit report with respect to any issuer.”2 +4. The provisions of Section 102(a) of the Act became effective on October 22, 2003.3 +5. Based on the conduct described above, the Firm willfully4 violated Section 102(a) +of the Act. +D. FINDINGS +1. Based on the foregoing, the Commission finds that the Firm and Dow did not +possess the requisite qualifications to represent others. +2 A violation of the Act or any rule that the PCAOB issues under the Act is treated for all +purposes in the same manner as a violation of the Exchange Act, including with respect to +penalties. Sarbanes-Oxley Act of 2002, 15 U.S.C.A. § 7202(b)(1) (West 2002). +3 Section 102(a) became effective “[b]eginning 180 days after the date of the determination +of the Commission under Section 101(d)” of the Act that the Board was prepared to undertake its +statutory responsibilities. The Commission made the required determination on April 25, 2003. +See Order Regarding Section 101(d) of the Sarbanes-Oxley Act of 2002, Securities Act Release +No. 8223, Exchange Act Release No. 47746, 2003 WL 1956164 (Apr. 25, 2003). +4 A willful violation of the securities laws means merely that the peron charged with the +violation knows what he is doing. Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000). +3 + +2. Based on the foregoing, the Commission finds that the Firm willfully violated +Section 102(a) of the Sarbanes-Oxley Act of 2002. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondents’ Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +1. Choi Dow Ian Hong & Lee Accountancy Corporation +A. The Firm is denied the privilege of appearing or practicing before the +Commission as an accountant. +B. After one year from the date of this Order, the Firm may request that the +Commission consider its reinstatement by submitting an application (attention: Office of the Chief +Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such an +application must satisfy the Commission that the Firm’s work in the Firm’s practice before the +Commission will be reviewed either by the independent audit committee of the public company for +which the Firm works or in some other acceptable manner, as long as the Firm practices before the +Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) the Firm is registered with the PCAOB in accordance with the +Sarbanes-Oxley Act of 2002, and such registration continues to be effective. However, if +registration with the PCAOB is dependent upon reinstatement by the Commission, the +Commission will consider an application on its other merits; +(b) the Firm has resolved all disciplinary issues with the PCAOB, +and has complied with all terms and conditions of any sanctions imposed by the PCAOB (other +than reinstatement by the Commission); and +(c) the Firm acknowledges responsibility, as long as the Firm +appears or practices before the Commission as an independent accountant, to comply with all +requirements of the Commission and the PCAOB, including, but not limited to, all requirements +relating to registration, inspections, concurring partner reviews and quality control standards. +C. The Commission will consider an application by the Firm to resume +appearing or practicing before the Commission provided that the Firm’s state CPA license is +current and the Firm has resolved all other disciplinary issues with the applicable state boards of +4 + +accountancy. However, if state licensure is dependent on reinstatement by the Commission, the +Commission will consider an application on its other merits. The Commission’s review may +include consideration of, in addition to the matters referenced above, any other matters relating to +the Firm’s character, integrity, professional conduct, or qualifications to appear or practice before +the Commission. +2. Ernest E. Dow, CPA +A. Dow is censured. +B. Dow may practice before the Commission as an independent accountant +provided that: +1. The public accounting firm with which he is associated is registered +with the PCAOB in accordance with the Act, and such registration continues to be effective; and +2. He has submitted to the Commission staff (Attention: Office of the Chief +Accountant) the PCAOB’s letter notifying the public accounting firm with which he is associated +that its registration application has been approved. + By the Commission. + F lorence E. Harmon + A cting Secretary +5 diff --git a/raw/aaer/2008/AAER-2850.txt b/raw/aaer/2008/AAER-2850.txt new file mode 100644 index 0000000000000000000000000000000000000000..c732c3908568bdef39b69392043e132fc194d152 --- /dev/null +++ b/raw/aaer/2008/AAER-2850.txt @@ -0,0 +1,116 @@ +UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58240 / July 29, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2850 / July 29, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12794 +In the Matter of +MICHAEL DEUTCHMAN, CPA, +Respondent. +ORDER MAKING FINDINGS AND +IMPOSING REMEDIAL SANCTIONS +PURSUANT TO SECTIONS 4C AND 21C +OF THE SECURITIES EXCHANGE ACT +OF 1934 AND RULE 102(e) OF THE +COMMISSION’S RULES OF PRACTICE +I. +On September 13, 2007, the Securities and Exchange Commission (“Commission”) issued +an Order Instituting Administrative and Cease-And-Desist Proceedings Pursuant to Sections 4C and +21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of +Practice, and Notice of Hearing against Michael Deutchman, CPA (“Respondent” or +“Deutchman”). +II. +Respondent has submitted an Offer of Settlement (“Offer”) 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 him and +the subject matter of these proceedings, which are admitted, Respondent consents to the entry of +this Order Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order +Pursuant to Sections 4C and 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the +Commission’s Rules of Practice (“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds1 that: +A. RESPONDENT +Deutchman, of Melville, New York, is a certified public accountant licensed in New York +since 1971 and doing business as a sole proprietorship. Deutchman prepared and issued an audit +report dated April 14, 2004, in connection with his audit of Cyber Grind, Inc. (“Cyber Grind”). +B. FACTS +1. Cyber Grind, Inc. is a Nevada corporation based in Beverly Hills, California. +Cyber Grind’s common stock does not currently trade and is registered with the Commission +pursuant to Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”). Cyber Grind +reported no revenues and no assets for fiscal year ended December 31, 2003. +2. Cyber Grind has at all relevant times been an issuer as defined by the Sarbanes- +Oxley Act of 2002 (the “Act”). +3. Although Respondent was aware of the Public Company Accounting Oversight +Board (“PCAOB”) registration requirement, at no point did Deutchman register with the PCAOB +as a public accounting firm. +4. Respondent audited Cyber Grind’s 2003 financial statements included in Cyber +Grind’s annual report for fiscal year ended December 31, 2003 on Form 10-KSB, filed with the +Commission on April 14, 2004. +5. Respondent prepared and issued an audit report dated April 14, 2004, which was +included in Cyber Grind’s Form 10-KSB. +6. Respondent was aware of the registration requirement and the October 22, 2003 +registration deadline for registration with the Board when Deutchman issued the audit report dated +April 14, 2004. +C. VIO LATIONS +1. Section 4C(a) of the Exchange Act provides, in relevant part, that the Commission +“may censure any person, or deny, temporarily or permanently, to any person the privilege of +appearing or practicing before the Commission in any way, if that person is found by the +Commission … (1) not to possess the requisite qualifications to represent others … or (3) to have +willfully violated, or willfully aided and abetted the violation of, any provision of the securities +laws or the rules and regulations issued thereunder.” +The findings herein are made pursuant to Respondents’ Offer of Settlement and are not binding on any +other person or entity in this or any other proceeding. +2 +1 +2. Rule 102(e)(1) of the Commission’s Rules of Practice provides that the +Commission “may censure a person or deny, temporarily or permanently, the privilege of +appearing or practicing before it in any way to any person who is found by the Commission ... (i) +not to possess the requisite qualifications to represent others … or ( iii) to have willfully violated … +any provision of the Federal securities laws or the rules and regulations thereunder.” +3. Section 102(a) of the Act provides that “it shall be unlawful for any person that is +not a registered public accounting firm to prepare or issue, or to participate in the preparation or +issuance of, any audit report with respect to any issuer.”2 +4. The provisions of Section 102(a) of the Act became effective on October 22, 2003.3 +5. Based on the conduct described above, the Respondent willfully4 violated Section +102(a) of the Act. +D. FINDINGS +1. Based on the foregoing, the Commission finds that Respondent did not possess the +requisite qualifications to represent others. +2. Based on the foregoing, the Commission finds that Respondent willfully violated +Section 102(a) of the Sarbanes-Oxley Act of 2002. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent’s Offer. +Accordingly, it is hereby ORDERED that: +2 A violation of the Act or any rule that the PCAOB issues under the Act is treated for all purposes in the +same manner as a violation of the Exchange Act, including with respect to penalties. Sarbanes-Oxley Act of 2002, +15 U.S.C.A. § 7202(b)(1) (West 2002). +3 Section 102(a) became effective “[b]eginning 180 days after the date of the determination of the +Commission under Section 101(d)” of the Act that the Board was prepared to undertake its statutory responsibilities. +The Commission made the required determination on April 25, 2003. See Order Regarding Section 101(d) of the +Sarbanes-Oxley Act of 2002, Securities Act Release No. 8223, Exchange Act Release No. 47746, 2003 WL +1956164 (Apr. 25, 2003). +4 A willful violation of the securities laws means merely “‘that the person charged with the duty knows what +he is doing.”’ Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 +(D.C. Cir. 1949)). There is no requirement that the actor “‘also be aware that he is violating one of the Rules or +Acts.”’ Id. (quoting Gearhart & Otis, Inc. v. SEC, 348 F.2d 798, 803 (D.C. Cir. 1965)). +3 + +A. Deutchman shall cease and desist from committing or causing any violations and +any future violations of Section 102(a) of the Act. +B. Deutchman is censured. +C. Deutchman may practice before the Commission as an independent accountant +provided that: +1. The public accounting firm with which he is associated is registered with +the PCAOB in accordance with the Act, and such registration continues to be effective; and +2. He has submitted to the Commission staff (Attention: Office of the Chief +Accountant) the PCAOB’s letter notifying the public accounting firm with which he is associated +that its registration application has been approved. + By the Commission. + F lorence E. Harmon + A cting Secretary +4 diff --git a/raw/aaer/2008/AAER-2851.txt b/raw/aaer/2008/AAER-2851.txt new file mode 100644 index 0000000000000000000000000000000000000000..dd1bfe1b1f0e6768381de4159116a96e8cc86163 --- /dev/null +++ b/raw/aaer/2008/AAER-2851.txt @@ -0,0 +1,189 @@ + UNITED STATES OF AMERICA + B efore the + SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58241 / July 29, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2851 / July 29, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-12788 +In the Matter of +BANKER & CO. AND +JITENDRA S. BANKER, +Respondents. +ORDER MAKING FINDINGS AND +IMPOSING REMEDIAL SANCTIONS +PURSUANT TO SECTION 4C OF THE +SECURITIES EXCHANGE ACT OF 1934 +AND RULE 102(e) OF THE +COMMISSION’S RULES OF PRACTICE +I. +On September 13, 2007, the Securities and Exchange Commission (“Commission”) issued +an Order Instituting Administrative Proceedings Pursuant to Section 4C of the Securities Exchange +Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice, and Notice of Hearing against +Banker & Co. (“the Firm”) and Jitendra S. Banker (“Banker”). The Firm and Banker will be +referred to hereafter collectively as “Respondents.” +II. +Respondents have submitted an Offer of Settlement (“Offer”) 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 them +and the subject matter of these proceedings, which are admitted, Respondents consent to the +entry of this Order Making Findings and Imposing Remedial Sanctions Pursuant to Section 4C of +the Securities Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice +(“Order”), as set forth below. +III. +On the basis of this Order and Respondents’ Offer, the Commission finds1 that: +A. RESPONDENTS +1. The Firm is a public accounting firm headquartered in Costa Mesa, California. +The Firm prepared and issued an audit report dated January 31, 2004, in connection with its audit +of OTC Dreamwerks, Inc. (“OTC Dreamwerks”), an audit report dated May 21, 2004, in +connection with its audit of Morgan Clark Management, Inc. (“Morgan”), and an audit report +dated August 10, 2004, in connection with its audit of Mill Creek Research, Inc. (“Mill Creek”). +2. Banker, 68, of Costa Mesa, California, has been licensed as a chartered +accountant in England since 1969, but he is not licensed as a CPA in any American state. As +engagement partner on the OTC Dreamwerks, Morgan, and Mill Creek engagements, Banker +participated in the preparation and issuance of the January 31, 2004 OTC Dreamwerks audit +report, the May 21, 2004 Morgan Clark audit report, and the August 10, 2004 Mill Creek audit +report. +B. FACTS +1. OTC Dreamwerks is a Utah corporation based in Orange, California. During the +relevant period, OTC Dreamwerk’s common stock was registered with the Commission pursuant +to Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”). OTC Dreamwerks +reported no revenue or assets for fiscal year ended December 31, 2003. OTC Dreamwerks has at +all relevant times been an issuer as defined by the Act. +2. The Firm audited OTC Dreamwerk’s 2003 financial statements included in OTC +Dreamwerk’s annual report for fiscal year 2003 on Form 10-KSB, filed with the Commission on +February 26, 2004. As part of that audit, Banker & Co. prepared and issued an audit report dated +January 31, 2004, which was included in OTC Dreamwerk’s Form 10-KSB. +3. Banker participated in auditing the 2003 financial statements included in OTC +Dreamwerk’s annual report for fiscal year 2003 on Form 10-KSB, filed with the Commission on +February 26, 2004. As part of that audit, Banker participated in the preparation and issuance of +an audit report dated January 31, 2004, which was included in OTC Dreamwerk’s Form 10-KSB. +4. Morgan is a Utah corporation based in Orange, California. During the relevant +period, Morgan’s common stock was registered with the Commission pursuant to Section 12(g) +of the Exchange Act. Morgan reported no revenue and no assets for fiscal year ended June 30, +2003. Morgan has at all relevant times been an issuer as defined by the Act. +5. The Firm audited Morgan’s 2003 financial statements included in Morgan’s +annual report for fiscal year June 30, 2003 on Form 10-KSB, filed with the Commission on May +The findings herein are made pursuant to Respondents’ Offer of Settlement and are not binding on any +other person or entity in this or any other proceeding. +2 +1 +28, 2004. As part of that audit, Banker & Co. prepared and issued an audit report dated May 21, +2004, which was included in Morgan’s Form 10-KSB. +6. Banker participated in auditing the 2003 financial statements included in +Morgan’s annual report for fiscal year June 30, 2003 on Form 10-KSB, filed with the +Commission on May 28, 2004. As part of that audit, Banker participated in the preparation and +issuance of an audit report dated May 21, 2004, which was included in Morgan’s Form 10-KSB. +7. Mill Creek is a Utah corporation based in Seymour, Texas. During the relevant +period, Mill Creek’s common stock was registered with the Commission pursuant to Section +12(g) of the Exchange Act. Mill Creek reported revenues of $200 and total assets of $900,000 +for fiscal year ended December 31, 2003. Mill Creek has at all relevant times been an issuer as +defined by the Act. +8. The Firm audited Mill Creek’s 2003 financial statements included in Mill Creek’s +annual report for fiscal year December 31, 2003 on Form 10-KSB, filed with the Commission on +September 3, 2004. As part of that audit, Banker & Co. prepared and issued an audit report +dated August 10, 2004, which was included in Mill Creek’s Form 10-KSB. +9. Banker participated in auditing the 2003 financial statements included in Mill +Creek’s annual report for fiscal year December 31, 2003 on Form 10-KSB, filed with the +Commission on September 3, 2004. As part of that audit, Banker participated in the preparation +and issuance of an audit report dated August 10, 2004, which was included in Mill Creek’s Form +10-KSB. +10. Even though the Firm had failed to register with the Public Company Accounting +Oversight Board (“PCAOB”), the Firm issued, and Banker participated in the preparation and +issuance of, audit reports on the financial statements of OTC Dreamwerks, Morgan, and Mill +Creek after the October 22, 2003 deadline. +11. As part of the audits, the Firm received an aggregate of approximately $5,300 for +conducting the audits of the financial statements of OTC Dreamwerks, Morgan, and Mill Creek +for which Banker & Co. filed audit reports after October 22, 2003. +C. VIOLATIONS +1. Section 4C(a) of the Exchange Act provides, in relevant part, that the Commission +“may censure any person, or deny, temporarily or permanently, to any person the privilege of +appearing or practicing before the Commission in any way, if that person is found by the +Commission … (1) not to possess the requisite qualifications to represent others … or (3) to have +willfully violated, or willfully aided and abetted the violation of, any provision of the securities +laws or the rules and regulations issued thereunder.” +2. Rule 102(e)(1) of the Commission’s Rules of Practice provides that the +Commission “may censure a person or deny, temporarily or permanently, the privilege of +appearing or practicing before it in any way to any person who is found by the Commission ... (i) +3 + +not to possess the requisite qualifications to represent others … or (iii) to have willf ully violated +… any provision of the Federal securities laws or the rules and regulations thereunder.” +3. Section 102(a) of the Act provides that “it shall be unlawful for any person that is +not a registered public accounting firm to prepare or issue, or to participate in the preparation or +issuance of, any audit report with respect to any issuer.”2 +4. The provisions of Section 102(a) of the Act became effective on October 22, +2003.3 +5. Based on the conduct described above, the Firm willfully4 violated Section 102(a) +of the Act. +D. FINDINGS +1. Based on the foregoing, the Commission finds that the Firm and Banker did not +possess the requisite qualifications to represent others. +2. Based on the foregoing, the Commission finds that the Firm willfully violated +Section 102(a) of the Sarbanes-Oxley Act of 2002. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondents’ Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +1. Banker & Co. +The Firm is denied the privilege of appearing or practicing before the Commission as an +accountant. +2 A violation of the Act or any rule that the Board issues under the Act is treated for all +purposes in the same manner as a violation of the Exchange Act, including with respect to +penalties. Sarbanes-Oxley Act of 2002, 15 U.S.C.A. § 7202(b)(1) (West 2002). +3 Section 102(a) became effective “[b]eginning 180 days after the date of the determination +of the Commission under Section 101(d)” of the Act that the Board was prepared to undertake its +statutory responsibilities. The Commission made the required determination on April 25, 2003. +See Order Regarding Section 101(d) of the Sarbanes-Oxley Act of 2002, Securities Act Release +No. 8223, Exchange Act Release No. 47746, 2003 WL 1956164 (Apr. 25, 2003). +4 A willful violation of the securities laws means merely that the peron charged with the +violation knows what he is doing. Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000). +4 + +B. After one year from the date of this Order, the Firm may request that the +Commission consider its reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that the Firm’s work in the Firm’s practice before +the Commission will be reviewed either by the independent audit committee of the public +company for which the Firm works or in some other acceptable manner, as long as the Firm +practices before the Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) the Firm is registered with the PCAOB in accordance with the +Sarbanes-Oxley Act of 2002, and such registration continues to be effective. However, if +registration with the PCAOB is dependent upon reinstatement by the Commission, the +Commission will consider an application on its other merits; +(b) the Firm has resolved all disciplinary issues with the PCAOB, +and has complied with all terms and conditions of any sanctions imposed by the PCAOB (other +than reinstatement by the Commission); and +(c) the Firm acknowledges responsibility, as long as the Firm +appears or practices before the Commission as an independent accountant, to comply with all +requirements of the Commission and the PCAOB, including, but not limited to, all requirements +relating to registration, inspections, concurring partner reviews and quality control standards. +C. The Commission will consider an application by the Firm to resume +appearing or practicing before the Commission provided that the Firm’s state CPA license is +current and the Firm has resolved all other disciplinary issues with the applicable state boards of +accountancy. However, if state licensure is dependent on reinstatement by the Commission, the +Commission will consider an application on its other merits. The Commission’s review may +include consideration of, in addition to the matters referenced above, any other matters relating +to the Firm’s character, integrity, professional conduct, or qualifications to appear or practice +before the Commission. +2. Jitendra S. Banker +A. Banker is censured. +B. Banker may practice before the Commission as an independent accountant +provided that: +5 + +1. The public accounting firm with which he is associated is registered +with the PCAOB in accordance with the Act, and such registration continues to be effective; +2. He has submitted to the Commission (attention: Office of the Chief +Accountant) the PCAOB’s letter notifying the public accounting firm with which he is associated +that its registration application has been approved. + By the Commission. + F lorence E. Harmon + A cting Secretary +6 diff --git a/raw/aaer/2008/AAER-2854.pdf b/raw/aaer/2008/AAER-2854.pdf new file mode 100644 index 0000000000000000000000000000000000000000..5023392898489caca14ee40ef4a3941c1ea8ef17 Binary files /dev/null and b/raw/aaer/2008/AAER-2854.pdf differ diff --git a/raw/aaer/2008/AAER-2856.pdf b/raw/aaer/2008/AAER-2856.pdf new file mode 100644 index 0000000000000000000000000000000000000000..2c19751daf3bedf964d87bb76c92128bc1acc563 Binary files /dev/null and b/raw/aaer/2008/AAER-2856.pdf differ diff --git a/raw/aaer/2008/AAER-2856.txt b/raw/aaer/2008/AAER-2856.txt new file mode 100644 index 0000000000000000000000000000000000000000..7119141640f3055e757616bbf5ab4a4ecd584f10 --- /dev/null +++ b/raw/aaer/2008/AAER-2856.txt @@ -0,0 +1,76 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58280 / August 1, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2856 / August 1, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-10664 +: CORRECTED +In the Matter of : +: ORDER GRANTING APPLICATION FOR +Jeffrey Bacsik, CPA : +: REINSTATEMENT TO APPEAR AND PRACTICE +BEFORE THE COMMISSION AS AN ACCOUNTANT : +On December 27, 2001, Jeffrey Bacsik (“Bacsik”) was denied the privilege of appearing +or practicing as an accountant before the Commission as a result of settled public administrative +proceedings instituted by the Commission against Bacsik pursuant to Rule 102(e) of the +Commission's Rules of Practice.1 Bacsik consented to the entry of the December 27, 2001 order +without admitting or denying the findings therein. This order is issued in response to Bacsik’s +application for reinstatement to practice before the Commission as an accountant. +Bacsik served as the engagement partner for Deloitte & Touche LLP’s (“Deloitte”) audits +of Fine Host Corporation’s (“Fine Host”) financial statements for fiscal year 1996. Bacsik also +served as the engagement partner for the audits of Fine Host’s financial statements for fiscal +years 1993 through 1995 that were incorporated in a Form S-1 that went effective on June 19, +1996. The Commission found that Fine Host engaged in an extensive financial fraud that, when +detected, resulted in the collapse of its stock price and, eventually, the end of its existence as a +public company. The fraud involved, as its primary mechanism, the improper capitalization of +millions of dollars in company expenses as assets. Fine Host also manipulated acquisition +reserve accounts, income from vendor rebates and other items for the purpose of managing +reported earnings. Bacsik, as the engagement partner on the Deloitte audit team, failed to ensure +that the audit team conducted appropriate audit procedures, in many instances improperly relying +on representations of Fine Home management as the source of audit evidence. This failure to +exercise due professional care, ensure that the audit team obtained sufficient competent +1 See Accounting and Auditing Enforcement Release No. 1482 dated December 27, 2001. Bacsik was permitted, +pursuant to the order, to apply for reinstatement after two years upon making certain showings. +evidential matter and maintain an attitude of professional skepticism constituted improper +professional conduct under Rule 102(e) of the Commission’s Rules of Practice. +Bacsik has met all of the conditions set forth in the original order and, in his capacity as +an independent accountant, has stated that he will comply with all requirements of the +Commission and the Public Company Accounting Oversight Board, including, but not limited to +all requirements relating to registration, inspections, concurring partner reviews and quality +control standards. In his capacity as a preparer or reviewer, or as a person responsible for the +preparation or review, of financial statements of a public company to be filed with the +Commission, Bacsik attests that he will undertake to have his work reviewed by the independent +audit committee of any company for which he works, or in some other manner acceptable to the +Commission, while practicing before the Commission in this capacity. +Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for +reinstatement, and provides that the Commission may reinstate the privilege to appear and +practice before the Commission “for good cause shown.”2 This “good cause” determination is +necessarily highly fact specific. + On the basis of the information supplied, representations made, and undertakings agreed +to by Bacsik, it appears that he has complied with the terms of the December 27, 2001 order +denying him the privilege of appearing or practicing before the Commission as an accountant, +that no information has come to the attention of the Commission relating to his character, +integrity, professional conduct or qualifications to practice before the Commission that would be +a basis for adverse action against him pursuant to Rule 102(e) of the Commission's Rules of +Practice, and that Bacsik, by undertaking to have his work reviewed by the independent audit +committee of any company for which he works, or in some other manner acceptable to the +Commission, in his practice before the Commission as a preparer or reviewer of financial +statements required to be filed with the Commission, and that Bacsik, by undertaking to comply +with all requirements of the Commission and the Public Company Accounting Oversight Board, +including, but not limited to, all requirements relating to registration, inspections, concurring +partner reviews and quality control standards, in his practice before the Commission as an +independent accountant has shown good cause for reinstatement. Therefore, it is accordingly, +2 Rule 102(e)(5)(i) provides: +“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) +of this section may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a +hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated +by the Commission for good cause shown.” 17 C.F.R. § 201.102(e)(5)(i). +ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that +Jeffrey Bacsik, CPA is hereby reinstated to appear and practice before the Commission as an +accountant. +By the Commission. +Florence E. Harmon +Acting Secretary \ No newline at end of file diff --git a/raw/aaer/2008/AAER-2859.txt b/raw/aaer/2008/AAER-2859.txt new file mode 100644 index 0000000000000000000000000000000000000000..a94458716fd02f5df0b839599eb226407807953e --- /dev/null +++ b/raw/aaer/2008/AAER-2859.txt @@ -0,0 +1,228 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58310 / August 5, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2859 / August 5, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13115 / August 5, 2008 +In the Matter of +MARK C. THOMPSON, +Respondent. +ORDER INSTITUTING CEASE-AND-DESIST +PROCEEDINGS, MAKING FINDINGS, AND +IMPOSING REMEDIAL SANCTIONS AND A +CEASE-AND-DESIST ORDER PURSUANT TO +SECTION 21C OF THE SECURITIES +EXCHANGE ACT OF 1934 +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate that +public cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the +Securities Exchange Act of 1934 (“Exchange Act”), against Mark C. Thompson (“Thompson” or +“Respondent”). +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (“Offer”), 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 him and the subject matter of these proceedings, which are +admitted, Respondent consents to the entry of this Order Instituting Cease and-Desist +Proceedings, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order +(“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds1 that: +A. Overview +This matter arises from a business relationship between Respondent Mark C. Thompson +and Ernst & Young LLP (“E&Y”) at a time when E&Y was serving as auditor for three public +companies on whose boards Thompson sat: Company A, Company B and Company C. The +business relationship involved Thompson’s and E&Y’s collaboration in creating a series of audio +CDs designed for business development purposes. The relationship spanned 19 months -- +October 2002 through early May 2004 -- during the entirety of which Thompson served on +Company A’s board, and during parts of which Thompson also served (i) as a member of +Company A’s Audit Committee; and (ii) as a member of the boards of directors of Company B +and Company C. All three companies had engaged E&Y as auditor prior to the commencement +of Thompson’s business relationship with E&Y. As detailed below, the relationship impaired +E&Y’s independence as the auditor of each of these issuers, thereby causing each issuer to lack +independently audited financial statements. By entering into and participating in this +independence-impairing relationship, by failing to disclose the resulting conflict of interest, and +by signing three annual reports and one audit committee report incorrectly claiming that the +companies’ auditor was independent, Thompson was a cause of each issuer’s resulting reporting +violations. +B. Respondent +Mark C. Thompson is a resident of San Jose, California. Respondent is in the business +of facilitating and coaching others to facilitate interviews and discussions with business, political +and entertainment leaders. At the time he entered into the business relationship with E&Y that is +the subject of this proceeding, Thompson had recently completed a two-year project involving +the production of eight CDs of prominent-leader interviews for his first customer for such an +effort. Thompson served on Company A’s board from March 2000 through May 4, 2004, and on +its Audit Committee from March 2000 until August 2003. Thompson served on Company B’s +board from March 2000 until September 10, 2003; and on Company C’s board from February +26, 2004 until May 10, 2004. +C. Relevant Issuers +At all relevant times, Company A’s common stock was registered with the Commission +pursuant to Section 12(b) of the Exchange Act and traded on the New York Stock Exchange, and +its fiscal year has ended on the last day of February. E&Y served as Company A’s auditor from +August 1994 through February 2005. +At all relevant times, Company B’s common stock was registered with the Commission +pursuant to Section 12(b) of the Exchange Act and traded on the New York Stock Exchange, and +The findings herein are made pursuant to Respondent’s Offer of Settlement and are not +binding on any other person or entity in this or any other proceeding. +2 +1 +its fiscal year has ended on the last day of April. E&Y has served as Company B’s auditor since +April 2002. +At all relevant times, Company C’s common stock was registered with the Commission +pursuant to Section 12(g) of the Exchange Act and traded on the NASDAQ National Market, and +its fiscal year has ended on the last day of December. E&Y served as Company C’s auditor from +May 2002 until May 2007. +D. The Audit Firm +Ernst & Young LLP (“E&Y”) is a professional services firm, headquartered in New +York City, with offices located throughout the United States. At all relevant times and +continuing to the present, E&Y has provided auditing, consulting, and tax services to a variety of +companies, including companies whose securities are registered with the Commission and trade +in the U.S. markets. +E. FACTS +1. The Relationship Between Respondent and E&Y +In mid-October 2002, Thompson entered into the business relationship with E&Y that is +the subject of this proceeding. At the time Thompson entered into this relationship, he should +have known that (i) Company A and Company B were then employing E&Y as their outside +auditor; (ii) as a Company A and Company B director he was called upon, at least annually, to +sign each company’s annual report stating its auditor was independent, to vote on the retention of +each company’s auditor, and to vote on the inclusion of auditor-retention recommendations in +proxy solicitations to each company’s shareholders; and (iii) as a member of Company A’s audit +committee, Thompson shared direct responsibility, under Company A’s Audit Committee +Charter, “for the appointment … compensation and oversight … of the [company’s] independent +auditor.” See Appendix A to Company A’s May 20, 2003 proxy statement. +The relationship entailed the creation of a series of audio CDs of interviews of corporate +CEOs, with each CD featuring a particular industry or industry sector. Thompson appeared as +host on each CD; on each CD various E&Y partners, with Thompson’s coaching and assistance, +conducted interviews of the executives. (None of the E&Y partners appearing on the CDs +performed any work on E&Y’s Company A, Company B or Company C audit engagements.) +The CDs were provided to prospective E&Y audit and non-audit clients for business +development purposes. Each CD’s packaging included both E&Y’s and Thompson’s proprietary +logos and website addresses. Each CD’s packaging also listed the name, title and contact +information for E&Y personnel within the relevant industry or industry sector. Each CD +contained statements reflecting that it was the product of collaboration between Thompson and +E&Y. During the course of the relationship, E&Y and Thompson produced a total of seven +completed CDs, in five separate audiobooks; and E&Y paid Thompson compensation of +$377,500. Also during the course of the relationship, Thompson’s director compensation from +Company A, Company B and Company C totaled $100,662.33. +3 + +2 +2. Insufficient Communication about the Nature of the Relationship to the + Issuers’ Boards +As a member of three boards of directors, Thompson was required to complete annual +Director and Officer (“D&O”) questionnaires for use in compiling their annual reports and proxy +statements. Each of these questionnaires included queries concerning the nature of any +relationships between Thompson and E&Y. Thompson did not fully furnish the details of his +relationship with E&Y in response to these items. +During the course of the relationship, Thompson took part in votes to retain E&Y as each +company’s outside auditor and to recommend the same to shareholders in annual proxy +solicitations. At the time he cast these votes, Thompson did not disclose his business +relationship with E&Y, and the proxy solicitations likewise did not disclose the relationship. As +a board member of Company A and Company B, Thompson signed annual reports on Form 10-K +stating that each company’s auditor was independent. As an Audit Committee member of +Company A, Thompson shared responsibility, under Company A’s Audit Committee Charter, for +the “appointment … compensation and oversight” of the company’s outside auditor. See +Appendix A to Company A’s May 20, 2003 proxy statement. Company A’s proxy statement +filed May 20, 2003 stated that the Audit Committee had appointed E&Y as the company’s +independent auditor and that the Board recommended that shareholders ratify that appointment. +In February 2004, Thompson joined Company C’s board of directors. Thompson did not +complete or return the D&O questionnaire he received from Company C until he resigned from +its Board in May 2004. While a director, Thompson cast a vote to include in Company C’s +annual proxy solicitation to shareholders the recommendation that E&Y be retained as its outside +auditor for the company’s next fiscal year. Thompson did not disclose his business relationship +with E&Y; Company C’s subsequently filed proxy statement likewise did not disclose it. +F. LEGAL ANALYSIS +1. Impairment of E&Y’s Independence As Auditor +The auditor independence rules generally prohibit all direct, and all material indirect, +business relationships between auditors and their audit clients, including audit-client directors +like Thompson. See Rule 2-01(c)(3) of Regulation S-X.2 The Thompson/E&Y relationship that +Rule 2-01(c)(3) provides: +An accountant is not independent if, at any point during the audit and professional +engagement period, the accounting firm or any covered person in the firm has any direct +or material indirect business relationship with an audit client, or with persons associated +with the audit client in a decision-making capacity, such as an audit client’s officers, +directors, or substantial stockholders. The relationships described in this paragraph do +not include a relationship in which the accounting firm or covered person in the firm +provides professional services to an audit client or is a consumer in the ordinary course +of business. +4 + +is the subject of this proceeding falls within this general prohibition. The prohibition’s sole +exception -- for “consumer in the ordinary course of business” relationships -- is available only +where a relationship is both “in the ordinary course of business” for both parties, and at least one +of the parties is acting as a “consumer.” Id.; see also Commission Letter dated 2/14/89, +responding to 3/29/88 Petition by Arthur Andersen & Co. and Others (available at: +http://www.sec.gov/info/accountants/noaction/aaartan1.htm) (hereinafter the “1989 Response”) +at 7-8. The 1989 Response identifies features of business relationships that give rise to an +unacceptable “mutuality of interest” between an auditor and an audit client, where “the +advancement of the auditor’s interest would, to some extent, be dependent upon the client,” +which is inconsistent with the essential requirement that the appearance of independence be +maintained. Here, based on the facts detailed above, the relationship’s collaborative nature gave +it the very kind of “mutuality of interest” that the 1989 Response proscribes. The CDs were joint +products; and the furtherance of their business development aims hinged upon third parties +reviewing and listening to, and thereby being the end-users of, those CDs. Thompson’s past +experience with closely similar ventures was limited to just one prior customer. In summary, +Thompson’s relationship with E&Y does not qualify for the consumer in the ordinary course of +business exception because, while both of the exception’s prongs must be satisfied, it satisfied +neither. +2. The Issuer Reporting Violations +Each time non-independent audit reports were filed with Company A’s and Company B’s +annual reports and proxy statements, the issuer violated federal securities statutes and rules +requiring that those filings include independently audited financials. See Exchange Act §§ 13(a) +and 14(a) and Rules 13a-1 and 14a-3 thereunder (requiring annual reports and proxy statements +to include independently audited financials). With respect to the proxy statements, each time +Company A, Company B and Company C issued proxy solicitations to shareholders +recommending E&Y’s retention as auditor without disclosing that one of the directors favoring +the recommendation had a business relationship with E&Y, the issuer violated Exchange Act +Section 14(a) and Rule 14a-9-thereunder. See Wilson v. Great American Industries, Inc., 855 +F.2d 987, 993-94 (2d Cir. 1988) (failure to disclose, in proxy statement recommending +shareholder approval of company’s sale, that a director recommending the transaction had a +“long-standing business relationship” with individuals controlling the acquiring company, +violated Exchange Act Section 14(a) and Rule 14a-9 thereunder); accord Kas v. Financial +General Bankshares, Inc., 796 F.2d 508, 515 (D.C. Cir. 1986) (directors’ relationship with a +party to a proposed transaction “would in all probability have assumed actual significance in the +deliberations of a reasonable shareholder,” so proxy soliciting shareholder approval of that +transaction had to disclose the relationship, to give shareholders “a context to enable [them] to +evaluate [the directors’] endorsement”). +Commission statements interpreting Rule 2-01(c)(3) are found in the Commission’s Codification of +Financial Reporting Policies (“Codification”) at Section 6.02.02.e. (available at 7 Fed. Sec. L. Rep. +(CCH) ¶ 73,272). +5 +3. Respondent’s Liability for Causing the Reporting Violations +Liability for causing reporting violations requires findings that (1) a primary violation +occurred; (2) an act or omission by the respondent contributed to the violation; and (3) the +respondent knew, or should have known, that his or her conduct would contribute to the +violation. Gateway Int'l Holdings, Inc., Exchange Act Rel. No. 53907 (May 31, 2006), 88 SEC +Docket 430, 444; Erik W. Chan, 77 SEC Docket 851, 859-60 (Apr. 4, 2002). Here, based on the +facts detailed above, Thompson was a cause of each issuer’s resulting reporting violations. +IV. +Based on the foregoing, the Commission finds that Respondent Thompson was a cause of +Company A’s and Company B’s violations of Exchange Act Sections 13(a) and 14(a) and Rules +13a-1 and 14a-3 thereunder, and was a cause of Company A’s, Company B’s and Company C’s +violations of Exchange Act Section 14(a) and Rule 14a-9 thereunder. +V. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Thompson’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that Respondent Thompson +shall cease and desist from causing any violations and any future violations of Sections 13(a) and +14(a) of the Securities Exchange Act of 1934, and Rules 13a-1, 14a-3 and 14a-9 thereunder; +IT IS FURTHER ORDERED that Respondent Thompson shall, within ten (10) days of +the entry of this Order, pay disgorgement of $100,662.33 and prejudgment interest of +$23,254.94, for a total of $123,917.27, to the Securities and Exchange Commission. Such +payment shall be: (A) made by 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-delivered or mailed to the Office of Financial Management, Securities and Exchange +Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; +and (D) submitted under cover letter that identifies Thompson as a Respondent in these +proceedings, and the file number of these proceedings, a copy of which cover letter and money +order or check shall be sent to J. Lee Buck, II, Deputy Assistant Director, Division of +Enforcement, Securities and Exchange Commission, 100 F St., N.E., Washington, D.C. 20549­ +5631. +By the Commission. + Florence E. Harmon + Acting Secretary +6 diff --git a/raw/aaer/2008/AAER-2860.txt b/raw/aaer/2008/AAER-2860.txt new file mode 100644 index 0000000000000000000000000000000000000000..95debc01c5a6ce001395fce0ea755c826a2ada4e --- /dev/null +++ b/raw/aaer/2008/AAER-2860.txt @@ -0,0 +1,1391 @@ + + + + + + + + + + + + + + + + SEC.gov | Prudential Financial, Inc. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/503906","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Prudential Financial, Inc. , 08 Civ. 3916 (PGS) (D.N.J.) + + Accounting and Auditing Enforcement Release No. 2860 / August 6, 2008 + + Prudential Financial, Inc. Settles Financial Reporting and Related Charges by SEC for Improperly Reporting Over $200 Million in Income as a Result of Purported Reinsurance Contracts + + On August 6, 2008, the Securities and Exchange Commission filed a civil injunctive action in United States District Court for the District of New Jersey charging Prudential Financial, Inc., a leading provider of financial services, with violating the financial reporting, books-and-records, and internal control provisions of the Securities Exchange Act of 1934. Prudential has agreed to settle the case, without admitting or denying the Commission's allegations, by consenting to the entry of a permanent injunction. + + The Commission's complaint, filed in federal court in Newark, alleges that from December 1997 through December 2002, Prudential's former property and casualty subsidiaries known as the Prupac companies ("Prupac"), entered into a series of so-called finite reinsurance contracts with General Reinsurance Corporation ("Gen Re") that had no economic substance and no purpose other than to build up and then draw down on an off-balance sheet asset, or "bank," that Gen Re held for Prupac. According to the complaint, the contracts were shams, written to look like they met the requirements to qualify for reinsurance accounting; in fact, they were subject to an oral side agreement that effectively eliminated any risk to either party and made such accounting improper. Prupac built up the bank in 1997, 1998 and 1999 and then, in 2000, 2001 and 2002, drew down on the bank and improperly recorded the repayments as income. In 2001, Prudential became a public company and the inaccurate financial statements became a part of its annual, quarterly and current filings thereafter. + + The complaint alleges that the improper accounting practices began in 1997, when Prudential and Gen Re negotiated a riskless reinsurance contract under which Prupac paid Gen Re $50 million. The contract was entered into in the final days of the coverage period, but backdated to appear as if it had been agreed to before the coverage period began. The understanding between the parties was that Gen Re would credit Prupac with interest at the one-year Treasury bill rate and also collect a fee on the money it held. It was further agreed that the relationship would be riskless: If Gen Re lost money in the early years of the relationship, when its exposure on the purported reinsurance contracts was greater than the amount in the bank, Prupac would make Gen Re whole. The parties kept track of where they stood in the relationship by means of a ledger, called an "Experience Account Balance," which showed payments made into the bank, less fees, plus interest, and less payments out. + + From 1997 through 2000, Prupac built up the bank, depositing approximately $190 million of the $200 million it would eventually deposit with Gen Re in the form of premiums on reinsurance policies for which no reinsurance recoveries were triggered. In 2000, 2001, and 2002, Prupac drew down on the bank, structuring the purported reinsurance contracts to ensure it recovered virtually to the penny every payment it had made, plus interest, less Gen Re's fee. As a result of these recoveries, Prudential improperly reported additional pre-tax income of $97 million, $80 million and $41 million in 2000, 2001 and 2002, respectively. + + The complaint alleges that the improper accounting practices within Prudential's Property and Casualty Insurance division resulted in an overstatement of Prudential's consolidated pre-tax income for 2000, 2001 and 2002 by $57 million or 9%, $75 million or 25%, and by $38 million or 146%, respectively. As a result of these improper accounting practices, Prudential filed annual, quarterly and current reports with the Commission that included financial statements that were inaccurate and misleading and violated the financial reporting, books-and-records, and internal controls provisions of the Exchange Act. Specifically, the complaint alleges that Prudential violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. + + Without admitting or denying the Commission's allegations, Prudential has agreed to settle the charges by consenting to a permanent injunction against further violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. + + + SEC Complaint in this matter + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Shovers, Jesus Bonilla-Valdez, Ronald Lee Kolakowski, and HLI Operating Company, Inc., f/k/a Hayes Lemmerz International, Inc. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/503986","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Shovers, Jesus Bonilla-Valdez, Ronald Lee Kolakowski, and HLI Operating Company, Inc., f/k/a Hayes Lemmerz International, Inc. + + + + + + + + + + + + Ranko Cucuz, William D. Shovers, Jesus Bonilla-Valdez, Ronald Lee Kolakowski, and HLI Operating Company, Inc., f/k/a Hayes Lemmerz International, Inc. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20686 / August 21, 2008 + + Accounting and Auditing Enforcement +Release No. 2864 / August 21, 2008 + + Securities and Exchange Commission v. Ranko Cucuz, William D. Shovers, Jesus Bonilla-Valdez, Ronald Lee Kolakowski, and HLI Operating Company, Inc., f/k/a Hayes Lemmerz International, Inc., Civil Action No. 2:06-CV-11935 (E.D. Mich.) + + JURY FINDS FORMER HAYES LEMMERZ INTERNATIONAL CEO AND CFO LIABLE FOR SECURITIES FRAUD ARISING FROM ACCOUNTING SCHEME + + The Securities and Exchange Commission announced today that on August 20, 2008, a federal jury returned a verdict in the SEC's favor on securities fraud charges against Ranko Cucuz, the former Chief Executive Officer of automobile parts manufacturer Hayes Lemmerz International, Inc., and William D. Shovers, the former Chief Financial Officer of the company. The verdict followed a two-week jury trial in Detroit, Michigan, before the Honorable Arthur J. Tarnow, United States District Judge for the United States District Court for the Eastern District of Michigan. + + The Commission's complaint, filed on April 25, 2006, alleged that Hayes, acting through former senior officers and employees, engaged in a fraudulent scheme to achieve corporate earnings targets and mask declining operating results. The complaint alleged that as a result of the fraudulent accounting scheme, Hayes made materially false filings with the Commission in fiscal years 1999 and 2000 and for the first quarter of 2001, including the company's annual report on Form 10-K for the fiscal year ending January 31, 2001, and the quarterly reports on Forms 10-Q for the quarterly periods ended April 30, 2000, July 31, 2000, October 31, 2000 and April 30, 2001. + + The complaint also alleged that, upon learning of the fraudulent accounting scheme, Cucuz and Shovers made affirmative misrepresentations to the company's outside independent auditor about Hayes' financial statements and caused Hayes to make Commission filings containing material misrepresentations. The complaint further alleged that Cucuz and Shovers took affirmative steps to conceal information about the improper accounting practices from Hayes' outside independent auditor and Hayes' Audit Committee and Board of Directors. Finally, the complaint alleged that Cucuz and Shovers made material misrepresentations about Hayes' financial condition in connection with a $300 million Rule 144A bond offering by Hayes in June 2001. + + The jury found that Shovers violated: (i) the antifraud provisions of both the Securities Act of 1933 (Section 17(a)(3)) and the Securities Exchange Act of 1934 (Section 10(b) and Rule 10b-5 thereunder); (ii) the internal controls and books and records provisions of the Exchange Act (Section 13(b)(5) and Exchange Act Rule 13b2-1); and (iii) the lying-to-auditor provision of the Exchange Act (Rule 13b2-2). The jury also found that Shovers aided and abetted violations of the issuer reporting, books and records, and internal control provisions of the Exchange Act (Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Exchange Act Rules 12b-20, 13a-1, and 13a-13). Finally, the jury found Cucuz liable for violations of the antifraud provisions of the Securities Act (Section 17(a)(3)). Cucuz was found not liable on the other claims against him. Remedies against Cucuz and Shovers will be determined by Court. + + Cucuz and Shovers are the last two remaining defendants in this action. Previously, the Commission reached settlements with the company, Ronald Lee Kolakowski (the former President of Hayes' North American Wheel Group), and Jesus Bonilla-Valdez (former Vice President of Hayes' Aluminum Wheel Group). Moreover, in previously settled related administrative proceedings, the Commission issued Orders Instituting Administrative Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions against three other former Hayes employees: Allen Buntin, James Jarrett, and Greg Jones. + + Additional information concerning this action and Commission actions related to this matter can be found at: + + SEC v. Cucuz, et al., Civil Action No.2:06-CV-11935 (E.D. Mich. April 25, 2006) [ Release No. LR-19668 ] (April 25, 2006)   + + In the Matter of James Jarrett [ Release No. 34-53716 ] (April 25, 2006)   + + In the Matter of Greg Jones [ Release No. 34-53717 ] (April 25, 2006)   + + In the Matter of Allen Buntin [ Release No. 34-53718 ] (April 25, 2006) + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Woodburn and Terry LaCore + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/504066","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Woodburn and Terry LaCore + + + + + + + + + + + + Mark D. Woodburn and Terry LaCore + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20702 / September 4, 2008 + + Accounting and Auditing Enforcement Release No. 2872 / September 4, 2008 + + Securities and Exchange Commission v. Mark D. Woodburn and Terry LaCore , Civil Action No. 3:08-cv-1555-G/Northern District of Texas (Dallas Division) + + On September 3, 2008, the Commission filed a civil action in the United States District Court for the Northern District of Texas charging two former officers of Natural Health Trends Corp. ("NHT") of Dallas, Texas, with securities fraud and other violations arising from undisclosed related party transactions from 2001 through 2005. The defendants are Mark D. Woodburn, of Southlake, Texas, NHT's former president, director and CFO, and Terry LaCore, of Flower Mound, Texas, the former president of NHT's chief subsidiary and an NHT director. + + According to the complaint, from 2001 through August 2005, NHT's top distributor paid Woodburn and LaCore, directly and indirectly, approximately $2.5 million in undisclosed payments. The complaint also alleges that, in February 2004, Woodburn caused NHT to loan $256,200 to a Woodburn family-controlled company, and later took steps to conceal related party nature of the loan when it was discovered by NHT's new accounting management in the fall of 2004. As a result of Woodburn and LaCore's activities, the complaint continues, NHT failed to disclose, or inadequately disclosed, the related party transactions in periodic filings, registration statements, and proxy statements. + + Woodburn and LaCore agreed to settle the SEC's charges without admitting or denying the allegations of the complaint. Woodburn agreed to settle charges that he violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 14(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13a-14, 13b2-2, 14a-3, and 14a-9, and aided and abetted NHT's violations of Section 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13. LaCore agreed to settle charges that he violated Section 17(a) of the Securities Act and Sections 10(b) and 14(a) of the Exchange Act and Rules 10b-5, 13b2-2, 14a-3, and 14a-9 and aided and abetted Woodburn's violations of Sections 10(b) and 14(a) of the Exchange Act and Rules 10b-5, 14a-3 and 14a-9. Each agreed to be permanently enjoined from violations of the specified statutes and to a five-year officer and director bar. Woodburn agreed to pay a $60,000 civil penalty, and LaCore agreed to pay a $50,000 civil penalty. + + + SEC Complaint in this matter + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Miller + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/504081","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Miller + + + + + + + + + + + + John P. Miller + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20705 / September 8, 2008 + + Accounting and Auditing Enforcement Release No. 2873 / September 8, 2008 + + Securities and Exchange Commission v. John P. Miller , Civil Action No. 1:04-cv-1655-AJB (N.D.Ga.) + + Jury Finds Former Master Graphics, Inc. CEO Liable for Securities Fraud Arising From Accounting Scheme + + The Securities and Exchange Commission announced today that on September 5, 2008, a federal jury returned a verdict in the SEC's favor on securities fraud and other charges against John P. Miller, the former Chief Executive Officer, President, and Chairman of the Board of Master Graphics, Inc., a printing company based in Memphis, Tennessee that was publicly traded on the NASDAQ national market system, but is now defunct. The verdict followed a two-week jury trial in Atlanta, Georgia before the honorable Alan J. Baverman, United States Magistrate Judge for the United States District Court for the Northern District of Georgia, Atlanta Division. + + The Commission's Complaint, filed June 8, 2004, alleged that Miller, in the spring of 1999, devised and implemented a scheme to fraudulently overstate the company's net income to meet analyst expectations. Pursuant to the plan, the company fraudulently reclassified rent and salary expenses that Master Graphics had already paid to its division presidents in the first quarter as assets on the company's balance sheet. This misstatement caused Master Graphics to materially overstate its earnings for the first quarter of 1999, and materially understate its losses for the second and third quarters of 1999. + + The jury found that Miller violated: (1) the antifraud provisions of both the Securities Act of 1933 (Section 17(a)) and the Securities Exchange Act of 1934 (Section 10(b) and Rule 10b-5); and (2) the internal controls and books and records provisions of the Exchange Act (Section 13(b)(5) and Exchange Act Rule 13b2-1). Additionally, the jury found that Miller aided and abetted violations of the issuer reporting, books and records, and internal control provisions of the Exchange Act (Sections 13(a) and 13(b)(2)(A), and Exchange Act Rules 12b-20 and 13a-13). + + Additional information concerning this action and the Commission's actions related to this matter can be found at: + + Litigation Release No. 18744 / June 14, 2004 +Litigation Release No. 18733 / June 2, 2004 + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2875.txt b/raw/aaer/2008/AAER-2875.txt new file mode 100644 index 0000000000000000000000000000000000000000..597863f4e441de78419ea0f00cc04b423e3ba0aa --- /dev/null +++ b/raw/aaer/2008/AAER-2875.txt @@ -0,0 +1,98 @@ + +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58507 / September 10, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2875 / September 10, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-10354 + +In the Matter of +Patrick A. Rossetti, CPA + +: +: +: +: +: +: +ORDER GRANTING APPLICATION FOR +REINSTATEMENT TO APPEAR AND PRACTICE +BEFORE THE COMMISSION AS AN ACCOUNTANT +RESPONSIBLE FOR THE PREPARATION OR +REVIEW OF FINANCIAL STATEMENTS REQUIRED +TO BE FILED WITH THE COMMISSION + +On May 2, 2001, Patrick A. Rossetti, CPA (“Rossetti”) was denied the privilege of +appearing or practicing as an accountant before the Commission as a result of settled public +administrative proceedings instituted by the Commission against him pursuant to Rule 102(e) of +the Commission's Rules of Practice.1 Rossetti consented to the entry of the order without +admitting or denying the findings therein. This order is issued in response to Rossetti’s +application for reinstatement to appear and practice before the Commission as an accountant +responsible for the preparation or review of financial statements required to be filed with the +Commission. + The Commission alleged that the financia l statements of Detour Magazine, Inc. +(“Detour”) contained in their filings with the Commission during 1997 and 1998, as audited by +Rossetti and others, materially misrepresented the company’s financial condition and results of +operation. Based upon his conduct during the audits of Detour’s financial statement, the +Commission determined that Rossetti had willfully violated Section 10A of the Securities +Exchange Act of 1934 (“Exchange Act”) and willfully aided and abetted Detour’s violations of +Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder. The Commission +also determined that Rossetti engaged in improper professional conduct under Rule 102(e) of the +Commission’s Rules of Practice. + + +1 See Accounting and Auditing Enforcement Release No. 1388 dated May 2, 2001. Rossetti was permitted, pursuant +to the order, to apply for reinstatement after three years upon making certain showings. + +In his capacity as a preparer or reviewer, or as a person responsible for the preparation or +review, of financial statements of a public company to be filed with the Commission, Rossetti +attests that he will undertake to have his work reviewed by the independent audit committee of +any company for which he works, or in some other manner acceptable to the Commission, while +practicing before the Commission in this capacity. Rossetti is not, at this time, seeking to appear +or practice before the Commission as an independent accountant. If he should wish to resume +appearing and practicing before the Commission as an independent accountant, he will be +required to submit an application to the Commission showing that he has complied and will +comply with the terms of the original suspension order in this regard. Therefore, Rossetti’s +suspension from practice before the Commission as an independent accountant continues in +effect until the Commission determines that a sufficient showing has been made in this regard in +accordance with the terms of the original suspension order. + +Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for +reinstatement, and provides that the Commission may reinstate the privilege to appear and +practice before the Commission “for good cause shown.”2 This “good cause” determination is +necessarily highly fact specific. + +On the basis of information supplied, representations made, and undertakings agreed to +by Rossetti, it appears that he has complied with the terms of the May 2, 2001 order suspending +him from appearing or practicing before the Commission as an accountant, that no information +has come to the attention of the Commission relating to his character, integrity, professional +conduct or qualifications to practice before the Commission that would be a basis for adverse +action against him pursuant to Rule 102(e) of the Commission's Rules of Practice, and that +Rossetti, by undertaking to have his work reviewed by the independent audit committee of any +company for which he works, or in some other manner acceptable to the Commission, in his +practice before the Commission as a preparer or reviewer of financial statements required to be +filed with the Commission, has shown good cause for reinstatement. Therefore, it is accordingly, + +ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that +Patrick A. Rossetti, CPA is hereby reinstated to appear and practice before the Commission as an +accountant responsible for the preparation or review of financial statements required to be filed +with the Commission. + +By the Commission. + + +Florence E. Harmon +Acting Secretary + +2 Rule 102(e)(5)(i) provides: + +“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) +of this section may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a +hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated +by the Commission for good cause shown.” 17 C.F.R. § 201.102(e)(5)(i). + + 2 \ No newline at end of file diff --git a/raw/aaer/2008/AAER-2876.txt b/raw/aaer/2008/AAER-2876.txt new file mode 100644 index 0000000000000000000000000000000000000000..7f09e522c22efa76653d6ff0ede02dd927aaff34 --- /dev/null +++ b/raw/aaer/2008/AAER-2876.txt @@ -0,0 +1,116 @@ + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58534 / September 12, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2876 / September 12, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13190 +: +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +Mark David Shapiro (CPA), : 102(e) OF THE COMMISSION’S RULES OF +: PRACTICE, MAKING FINDINGS, AND +Respondent. : IMPOSING REMEDIAL SANCTIONS +: +: +____________________________________ : +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against Mark +David Shapiro (“Respondent” or “Shapiro”) pursuant to Rule 102(e)(3)(i) of the Commission’s +Rules of Practice.1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. +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 him and the subject matter of these +proceedings, and the findings contained in Section III.3 below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) +of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Shapiro, age 48, has been a certified public accountant licensed to practice in +the State of New York. He served as Chief Accounting Officer and Senior Vice President of +Finance for Fleming Companies, Inc. (“Fleming”), from 2001 until 2003. +2. Fleming was, at all relevant times, an Oklahoma corporation with its +principal place of business in Lewisville, Texas. Fleming was engaged in the business of wholesale +grocery distribution. At all relevant times, Fleming’s common stock was registered with the +Commission pursuant to the Securities Exchange Act of 1934 (“Exchange Act”), and traded on the +New York Stock Exchange. +3. On September 15, 2005, the Commission filed a complaint against Shapiro +in SEC v. Mark Shapiro, et al. (Civil Action No. 4:05-CV-0364). On August 15, 2008, the court +entered an order permanently enjoining Shapiro, by consent, from future violations of Sections +10(b) and 13(b)(5) of the Securities Exchange Act 1934 (“Exchange Act”) and Rules 10b-5, 13b2- +1 and 13b-2-2 promulgated thereunder, and from aiding and abetting violations of Sections 10(b), +13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 13b2-1, 13b2-2, 12b-20, +13a-1, and 13a-13, and promulgated thereunder. Shapiro was also ordered to pay a $135,000 civil +money penalty. +4. The Commission’s complaint alleged, among other things, that Shapiro, +engaged in a fraudulent scheme that resulted in Fleming filing materially false and misleading +financial statements in 2001 and 2002. The Complaint alleged that Shapiro engaged in a number +of improper accounting practices that materially increased Fleming’s annual and quarterly +revenue and net income in a departure from generally accepted accounting principles. These +practices included, among other things, prematurely recognizing rebates as income. In addition, +the complaint alleged that Shapiro made material misrepresentations to Fleming’s independent +auditor about certain of the company’s accounting practices. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent’s Offer. +2 + +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Shapiro is suspended from appearing or practicing before the Commission +as an accountant. +B. After three years from the date of this order, Respondent may request +that the Commission consider his reinstatement by submitting an application (attention: Office +of the Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or review, +of any public company’s financial statements that are filed with the Commission. Such an +application must satisfy the Commission that Respondent’s work in his/her practice before the +Commission will be reviewed either by the independent audit committee of the public company for +which he/she works or in some other acceptable manner, as long as he/she practices before the +Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which he/she is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; +(b) Respondent, or the registered public accounting firm with which +he/she is associated, has been inspected by the Board and that inspection did not identify any +criticisms of or potential defects in the respondent’s or the firm’s quality control system that +would indicate that the respondent will not receive appropriate supervision; + (c) Respondent has resolved all disciplinary issues with the Board, and +has complied with all terms and conditions of any sanctions imposed by the Board (other than +reinstatement by the Commission); and +(d) Respondent acknowledges his/her responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to comply +with all requirements of the Commission and the Board, including, but not limited to, all +requirements relating to registration, inspections, concurring partner reviews and quality control +standards. +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that his/her state CPA license is current +and he/she has resolved all other disciplinary issues with the applicable state boards of +accountancy. However, if state licensure is dependent on reinstatement by the Commission, the +Commission will consider an application on its other merits. The Commission’s review may +include consideration of, in addition to the matters referenced above, any other matters relating to +3 + +Respondent’s character, integrity, professional conduct, or qualifications to appear or practice +before the Commission. + By the Commission. + F lorence E. Harmon + A cting Secretary +4 diff --git a/raw/aaer/2008/AAER-2878.txt b/raw/aaer/2008/AAER-2878.txt new file mode 100644 index 0000000000000000000000000000000000000000..1228905d0f084c8cfe0d6a42334b8f6491f0a9b6 --- /dev/null +++ b/raw/aaer/2008/AAER-2878.txt @@ -0,0 +1,200 @@ + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58544 / September 15, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2878 / September 15, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13194 +In the Matter of +Mark A. Peterson (CPA), +Respondent. +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 +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 Mark A. Peterson (“Peterson” or “Respondent”). +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) 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 him and the subject matter of these +proceedings, which are admitted, Respondent consents 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 (“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds1 that: +1. Peterson, age 44, of Kansas City, Missouri, was vice president of accounting and +finance at American Italian Pasta Company (“AIPC”) from October 2000 until June 2004, when he +resigned from the company. Peterson reported directly to AIPC’s chief financial officer. Many of +Peterson’s duties related to budgeting and forecasting, but he also oversaw AIPC’s corporate +accounting department which, along with other departments of the company, had responsibilities +with respect to AIPC’s internal controls. Peterson was licensed as a CPA in Missouri, but his +license lapsed in 2000. +2. AIPC is a Delaware corporation with its principal place of business in Kansas City, +Missouri. The company produces and markets dry pasta. At all relevant times, AIPC’s common +stock was registered pursuant to Section 12(b) of the Exchange Act. The company filed annual, +quarterly, and current reports with the Commission on Forms 10-K, 10-Q, and 8-K, respectively. +AIPC stock was traded on the New York Stock Exchange (“NYSE”) until December 20, 2006, +when the NYSE suspended trading based on AIPC’s failure to keep current its Commission filings. +On April 23, 2007, the NYSE filed a Form 25 with the Commission and, as a result, AIPC’s +common stock was deregistered from Section 12(b) effective April 23, 2007. +3. During its fiscal years ended September 27, 2002 and October 3, 2003, and the first +and second quarters of its fiscal year ended October 1, 2004, AIPC inflated its reported income and +earnings per share (“EPS”) through a scheme orchestrated by senior executives above Peterson’s +level in AIPC’s corporate hierarchy. Peterson failed to take actions to ensure that AIPC’s +accounting complied with generally accepted accounting principles (“GAAP”). +4. From AIPC’s fiscal year 2002 through the second quarter of fiscal 2004, senior +AIPC executives above Peterson emphasized that the company had consistently met EPS targets +and predicted AIPC would continue to generate exceptional income and EPS growth. During this +time period, however, AIPC failed to achieve its income and EPS growth targets. In response, the +senior executives engaged in a variety of fraudulent accounting manipulations to increase AIPC’s +reported income and EPS. +5. As a result, in its quarterly and annual financial statements for its 2002 and 2003 +fiscal years, and for the first and second quarters of its 2004 fiscal year, AIPC reported materially +misstated income and EPS. AIPC included these misleading financial results in Forms 10-K and +10-Q filed with the Commission, and in earnings releases attached to Forms 8-K filed with the +Commission. In October 2005, AIPC announced that it would restate financial results for these +periods, and in June 2008 AIPC filed the restated results with the Commission. +1 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding +on any other person or entity in this or any other proceeding. +2 + + 6. Peterson knew or should have known that certain of AIPC’s accounting +was contrary to GAAP including in the following areas: (a) the capitalization of internal pasta +manufacturing costs to long-lived manufacturing assets; (b) the capitalization of internal +management information systems (“MIS”) labor costs to long-lived information technology +assets; (c) the use of an acquisition reserve to reduce AIPC’s cost of goods sold; (d) the failure to +write off a receivable related to a claim against a supplier; (e) the failure to write down overstated +wheat inventory; (f) the improper recognition of revenue related to AIPC supply agreements; (g) +the improper elimination of a compensated absences liability; and (h) the failure to recognize +expenses related to the company’s production of pasta for an AIPC customer. +7. During its 2002 and 2003 fiscal years, and the first and second quarters of its 2004 +fiscal year, AIPC capitalized more than $10 million of internal pasta manufacturing costs to long- +lived manufacturing assets contrary to GAAP. AIPC recorded capitalization of internal costs to +manufacturing assets based on monthly instructions from AIPC’s operations department which did +not report directly or indirectly to Peterson. Peterson, however, attended meetings at which senior +AIPC executives above him frequently agreed to increase the capitalization of internal costs to +manufacturing assets based on rationales that Peterson knew or should have known were +questionable or insufficient. Peterson also knew or should have known (a) that the additional +capitalization was part of an effort by the senior AIPC executives to ensure that the company +would meet EPS targets, and (b) that the operations department generally instructed that the +additional capitalization should be booked even if it could not be adequately justified. Peterson +failed to implement accounting controls designed to prevent and generally failed to otherwise +prevent AIPC from booking capitalization based on such instructions. Peterson expressed +concerns about the level of internal cost capitalization to manufacturing assets to the senior AIPC +executives that directed or otherwise were aware of the additional capitalization, but he failed to +express similar concerns to AIPC’s audit committee or to AIPC’s independent auditors. +8. During its 2002 and 2003 fiscal years, and the first and second quarters of its 2004 +fiscal year, AIPC improperly capitalized approximately $1.4 million of internal MIS labor costs. +AIPC did not calculate capitalized internal MIS labor based on specific tasks, time, and +compensation rates. Rather, AIPC's budgeted capitalized internal MIS labor was, in general, +simply a percentage of total budgeted MIS labor, and the company generally booked capitalization +based on its budget. AIPC's MIS department did not report, directly or indirectly, to Peterson. +Peterson, however, was informed in fiscal 2004 that capitalized MIS labor was excessive. While +Peterson expressed concerns to senior management regarding the level of capitalization, he failed +to take action to prevent or implement accounting controls designed to prevent AIPC from +capitalizing excessive amounts of MIS labor. +9. During its 2003 fiscal year, AIPC acquired another pasta company and used a +$500,000 acquisition reserve to improperly reduce its cost of goods sold. AIPC closed the +acquisition and booked the reserve at the beginning of fiscal year 2003. AIPC then budgeted for +the reserve to be amortized ratably during the fiscal year such that AIPC’s cost of goods sold +would be reduced by $125,000 per quarter. Peterson calculated the $500,000 reserve based on an +estimate of the excess price AIPC expected to pay for additional wheat it would use during the +3 + +fiscal year as a result of the acquisition. Although the actual wheat prices AIPC paid were +substantially lower than estimated, Peterson and others permitted the reserve to be amortized as +budgeted instead of adjusting the reserve to reflect AIPC’s actual wheat costs as required by +GAAP. +10. During the first quarter of its 2004 fiscal year, AIPC failed improperly to write-off a +receivable in the amount of $332,000. AIPC had booked a $632,000 receivable based on a lawsuit +filed by the company alleging that a supplier sold defective packaging materials to AIPC. The +parties reached a settlement under which the supplier paid $300,000 in cash to AIPC and provided +AIPC the right to make future purchases of packaging materials from the supplier at a discount. +AIPC maintained improperly $332,000 of the receivable on its books based on the right to make +discounted purchases. During the closing process for the first quarter of its 2004 fiscal year, +Peterson knew or should have known that AIPC had determined not to purchase additional +packaging materials from the supplier. AIPC amortized the receivable, but Peterson and others +knew or should have known that the company was required by GAAP to write-off the receivable +immediately. +11. In fiscal year 2003, AIPC paid less for durum wheat than was budgeted in its +standard manufacturing costs, such that the company’s fiscal year 2003 year-end inventory balance +(which was valued at standard costs) was overstated by approximately $1 million. Senior AIPC +executives directed accounting personnel not to reduce the value of its fiscal year-end inventory to +the lower actual cost, and thereby overstated pretax income, contrary to GAAP. Peterson prepared +a summary schedule for senior AIPC executives that included this issue and Peterson knew or +should have known it was contrary to GAAP. +12. During the third and fourth quarters of its 2002 fiscal year, AIPC managers +determined that one of the company’s customers might fail to purchase the minimum amount of +pasta required under its supply agreement with AIPC. Under the supply agreement, if such a +shortfall materialized, the customer would have had to pay AIPC, as a penalty for the shortfall, a +higher price for its pasta purchases during fiscal year 2003. Based on the estimated price increase, +AIPC improperly booked a total of approximately $383,000 of revenue for the third and fourth +quarters of fiscal year 2002 rather than defer the revenue to fiscal 2003. Peterson was informed of +this accounting and knew or should have known that it was contrary to GAAP. During fiscal year +2003, another AIPC customer failed to purchase the minimum amount of pasta set forth in its +supply agreement with AIPC and, as a result, agreed to a price increase to make up the shortfall, of +up to $320,000 on future purchases of pasta beginning in fiscal year 2004. AIPC improperly +booked the $320,000 as fiscal year 2003 revenue rather than fiscal year 2004 revenue. Peterson +was informed of the price increase and knew or should have known that AIPC’s accounting was +contrary to GAAP. +13. For fiscal year 2004, AIPC budgeted the elimination of its $670,000 compensated +absences liability based on a plan to adopt a "use-or-lose" compensated absence policy that did not +permit employees to carry over unused time-off from one year to the next. In the first quarter of +2004, AIPC eliminated the full amount of the liability and thereby reduced expenses by $670,000. +Instead of fully implementing the use-or-lose policy as budgeted, AIPC only modified the policy +and permitted employees to carry over up to 40 hours of unused compensated absences into fiscal +4 + +2005, with no hours to be carried over beyond fiscal 2005. Peterson learned of the modification +indicating that the "use-or-lose" policy was not implemented fully in fiscal 2004. Thus, Peterson +knew or should have known that AIPC's accounting in fiscal 2004 was contrary to GAAP. +14. At the end of fiscal year 2003, AIPC negotiated an agreement to produce new low- +carbohydrate pasta products for a customer. During the first quarter of fiscal year 2004, AIPC +executives learned that the expenses in the plant where the new products were being manufactured +were higher than the amounts that AIPC had budgeted. AIPC determined that the excess costs +with respect to the new products related to research and development. Instead of recognizing the +excess costs as a period expense, senior AIPC executives directed accounting personnel improperly +to book a $1 million receivable on the grounds that the customer would reimburse AIPC for the +costs. Recording the $1 million receivable was contrary to GAAP because the customer had not +agreed to reimburse AIPC for research and development costs and never did so. Peterson reviewed +an agreement between AIPC and the customer that stated the customer was not obligated to +reimburse AIPC for research and development costs, and thus he knew or should have known that +AIPC's accounting was contrary to GAAP. +15. Section 13(a) of the Exchange Act requires all issuers with securities registered +under Section 12 of the Exchange Act to file periodic and other reports with the Commission +containing such information as the Commission’s rules prescribe. Pursuant to Section 13(a), the +Commission promulgated Rules 13a-1, 13a-11 and 13a-13 that require issuers to file annual, +current, and quarterly reports, respectively. The reporting requirements necessarily include the +requirement that the issuer supply accurate information. In addition, Rule 12b-20 requires that +reports contain such further material information as may be necessary to make the required +statements, in light of the circumstances under which they were made, not misleading. As a result +of the conduct described herein, Peterson was a cause of AIPC’s violations of Section 13(a) of the +Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. +16. Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act require reporting +companies to make and keep books, records, and accounts which, in reasonable detail, accurately +and fairly reflect their transactions and dispositions of their assets, and to devise and maintain a +system of internal accounting controls sufficient to provide reasonable assurances that transactions +are recorded as necessary to permit preparation of financial statements in accordance with +generally accepted accounting principles. As a result of the conduct described herein, Peterson +was a cause of AIPC’s violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. +5 + +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Peterson’s Offer. +Accordingly, it is hereby ORDERED that: +Pursuant to Section 21C of the Exchange Act, Respondent Peterson cease and desist from +causing any violations and any future violations of Sections 13(a) and 13(b)(2)(A) and (B) of the +Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. + By the Commission. + F lorence E. Harmon + A cting Secretary +6 diff --git a/raw/aaer/2008/AAER-2880.pdf b/raw/aaer/2008/AAER-2880.pdf new file mode 100644 index 0000000000000000000000000000000000000000..77d3086d65864bc101550f9557f985a70c858712 Binary files /dev/null and b/raw/aaer/2008/AAER-2880.pdf differ diff --git a/raw/aaer/2008/AAER-2880.txt b/raw/aaer/2008/AAER-2880.txt new file mode 100644 index 0000000000000000000000000000000000000000..c8eb6a1464c29d5bb40fb8a533c648c07e0c9017 --- /dev/null +++ b/raw/aaer/2008/AAER-2880.txt @@ -0,0 +1,121 @@ + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58553 / September 16, 2008 + +ACCOUNTING AND AUDITING ENFORFCEMENT +Release No. 2880 / September 16, 2008 + +ADMINISTRATIVE PROCEEDING +File No. 3-13200 + + + : + In the Matter of : ORDER INSTITUTING ADMINISTRATIVE + : PROCEEDINGS PURSUANT TO RULE 102(e) + Nancy R. Heinen, : OF THE COMMISSION’S RULES OF + : PRACTICE, MAKING FINDINGS, AND + Respondent. : IMPOSING REMEDIAL SANCTIONS + : + +: + +I. + + The Securities and Exchange Commission (“Commission”) deems it appropriate and in +the public interest that public administrative proceedings be, and hereby are, instituted against +Nancy R. Heinen (“Heinen” or “Respondent”) pursuant to Rule 102(e)(3)(i) of the Commission’s +Rules of Practice. +1 + +II. + + In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) 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 her and the subject matter of +these proceedings, and the findings contained in Section III. Paragraph 4 below, which are + + +1 Rule 102(e)(3)(i) provides, in relevant part, that: + + The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any attorney . . . who has been +by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his or her +misconduct in an action brought by the Commission, from violating or aiding and abetting the +violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. + + + 2 + +admitted, Respondent consents to the entry of this Order Instituting Administrative Proceedings +Pursuant to Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing +Remedial Sanctions (“Order”), as set forth below. + +III. + + On the basis of this Order and Respondent’s Offer, the Commission finds that: + + 1. Heinen, age 51, is an attorney lic ensed to practice in California. From +September 1997 through May 2006, Heinen was Senior Vice President, General Counsel and +Corporate Secretary of Apple, Inc. (“Apple”). + + 2. Apple was, at all relevant times, a Delaware corporation headquartered in +Cupertino, California that designed, developed and manufactured personal computers, portable +digital music players, and related products. At all relevant times, Apple’s common stock was +registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 +(“Exchange Act”) and was listed on the NASDAQ National Market. + + 3. On April 24, 2007, the Commission filed a Complaint against Heinen in +the United States District Court for the Northern District of California, entitled SEC v. Nancy R. +Heinen (Civil Action No. 5:07-cv-02214-JF). On May 16, 2007, the Commission filed an +Amended Complaint in that action. + + 4. On August 26, 2008, the court entere d an order permanently enjoining +Heinen, by consent, from future violations of Section 17(a) of the Securities Act of 1933 +(“Securities Act”) and Sections 10(b), 13(b)(5), and 16(a) of the Exchange Act and Rules 10b-5, +13b2-1, 13b2-2 and 16a-3 thereunder, and from aiding and abetting violations of Sections 13(a), +13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, and +14a-9 thereunder. Heinen was also ordered to pay $1,575,000 in disgorgement, plus +$400,219.78 in prejudgment interest; and a $200,000 civil money penalty. + + 5. The Commission’s Amended Complain t alleged, among other things, that +on two occasions in 2001 Apple issued large stock options grants to top executives at the +company, but in each case improperly backdated the grants to make it appear that they had +been made at an earlier date, when Apple’s stock price was lower. As a result, the Amended +Complaint alleged, Apple failed to recognize and thereby concealed from investors millions of +dollars of expenses related to the issuance of the options. The Amended Complaint alleged +that Heinen, as Apple’s General Counsel and Corporate Secretary, participated in causing the +options to be backdated and in preparing corporate records that concealed the backdating. In +addition, the Amended Complaint alleged, Heinen received options on 400,000 shares of +Apple stock in one of the backdated grants, and thus personally benefited from the backdating. + +IV. + + + + 3 + + In view of the foregoing, the Commission d eems it appropriate and in the public interest +to impose the sanction agreed to in Respondent Heinen’s Offer. + + Accordingly, it is hereby ORDERED, effective immediately, that: + + Heinen is suspended from appearing or practicing before the Commission as an +attorney for three (3) years. Furthermore, before appearing and resuming practice before the +Commission, Heinen must submit an affidavit to the Commission’s Office of General Counsel +truthfully stating, under penalty of perjury, that she has complied with the Order; that she is not +the subject of any suspension or disbarment as an attorney by a court of the United States or of +any state, territory, district, commonwealth, or possession; and that she has not been convicted of +a felony or misdemeanor involving moral turpitude as set forth in Rule 102(e)(2) of the +Commission’s Rules of Practice. + + By the Commission. + + F l o r e n c e E . H a r m o n + A c t i n g S e c r e t a r y + \ No newline at end of file diff --git a/raw/aaer/2008/AAER-2882.txt b/raw/aaer/2008/AAER-2882.txt new file mode 100644 index 0000000000000000000000000000000000000000..760b0f4cd82d033c92c7516f3b355ce922da07d1 --- /dev/null +++ b/raw/aaer/2008/AAER-2882.txt @@ -0,0 +1,340 @@ + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58605 / September 19, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2882 / September 19, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13226 +In the Matter of +DAVID BLAIN, CPA, +Respondent. +ORDER INSTITUTING PUBLIC +ADMINISTRATIVE AND CEASE-AND- +DESIST PROCEEDINGS PURSUANT TO +SECTION 21C OF THE SECURITIES +EXCHANGE ACT OF 1934 AND RULE +102(e) OF THE COMMISSION’S RULES +OF PRACTICE, MAKING FINDINGS, AND +IMPOSING REMEDIAL SANCTIONS AND +A CEASE-AND-DESIST ORDER +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate that public +administrative and cease-and-desist proceedings be, and hereby are, instituted against David Blain, +CPA (“Respondent” or “Blain”) pursuant to Section 21C of the Securities Exchange Act of 1934 +(“Exchange Act”) and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice.1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) 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 +Rule 102(e)(1)(iii) provides, in pertinent part, that: +The Commission may . . . deny, temporarily or permanently, the +privilege of appearing or practicing before it . . . to any person who +is found . . . [t]o have willfully violated, or willfully aided and +abetted the violation of any provision of the Federal securities laws +or the rules and regulations thereunder. +1 +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 him and the subject matter of these +proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Public +Administrative and Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities +Exchange Act of 1934 and Rule 102(e) of the Commission’s Rule of Practice, Making Findings, +and Imposing Remedial Sanctions and a Cease-and-Desist Order, as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds2 that: +SUMMARY + 1. These proceedings arise out of Blain’s role in improper accounting practices within +the Insurance Services division of The BISYS Group, Inc., a leading provider of financial products +and support services. Based primarily on improper accounting within the company’s Insurance +Services division from July 2000 through December 2003, in May 2007, BISYS was the subject of +a settled Commission enforcement action charging it with violations of the financial reporting, +books-and-records, and internal control provisions of the Exchange Act. +2. The improper accounting practices at BISYS were the product of a corporate focus +on meeting aggressive, short-term earnings targets and a lax internal control environment. +Throughout the relevant period, Insurance Services was a major factor in the company’s success in +achieving those targets. The division’s finance department responded to the corporate focus on +making numbers by engaging in improper accounting practices. +3. For much of the period of the improper accounting, Blain was one of three directors +of finance in the Insurance Services division and participated in a variety of improper accounting +practices at the behest of his supervisor, the vice president of finance for the Insurance and +Education Services group. Specifically, from at least July 2000 until at least March 2002, Blain +participated in the following accounting practices that had the purpose and effect of materially +overstating BISYS’s income and revenue in the company’s reported financial results and rendering +its books and records inaccurate: (1) at least one instance of improper and unsupportable +acquisition accounting – the recording as revenue to BISYS of the bonus commission income that +had already been earned but not recorded by an acquired company, Ascensus Insurance Services; +(2) the creation of inflated and unsupportable receivables for commissions on the sale of a +particular insurance product, “419” plans; and (3) the creation of phony revenue entries that were +reversed promptly after BISYS reported its results for the quarter. +The findings herein are made pursuant to Respondent’s Offer of Settlement and are not +binding on any other person or entity in this or any other proceeding. +2 +2 +4. These accounting practices and others resulted in the misstatement of the +company’s operating results, enabled the company to meet earnings targets, and resulted in the +filing of inaccurate reports with the Commission and the creation and maintenance of inaccurate +books and records from at least July 2000 through at least April 2003. +5. By virtue of this conduct, Blain willfully aided and abetted, and was a cause of, +BISYS’s 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. +RESPONDENT + 6. David Blain, age 37, a certified public accountant licensed in Pennsylvania, was a +director of finance in Insurance Services from 1998 until April 2003, reporting during most of that +period to the vice president of finance for the Insurance and Education Services Group. From +1993 to 1998, he was an accountant at Coopers and Lybrand. Blain is currently a principal at a +registered public accounting firm in Pennsylvania. +FACTS +Background +7. At all relevant times, BISYS was a publicly-held Delaware corporation +headquartered in New York, New York, with securities registered pursuant to Section 12(b) of the +Exchange Act. As a result of the improper accounting practices within Insurance Services and +other divisions, the company ultimately issued two restatements, filing a $103.7 million +restatement in August 2004 and a second restatement of $108.7 million in April 2006. The bulk of +the restatements concerned improper accounting for Insurance Services’ revenues in fiscal years +2001 through 2003, including improper acquisition accounting and the failure to adequately +reserve for uncollectible commission receivables. On May 23, 2007, the Commission filed a +settled civil action against BISYS charging the company with violating Sections 13(a), 13(b)(2)(A) +and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. See +SEC v. The BISYS Group, Inc., 07-Civ-4010 (RJS) (S.D.N.Y.); see also Accounting and Auditing +Enforcement Release No. 2611 (May 23, 2007). +8. During the relevant period, directly and through wholly-owned subsidiaries, BISYS +provided products and support services to financial institutions such as insurance companies, banks +and mutual funds.3 At the time, BISYS was divided into three business groups: (1) Investment +Services; (2) Insurance and Education Services; and (3) Information Services. Insurance and +Education Services was, during the relevant period, comprised of the Insurance Services division +and the Education Services division. Through the Insurance Services division, BISYS was the +nation’s largest independent distributor of life insurance. It essentially acted as an insurance +After the relevant period, BISYS sold some of its businesses. On August 1, 2007, the +company was acquired by Citigroup, Inc. +3 +3 + +broker, and its revenues primarily consisted of commissions on the sale and renewal of insurance +policies. +9. From 2000 through 2003, BISYS reported tremendous growth, consistently +reporting profitable quarters and record earnings. This growth was driven in large part by +Insurance Services, which the company described to analysts as its “fastest growing and highest +margin business.” As a percentage of the company’s total revenues, the revenues produced by +Insurance Services increased from 15.7% in fiscal year 2000 to 25.5% in fiscal year 2003.4 In fact, +however, a material portion of Insurance Services’ growth was illusory and much of it was the +result of intentional efforts to make numbers and blatant deviations from Generally Accepted +Accounting Principles (“GAAP”). + 10. Blain’s supervisor, the vice president for finance for the Insurance and Information +Services group, responded to the corporate focus on meeting earnings targets by urging and often +directing Blain and other personnel within Insurance Services’ finance department to apply what +the supervisor characterized as “smoke and mirrors accounting.” Quarterly closings for the +division were a scramble to find revenue, with a make-numbers-at-all-costs approach. These +efforts paid off, making Insurance Services the major driver in the company’s reported growth and +ability to meet Wall Street expectations. +Improper Accounting for the Ascensus Acquisition +11. In July 2000, BISYS acquired Ascensus, a privately-held insurance company. +Ascensus used the accrual method of accounting and thus for commissions earned had already +recorded revenue on its income statement and the associated receivables on its balance sheet. +While performing due diligence for the acquisition, however, Blain and others learned that +Ascensus’s final balance sheet understated receivables by over $4 million because Ascensus had +earned but failed to record over $4 million of bonus commission revenue pertaining to fiscal +1999 and 2000 in its income statements. (Bonus commissions are additional commissions on the +sale of insurance, based on the achievement of certain sales targets.) +12. Blain failed to record a receivable for this additional income as an asset on +Ascensus’s opening balance sheet, as required by GAAP.5 Instead, following the acquisition, he +4 BISYS’s fiscal year ended on June 30th. Thus, for example, “fiscal year 2001” refers to +the year ended June 30, 2001. +5 The applicable GAAP, Accounting Principle Board Opinion No. 16, Business +Combinations, required that all: +assets acquired, . . . and liabilities assumed in a business combination whether or +not shown in the financial statements of the acquired company should be assigned a +portion of the cost of the acquired company, normally equal to their fair values at +date of acquisition [and that acquiring companies establish] receivables at present +4 + +booked Ascensus’s unrecorded bonus commission revenue as revenue for BISYS over a period of +several months, recording over $4 million of revenue for BISYS between August and December +2000. Blain knew that this accounting failed to comply with GAAP and inflated the company’s +reported results but accounted for the revenue in this manner because his supervisor directed him +to do so. +13. As a result, for the quarter ended September 30, 2000, BISYS improperly recorded +$3.2 million in revenue related to the bonus commission income earned by Ascensus, which +resulted in BISYS overstating income before taxes by approximately 18%.6 In addition, the +company was able to report earnings per share (“EPS”) of $0.22, exceeding analysts’ expectations +(excluding merger charges) by $0.01. Without the revenue attributable to the Ascensus bonus +commission income, EPS would have been $0.19 and fallen short of analysts’ expectations. +14. For the quarter ended December 31, 2000, the improper accounting for the bonus +commission income earned by Ascensus inflated BISYS’s revenue by $1.2 million, which resulted +in its overstating income before taxes by approximately 4%. On January 22, 2001, BISYS issued +an earnings release for the quarter, announcing “Record Revenues Up 22%” from the same quarter +the previous year. The company reported $0.32 EPS for the quarter, matching analysts’ mean and +median expectations. Insurance Services was the driving force behind this apparent improvement, +with an announced segment increase of $17.9 million or 81.4%. Without the revenue inflation +attributable to the accounting for the Ascensus-earned bonus commissions, BISYS’s results for the +quarter would have fallen short of analysts’ expectations by $0.01. When the company restated, +the income attributable to the bonus commissions earned by Ascensus represented approximately +60% of the acquisition income restated for fiscal year 2001. +15. Blain participated in another instance of improper accounting related to the +Ascensus acquisition. In June 2001, nearly a year after the company had acquired Ascensus and +the last month of fiscal 2001, BISYS became aware that a vendor called Quotesmith claimed that it +was owed monies by Ascensus. Over the next six months, BISYS investigated the matter and +reached a settlement with Quotesmith requiring BISYS to pay Quotesmith $551,000. Most of the +$551,000 pertained to policies placed after the Ascensus acquisition and accordingly was properly +recorded as BISYS’s expense. In January 2002, at his supervisor’s direction, Blain arranged to +capitalize this expense as goodwill from the acquisition, thereby reducing BISYS’s expenses, +under the purported rationale that a liability for these payments should have been recorded at the +acquisition date. In addition, Blain inflated the amount by $256,000, an amount that had already +been booked and paid by Ascensus prior to the acquisition and for which BISYS had therefore +values of amounts to be received determined at appropriate current interest rates, +less allowances for uncollectibility and collection costs, if necessary. +Because BISYS recorded revenue on a net basis – the company deducted the amount it +owed/paid out to the agents when calculating the revenue number – the amount of revenue +improperly recorded equals the inflation of income before taxes. +5 +6 +incurred no liability or expense. As a result, BISYS reduced its expenses by $807,000, with a +corresponding increase to goodwill. This accounting was clearly improper and inflated BISYS’s +pre-tax income for fiscal years 2001 and 2002 by a total of $718,000.7 +16. To achieve the desired accounting, at his supervisor’s urging, Blain lied to +BISYS’s controller, who was under the correct impression that the $256,000 was a pre- +acquisition expense paid by Ascensus, and therefore not attributable to BISYS, and raised the +issue with Blain. In an e-mail, Blain told his supervisor that the controller “was wise to what we +were trying to do,” to which his supervisor responded “can’t you backdate?” (The reference to +backdating was erroneous because what Blain and his supervisor sought to do was to convince +the controller that the payments to Quotesmith were made later than they actually were, i.e., that +BISYS, rather than Ascensus, had made the payments.) Blain responded, “I can do whatever +you need me to do. Let me talk to [the controller] and tell him that I discovered that these +commissions were actually paid [by BISYS] as part of the settlement with Quotesmith.” In an e- +mail he sent the controller later that day, Blain did that, falsely telling him that the Quotesmith +payment followed the acquisition and should therefore be included in the goodwill adjustment. +Other Kinds of Improper Accounting in Which Blain Participated +17. Blain also inflated BISYS’s results by increasing the rate at which Insurance +Services accrued commissions on the sale of so-called “419 plans” – insurance products marketed +to companies seeking to qualify for tax benefits related to Internal Revenue Code Sections 419 and +419A. 8 Initially, BISYS accrued as commission revenue five percent of its total sales of a carrier’s +419 and 419A products. In December 2001, Blain’s supervisor told Blain that Insurance Services’ +results for November were below its forecasted results. As a result, in order to improve the +7 This accounting inflated pre-tax income in two ways: (1) by eliminating the $551,000 +expense for the settlement payments BISYS agreed to make, and (2) by crediting BISYS +with reductions to expenses for the $256,000 BISYS purportedly made but which in fact +Ascensus had made and for which BISYS had not recorded an expense. The elimination +of most of the $551,000 expense to BISYS was improper because most of that expense +pertained to policies placed after the acquisition, and therefore under GAAP should have +been treated as BISYS’s expense and not a liability of Ascensus. See FAS 141 and +Accounting Principle Board Opinion No. 16, Business Combinations (stating that the +liabilities of an acquired entity must be recorded at fair value as of the date of the +acquisition). The reduction of expenses in the amount of the $256,000 paid by Ascensus +prior to the acquisition was improper because BISYS had not incurred the expense, and +did not make any payments. Ultimately, BISYS restated all but $89,000 of the $807,000, +based on its conclusion that only that amount had been paid by BISYS and pertained to +the period before the acquisition. +8 Internal Revenue Code Sections 419 and 419A deal with tax treatment of contributions to +multi-employer employee benefit plans that can be used for life, disability and severance +payments. +6 + +division’s numbers, and without any reasonable basis for doing so, Blain increased the 419 accrual +from 5% to 10%, resulting in an additional $1.15 million in revenue for November 2001. At the +end of December 2001, in order to further increase revenue, Blain increased the 419 accrual rate to +15%. This accrual increase enabled BISYS to book an additional $1.5 million of revenue in +December 2001. There was no basis for these increases in the accrual for 419 plan commissions. +18. The unsupported increases in the 419 revenue accruals resulted in an overstatement +of BISYS’s income before taxes for the quarter ended December 31, 2001 of $2.65 million, or 7%. +They also resulted in an overstatement of EPS of $0.03 and allowed the company to exceed +analysts’ expectations for the quarter by one cent. The corresponding inflated receivable of $2.65 +million was never collected and was written off when the company restated. +19. On occasion, at his supervisor’s behest, Blain also recorded revenue solely to meet +revenue projections, making unsupported revenue entries and offsetting expense adjustments, +which were promptly reversed after BISYS announced its inflated revenues. +20. For example, in January 2001, at his supervisor’s direction and for the sole purpose +of increasing revenue for the quarter ended December 31, 2000, which was falling short of Wall +Street expectations, Blain directed a clerk in the finance department to book $1 million of renewal +commission income while creating an offsetting expense accrual. Simultaneously, Blain directed +the clerk to reverse the entries effective the next month, reducing revenue and increasing expenses +for the next quarter. The company reported revenue of $168.3 million for the quarter and without +the false entry would have reported revenue of $167.3 million. These reported results narrowly +missed at least three analysts’ revenue expectations and without the false entry, the revenue miss +would have been wider. +21. Similarly, the following year, Blain instructed accounting personnel to make +offsetting revenue and expense entries of $2.05 million for the quarter ended December 31, 2001, +which again were reversed in the next quarter. He did so at the direction of his supervisor, who +had told him that senior management was looking to Insurance Services for additional revenue +because the company’s results were falling short of expectations. Although it would have met +analysts’ consensus revenue estimates without the additional $2.05 million in reported revenue, +that additional revenue enabled BISYS to beat at least one analyst’s revenue expectations. +VIOLATIONS +22. At all relevant times, BISYS was a reporting company and subject to the provisions +of Section 13(a) of the Exchange Act. Section 13(a) of the Exchange Act and Rules 13a-1 and +13a-13 thereunder require issuers with securities registered pursuant to Section 12 of the Exchange +Act to file, respectively, annual and quarterly reports with the Commission. Inherent in these +provisions is the requirement that such filings be accurate. See, e.g., United States v. Bilzerian, +926 F.2d 1285, 1298 (2d Cir. 1991); SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 (D.C. Cir. +1978) (citing SEC v. IMC Int’l, Inc., 384 F.Supp. 889, 893 (N.D. Tex. 1974). Rule 12b-20 under +the Exchange Act requires disclosure of such additional material information as may be necessary +to make the required statements made in the reports not misleading. +7 + +23. BISYS filed annual and quarterly reports with the Commission that materially +misstated its results for the quarters ended September 30, 2000 and December 31, 2000, the fiscal +year ended June 30, 2001, and the quarters ended September 30, 2001 and December 31, 2001, and +other periods. Accordingly, BISYS violated Section 13(a) of the Exchange Act and Rules 12b-20, +13a-1 and 13a-13. +24. Section 13(b)(2)(A) of the Exchange Act requires Section 12 registrants to make +and keep books, records, and accounts that accurately and fairly reflect the transactions and +dispositions of their assets. Section 13(b)(2)(B) of the Exchange Act requires Section 12 +registrants to devise and maintain a system of internal accounting controls sufficient to provide +reasonable assurances that transactions are recorded as necessary to permit the preparation of +financial statements in conformity with GAAP and to maintain the accountability of assets. +25. BISYS violated Section 13(b)(2)(A) of the Exchange Act by failing to make and +keep books, records and accounts that accurately, and in reasonable detail, reflected its true +financial condition. BISYS also failed to devise and maintain a system of internal accounting +controls sufficient to provide reasonable assurances that transactions were recorded as necessary to +permit preparation of financial statements in accordance with GAAP, thereby violating Section +13(b)(2)(B) of the Exchange Act. +FINDINGS +26. Based on the foregoing, the Commission finds that Blain willfully aided and abetted +and caused BISYS’s 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. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Blain’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Blain shall cease and desist from causing any violations and any future violations of +Sections 13(a), 13(b)(2)(A) and 12(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1 and +13a-13 thereunder. +B. Blain is denied the privilege of appearing or practicing before the Commission as +an accountant. +C. After one year from the date of this order, Blain may request that the +Commission consider his reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +8 + +1. a preparer or reviewer, or a person responsible for the preparation or review, +of any public company’s financial statements that are filed with the Commission. Such an +application must satisfy the Commission that Blain’s work in his practice before the Commission +will be reviewed either by the independent audit committee of the public company for which he +works or in some other acceptable manner, as long as he practices before the Commission in this +capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Blain, or the public accounting firm with which he is associated, is +registered with the Public Company Accounting Oversight Board (“Board”) in accordance with the +Sarbanes-Oxley Act of 2002, and such registration continues to be effective; +(b) Blain, or the registered public accounting firm with which he is +associated, has been inspected by the Board and that inspection did not identify any criticisms of or +potential defects in the Blain’s or the firm’s quality control system that would indicate that the +Blain will not receive appropriate supervision; +(c) Blain has resolved all disciplinary issues with the Board, and has +complied with all terms and conditions of any sanctions imposed by the Board (other than +reinstatement by the Commission); and +(d) Blain acknowledges his responsibility, as long as he appears or +practices before the Commission as an independent accountant, to comply with all requirements of +the Commission and the Board, including, but not limited to, all requirements relating to +registration, inspections, concurring partner reviews and quality control standards. +D. The Commission will consider an application by Blain to resume appearing or +practicing before the Commission provided that his state CPA license is current and he has +resolved all other disciplinary issues with the applicable state boards of accountancy. However, if +state licensure is dependent on reinstatement by the Commission, the Commission will consider an +application on its other merits. The Commission’s review may include consideration of, in +addition to the matters referenced above, any other matters relating to Blain’s character, integrity, +professional conduct, or qualifications to appear or practice before the Commission. +By the Commission. + F lorence E. Harmon + A cting Secretary +9 diff --git a/raw/aaer/2008/AAER-2885.txt b/raw/aaer/2008/AAER-2885.txt new file mode 100644 index 0000000000000000000000000000000000000000..30732d2448b3f327e4dc6430a5971627a003b1a5 --- /dev/null +++ b/raw/aaer/2008/AAER-2885.txt @@ -0,0 +1,193 @@ + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58636 / September 24, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2885 / September 24, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13236 +In the Matter of +BALLY TECHNOLOGIES, +INC., +Respondent. +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 +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 Bally Technologies, Inc. (“Bally” or +“Respondent”). +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) 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 it and the subject matter of these +proceedings, which are admitted, Respondent consents 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 (“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds1 that: +Respondent +1. Bally, a Nevada corporation based in Las Vegas, Nevada, designs, manufactures +and distributes gaming machines and monitoring systems for casinos. Bally operates on a fiscal +year that ends on June 30. Bally’s common stock is registered under Section 12(b) of the +Exchange Act. Bally trades on the New York Stock Exchange. +Background +2. Bally materially misstated its reported revenue in its financial statements for the +fiscal year ended June 30, 2003, the first two quarters of fiscal 2004, and the second and third +quarters of fiscal 2005. Bally included its improper financial results in press releases and filings +with the Commission relating to these periods. Bally also made materially misleading disclosures +and omissions in certain filings and public statements during the relevant period. In December +2005 and November 2006, Bally restated its financial results for the affected periods. +3. Bally’s reported revenues were misstated due to its improper recognition of revenue +on a bill and hold basis and revenue recognition on other transactions that was improper under +Generally Accepted Accounting Principles (“GAAP”).2 +Bally’s Bill and Hold Transactions +4. Bally accounted for two types of transactions on a bill and hold basis. First, Bally +recognized revenue on a bill and hold basis on several individual sales to specific customers. +Second, Bally routinely recognized revenue on a bill and hold basis for games sold to New Jersey +casinos that were stored at quarter end in its Atlantic City, New Jersey warehouse. These games +were awaiting approval from New Jersey state regulators, which was required before the games +could be operated on a casino floor. +5. Bally’s improper bill and hold sales to both specific and New Jersey customers +resulted in the overstatement of its reported net sales revenue by $8.4 million in the fourth quarter +of fiscal 2003 and by $8.8 million and $10.2 million in the first and second quarters of fiscal 2004. +As a result, Bally should have reported net income from continuing operations for the fourth +quarter of fiscal 2003 of $12.2 million, rather than the $15 million that it did report. In the first +1 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding +on any other person or entity in this or any other proceeding. +2 A bill and hold sale is one in which delivery has not occurred, and requires adherence to specific criteria +before revenue can be recognized on the transaction. See In the Matter of Stewart Parness, Accounting and +Auditing Enforcement Rel. No. 108 (August 5, 1986), Staff Accounting Bulletin 104, Revenue Recognition. +2 + +quarter of fiscal 2004, Bally should have reported a net loss from continuing operations of $0.1 +million rather than income of $2.6 million. In the second quarter of fiscal 2004, Bally should have +reported net income from continuing operations of $11.1 million rather than the $14.2 million it +did report. In addition, these bill and hold sales led to a $.06 overstatement of Bally’s reported +earnings per share (“EPS”) for the fourth quarter of fiscal 2003 and $.05 and $.06 cent +overstatements of Bally’s reported quarterly EPS numbers in the first and second quarters of fiscal +2004, respectively. +6. Bally improperly recorded revenue on a bill and hold basis on one individual +customer transaction in the fourth quarter of fiscal 2003, three individual customer transactions in +the first quarter of fiscal 2004, and one individual customer transaction in the second quarter of +fiscal 2004. Bally improperly recorded revenue on the New Jersey transactions throughout this +period as well. Bally improperly recognized revenue on each of these transactions because it failed +to meet one or more of the bill and hold criteria. +7. For each transaction, Bally could not demonstrate that the customer requested that +the transaction take place on a bill and hold basis. Bally also failed to meet the requirement of a +fixed schedule for delivery on each of the bill and hold transactions. In four cases, Bally relied on +alleged delivery schedules that were indefinite and insufficient for purposes of GAAP. Moreover, +in three of the transactions, true risk of ownership had not passed to the customers. Bally also +failed to meet the criterion requiring completeness of the equipment in its bill and hold transactions +with one customer. Finally, Bally failed to segregate the bill and hold inventory for at least one +transaction. +8. Bally also improperly recognized revenue on a bill and hold basis for games it sold +to New Jersey customers when the games were stored in its New Jersey warehouse at quarter end. +The games were manufactured in Nevada and shipped, by Bally, to its New Jersey warehouse, to +await inspection by state regulators. The New Jersey games did not qualify for bill and hold +revenue recognition and Bally’s records do not support such revenue recognition. Specifically, +Bally failed to meet the criteria relating to risk of ownership passing to the buyer, fixed schedule +for delivery, and customer request that the transaction be on a bill and hold basis. +Improper Disclosure Relating to Bill and Hold Transactions +9. Bally did not disclose its use of bill and hold practices, which it should have +disclosed under GAAP, in any of its public filings during fiscal 2003 and 2004. Instead, Bally’s +2003 and 2004 Forms 10-K and Forms 10-Q for 2004 contained the misleading disclosure that +“[r]evenue from sales of gaming machines is generally recognized at the time products are shipped +and title has passed to the customer.” This disclosure was misleading since it failed to explain that +Bally recognized revenue on a bill and hold basis. +10. Moreover, when the company stopped recognizing revenue on a bill and hold basis, +the company’s disclosures regarding its failure to meet earnings guidance for the quarter were +misleading. In its earnings press release dated April 21, 2004 and attached to a Form 8-K filed the +same day, Bally disclosed that “1,250 units to be delivered in the March 2004 quarter were delayed +3 + +until the June quarter at the request of three customers, due primarily to the delay in the completion +of their new or expanded gaming facilities being constructed.” However, these units were not +delayed due to construction. Instead, the revenue for these units was not recognized in the quarter +because Bally decided to stop recognizing revenue on a bill and hold basis. The company made a +similar disclosure in its earnings release call on April 21, 2004. +11. In addition, Bally’s disclosures regarding its first restatement were misleading. In +its Form 10-K for the year ended June 30, 2005, Bally stated that revenue recognition adjustments +were made because “the [c]ompany identified instances where the timing or amount of revenue +recognized was not in accordance with SOP 97-2,” which Bally had recently adopted. In reality, +revenue recognition was improper under any GAAP, including the accounting policies that the +company was using at the time revenue was first recognized. +Other Transactions Involving Improper Revenue Recognition Under GAAP +12. For the quarter ended December 31, 2004, Bally improperly recognized +approximately $3.8 million of revenue on a first shipment of games to an Oklahoma company that +had agreed to purchase 1,500 video poker games over the course of three quarters, beginning with +the second quarter ended December 31, 2004. Such revenue recognition was improper for two +reasons. First, as of the quarter end, Bally was aware that the customer could not meet its payment +obligations without a loan from its bank and that the customer’s loan application remained +pending. Collectibility of the receivable from the customer therefore was not reasonably assured, +as required by GAAP. Second, Bally had not fulfilled its obligation to obtain approval of the +games by an independent testing agency, which was necessary for the games to be legally operated +in Oklahoma. The delivery of the games to the customer therefore was not complete as of the +quarter end. +13. For the quarter ended March 31, 2005, Bally improperly recognized approximately +$6.8 million of revenue on two additional shipments of games to the Oklahoma customer. The +recognition of revenue on the second shipment was improper because that shipment was stored +temporarily at a Bally warehouse in Oklahoma and was not actually delivered to the customer until +April 6, 2005. More generally, shortly after the close of the quarter—and before Bally issued its +earnings release and filed its 10-Q—it became clear that the customer likely would not be able to +meet its payment obligations under the parties’ contract. On April 7, 2005, Bally learned that the +customer’s bank would not advance additional funds until the customer placed a high percentage +of games in tribal casinos and that the customer’s efforts to place games were going poorly. By the +end of April, Bally was considering a 12 month payment plan for the customer, but doubted the +customer’s ability to make payments under such an arrangement, even if it involved shifting the +bulk of their payment obligations to a balloon payment at the end of the term. Under these +circumstances, Bally had no basis for concluding that collection of amounts billed to the customer +was reasonably assured under GAAP. +14. For the quarter ended December 31, 2004, Bally also improperly recognized $5.65 +million in revenue on the capital lease of 375 games to a casino located in Washington. The +recognition of revenue was improper due to, among other things, a lack of persuasive evidence +4 + +that an arrangement existed, as required by GAAP. Bally relied on purchase orders issued by the +casino and other documents to recognize the revenue on the 375 games. These purchase orders +and other documents, however, did not reflect certain important terms of the transaction, notably +that the casino wanted to purchase, not lease the games, and the sale price that was eventually +agreed upon for the 375 games. +Violations +15. As a result of the conduct described above, Bally violated Section 13(a) of the +Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder, which require every issuer +of a security registered pursuant to Section 12 of the Exchange Act to file with the Commission +information, documents, and annual, current, and quarterly reports as the Commission may +require, and mandate that current and periodic reports contain such further material information +as may be necessary to make the required statements not misleading. +16. Because Bally improperly recorded revenue, its books, records and accounts did +not, in reasonable detail, accurately and fairly reflect its transactions and dispositions of assets. +17. In addition, Bally failed to implement internal accounting controls relating to its +revenue accounts which were sufficient to provide reasonable assurances that these accounts were +accurately stated in accordance with generally accepted accounting principles. +18. As a result of the conduct described above, Bally violated Section 13(b)(2)(A) of +the Exchange Act, which requires reporting companies to make and keep books, records, and +accounts which, in reasonable detail, accurately and fairly reflect their transactions and dispositions +of their assets. +19. Lastly, as a result of the conduct described above, Bally violated Section +13(b)(2)(B) of the Exchange Act, which requires all reporting companies to devise and maintain a +system of internal accounting controls sufficient to provide reasonable assurances that transactions +are recorded as necessary to permit preparation of financial statements in accordance with +generally accepted accounting principles. +Bally’s Remedial Efforts +20. In determining to accept the Offer, the Commission considered remedial +acts promptly undertaken by Respondent and cooperation afforded the Commission staff. +5 + +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Bally’s Offer. +Accordingly, it is hereby ORDERED that: +Pursuant to Section 21C of the Exchange Act, Respondent Bally 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, 13a-11, and 13a-13 thereunder. +By the Commission. +Florence E. Harmon +Acting Secretary +6 diff --git a/raw/aaer/2008/AAER-2888.txt b/raw/aaer/2008/AAER-2888.txt new file mode 100644 index 0000000000000000000000000000000000000000..d3319eefd4efb4e39bd1e59cc903fc548c0df661 --- /dev/null +++ b/raw/aaer/2008/AAER-2888.txt @@ -0,0 +1,1391 @@ + + + + + + + + + + + + + + + + SEC.gov | Norman Stumacher + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/504256","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Norman Stumacher , Civil Action No. 08-61518-CIV-SEITZ/O'SULLIVAN (S.D. Fla., filed September 24, 2008) + + SEC Files Settled Fraud Case Against Norman Stumacher, CPA, in Connection With His Audits of Video Without Boundaries, Inc. + + The Securities and Exchange Commission (Commission) today filed a settled civil action in the United States District Court for the Southern District of Florida, against Norman Stumacher (Stumacher), a New York-based accountant. The Commission's complaint charges Stumacher with violations of the antifraud provisions of the federal securities laws in connection with his audits of the financial statements for Video Without Boundaries, Inc. (Video), a consumer electronics company based in Fort Lauderdale, Florida. + + The Commission's complaint alleges that Video recorded fictitious revenue and assets through a number of accounting schemes, including improper revenue recognition, in violation of generally accepted accounting principles (GAAP). The complaint further alleges that Stumacher audited Video's 2002 and 2003 annual financial statements and issued audit reports containing audit opinions representing that the financial statements were presented in conformity with GAAP and that he conducted his audits in accordance with generally accepted auditing standards (GAAS). According to the complaint, these representations were false because Video's financial statements contained numerous departures from GAAP that materially overstated Video's revenues and understated its net losses. Moreover, contrary to Stumacher's audit reports, his audits were not conducted in accordance with GAAS because he failed to comply with professional standards related to field work and general standards in the performance of his audits. + + The Commission's complaint charges Stumacher with violating Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. Stumacher has consented to the entry of a final judgment, without admitting or denying the allegations in the complaint, ordering him to disgorge $25,000, with prejudgment interest of $8,749.11, and to pay a civil penalty in the amount of $20,000. + + In a related administrative and cease-and-desist proceeding, on September 23, 2008 the Commission issued a settled order against Stumacher finding that he engaged in improper professional conduct and violated Section 10(b) of the Exchange Act and Rule 10b-5, suspending permanently his privilege of practicing before the Commission pursuant to Rule 102(e)(1) of the Commission's Rules of Practice, and requiring him to cease and desist from committing or causing any further violations of the provisions charged. + + In a related civil action, the Commission charged Video and other individuals with violations of the registration and antifraud provisions of the federal securities laws. + + + + + SEC Complaint in this matter + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2891.txt b/raw/aaer/2008/AAER-2891.txt new file mode 100644 index 0000000000000000000000000000000000000000..3e7a7527ef3616c39e702cc5148db05a0e336b7f --- /dev/null +++ b/raw/aaer/2008/AAER-2891.txt @@ -0,0 +1,105 @@ +UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58668 / September 29. 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2891 / September 29, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13246 +: + : +In the Matter of : ORDER INSTITUTING +: ADMINISTRATIVE PROCEEDINGS +CAROLE D. ARGO, CPA, : PURSUANT TO RULE 102(e) OF THE +: COMMISSION’S RULES OF + Res pondent. : PRACTICE, MAKING FINDINGS, AND +: IMPOSING REMEDIAL SANCTIONS +: +____________________________________ : +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against Carole +D. Argo, CPA, (“Respondent” or “Argo”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules +of Practice.1 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer of +Settlement (the “Offer”) 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 her and the subject matter of these proceedings, and the findings +contained in paragraph three of Section III below, which are admitted, Respondent consents to the +entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the +Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions (“Order”), as +set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Respondent Carole Argo, age 47, was licensed as a certified public +accountant (“CPA”) by the State of New York in 1987. In June 2008, Argo agreed to surrender her +CPA license to the State of New York. From June 1999 through June 2004, Argo served as senior +vice president and chief financial officer (“CFO”) of SafeNet Inc. (“SafeNet” or the “Company”). +Argo was SafeNet’s president and chief operating officer from June 2004 until October 2006, when +she resigned as an officer of the Company. From April 2006 until her resignation in October 2006, +Argo also acted as SafeNet’s interim CFO. +2. SafeNet, Inc. is a Delaware corporation, with its headquarters in Belcamp, +Maryland. SafeNet produces information security software products. During the relevant period, +the Company’s common stock was registered with the Commission pursuant to Section 12(g) of the +Exchange Act and listed on the NASDAQ National Market under the symbol “SFNT.” In 2006, the +NASDAQ National Market became an “exchange”, and as a result, the Company’s common stock +was registered under Section 12(b), and traded on the NASDAQ National Market until April 12, +2007, when SafeNet was taken private as part of a private equity transaction. +3. On August 1, 2007, the Commission filed a complaint against Argo in SEC +v. Carole Argo, Civil Case No, 07-1397 (RWR)(D.D.C). On September 24, 2008, the court entered +an order permanently enjoining Argo, by consent, from future violations of: Section 17(a) of the +Securities Act of 1933 (“Securities Act”), Sections 10(b), 13(b)(5), 14(a) and 16(a) of the Securities +Exchange Act of 1934 (“Exchange Act”) and Exchange Act Rules 10b-5, 13a-14, 13b2-1, 13b2-2, +14a-9, and 16a-3; and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and +13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and 13a-13. Argo was +also prohibited, for a period of ten years, from acting as an officer or director of any issuer that has a +class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file +reports pursuant to Section 15(d) of the Exchange Act, and was ordered to pay a civil penalty of +$50,000 within six months from the date of entry of the judgment. The court further ordered that to +the extent that, within six months from date of entry of the judgment, Argo makes any payments to +satisfy all or some of the criminal fine imposed in United States v. Argo, those payments will +reduce, on a dollar for dollar basis, Argo’s liability for the $50,000 civil penalty. +2 + +4. The Commission’s complaint alleged that, among other things, Argo and +others, from at least the fourth quarter 2000 through the fourth quarter of 2005, participated in a +fraudulent scheme to backdate option grants to take advantage of low points in SafeNet’s stock +price, without causing SafeNet to record a compensation expense for those option grants, as +required by Generally Accepted Accounting Principles. The complaint further alleged that, in +furtherance of the scheme, Argo routinely looked back and selected historical dates when SafeNet’s +stock price had closed at or near the low for a given period to use as grant dates for SafeNet option +grants. According to the complaint, by selecting these highly favorable dates and causing options to +be granted on dates when she knew they would be “in-the-money”--that is, the exercise price of the +options was lower than the market price of the stock on the date the options were granted -- Argo +created an opportunity for herself and others at SafeNet to reap substantial profits. The complaint +also alleged that Argo then backdated documents to conceal from SafeNet’s investors and outside +auditors that SafeNet was issuing in-the-money option grants. In addition, the complaint alleged +that, in connection with this scheme, from at least the fourth quarter of 2000 through the second +quarter of 2006, Argo prepared and/or reviewed proxy statements, periodic reports, and Securities +Act registration statements that she knew, or was reckless in not knowing, contained materially +false and misleading statements and omissions concerning SafeNet’s financial condition and +options granting practices. +5. On August 1, 2007, the United States Attorney’s Office for the Southern +District of New York indicted Argo for her role in the options backdating scheme at SafeNet. On +January 28, 2008, Argo pleaded guilty to one count of securities fraud in United States v. Argo, +1:07CR0683-01 (JSR). In connection with this conviction, Argo was sentenced to six months of +incarceration and assessed a criminal fine of $1,000,000. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Carole Argo’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +Argo is suspended from appearing or practicing before the Commission as an accountant. + By the Commission. + F lorence E. Harmon + A cting Secretary +3 diff --git a/raw/aaer/2008/AAER-2896.txt b/raw/aaer/2008/AAER-2896.txt new file mode 100644 index 0000000000000000000000000000000000000000..b46456725e83beacd1d02acf8ff95870e1bf348f --- /dev/null +++ b/raw/aaer/2008/AAER-2896.txt @@ -0,0 +1,100 @@ + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 58849 / October 24, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2896 / October 24, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13278 +: +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE + Barr y Schechter, C.A. : 102(e) OF THE COMMISSION’S RULES OF +: PRACTICE, MAKING FINDINGS, AND +Respondent. : IMPOSING REMEDIAL SANCTIONS +: +: +____________________________________ : +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against Barry +Schechter (“Respondent” or “Schechter”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules +of Practice.1 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) 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 him and the subject matter of these +proceedings, and the findings contained in Section III.3. below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) +of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Schechter, age 54, is a resident of La Jolla, California. In 1990, Schechter +founded the company that eventually became Island Pacific, Inc. Schechter was CEO of Island +Pacific from its inception to January 2001, October 2001 to June 2003, and April 2005 to June +2008. He was Chairman of the Board of Directors of Island Pacific from February 1994 to July +2003. From approximately August 2003 through January 2005, Schechter was designated as a +consultant to Island Pacific. During this period, Schechter was a controlling person of Island +Pacific and controlled a substantial number of its shares. Schechter was a Chartered Accountant in +South Africa from 1979 to 1989, when he emigrated to the United States and allowed his license to +lapse. On June 4, 2008, Island Pacific announced that Schechter had resigned from his CEO and +director positions effective that day but that Schechter would continue to handle special projects on +a part-time basis. +2. Retail Pro, Inc. (formerly known as Island Pacific, Inc.) was, at all relevant +times, a Delaware corporation with its principal place of business in Southern California. Island +Pacific was engaged in the business of developing and selling computer software to the retail +industry. Its common stock is registered with the Commission pursuant to Section 12(b) of the +Exchange Act, traded on the American Stock Exchange until it was delisted on October 25, 2005, +for failing to file periodic reports, and currently trades through Pink OTC Markets, Inc. +(RTPR.PK). On December 21, 2007, Island Pacific sold its Island Pacific division to an Australian +company and renamed the unsold portion of the company Retail Pro, Inc. +3. On October 16, 2008, a final judgment was entered against Schechter, +permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933, +and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”), and +Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and from aiding and abetting any violation of Section +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. +2 +13(a) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 thereunder, in the civil action +entitled Securities and Exchange Commission v. Retail Pro, Inc. +(fka Island Pacific, Inc.) et. al, Civil Action Number 08 CV 1620 WQH (RBB), in the United +States District Court for the Southern District of California. Schechter was also ordered to pay +$488,410 in disgorgement of ill-gotten gains from his sales of stock while participating in the +unlawful conduct, and $27,437 in prejudgment interest, and a $120,000 civil money penalty. +4. The Commission’s Complaint alleged, among other things, that Schechter +participated in Island Pacific’s financial fraud from the quarter ended September 30, 2003, +through the fiscal year ended March 31, 2004, in which Island Pacific recognized $3.9 million +from a non-monetary transaction with QQQ Systems Pty Limited (“QQQ”) in violation of +Generally Accepted Accounting Principles; overstated its quarterly revenues by 140% and +reported a small profit instead of a $3.1 million loss for the quarter ended September 30, 2003; +overstated its annual revenues by 22% and understated its losses by 47% for the fiscal year +ended March 31, 2004; and failed to disclose the non-monetary nature of the transaction with +QQQ in its periodic reports, earnings press releases, and its earnings conference call with +analysts and shareholders. The Complaint alleged that Schechter participated in the financial +fraud by, among other things, negotiating the non-monetary transaction with QQQ, approving +the improper recognition of revenue, reviewing and approving Island Pacific’s earnings press +release and scripts for the conference calls, and providing false information to Island Pacific’s +auditor in connection with the audit of Island Pacific’s fiscal year 2004 audit. The Complaint +further alleged that Schechter profited from the financial fraud by selling through a trust he +controlled 637,750 shares of Island Pacific stock. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Schechter’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +Schechter is suspended from appearing or practicing before the Commission as an +accountant. + By the Commission. + F lorence E. Harmon + A cting Secretary +3 diff --git a/raw/aaer/2008/AAER-2901.txt b/raw/aaer/2008/AAER-2901.txt new file mode 100644 index 0000000000000000000000000000000000000000..35a6944375dc8bafdac9a3f9b02f972489f7b7d4 --- /dev/null +++ b/raw/aaer/2008/AAER-2901.txt @@ -0,0 +1,1407 @@ + + + + + + + + + + + + + + + + SEC.gov | David Lee, et al. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/504611","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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David Lee, et al. , Civil Action No. 08-CIV-9961 (GBD) (SDNY) + + SEC Charges Banker And Brokerage Executives With Multimillion Dollar Financial Fraud + + On November 18, 2008, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Southern District of New York charging four individuals with engaging in a fraudulent scheme to overvalue the commodity derivatives trading portfolio at Bank of Montreal ("BMO"), and thereby inflate BMO's publicly reported financial results. The defendants include a former senior derivatives trader at BMO and the top two senior executive officers of Optionable, Inc. ("Optionable"), a publicly traded commodities brokerage firm. + + The defendants named in the Commission's complaint are: + + David Lee ("Lee") , age 36, resides in New Jersey. Lee was a natural gas options trader employed by BMO Capital Markets Corp., a wholly-owned subsidiary of BMO and a registered broker-dealer, until he resigned on May 15, 2007. From 2001 through 2004, Lee was a Vice President of BMO's Commodity Derivatives Group, the unit through which BMO traded commodity derivatives. In 2005, he was promoted to Managing Director of that group. + + Kevin P. Cassidy ("Cassidy") , age 49, resides in Bedford Hills, New York. Cassidy was one of Optionable's founders and served as Vice Chairman of Optionable's board of directors until he resigned on May 12, 2007. Except for the period from March 2004 to October 2005, he was also Optionable's CEO throughout the relevant period. + + Edward O'Connor ("O'Connor") , age 55, resides in Briarcliff Manor, New York. O'Connor was one of Optionable's founders and since 2001, he has served as President and a director of Optionable. From March 2004 through October 2005, he was also Optionable's CEO and Treasurer. + + Scott Connor ("Connor") , age 31, resides in Rye, New York. Connor was employed by Optionable as a commodities broker until May 2007. + + The Commission's complaint specifically alleges as follows: + + Lee fraudulently overvalued BMO's portfolio of natural gas options by deliberately "mismarking" trading positions for which market prices were unavailable. Lee recorded inflated values that were then purportedly validated by Optionable, which held itself out to BMO and the public as a legitimate provider of independent derivatives valuation services. In fact, Cassidy, O'Connor and Connor schemed with Lee to have Optionable simply rubber-stamp whatever inflated values Lee recorded. After the scheme was discovered, BMO restated its financial results by reducing net income for the first quarter of its 2007 fiscal year by approximately $237 million Canadian dollars ($204 million USD), which reflects a 68% overstatement of BMO's net income for that quarter. + + BMO was Optionable's largest customer, and BMO trades accounted for as much as 60% of Optionable's commodity brokerage business. Lee's trading accounted for virtually all of BMO's business with Optionable. As a result, Optionable's management, led by Cassidy, was willing to do whatever it took to keep Lee satisfied. When market prices were unavailable, BMO's risk management personnel sought to verify the accuracy of BMO's commodity derivatives traders' valuations of their positions, or their "marks," by obtaining supposedly independent valuations, or "quotes," for those positions from one or more third parties. During the relevant period, Optionable was the primary source of the third-party quotes that BMO used to validate Lee's marks. Lee provided his marks directly to Cassidy, O'Connor or Connor, who then simply forwarded Lee's marks, virtually unchanged, to BMO's risk management department as if they were Optionable's independent quotes. At first, Lee used this "u-turn" scheme to boost his trading profits and incentive compensation, but in 2006, the market turned against Lee and he used the scheme to hide substantial trading losses. In May 2007, BMO concluded that due to the Optionable scheme and other positions that Lee had also mismarked, Lee's trading book was overvalued by an aggregate total of $680 million (CAD) since the beginning of BMO's fiscal year ended October 31, 2006. + + Cassidy and O'Connor also defrauded Optionable's public shareholders by concealing Optionable's role in the scheme. Optionable's periodic reports touted the synergistic benefits of the derivatives valuation services that Optionable purportedly provided to multiple brokerage clients, but those reports, which Cassidy and O'Connor signed, never disclosed that BMO was the principal client for whom those "services" were performed and that the "valuation services" provided to BMO were a sham designed to defraud BMO. In addition, Cassidy and O'Connor defrauded the New York Mercantile Exchange ("NYMEX") by selling over $10 million of their own Optionable stock to NYMEX in April 2007. Both Cassidy and O'Connor represented to NYMEX that Optionable's periodic reports were materially accurate, but they never disclosed anything about their scheme with Lee to defraud the shareholders of BMO, Optionable's largest customer. On May 9, 2007, one day after BMO announced that it had placed Lee on leave and suspended its business relationship with Optionable, Optionable issued an announcement stating that the suspension would have an adverse effect on Optionable's business. Optionable's stock price fell almost 40% that day, from $4.64 to $2.81 per share, and dropped to below 50 cents per share one week later after Cassidy's prior criminal record was disclosed in press reports. + + All four defendants are charged with committing violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 13b2-1 thereunder; and with aiding and abetting BMO's violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-16. The complaint further charges Cassidy, O'Connor and Connor with aiding and abetting Optionable's violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13, and also charges Cassidy and O'Connor with violating Rules 13a-14 and 13b2-2 under the Exchange Act and Section 17(a) of the Securities Act of 1933. As to each defendant, the complaint seeks a permanent injunction against future violations, disgorgement of ill-gotten gains plus prejudgment interest, and civil monetary penalties. The complaint also seeks an order barring Cassidy and O'Connor from acting as officers or directors of a public company. + + The United States Attorney's Office for the Southern District of New York ("USAO"), the New York County District Attorney's Office ("NYCDA"), and the United States Commodity Futures Trading Commission ("CFTC") also filed parallel criminal and regulatory charges today arising from the same conduct that is alleged in the Commission's complaint. Lee pled guilty to parallel criminal charges filed by the USAO and the NYCDA. In connection with his guilty plea, Lee agreed to pay a total of $4.41 million in forfeiture. + + Lee has agreed to settle the SEC charges by consenting, without admitting or denying the SEC's allegations, to the entry of a permanent injunction against future violations of various provisions of the federal securities laws. The Commission's claims for disgorgement and civil penalties against Lee, and all of its claims against the other three defendants, remain pending. + + The Commission's investigation is continuing. The Commission acknowledges the assistance and cooperation of the USAO, NYCDA, CFTC and the Federal Bureau of Investigation. + + + SEC Complaint in this matter + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2905.txt b/raw/aaer/2008/AAER-2905.txt new file mode 100644 index 0000000000000000000000000000000000000000..7be97fe7c0788f783633e958dcaeb764e9b67922 --- /dev/null +++ b/raw/aaer/2008/AAER-2905.txt @@ -0,0 +1,78 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59057 / December 4, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2905 / December 4, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-11149 +: +In the Matter of +Marc Rabinowitz, CPA +: +: +: +: +ORDER GRANTING APPLICATION FOR +REINSTATEMENT TO APPEAR AND PRACTICE +BEFORE THE COMMISSION AS AN ACCOUNTANT +: +On June 4, 2003, Marc Rabinowitz (“Rabinowitz”) was denied the privilege of appearing +or practicing as an accountant before the Commission as a result of settled public administrative +proceedings instituted by the Commission against Rabinowitz pursuant to Rule 102(e) of the +Commission's Rules of Practice.1 Rabinowitz consented to the entry of the June 4, 2003 order +without admitting or denying the findings therein. This order is issued in response to +Rabinowitz’s application for reinstatement to practice before the Commission as an accountant. +On April 30, 2003, a final judgment was entered by consent against Rabinowitz, +permanently enjoining him from aiding and abetting violations of Section 13(a) of the Securities +Exchange Act of 1934 and Rules 12b-20, 13a-1 and 13a-13 thereunder. The Commission’s +complaint alleged that Rabinowitz, as the engagement partner for Ernst & Young’s audits of +certain financial statements filed by CUC International Inc. (“CUC”) and Cendant Corporation +(“Cendant”), improperly failed to detect that CUC and Cendant’s financial statements were not +presented in conformity with generally accepted accounting principles. The Commission further +alleged that Rabinowitz had a duty to withhold his firm’s audit report containing an unqualified +opinion and take appropriate steps to prevent these financial statements from being filed with the +Commission. By failing to do so, Rabinowitz aided and abetted CUC’s and Cendant’s violations +of the reporting provisions of the federal securities laws. +1 See Accounting and Auditing Enforcement Release No. 1794 dated June 4, 2003. Rabinowitz was permitted, +pursuant to the order, to apply for reinstatement after four years upon making certain showings. +Rabinowitz has met all of the conditions set forth in the original order and, in his capacity +as an independent accountant, has stated that he will comply with all requirements of the +Commission and the Public Company Accounting Oversight Board, including, but not limited to +all requirements relating to registration, inspections, concurring partner reviews and quality +control standards. In his capacity as a preparer or reviewer, or as a person responsible for the +preparation or review, of financial statements of a public company to be filed with the +Commission, Rabinowitz attests that he will undertake to have his work reviewed by the +independent audit committee of any company for which he works, or in some other manner +acceptable to the Commission, while practicing before the Commission in this capacity. +Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for +reinstatement, and provides that the Commission may reinstate the privilege to appear and +practice before the Commission “for good cause shown.”2 This “good cause” determination is +necessarily highly fact specific. + On the basis of the information supplied, representations made, and undertakings agreed +to by Rabinowitz, it appears that he has complied with the terms of the June 4, 2003 order +denying him the privilege of appearing or practicing before the Commission as an accountant, +that no information has come to the attention of the Commission relating to his character, +integrity, professional conduct or qualifications to practice before the Commission that would be +a basis for adverse action against him pursuant to Rule 102(e) of the Commission's Rules of +Practice, and that Rabinowitz, by undertaking to have his work reviewed by the independent +audit committee of any company for which he works, or in some other manner acceptable to the +Commission, in his practice before the Commission as a preparer or reviewer of financial +statements required to be filed with the Commission, and that Rabinowitz, by undertaking to +comply with all requirements of the Commission and the Public Company Accounting Oversight +Board, including, but not limited to, all requirements relating to registration, inspections, +concurring partner reviews and quality control standards, in his practice before the Commission +as an independent accountant has shown good cause for reinstatement. Therefore, it is +accordingly, +ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that +Marc Rabinowitz, CPA is hereby reinstated to appear and practice before the Commission as an +accountant. +By the Commission. +Florence E. Harmon +Acting Secretary +2 Rule 102(e)(5)(i) provides: +“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) +of this section may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a +hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated +by the Commission for good cause shown.” 17 C.F.R. § 201.102(e)(5)(i). \ No newline at end of file diff --git a/raw/aaer/2008/AAER-2911.txt b/raw/aaer/2008/AAER-2911.txt new file mode 100644 index 0000000000000000000000000000000000000000..c91624154ac43e59b270246eebbb10938f486b57 --- /dev/null +++ b/raw/aaer/2008/AAER-2911.txt @@ -0,0 +1,1401 @@ + + + + + + + + + + + + + + + + SEC.gov | Siemens Aktiengesellschaft + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/504701","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Siemens Aktiengesellschaft , Civil Action No. 08 CV 02167 (D.D.C.) + + SEC Files Settled Foreign Corrupt Practices Act Charges Against Siemens AG for Engaging in Worldwide Bribery With Total Disgorgement and Criminal Fines of Over $1.6 Billion + + The Securities and Exchange Commission filed a settled enforcement action on December 12, 2008, in the U.S. District Court for the District of Columbia charging Siemens Aktiengesellschaft ("Siemens"), a Munich, Germany-based manufacturer of industrial and consumer products, with violations of the anti-bribery, books and records, and internal controls provisions of the Foreign Corrupt Practices Act ("FCPA"). Siemens has offered to pay a total of $1.6 billion in disgorgement and fines, which is the largest amount a company has ever paid to resolve corruption-related charges. Siemens has agreed to pay $350 million in disgorgement to the SEC. In related actions, Siemens will pay a $450 million criminal fine to the U.S. Department of Justice and a fine of €395 million (approximately $569 million) to the Office of the Prosecutor General in Munich, Germany. Siemens previously paid a fine of €201 million (approximately $285 million) to the Munich Prosecutor in October 2007. + + The SEC's complaint alleges that: + + Between March 12, 2001 and September 30, 2007, Siemens violated the FCPA by engaging in a widespread and systematic practice of paying bribes to foreign government officials to obtain business. Siemens created elaborate payment schemes to conceal the nature of its corrupt payments, and the company's inadequate internal controls allowed the conduct to flourish. The misconduct involved employees at all levels, including former senior management, and revealed a corporate culture long at odds with the FCPA. + + During this period, Siemens made thousands of payments to third parties in ways that obscured the purpose for, and the ultimate recipients of, the money. At least 4,283 of those payments, totaling approximately $1.4 billion, were used to bribe government officials in return for business to Siemens around the world. Among others, Siemens paid bribes on transactions to design and build metro transit lines in Venezuela; metro trains and signaling devices in China; power plants in Israel; high voltage transmission lines in China; mobile telephone networks in Bangladesh; telecommunications projects in Nigeria; national identity cards in Argentina; medical devices in Vietnam, China, and Russia; traffic control systems in Russia; refineries in Mexico; and mobile communications networks in Vietnam. Siemens also paid kickbacks to Iraqi ministries in connection with sales of power stations and equipment to Iraq under the United Nations Oil for Food Program. Siemens earned over $1.1 billion in profits on these transactions. + + An additional approximately 1,185 separate payments to third parties totaling approximately $391 million were not properly controlled and were used, at least in part, for illicit purposes, including commercial bribery and embezzlement. + + From 1999 to 2003, Siemens' Managing Board or "Vorstand" was ineffective in implementing controls to address constraints imposed by Germany's 1999 adoption of the Organization for Economic Cooperation and Development ("OECD") anti-bribery convention that outlawed foreign bribery. The Vorstand was also ineffective in meeting the U.S. regulatory and anti-bribery requirements that Siemens was subject to following its March 12, 2001, listing on the New York Stock Exchange. Despite knowledge of bribery at two of its largest groups â€" Communications and Power Generation â€" the company's tone at the top was inconsistent with an effective FCPA compliance program and created a corporate culture in which bribery was tolerated and even rewarded at the highest levels of the company. Employees obtained large amounts of cash from cash desks, which were sometimes transported in suitcases across international borders for bribery. Authorizations for payments were placed on post-it notes and later removed to eradicate any permanent record. Siemens used numerous slush funds, off-books accounts maintained at unconsolidated entities, and a system of business consultants and intermediaries to facilitate the corrupt payments. + + Siemens failed to implement adequate internal controls to detect and prevent violations of the FCPA. Elaborate payment mechanisms were used to conceal the fact that bribe payments were made around the globe to obtain business. False invoices and payment documentation was created to make payments to business consultants under false business consultant agreements that identified services that were never intended to be rendered. Illicit payments were falsely recorded as expenses for management fees, consulting fees, supply contracts, room preparation fees, and commissions. Siemens inflated U.N. contracts, signed side agreements with Iraqi ministries that were not disclosed to the U.N., and recorded the ASSF payments as legitimate commissions despite U.N., U.S., and international sanctions against such payments. + + In November 2006, Siemens' current management began to implement reforms to the company's internal controls. These reforms substantially reduced, but did not entirely eliminate, corrupt payments. All but $27.5 million of the corrupt payments occurred before November 15, 2006. The company conducted a massive internal investigation and implemented an amnesty program to its employees to gather information. + + Siemens violated Section 30A of the Securities Exchange Act of 1934 (Exchange Act) by making illicit payments to foreign government officials in order to obtain or retain business. Siemens violated Section 13(b)(2)(B) of the Exchange Act by failing to have adequate internal controls to detect and prevent the payments. Siemens violated Section 13(b)(2)(A) of the Exchange Act by improperly recording the payments in its books. + + Without admitting or denying the Commission's allegations, Siemens has consented to the entry of a court order permanently enjoining it from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act; ordering it to pay $350 million in disgorgement of wrongful profits, which does not include profits factored into Munich's fine; and ordering it to comply with certain undertakings regarding its FCPA compliance program, including an independent monitor for a period of four years. On December 15, 2008, the court entered the final judgment. Since being approached by SEC staff, Siemens has cooperated fully with the ongoing investigation, and the SEC considered the remedial acts promptly undertaken by Siemens. Siemens' massive internal investigation and lower level employee amnesty program was essential in gathering facts regarding the full extent of Siemens' FCPA violations. + + The SEC acknowledges assistance from the U.S. Department of Justice, Fraud Section; the U.S. Attorney's Office for District of Columbia, Fraud and Public Corruption Section; the Federal Bureau of Investigation; the Internal Revenue Service; the Office of the Prosecutor General in Munich, Germany; the U.K. Financial Services Authority; and the Hong Kong Securities and Futures Commission. + + + SEC Complaint in this matter + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2008/AAER-2912.txt b/raw/aaer/2008/AAER-2912.txt new file mode 100644 index 0000000000000000000000000000000000000000..84df20fd108e854d8974b6f58a23e5b147a21cab --- /dev/null +++ b/raw/aaer/2008/AAER-2912.txt @@ -0,0 +1,177 @@ + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59155 / December 23, 2008 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2912 / December 23, 2008 +ADMINISTRATIVE PROCEEDING +File No. 3-13318 +In the Matter of +Ira Yohalem, CPA, +Respondent. + ORDER INSTITUTING PUBLIC +ADMINISTRATIVE PROCEEDINGS +PURSUANT TO SECTION 4C OF THE +SECURITIES EXCHANGE ACT OF 1934 +AND RULE 102(e) OF THE +COMMISSION’S RULES OF PRACTICE, +MAKING FINDINGS, AND IMPOSING +REMEDIAL SANCTIONS +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate that public +administrative proceedings be, and hereby are, instituted against Ira Yohalem, CPA (“Respondent” +or “Yohalem”) pursuant to Section 4C1 of the Securities Exchange Act of 1934 (“Exchange Act”) +and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.2 +1 Section 4C provides, in relevant part, that: +The Commission may censure any person, or deny, temporarily or permanently, to any person the privilege +of appearing or practicing before the Commission in any way, if that person is found . . . (1) not to possess the +requisite qualifications to represent others . . . (2) to be lacking in character or integrity, or to have engaged in +unethical or improper professional conduct; or (3) to have willfully violated, or willfully aided and abetted the +violation of, any provision of the securities laws or the rules and regulations thereunder. +2 Rule 102(e)(1)(ii) provides, in pertinent part, that: +The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before +it . . . to any person who is found . . . to have engaged in unethical or improper professional conduct. +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) 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 him and the subject matter of these +proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Public +Administrative Proceedings Pursuant to Section 4C of the Securities Exchange Act of 1934 and +Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial +Sanctions (“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds3 that: +A. SUMMARY +Yohalem was a partner and served as chairman of the executive committee of Yohalem +Gillman & Co. (“Yohalem Gillman”), an accounting firm that audited and reviewed the financial +statements of a Massachusetts-based public company (hereinafter referred to as “Company A”) +from at least 2000 through 2004 (the “Relevant Period”). In 2001 and 2003, an officer, director, and +significant shareholder of Company A made two investments totaling $160,000 in restaurants of +which Yohalem was a managing partner. As a result of receiving the investments, Yohalem +engaged in improper professional conduct by failing to maintain independence from Yohalem +Gillman’s audit client under generally accepted auditing standards (“GAAS”), ethics and +independence standards, and Regulation S-X. +B. RESPONDENT +Yohalem, a resident of New York, New York, has been a CPA for over 30 years; he has +been licensed as a CPA by the state of New York since 1967. Yohalem is currently a partner of an +accounting firm which combined businesses with Yohalem Gillman in or around January 2005. +Yohalem was not involved in the audits or reviews of Company A’s financial statements during the +Relevant Period. +C. FACTS +1. Company A is a Delaware corporation headquartered in Massachusetts, and its +common stock was registered with the Commission pursuant to Section 12 of the Exchange Act at +all relevant times. +3 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other +person or entity in this or any other proceeding. +2 +2. At all relevant times, Yohalem Gillman audited and reviewed the financial +statements which were included in Company A’s filings with the Commission on Forms 10-QSB +and 10-KSB. +3. At all relevant times, Yohalem chaired Yohalem Gillman’s executive committee and +with others rated the performance of the Yohalem Gillman partners, including the engagement +partners who provided auditing and review services to Company A. Yohalem and the engagement +partners who provided auditing and review services to Company A worked out of the same office in +New York, as did other Yohalem Gillman personnel. +4. On February 14, 2001, a significant shareholder, officer, and director of Company A +(“the Company A Director”) invested $100,000 in a restaurant of which Yohalem was a managing +partner. Yohalem was aware of this investment. +5. On October 3, 2003, Yohalem sent a letter offering an investment opportunity to the +Company A Director in another restaurant of which Yohalem was a managing partner. +6. On October 29, 2003, the Company A Director invested $60,000 through his +family’s limited partnership pursuant to the October 3, 2003 offer. Yohalem was aware of this +investment. +7. Also on October 29, 2003, Yohalem signed and submitted an independence +disclosure statement to Yohalem Gillman’s managing partner. The independence statement, as +regularly used by Yohalem Gillman, required Yohalem to report, among other things, “[a]ny +investment, business venture or other financial interest in common with clients or their +management, principals or affiliates, or relating to any enterprise or venture with which any such +parties are affiliated or in which they have any interest.” Nonetheless, Yohalem failed to disclose +either of the investments by the Company A Director. +8. GAAS requires auditors to maintain strict independence from their audit clients. +Rule 101 of the Code of Professional Conduct of the American Institute of Certified Public +Accountants (“AICPA”), states, in pertinent part, that a “member in public practice shall be +independent in the performance of professional services.” +9. At the time of the events described above, the applicable Commission auditor- +independence rule, Regulation S-X, Section 210.2-01(c)(3), stated, in pertinent part: +(a) Business relationships. An accountant is not independent if, at any +point during the audit and professional engagement period, the +accounting firm or any covered person in the accounting firm has +any direct or material indirect business relationship with an audit +client, or with persons associated with the audit client in a decision- +making capacity, such as an audit client's officers, directors, or +substantial stockholders. +3 + +10. Yohalem had a business relationship with a person in a decision making capacity +associated with Yohalem Gillman’s audit client, Company A, because the Company A Director +was an officer, director, and substantial stockholder of Company A. Yohalem was a covered +person as defined in Rule 2-01(f)(11)4 because he was in Yohalem Gillman’s chain of command5 +since he, as a member of the executive committee, rated the performance of the engagement +partners on Company A’s audits and reviews. Furthermore, Yohalem was a covered person +because Yohalem and the engagement partners who provided auditing and review services to +Company A worked out of the same office in New York, as did other Yohalem Gillman personnel. +11. Section 4C of the Exchange Act and Rule 102(e)(1)(ii) of the Commission's Rules +of Practice provide, in pertinent part, that the Commission may deny, temporarily or permanently, +the privilege of appearing or practicing before it in any way to any person who is found by the +Commission after notice and opportunity for hearing in the matter to have engaged in improper +professional conduct. +Based on the foregoing, the Commission finds that Yohalem engaged in improper +professional conduct pursuant to Section 4C of the Exchange Act and Rule 102(e)(1)(ii) of the +Commission’s Rules of Practice. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Yohalem’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Yohalem is denied the privilege of appearing or practicing before the Commission +as an accountant. +B. After one year from the date of this order, Respondent may request that the +Commission consider his reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +4 Rule 2-01(f)(11) defines a covered person as “the following partners, principals, shareholders, and employees of an +accounting firm: (i) The ‘audit engagement team’; (ii) The ‘chain of command’; (iii) Any other partner . . . who has +provided ten or more hours of non-audit services to the audit client . . .; and (iv) Any other partner, principal or +shareholder from an ‘office’ of the accounting firm in which the lead audit engagement partner primarily practices in +connection with the audit.” +5 Rule 2-01(f)(8) defines the “chain of command” as “all persons who: (i) Supervise or have direct management +responsibility for the audit, including at all successively senior levels through the accounting firm’s chief executive; +(ii) Evaluate the performance or recommend the compensation of the audit engagement partner; or (iii) Provide +quality control or other oversight of the audit.” +4 + +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that Respondent’s work in his practice before the +Commission will be reviewed either by the independent audit committee of the public company +for which he works or in some other acceptable manner, as long as he practices before the +Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which he is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; +(b) Respondent, or the registered public accounting firm with which he +is associated, has been inspected by the Board and that inspection did not identify any criticisms +of or potential defects in the respondent’s or the firm’s quality control system that would indicate +that the respondent will not receive appropriate supervision; + (c) Respondent has resolved all disciplinary issues with the Board, and +has complied with all terms and conditions of any sanctions imposed by the Board (other than +reinstatement by the Commission); and +(d) Respondent acknowledges his responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not limited to, all +requirements relating to registration, inspections, concurring partner reviews and quality control +standards. +C. The Commission will consider an application by Respondent to resume appearing +or practicing before the Commission provided that his state CPA license is current and he has +resolved all disciplinary issues with the applicable state boards of accountancy. However, if +state licensure is dependent on reinstatement by the Commission, the Commission will consider +an application on its other merits. The Commission’s review may include consideration of, in +addition to the matters referenced above, any other matters relating to Respondent’s character, +integrity, professional conduct, or qualifications to appear or practice before the Commission. + By the Commission. + F lorence E. Harmon + A cting Secretary +5