diff --git a/raw/aaer/2006/AAER-2359.pdf b/raw/aaer/2006/AAER-2359.pdf new file mode 100644 index 0000000000000000000000000000000000000000..2b0426e180702523e6fa1db80a880feb36d24720 Binary files /dev/null and b/raw/aaer/2006/AAER-2359.pdf differ diff --git a/raw/aaer/2006/AAER-2359.txt b/raw/aaer/2006/AAER-2359.txt new file mode 100644 index 0000000000000000000000000000000000000000..144079c46173347d8ea0251298613896efe7de3c --- /dev/null +++ b/raw/aaer/2006/AAER-2359.txt @@ -0,0 +1,298 @@ + UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES ACT of 1933 +Release No. 8651 / January 4, 2006 +SECURITIES EXCHANGE ACT of 1934 +Release No. 53049 / January 4, 2006 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2359 / January 4, 2006 +ADMINISTRATIVE PROCEEDING +File No. 3-12138 +__________________________________________ +: +In the Matter of : ORDER INSTITUTING +: CEASE-AND-DESIST +: PROCEEDINGS, MAKING + APPLIX, INC., : FINDINGS, AND IMPOSING +: CEASE-AND-DESIST ORDER +Respondent. : PURSUANT TO SECTION 8A OF +: THE SECURITIES ACT OF 1933 +: AND 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 8A of the +Securities Act of 1933 (“Securities Act”) and Section 21C of the Securities Exchange Act of +1934 (“Exchange Act”), against Applix, Inc. (“Applix” or “Respondent”). + +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 The company also improperly included in its financial statements $333,333 as cash +received as payment on the transaction even though those funds were not received until the +following year. +3 The customer did accept the product before year end 2002 and made the initial payment +due on acceptance. +4 For the second quarter of 2002, the increase in revenue of $225,000 from the December +31, 2001 software license revenue recognized in 2002 partially offset the decrease in revenue of +$341,000 for a net decrease of $116,000. Accordingly, the net overstatement of revenue for the +quarter is 1.3% and the net understatement of net loss is 14.7%. +2 +II. + +In anticipation of the institution of these cease-and-desist 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 over 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 Cease-and-Desist Order +Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange +Act of 1934 (“Order”), as set forth below. +III. +On the basis of this Order and the Respondent’s Offer, the Commission finds +1 that: +A. SUMMARY +1. Applix materially overstated net income in two periodic reports and a registration +statement filed with the Commission. The overstatements relate to two transactions. In the first +transaction, the Respondent improperly recognized $898,000 of software license revenue under a +December 31, 2001 reseller agreement. Because the agreement included the right to resell a +future product that was currently in development, Applix should have recognized the license +revenue ratably over the 12 month term of the agreement, i.e., throughout 2002. By improperly +recognizing all of the license revenue up-front, Applix met its 2001 revenue goals, and +improperly understated its net loss for the year by 8.3%. +2 In the second transaction, Applix +improperly recognized $341,000 in revenue for the quarter ended June 30, 2002 under a sales +contract, even though the customer had not yet accepted the product. +3 As a result, Applix +understated its net loss for the quarter by 33.6%. 4 +5 On April 4, 2003, Applix filed a second amendment to the Form 10-Q for the third +quarter of 2002 to include information that was inadvertently omitted in the first amendment. +3 +2. On February 28, 2003, Applix announced it would restate its periodic filings to +report correctly the revenue from the two transactions in the proper periods. After the public +announcement, Applix’s stock price fell approximately 13%, or twenty-six cents, closing at +$1.70 per share. On March 31, 2003, Applix filed an amended Form 10-K for the year ended +December 31, 2001 and amended Forms 10-Q for the first three quarters of 2002. +5 +B. FACTS +3. Applix , a Massachusetts corporation based in Westborough, Massachusetts +develops, sells and supports business performance management software. Applix stock is +registered under Section +12(g) of the Exchange Act and traded on the NASDAQ SmallCap Market. +Applix reports its results of operations on a calendar year basis. + 4. Applix materially misstated the company’s financial results of operation for the +year ended December 31, 2001 and the quarter ended June 30, 2002. The misleading financial +information was included in press releases, periodic and current filings with the Commission and +incorporated by reference into a registration statement filed with the Commission. +5. For the year ended December 31, 2001, Applix improperly recognized $898,000 +in revenue under a reseller agreement with a privately held company headquartered in New York +City (“the Partner”). Applix originally entered a reseller agreement with the Partner in March +2000. The March 2000 reseller agreement granted the Partner the right to market, demonstrate +and sublicense Applix software over a five-year period. The agreement contemplated yearly +amendments on the March anniversary date. In March 2001, the parties entered into the first +amendment. On December 31, 2001, the parties entered into a second amendment ( the +“December 31, 2001 amendment”) even though the March 2001 amendment was still in effect +and not due to be amended until March 2002. The December 31, 2001 amendment granted the +Partner rights to resell additional products for a one-year term. +6. Under Statement of Position 97-2 (“SOP 97-2”), if the December 31, 2001 +amendment granted the Partner rights to any “unspecified additional software products” +(emphasis in original) then the transaction would need to be accounted for as a subscription and +revenue recognized ratably over the one-year term of the agreement. +7. However, Applix determined that it was appropriate to recognize the entire +amount of the Partner license revenue as of December 31, 2001, even though the Respondent +knew, or was reckless in not knowing, that the amendment granted the Partner the right to resell +Applix’s new product, Integra, which the company had recently announced (in late 2001) as its +next-generation product. Revenue recognition was improper. In late 2001, Applix expected +Integra to become generally available during the one-year term covered by the December 31, +4 +2001 amendment. The Partner understood it obtained the rights to resell Integra as part of the +December 31, 2001 amendment as did the Applix salesperson directly involved in negotiations +with the Partner. +8. On January 29, 2002, Applix announced revenue of $40.3 million and a net loss +of $9.9 million for the year ended December 31, 2001. By improperly including the entire +$898,000 license revenue amount in revenue for 2001, Applix overstated its revenue by 2.3% +and understated its net loss by 8.3%. The inclusion of that revenue enabled Applix to meet a +previously announced $40 million revenue goal. On April 1, 2002, Applix filed a Form 10-K +with the Commission, that contained financial statements that included the improperly recorded +revenue. +9. During 2002, the Partner obtained license codes for Integra. Although +the Partner did not actually sell any Integra during the year, the Partner made Integra sales +presentations to customers during 2002. In fact, Applix marketing employees provided +information to assist the Partner in drafting sales presentations. Applix also prepared a business +plan that specifically referenced the Partner’s rights to resell Integra pursuant to the terms of the +December 31, 2001 amendment. Lastly, in figuring the fee the Partner owed Applix at year end +2002, under a formula based on a percentage of Applix’s 2001 revenue from sales of goods the +Partner was licensed to resell, Applix included Integra sales in the calculation, thereby increasing +the amount the Partner was required to pay. +10. In the second improperly reported transaction, Applix included $341,000 of +revenue for the second quarter of 2002 from a transaction with a German customer, even though +the customer had approximately five additional months after quarter close to either accept or +reject the software goods. The payment terms on the transactions required the customer to pay +50% on acceptance and 50% within ninety days. Applix knew of the contingent sales provision, +knew of the existence of a specified testing period that was scheduled to last for most of that five +month period and knew of the payment terms. Applix knew, or was reckless in not knowing, +that the customer had not accepted the software product by the end of the second quarter of +2002. Applix generated an invoice dated June 30, 2002 falsely indicating that payment was due +in thirty days. +11. On July 18, 2002, Applix announced revenue of $9.2 million and a net loss of +$675,000 for the quarter ended June 30, 2002. Applix’s press release highlighted that the net +loss was a “74% improvement” over the net loss for the same quarter of the prior year. By +improperly including the German customer revenue, Applix overstated its revenue by 3.9% and +understated its net loss by 33.6%. The inclusion of the German customer revenue also enabled +Applix to come within 1% of an internal quarterly revenue goal. On August 14, 2002, Applix +6 On July 25, 2002, Applix filed a Form S-8 Registration Statement to register shares for a +directors stock option plan. The filing incorporated by reference the December 31, 2001 Form +10-K and all reports filed subsequent to the Form S-8 until the filing of a post-effective +amendment. + On February 5, 2003, Applix filed a Form 8-K related to the sale of a division. +That filing included a pro-forma statement of operations for the nine months ended September +30, 2002 and accordingly included the improperly recorded June 30, 2002 revenue from the +German customer. +5 +filed a Form 10-Q with the Commission that contained financial statements that included the +improperly recorded revenue. +6 +12. Applix prepared an audit confirmation dated November 26, 2002, for the +transaction with the German customer. The confirmation falsely indicated that the first 50% +payment (i.e., the payment due on acceptance) was due December 31, 2002. Upon review of the +confirmation in early December 2002, the outside auditors questioned Applix as the auditors had +been informed that payment was due within 30 days of the invoice date of June 30, 2002, the last +day of the quarter. In mid-January 2003, Applix informed the outside auditors of an issue +concerning when the German customer had accepted under the terms of the agreement. The +outside auditors told Applix that the company needed to investigate the matter to determine what +transpired. +13. Applix senior management informed the audit committee of the acceptance issue. +Following up on that information from management, on January 27, 2003, Applix’s audit +committee held a telephonic meeting concerning the transaction with the German customer. At +that meeting, Applix senior management failed to explain that when they made the revenue +recognition decision, they knew of the existence of a specified testing period that was scheduled +to last for approximately five months after the end of the second quarter. Applix senior +management failed to fully disclose and explain the generation of the false invoice and did not +reveal the existence of the false audit confirmation or the fact that the outside auditors had raised +questions when they reviewed the audit confirmation. Two days after the meeting, Applix’s +audit committee met with the outside auditors and voted to retain the company’s regular outside +counsel to conduct an internal investigation of the German transaction. +14. On February 5, 2003, the audit committee met with the outside auditors +concerning the Partner license revenue matter and voted to retain the company’s regular outside +counsel to conduct an internal investigation of the transaction. +15. After obtaining the results of counsel’s investigations, the Applix board of +directors requested and obtained the chief executive officer’s resignation. The board did not +request the chief financial officer’s (“CFO”) resignation at that time. Applix proposed to the +outside auditors that the chairman of the audit committee oversee the CFO’s activities and the +auditors agreed to this arrangement. In June 2003, the CFO was asked to and did resign. +6 +C. VIOLATIONS +16. As a result of the conduct described above, Applix violated Section 17(a) of the +Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit +fraudulent conduct in connection with the offer, sale or purchase of securities. +17. Also as a result of the conduct described above, Applix violated Section 13(a) of +the Exchange Act and Rules 13a-1, 13a-11, 13a-13 and 12b-20 thereunder. +18. Because Applix improperly recorded revenue, its books, records and accounts did +not, in reasonable detail, accurately and fairly reflect its transactions and dispositions of assets. +19. In addition, Applix failed to implement internal accounting controls relating to its +revenue accounts sufficient to provide reasonable assurances that these accounts were accurately +stated in conformity with generally accepted accounting principles. + +20. As a result of the conduct described above, Applix 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. +21. Lastly, as a result of the conduct described above, Applix violated Section +13(b)(2)(B) of the Exchange Act and Rule 13b2-1 thereunder, which require 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 conformity with generally accepted accounting principles; and prohibit +persons from directly or indirectly falsifying or causing to be falsified any book, record, or +account. +D. ONGOING COOPERATION + +22. In determining to accept the Offer, the Commission has considered the following +undertaking by the Respondent - Applix shall cooperate fully with the Commission in any +and all investigations, litigations or other proceedings relating to or arising from the matters +described in this Order. Applix shall: (i) produce, without service of a notice or subpoena, any +and all documents and other information requested by the Commission’s staff; (ii) use its best +efforts to cause its employees to be interviewed by Commission’s staff at such times as the staff +reasonably may direct; (iii) use its best efforts to cause its employees to appear and testify +truthfully and completely without service of a notice or subpoena in such investigations, +depositions, hearings or trials as may be requested by Commission’s staff. +7 +E. UNDERTAKINGS +Respondent undertakes to: + 1. Retain, through its Board of Directors, w ithin thirty days after the entry of this +Order, an Independent Financial Policies Consultant (“Financial Policies Consultant”), not +unacceptable to to the staff of the Commission, to review Applix’s financial and accounting +policies and procedures relating to: (i) revenue recognition on software licensing agreements, +including the consideration of SOP 97-2 and documentation of that consideration; (ii) the +segregation of duties between sales and finance employees in revenue recognition +determinations; (iii) the signing and dating of material sales contracts and purchase orders and +the retention by Applix corporate finance organization of all such contracts and purchase orders; +(iv) written documentation that all sales contingencies have been met in material revenue +transactions; (v) the generation and issuance to customers of sales invoices; and (vi) the +preparation and review of accounts receivable confirmations. The Financial Policies Consultant +shall also consider, based on his/her review, the nature and extent of Applix Board of Directors +training required to minimize the possibility of future violations of the federal securities laws by +Applix, acting through its finance and accounting employees. At the conclusion of the review, +which in no event shall be more than 90 days after the date of entry of this Order, the Financial +Policies Consultant shall submit a Report to Applix and to the Boston District Office of the +Commission. The Report shall address the issues described above and shall include a +description of the review performed, the conclusions reached and the Financial Policy +Consultant's recommendations for changes in or improvements to policies and procedures, +including recommendation as to the nature and extent of Board of Directors training. +2. Respondent shall adopt all of the Financial Policies Consultant’s +recommendations for changes in or improvement to policies and procedures as set forth below; +provided however, that within 135 days after the date of entry of the Order, Respondent shall in +writing advise the Financial Policies Consultant and the staff of the Commission’s Boston +District Office of any recommendation that Respondent considers to be unnecessary, +inappropriate, unreasonable, impractical or infeasible. Respondent need not adopt any such +recommendation at that time but shall propose in writing an alternative policy or procedure +designed to achieve the same objective. +3. As to any recommendation with respect to Respondent’s policies and procedures +on which Respondent and the Financial Policies Consultant do not agree, they shall make a good +faith attempt to reach agreement within 165 days of the date of entry of the Order. In the event +the Respondent and the Financial Policies Consultant are unable to agree on an alternative +proposal, Respondents will follow the recommendation of the Financial Policies Consultant. To +the extent the Financial Policies Consultant proposes, in his/her report, alternative +recommendations, any one of which is intended to address a given matter, Respondent may +adopt one of the proposed alternatives and need not notify the Financial Policies or the staff of +the Commission’s Boston District Office of alternative recommendations not adopted. +4. Applix (i) shall not have the authority to terminate the Financial Policies +Consultant, without the prior written approval of the Commission’s Boston District Office; (ii) +shall compensate the Consultant, and persons engaged to assist the Consultant, for services +8 +rendered pursuant to this Order at their reasonable and customary rates; and, (iii) shall not be in +and shall not have an attorney-client relationship with the Consultant and shall not seek to +invoke the attorney-client or any other doctrine or privilege to prevent the Consultant from +transmitting any information, reports, or documents to the staff of the Commission; and +5. Applix shall require the Financial Policies Consultant 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 Financial Policies Consultant shall not enter into any employment, +consultant, attorney-client, auditing or other professional relationship with Applix, or any of its +present or former affiliates, directors, officers, employees, or agents acting in their capacity as +such. The agreement will also provide that the Independent 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 Financial Policies Consultant in performance of his/her duties under this Order shall not, +without prior written consent of the Commission’s Boston District Office, enter into any +employment, consultant, attorney-client, auditing or other professional relationship with Applix, +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. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Applix’s Offer. +Accordingly, it is hereby ORDERED that: +A. Respondent Applix cease and desist from committing or causing any violations +and any 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, 13a-11, 13a-13 +and 13b2-1 thereunder. +B. Respondent shall comply with the undertakings enumerated in Section III. E, +above. +C. Deadlines: For good cause shown, the Commission staff may extend any of the +procedural deadlines set forth herein. +By the Commission. +Nancy M. Morris +Secretary \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2361.txt b/raw/aaer/2006/AAER-2361.txt new file mode 100644 index 0000000000000000000000000000000000000000..7b647db4878f2bfdc827dffedff0d0977ab55688 --- /dev/null +++ b/raw/aaer/2006/AAER-2361.txt @@ -0,0 +1,1384 @@ + + + + + + + + + + + + + + + + SEC.gov | Alan C. Goldsworthy, Walter T. Hilger, and Mark E. 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Goldsworthy, Walter T. Hilger, and Mark E. Sullivan + + + + + + + + + + + + Alan C. Goldsworthy, Walter T. Hilger, and Mark E. Sullivan + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. + Litigation Release No. 19521 / January 4, 2006 + Accounting and Auditing Enforcement Release No.2361 / January 4, 2006 + Securities and Exchange Commission v. Alan C. Goldsworthy, Walter T. Hilger, and Mark E. Sullivan , Civil Action No. 06-CV-10012-MLW (D. Mass.) + + + SEC CHARGES FORMER CEO, CFO AND CURRENT EXECUTIVE OF APPLIX , INC. WITH ACCOUNTING FRAUD + + The Securities and Exchange Commission today brought civil fraud charges against two former officers and a current executive of Applix, Inc., a Westborough, Massachusetts Internet software company. In the suit, filed in federal court in the District of Massachusetts, the Commission alleged that former CEO Alan C. Goldsworthy of Gloucester, Massachusetts; former CFO Walter T. Hilger of Natick, Massachusetts; and Mark E. Sullivan of Bridgewater, Massachusetts, Applix's current Director of World-Wide Operations participated in two fraudulent revenue recognition schemes, causing Applix to report inflated revenue and understated net loss figures for the year ended December 31, 2001 and for the quarter ended June 30, 2002. + + According to the complaint, the three defendants engaged in two separate schemes to inflate revenue reported in Applix's publicly-filed financial statements and heralded in press releases. In the first scheme, Applix prematurely recognized $898,000 in revenue in its Form 10-K for the year ended December 31, 2001. The revenue, generated in a December 31, 2001 transaction, enabled Applix to meet its publicly announced year-end revenue goal of $40 million. The complaint alleges that the three defendants collectively agreed to recognize the revenue during 2001 despite knowing that Applix was prohibited from doing so under generally accepted accounting principles. The complaint also alleges that Goldsworthy and Hilger both received year-end bonuses based on the company's falsely inflated financial results. In the second scheme, the defendants allegedly caused Applix to report improperly $341,000 in revenue from a transaction with a German customer in its Form 10-Q for the quarter ended June 30, 2002. The complaint alleges that the defendants did so even though they knew that the customer had a six-month right to return the software product and that no revenue should have been recorded until the customer had definitively accepted the product. By reporting this revenue, Applix was able to falsely trumpet a "74% improvement in Net Loss." Again, Goldsworthy and Hilger allegedly received bonuses based on the false revenue figures. + + On February 28, 2003, Applix announced that the company would restate its financial statements for the two periods involved and that Goldsworthy had resigned. Thereafter, on March 31, 2003, Applix filed its Form 10-K for the year ended December 31, 2002, a restated Form 10-K for December 31, 2001, and restated Forms 10-Q for the first three quarters of 2002. Applix also filed a restated Form 8-K on April 4, 2003. + + In its complaint, the Commission requests that the court issue a final judgment permanently enjoining Goldsworthy, Hilger and Sullivan from violating or aiding and abetting violations of the antifraud, periodic reporting, record keeping and internal controls provisions of the federal securities laws. The Commission also seeks disgorgement of the bonuses Goldsworthy and Hilger received based on the fraudulent financial statements. In addition, the Commission's complaint asks the court to impose civil monetary penalties and an order permanently barring the defendants from acting as officers or directors of any public company. The complaint alleges that by their conduct, the defendants violated Section 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 Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13 and 13b2-1, and additionally as to Goldsworthy and Hilger, Rule 13b2-2, which prohibits officers of a company from lying to auditors. The complaint also alleges that Hilger and Sullivan violated Exchange Act Section 13(b)(5), which prohibits knowing falsification of books and records at a public company. + + In a related administrative proceeding, the Commission issued a settled Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing Cease-and-Desist Order Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934 against Applix, Inc. The Order finds that Applix materially overstated net income in the two periodic reports and a registration statement filed with the Commission. Applix, while neither admitting nor denying the Order's findings, consented to the entry of the Order finding that Applix 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, 13a-11,13a-13 and 13b2-1 thereunder. The company also agreed to undertakings including the hiring of an independent Financial Policies Consultant to review the company's internal controls, board oversight and business practices. (Rel. 34-53049; AAER Rel. 2359; File No. 3-12138 ). + + + 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-2362.pdf b/raw/aaer/2006/AAER-2362.pdf new file mode 100644 index 0000000000000000000000000000000000000000..988c0f4e524e2a68f71aa361135659f300de34f8 Binary files /dev/null and b/raw/aaer/2006/AAER-2362.pdf differ diff --git a/raw/aaer/2006/AAER-2363.txt b/raw/aaer/2006/AAER-2363.txt new file mode 100644 index 0000000000000000000000000000000000000000..a8b58b9f9c14758704a59393e44caa3f7abc7f56 --- /dev/null +++ b/raw/aaer/2006/AAER-2363.txt @@ -0,0 +1,110 @@ + + + + + + + + + + + +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 53125 / January 13, 2006 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2363 / January 13, 2006 +ADMINISTRATIVE PROCEEDING +File No. 3-11091 +: +In the Matter of +William T. Fricke, CPA +: +: +: +: +ORDER GRANTING APPLICATION FOR +REINSTATEMENT TO APPEAR AND PRACTICE +BEFORE THE COMMISSION AS AN ACCOUNTANT +: +On April 24, 2003, William T. Fricke ("Fricke") was denied the privilege of appearing or +practicing as an accountant before the Commission as a result of a settled order instituting public +administrative and cease-and-desist proceedings against Fricke pursuant to Section 21C of the +Securities Exchange Act of 1934 (“Exchange Act”) and Rule 102(e) of the Commission's Rules +of Practice. +1 Fricke consented to the entry of the order, and imposition of the remedial sanctions +set forth in the order, without admitting or denying the findings therein, except as to the +Commission’s jurisdiction and the subject matter of the proceedings. +From 1989 until August 1998, Fricke was a partner at BKR Metcalf Davis (“Metcalf +Davis”) and he served as the concurring partner in Metcalf Davis’s audit of Chancellor +Corporation’s (“Chancellor”) 1998 financial statements. According to the Commission’s order, +Fricke and the engagement partner allegedly engaged in improper professional conduct in +auditing Chancellor’s 1998 financial statements and caused Chancellor to materially overstate its +revenue, income and assets for 1998. In addition, the Commission alleged that Fricke and the +engagement partner willfully violated Section 10A of the Exchange Act by failing to design +appropriate audit procedures to determine whether or not Chancellor’s senior management had +committed fraud and by their failure to inform Chancellor’s audit committee of the suspected +fraud. +1 See Accounting and Auditing Enforcement Release No. 1762, dated April 24, 2003. Fricke was permitted, +pursuant to the order, to apply for reinstatement after two years upon making certain showings. + + + + + + + + + + + + +This order is issued in response to Fricke'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 and as an independent accountant. +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, Fricke +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. +In his capacity as an independent accountant Fricke attests that he will comply with all +requirements of the Commission and the Public Company Accounting Oversight Board +(“PCAOB”), including, but not limited to, all requirements relating to registration, inspections, +concurring partner reviews and quality control standards. +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 Fricke, it appears that he has complied with the terms of the April 24, 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 Fricke, 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 Fricke, by registering with the PCAOB and undertaking 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, 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 +William T. Fricke, CPA is hereby reinstated to appear and practice before the Commission as an +accountant. +By the Commission. +Nancy M. Morris +Secretary \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2364.txt b/raw/aaer/2006/AAER-2364.txt new file mode 100644 index 0000000000000000000000000000000000000000..d4046bb9053f86123dac3ed04bce509d6a5fd361 --- /dev/null +++ b/raw/aaer/2006/AAER-2364.txt @@ -0,0 +1,1375 @@ + + + + + + + + + + + + + + + + SEC.gov | Sport-Haley, Inc., Steve S. Auger, and Kenneth R. LeCrone + + + + + + + + !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\/498226","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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Auger, and Kenneth R. LeCrone + + + + + + + + + + + + Sport-Haley, Inc., Steve S. Auger, and Kenneth R. LeCrone + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19532 / January 19, 2006 + + Accounting and Auditing Enforcement Release No. 2364 / January 19, 2006 + + SEC v. Sport-Haley, Inc., Steve S. Auger, Kenneth R. LeCrone , Civ. Action No. 03-N-1917 (CBS) (District of Colorado) + + The Securities and Exchange Commission ("Commission") announced that on January 17, 2006, Judge Edward W. Nottingham of the United States District Court for the District of Colorado entered final judgments by consent against defendants Sport-Haley, Inc. and Steve S. Auger in the above-referenced matter. Sport-Haley, located in Denver, Colorado, designs, markets, and contracts for the manufacture of golf apparel and outerwear under the Haley-Registered Trademark label. Steve S. Auger, of Morrison, Colorado, was formerly the controller of Sport-Haley. The Commission's complaint alleged that Sport-Haley materially overstated work-in-process ("WIP") inventory, improperly capitalize period costs and materially misstated losses on the sale of headwear equipment during its 1998 and 1999 fiscal years. According to the Complaint, as a result of these and other accounting errors, Sport-Haley filed with the Commission materially incorrect financial statements that overstated the company's 1998 fiscal year income by $1.5 million or 41 percent and its 1999 fiscal year income by $311,000 or 22 percent. The Complaint alleged that Auger reviewed and signed filings with the Commission that he knew or was reckless in not knowing contained false financial statements. + Without admitting or denying the allegations of the Commission's complaint, Sport-Haley consented to the issuance of a final judgment which enjoins it from further violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act, Sections 13(b)(2) and 15(d) of the Exchange Act and Rules 12b-20, 15d-1, and 15d-13 thereunder. Without admitting or denying the allegations of the Commission's complaint,, Auger consented to the issuance of a final judgment which enjoins him from further violations of Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and from aiding and abetting violations of Sections 13(b)(2) and 15(d) of the Exchange Act and Rules 12b-20, 15d-1, and 15d-13 thereunder. Auger was further barred from acting as an officer or director of any public company for a period of five years. + + On December 21, 2005, the complaint was dismissed by stipulation as to defendant Kenneth R. LeCrone, formerly an independent auditor for the company. On December 22, 2005, the Commission issued an order against LeCrone which ordered him to cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 +promulgated thereunder; and from causing any violations and any future violations of Section 15(d) of the Exchange Act, and Rules 12b-20, 15d-1 and 15d-13 promulgated thereunder. LeCrone consented to the order without admitting or denying the factual allegations contained in the order. [Securities Act Rel. No. 8647/December 22, 2005] + + + + + + + + + + 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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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 + + + Eric Tyra, Scott Wynne, Peter Berman, and Scott Carey + + + + + + + + + + + + Eric Tyra, Scott Wynne, Peter Berman, and Scott Carey + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19533 / January 20, 2006 + + Accounting and Auditing Enforcement Release No. 2365 / January 20, 2006 + + Securities and Exchange Commission v. 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 the Honorable R. David Proctor, United States District Judge for the Northern District of Alabama, entered a Final Judgment As To Defendant Scott Carey ("Carey"), enjoining him 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 from aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 10b-5, 12b-20 and 13a-1 thereunder. Carey consented to the entry of the judgment without admitting or denying any of the allegations of the Commission's Complaint. Carey was not ordered to pay a civil penalty based upon the representations in his sworn financial statements. + 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. During the relevant period, Carey was the Strategic Account Manager for the southeastern United States for Nike, Inc., a shoe and sportswear company. The Complaint alleged that in 1999, Carey signed confirmations which falsely represented that Nike owed various amounts of "co-op" credits to Just for Feet. The overstatement of income and assets resulting from this misconduct, and other misconduct in which Carey was not involved, 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); +and L.R. 18731 (June 1, 2004); + L.R. 19163 (March 31, 2005); +and L.R. 19438 (October 20, 2005). + + + + + + + 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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Sellers, CPA, and Sellers & Associates P.C. + + + + + + + + !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\/498251","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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Coffman, Jr., Dennis R. Staal, CPA, Richard E. Sellers, CPA, and Sellers & Associates P.C. + + + + + + + + + + + + Stansbury Holdings Corporation, Aldine J. Coffman, Jr., Dennis R. Staal, CPA, Richard E. Sellers, CPA, and Sellers & Associates P.C. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19537 / January 20, 2006 + + Accounting and Auditing Enforcement Release No. 2366 / January 20, 2006 + + Securities and Exchange Commission v. Stansbury Holdings Corporation, Aldine J. Coffman, Jr., Dennis R. Staal, CPA, Richard E. Sellers, CPA, and Sellers & Associates P.C. , Civil Action No. 06-CV-00088 (D. Colo.) + + The Securities and Exchange Commission announced today that it filed civil fraud charges against Stansbury Holdings Corporation, a mining company, and two former officers, as well as aiding and abetting charges against the company's auditors. In the suit, filed in federal court in the District of Colorado, the Commission alleges that former chief executive officer Aldine J. Coffman, Jr. of Denver, Colorado; former chief financial officer Dennis R. Staal of Chadron, Nebraska; and Richard E. Sellers and Sellers & Associates P.C. of Henderson, Nevada, Stansbury's auditors, caused Stansbury to overstate its assets in numerous periodic filings and in offering documents. + + According to the complaint, for the period June 30, 1999 through March 31, 2002, Stansbury valued certain of it mining properties at more than $18 million despite numerous events demonstrating they were worth far less. The complaint alleges that the defendants failed to disclose possible losses and make necessary adjustments based on foreclosure proceedings affecting Stansbury's largest assets. + + The complaint alleges that by its conduct, Defendant Stansbury violated Section 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 Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1. The complaint also alleges that Coffman and Staal violated Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5 and 13b2-1, and aided and abetted Stansbury's 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. The complaint also alleges that Sellers and Sellers & Associates aided and abetted Stansbury's violations of Sections 10(b) and 13(a) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1 and 13a-13. The Commission requests that the court enjoin Stansbury, Coffman, Staal, Sellers and Sellers & Associates from violating or aiding and abetting violations of the antifraud, periodic reporting, record keeping and internal controls provisions of the federal securities laws. The Commission also seeks disgorgement of the salaries Coffman and Staal received during the time period of the false financial statements. In addition, the Commission's complaint asks the court to impose civil monetary penalties, an order permanently barring Coffman and Staal from acting as officers or directors of any public company, and an order barring Coffman from participating in an offering of penny stock. + + In a related matter, the Commission instituted administrative proceedings against Michael J. Healey for acting as an unregistered broker-dealer when selling Stansbury securities. (Exchange Act Rel. No. 53144). The Commission previously revoked the registration of Stansbury's securities pursuant to Section 12(j) of the Exchange Act. (Exchange Act Rel. No. 48283). + + + + + + +  + + + + + + + + + + + + + + + + + + + + + + + + + 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-2367.pdf b/raw/aaer/2006/AAER-2367.pdf new file mode 100644 index 0000000000000000000000000000000000000000..b2d3212e2075ee66f9fd9fc0b019ad025e92a2ce Binary files /dev/null and b/raw/aaer/2006/AAER-2367.pdf differ diff --git a/raw/aaer/2006/AAER-2367.txt b/raw/aaer/2006/AAER-2367.txt new file mode 100644 index 0000000000000000000000000000000000000000..15c26510dca8d3e73c69830fa2685f62256f347a --- /dev/null +++ b/raw/aaer/2006/AAER-2367.txt @@ -0,0 +1,295 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT of 1934 +Release No. 53162 / January 20, 2006 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2367 / January 20, 2006 +ADMINISTRATIVE PROCEEDING +File No. 3-12155 +In the Matter of +HERBERT J. MORTLAND, +CPA and MORTLAND & CO., +P.C., +Respondents. +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 Herbert J. +Mortland, CPA (“Mortland”) and Mortland & Co., P.C. (“Mortland & Co.”) (hereinafter +referred to collectively as “Respondents”) pursuant to Rule 102(e)(1)(ii) of the +Commission’s Rules of Practice. +1 +II. +In anticipation of the institution of these proceedings, Respondents have 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 them and the +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. + + + + + + + + + + + + + + + + + + + + + + + + +subject matter of these proceedings, which are admitted, Respondents consent 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 Respondents’ Offer, the Commission finds2 that: +A. SUMMARY +These proceedings arise out of the diversion of approximately $4.5 million of +customer funds to pay proprietary trading losses of Rocky Mountain Securities & +Investments, Inc. (“Rocky Mountain”), a broker-dealer that became registered with the +Commission in 1980 and ceased operations on February 3, 2003. Through the diversion +of customer funds, Rocky Mountain violated the net capital, customer reserve, books and +records, and notice provisions of the Securities Exchange Act of 1934 (“Exchange Act”). +Rocky Mountain also made false filings with the Commission and sent its customers a +materially false financial statement. +B. RESPONDENTS +1. Herbert J. Mortland, a certified public accountant licensed in the State of +Missouri, is the owner of Mortland & Co., an accounting firm with offices in Clayton, +Missouri. +2. Mortland & Co. performed the audit of the financial statements of Rocky +Mountain for the fiscal year ended June 30, 2002, and certain supplementary reports, +including Rocky Mountain’s Computation of Aggregate Indebtedness and Net Capital +and Rocky Mountain’s Computation of Reserve Requirement (the “2002 audit”). +C. FACTS +1. On August 27, 2002, Rocky Mountain filed its June 2002 financial +statements and supplementary reports, accompanied by Mortland & Co.’s audit report +and supplemental report, with the Commission on Form X-17A-5. Rocky Mountain’s +financial statements and supplementary reports, and Mortland & Co.’s audit report and +supplemental report, were mailed to Rocky Mountain’s customers. +2. Mortland & Co.’s audit report contained an unqualified opinion representing +that Mortland & Co. had conducted an audit in accordance with Generally Accepted +Auditing Standards (“GAAS”) and that Rocky Mountain’s financial statements fairly +presented the financial position and results of operations of Rocky Mountain in all material +2 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 + + + + + + + + + + + + +respects and that those financial statements had been prepared in conformity with +Generally Accepted Accounting Principles (“GAAP”). In fact, Mortland & Co. had not +conducted the audit in accordance with GAAS and Rocky Mountain’s financial statements +had not been prepared in conformity with GAAP. +3. At the time Mortland conducted the 2002 audit, he was on notice that +securities trading by Rocky Mountain through its proprietary accounts in 2000 had +generated approximately $600,000 in losses that were not recorded in Rocky Mountain’s +books and records, rendering the firm’s net capital and customer reserve calculations, +among other things, materially inaccurate. +4. Mortland & Co. and Mortland failed to conduct the 2002 audit in accordance +with GAAS, as follows: +a. Mortland’s audit opinion was based upon his sample review of +certain underlying accounting data, but did not take into account conflicting data available +to him that would have revealed material discrepancies in the proprietary securities +positions reflected in Rocky Mountain’s books and records. In performing audit +procedures, Mortland also did not consider data available to him that cast doubt on the +customer fund balance reflected in Rocky Mountain’s books and records. +b. Rocky Mountain’s computations of net capital, aggregate +indebtedness and customer reserve requirements were materially inaccurate because the +firm’s books and records reflected materially inaccurate proprietary securities positions +and a materially inaccurate balance in the customer funds account. Because of +Mortland’s audit failures with respect to Rocky Mountain’s proprietary securities positions +and customer funds account, Mortland failed to detect Rocky Mountain’s materially +inaccurate computations of net capital, aggregate indebtedness and customer reserve +requirements. +c. Mortland & Co.’s supplemental report, referenced in +Paragraph III.C.1., represented that Mortland & Co. found no material inadequacies in +Rocky Mountain’s practices and procedures. Mortland’s audit should have, but did not, +reveal the material inadequacies existing at Rocky Mountain during the relevant time +frame. +d. Mortland had made loans to Rocky Mountain’s head +securities trader, which remained outstanding during the 2002 audit. The outstanding +loans from Mortland to the head trader compromised Mortland’s and Mortland & Co.’s +independence. Rocky Mountain’s unrecorded securities trading losses in 2000 and the +resulting obligation of Mortland to conduct the 2002 audit with an appreciation for the +heightened level of risk presented by Rocky Mountain’s trading department aggravated +Mortland’s lack of independence. +3 + + + + + + + + + + + + + + + + + + + +5. Based on the foregoing, the Commission finds that Mortland & Co. and +Mortland 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 Mortland’s and Respondent Mortland & Co.’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: + A. Mortland and Mortland & Co. are denied the privilege of appearing or +practicing before the Commission as accountants. +B. After three years from the date of this order, Respondent Mortland 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 Mortland’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 Mortland, 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 Mortland, 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 Mortland 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 Mortland acknowledges his responsibility, as +long as Respondent Mortland appears or practices before the Commission as an +4 + + + + + + + + + + + + + + + + + + + + + + + + + + + + +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. After three year s from the date of this order, Respondent Mortland & +Co. 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 Mortland & Co. 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; +2. Respondent Mortland & Co. has been inspected by the Board and +that inspection did not identify any criticisms of or potential defects in the firm’s quality +control system that would indicate that any of its employees will not receive appropriate +supervision; +3. Respondent Mortland & Co. 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 Mortland & Co. acknowledges its responsibility, as long +as Respondent Mortland & Co. 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 Respondents Mortland +and/or Mortland & Co. to resume appearing or practicing before the Commission provided +that their state CPA licenses are current and they have 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 Respondents’ +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 +5 + \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2368.txt b/raw/aaer/2006/AAER-2368.txt new file mode 100644 index 0000000000000000000000000000000000000000..722f1d2ddee7d0bd38577ac16be25e32e8a3e015 --- /dev/null +++ b/raw/aaer/2006/AAER-2368.txt @@ -0,0 +1,1375 @@ + + + + + + + + + + + + + + + + SEC.gov | Thomas P. Clark + + + + + + + + !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\/498306","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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Clark + + + + + + + + + + + + Thomas P. Clark + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19548 / January 30, 2006 + + Accounting and Auditing Enforcement Release No. 2368 / January 30, 2006 + + SEC v. Thomas P. Clark, , Civil Action No. CV 06-380 ADM/AJB (D. Minn.) + + SEC Charges Former CFO of Health Risk Management, Inc. with Fraud + + + On January 27, 2006, the Securities and Exchange Commission (Commission) filed a civil action in the United States District Court for the District of Minnesota charging Thomas P. Clark, former Chief Financial Officer of Health Risk Management, Inc. (HMRI), with fraud and other securities violations. + + The Commission's allegations arise from Clark's treatment of a $1.85 million settlement payment that he negotiated on behalf of HRMI and its wholly owned Medicaid HMO to settle an arbitration dispute with one of the HMO's healthcare providers. According to the complaint, in August 2000, Clark, a resident of Edina, Minnesota, sought to hide the full amount of the settlement expense by simultaneously executing two agreements with the provider: (1) a settlement agreement, which required the HMO subsidiary to pay the provider $500,000 in exchange for a release; and (2) a $1.35 million five-year consulting agreement. The complaint alleges that the consulting agreement required HRMI to pay a $1.35 million "retainer" for services that HRMI did not need and which were never provided. The complaint further alleges that Clark booked the $1.35 million payment as an asset rather than as a settlement expense, causing HMRI to file materially false financial statements with the Commission for the second and third quarters of 2000. The complaint also alleges that Clark failed to inform HRMI's outside auditors about the consulting agreement and the true dollar figure of the settlement. + + The Commission seeks a Court order to permanently enjoin Clark 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, and from aiding and abetting HRMI's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13. The Commission also seeks a civil monetary penalty and an order barring Clark from acting as an officer or director of securities issuers. + + + + + + + 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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Snyder, Jr. + + + + + + + + !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\/498351","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 + + + Bruce E. Snyder, Jr. + + + + + + + + + + + + Bruce E. Snyder, Jr. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19557 / February 7, 2006 + + Accounting and Auditing Enforcement Release No. 2373 / February 7, 2006 + + SEC v. Bruce E. Snyder, Jr. , Civil Action No. 03 CV 4658 (S.D.Tx.) (February 1, 2006) + + Federal Jury Finds that Bruce E. Snyder, Jr., Former Chief Accounting Officer of Waste Management, Inc., Engaged in Securities Fraud + + + + On February 1, 2006, a federal jury in Houston, Texas, returned a verdict finding that Bruce E. Snyder, Jr., the former Chief Accounting Officer of Waste Management, Inc. ("WMI"), violated the antifraud provisions of the federal securities laws by failing to make certain required disclosures which caused WMI's reported financial results for the first quarter of fiscal year 1999 to be materially false and misleading. The jury also found that Snyder engaged in insider trading. The jury reached its verdict after a four-week trial in the United States District Court for the Southern District of Texas (Houston Division). + + The jury found that Snyder violated the antifraud provisions of the federal securities laws, Section 10(b) of the Securities and Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act of 1933. The jury also found that Snyder aided and abetted WMI's violations of Section 13(a) of the Exchange Act and Exchange Act Rules 12b-20 and 13a-13, the reporting provisions of the federal securities laws. + + The Commission's Complaint against Snyder alleged that he prepared, reviewed, and signed a materially false or misleading Form 10-Q that WMI filed with the Commission for the first quarter ended March 31, 1999, even though he knew, or was reckless in not knowing, that it failed to disclose that WMI's reported pretax income for that quarter included tens of millions of dollars of non-recurring income items. The undisclosed income items inflated WMI's EPS by approximately $0.09 or 17%. The Commission's Complaint further alleged that Snyder sold WMI stock on May 17, 1999, while in possession of the material, nonpublic information that WMI's reported pretax income for the first quarter of fiscal year 1999 included tens of millions of dollars of undisclosed, non-recurring income items. The Complaint also alleged that Snyder sold WMI stock again on June 9, 1999, when, in addition to the aforementioned information, Snyder possessed material, nonpublic information that WMI's internal earnings projections showed a large shortfall against the second quarter 1999 EPS guidance WMI had provided to the investing public. + + See Litigation Release NO. 18422 / October 22, 2003. + + + + + + +  + + + + + + + + + + + + + + + + + + + + + + + + + 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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McCracken, 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\/498401","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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McCracken, et al. + + + + + + + + + + + + Eric J. McCracken, et al. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19567 / February 16 , 2006 + + Accounting and Auditing Enforcement +Release No. 2375/ February 16 , 2006 + + Securities and Exchange Commission v. Eric J. McCracken, et al. , Civil Action No. 8:04-CV-02288-SDM-MAP (M.D. FL) + + SEC Settles Case Against Eric J. McCracken, Former CFO of Aerosonic Corporation + + + The Securities and Exchange Commission (SEC) announced today that it has settled its civil injunctive action against Eric J. McCracken, the former Chief Financial Officer of airplane instrument manufacturer Aerosonic Corporation (Aerosonic). McCracken consented, without admitting or denying the allegations in the Complaint, to the entry of a Final Judgment of Permanent Injunction and Other Relief (Final Judgment), which the court entered on February 10, 2006. The Final Judgment permanently enjoins McCracken from violating Section 17(a) of the Securities Act of 1933 (Securities Act), and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13b2-1, 13b2-2, and 13a-14, 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 bars him from serving as an officer or director of a public company. The Final Judgment further orders McCracken to pay $40,000 in disgorgement, but does not impose a civil penalty against McCracken based on the sworn financial statements and other information he provided to the Commission. + In its Complaint, the SEC alleged that from January 1999 through December 2002, McCracken and Aerosonic's former CEO implemented various accounting schemes designed to artificially inflate Aerosonic's reported pre-tax earnings. Among their schemes, they allegedly caused Aerosonic to overstate inventory by falsifying inventory records and by failing to provide adequate reserves for Aerosonic's obsolete and slow moving inventory. In addition, McCracken and the former CEO allegedly caused Aerosonic to report inflated earnings by recording fictitious and premature revenue. McCracken financially benefited from his fraudulent activities by reaping lucrative bonuses and by selling his Aerosonic stock while its price was artificially inflated as a result of Aerosonic's false filings and press releases. + For further information, see Litigation Release No. 18935 (October 20, 2004). [Securities and Exchange Commission v. John Mervyn Nabors and Eric J. McCracken, Civil Action No. 8:04-CV-02288-Merryday (M.D. Fla. Oct. 18, 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. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2006/AAER-2376.pdf b/raw/aaer/2006/AAER-2376.pdf new file mode 100644 index 0000000000000000000000000000000000000000..42fcfade56bf017bbcd7631b1faaba6982c918c1 Binary files /dev/null and b/raw/aaer/2006/AAER-2376.pdf differ diff --git a/raw/aaer/2006/AAER-2376.txt b/raw/aaer/2006/AAER-2376.txt new file mode 100644 index 0000000000000000000000000000000000000000..54737cd4638c62b44770d011feb6dfa993d6000e --- /dev/null +++ b/raw/aaer/2006/AAER-2376.txt @@ -0,0 +1,56 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION + + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 53326 / February 16, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2376 / February 16, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12208 + +IN THE MATTER OF KEVIN M. HALL, CPA, AND ROSEMARY K. MEYER, CPA + +The United States Securities and Exchange Commission (Commission) announced the +issuance of an Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of +the Commission’s Rules of Practice (Order) against Kevin Hall, CPA, and Rosemary Meyer, +CPA. In the Order, the Division of Enforcement (Division) and the Office of the Chief +Accountant (OCA) allege that Hall and Meyer engaged in improper professional conduct in +the audit of U.S. Foodservice, Inc. (USF) for fiscal year 1999 and interim review for the +second quarter of fiscal year 2000. Hall and Meyer were the engagement partner and senior +manager, respectively, for the audit and review work that KPMG LLP performed for USF. + +In the Order, the Division and OCA allege that Hall and Meyer found numerous instances +where USF recognized income when it should not have, but Hall and Meyer refused to act +upon or failed to recognize these and other “red flags.” The Division and OCA assert that +Hall and Meyer discovered that USF had recognized substantial unearned “prepayments” of +income and Hall and Meyer documented those as “audit exceptions” in their audit working +papers. The Division and OCA contend that the existence of prepayments directly and +explicitly contradicted USF management’s repeated representations that USF did not obtain +vendor prepayments. The Division and OCA also allege that Hall and Meyer obtained and +reviewed audit evidence that directly contradicted USF’s accounting for payments used to +improperly reduce aging accounts receivable balances. + +Additionally, the Division and OCA allege in the Order that Hall and Meyer were +responsible for a flawed audit design that allowed third party confirmations to go to persons +without any apparent knowledge about the underlying information being confirmed, in +violation of Generally Accepted Auditing Standards. The Division and OCA also charge that +Hall and Meyer were aware that USF incurred substantial penalties under a long-term supply +contract, but Hall and Meyer did not require USF to expense these payments and furthermore +failed to require USF to assess its exposure to a contingent liability under the contract. + +Finally, the Division and OCA allege that Hall and Meyer did not take the necessary +additional steps to either clarify inconsistencies or bring problems to the attention of USF’s +Audit Committee or others. + +A hearing will be scheduled before an Administrative Law Judge to determine whether such +allegations are true, to afford the respondents an opportunity to establish defenses to the +allegations, and to determine whether respondents should be censured by the Commission or +temporarily or permanently denied the privilege of appearing or practicing before the +Commission. 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.pdf b/raw/aaer/2006/AAER-2377.pdf new file mode 100644 index 0000000000000000000000000000000000000000..38f9641a5ec3329782a66f13f6bf0dad958194fa Binary files /dev/null and b/raw/aaer/2006/AAER-2377.pdf differ diff --git a/raw/aaer/2006/AAER-2378.pdf b/raw/aaer/2006/AAER-2378.pdf new file mode 100644 index 0000000000000000000000000000000000000000..f6846f373604c92c8be23cfc47b90f7bc72e6bd2 Binary files /dev/null and b/raw/aaer/2006/AAER-2378.pdf differ diff --git a/raw/aaer/2006/AAER-2379.txt b/raw/aaer/2006/AAER-2379.txt new file mode 100644 index 0000000000000000000000000000000000000000..3dcc3228c6e3d4c8f683b37b3fba99da5bd6b8df --- /dev/null +++ b/raw/aaer/2006/AAER-2379.txt @@ -0,0 +1,1387 @@ + + + + + + + + + + + + + + + + SEC.gov | KPMG LLP, 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\/498431","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 + + + KPMG LLP, et al. + + + + + + + + + + + + KPMG LLP, et al. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19573 / February 22, 2006 + + Accounting and Auditing Enforcement Release No. 2379 / February 22, 2006 + + SEC v. KPMG LLP, et al. , Civil Action No. 03 CV 0671 (DLC) (S.D.N.Y.) + + Four Current or Former KPMG Partners Settle SEC Litigation Relating To Xerox Audits + + Three Partners Agree to Permanent Injunctions, Record Penalties and SEC Suspensions; Fourth Partner Agrees to SEC Censure + + + On February 22, 2006, the Securities and Exchange Commission announced that all four remaining defendants in an action brought against them and KPMG LLP ("KPMG") by the agency in connection with a $1.2 billion fraudulent earnings manipulation scheme by the Xerox Corporation from 1997 through 2000 have agreed to settle the charges against them. Three partners agreed to permanent injunctions, payment of record civil penalties and suspensions from practice before the Commission with rights to reapply in from one to three years. The fourth partner agreed to be censured by the Commission. + + The settlements relate to Xerox's fraudulent scheme that involved various manipulations of accounting for leases of Xerox office equipment. The Commission alleged that the manipulations were necessary for Xerox to meet promises it made to Wall Street that its earnings would continue to grow. The manipulations helped Xerox to "close the gap" between its actual performance and what it promised analysts. KPMG was Xerox's independent auditor each of those years. KPMG issued unqualified audit reports asserting that Xerox's financial statements were consistent with Generally Accepted Accounting Principles ("GAAP") and that KPMG had conducted an audit each year in accordance with Generally Accepted Auditing Standards ("GAAS"). The SEC alleged in its complaint against KPMG and five KPMG partners filed in 2003 that these statements were materially false and misleading and aided and abetted Xerox's filing of false financial reports with the Commission. When Xerox retained new auditors in 2002, it restated $6.1 billion in equipment revenues and $1.9 billion in pre-tax earnings for 1997-2000. The complaint alleged that KPMG and its partners knew or should have known about the improper topside adjustments that resulted in $3 billion of the restated revenues and $1.2 billion of the restated earnings. + + The defendants whose settlements were announced are Ronald Safran, the KPMG engagement partner on the Xerox audit for 1998 and 1999; Michael Conway, the senior engagement partner on the Xerox audit for 2000; Anthony Dolanski, the engagement partner on the Xerox audit for 1997; and Thomas Yoho, the SEC concurring review partner for KPMG on the Xerox engagement from 1997-2000. Safran, Conway and Dolanski each consented to the entry of final judgments against them by the U.S. District Court for the Southern District of New York. Yoho agreed to the entry of a Commission order imposing a censure pursuant to Rule 102(e) of the SEC's Rules of Practice. Each defendant entered into his settlement without admitting or denying the SEC's allegations or findings. + + The final judgments, which are subject to approval by the Honorable Denise L. Cote, order the engagement partners to pay civil penalties that are the largest penalties ever imposed by the Commission against an individual auditor: Safran and Conway to each pay a civil penalty in the amount of $150,000, and Dolanski to pay a penalty in the amount of $100,000. The final judgments also order that Safran, Conway and Dolanski be permanently enjoined from violating certain provisions of the federal securities laws (Sections 17(a)(2) and (3) of the Securities Act of 1933) and from aiding and abetting violations of other securities laws (Section 13(a) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1 and 13a-13 thereunder). Safran, Conway and Dolanski each also consented to the issuance of an SEC Order based on the entry of the injunctions which will suspend them from appearing or practicing before the SEC as accountants. Safran will be suspended with a right to reapply in three years, Conway in two, and Dolanski in one. + + The SEC alleged in its federal court complaint that, in the course of serving as engagement partners for Xerox, Safran, Conway and Dolanski allowed Xerox to impose topside accounting adjustments that they knew or should have known did not comply with GAAP. The SEC alleged that these partners failed to adequately test, or require Xerox to test, the assumptions Xerox used to justify its topside adjustments, nor did they test, or demand that Xerox test, to determine if the topside adjustments resulted in financial statements that fairly presented Xerox's financial results. The SEC further alleged that, as a result of this conduct and other conduct alleged in the complaint, the engagement partners failed to exercise the professional care and skepticism required under GAAS and instead authorized the issuance of the KPMG audit reports that contained the false and misleading representation that KPMG conducted its audits in accordance with GAAS, and that Xerox's financial statements presented fairly, in all material respects, Xerox's financial position and results of operations in conformity with GAAP. + + The settled SEC Order against Yoho finds that he engaged in improper professional conduct by failing to exercise appropriate due care and professional skepticism when he conducted an "in depth" review during the 2000 audit. The Order finds that Yoho failed in his obligations as concurring review partner when he was informed of missing work papers, audit results that differed from reasonable expectations, lack of testing of significant topside revenue adjustments and unresolved differences between KPMG auditors in Brazil and those leading the engagement in Stamford, Conn. The Order finds that rather than pursue these issues, Yoho prepared a brief report that did not disclose any of the issues found in the "in depth" review. + + The Commission previously announced settled enforcement proceedings against KPMG LLP, a KPMG relationship partner on the Xerox audit, Xerox and six former senior executives of Xerox, all in connection with the fraudulent manipulative accounting. See Litigation Release No. 19191 / April 19, 2005 /Accounting and Auditing Enforcement Release No. 2235 / April 19, 2005 (KPMG LLP settlement); Litigation Release No. 19418 / October 6, 2005 / Accounting and Auditing Enforcement Release No. 2350 / December 2, 2005 (KPMG relationship partner settlement); Litigation Release No. 17465 + / April 11, 2002 / Accounting and Auditing Enforcement Release No. 1542 / April 11, 2002 (Xerox settlement); + Litigation Release No. 18174 / June 5, 2003 / Accounting and Auditing Enforcement Release No. 1796 / June 5, 2003 (settlement of six former Xerox executives). The Commission obtained civil penalties and disgorgement in all of these actions in excess of $55 million. + + + + + + + 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-2380.pdf b/raw/aaer/2006/AAER-2380.pdf new file mode 100644 index 0000000000000000000000000000000000000000..2c4f61168de37541748f39519dc6570d67dfcbab Binary files /dev/null and b/raw/aaer/2006/AAER-2380.pdf differ diff --git a/raw/aaer/2006/AAER-2381.pdf b/raw/aaer/2006/AAER-2381.pdf new file mode 100644 index 0000000000000000000000000000000000000000..728937dcd0de5ed785640bbea6de87d0f4d235a6 Binary files /dev/null and b/raw/aaer/2006/AAER-2381.pdf differ diff --git a/raw/aaer/2006/AAER-2381.txt b/raw/aaer/2006/AAER-2381.txt new file mode 100644 index 0000000000000000000000000000000000000000..9476b7ea77beeb3ce8327f0cb8f1e83256f26d30 --- /dev/null +++ b/raw/aaer/2006/AAER-2381.txt @@ -0,0 +1,113 @@ + + + UNITED STATES OF AMERICA + before the + SECURITIES AND EXCHANGE COMMISSION + + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 53375 / February 27, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2381 / February 27, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12217 + + : + : + : +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE + : PROCEEDINGS PURSUANT TO RULE +LEONARD GOLDNER, : 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 Leonard +Goldner (“Goldner” 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 pertinent part as follows: + + 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 +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 Co mmission finds that: + + 1. Goldner, age 58, was Symbol Technologies, Inc.’s (“Symbol”) Secretary +and General Counsel from 1990 until his resignation in June 2003. In June 2001, he was also +promoted to Executive Vice President from Senior Vice President. + + 2. Symbol, a Delaware co rporation with principal offices in Holtsville, New +York, is engaged in the design, manufacture, marketing and servicing of integrated mobile and +wireless information management systems utilizing bar code scanners and similar devices. +Symbol’s common stock is, and was at all times relevant to this proceeding, 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. + + 3. On June 3, 2004, the Commission filed a complaint against Goldner and +others in the United States District Court for the Eastern District of New York alleging that they +violated antifraud and other provisions of the federal securities laws, SEC v. Symbol Technologies, +Inc., et al., 04-cv-2276 (LDW). On February 7, 2006, the court entered a final judgment, to which +Goldner consented without admitting or denying the allegations of the complaint, that, inter alia, +permanently enjoined Goldner from: (i) violating Section 17(a) of the Securities Act of 1933, +Sections 10(b), 13(b)(5), and 16(a) of the Exchange Act and Rules 10b-5, 13b2-1, and 16a-3 +thereunder, and (ii) engaging in conduct that would make him liable as a controlling person, +pursuant to Section 20(a) of the Exchange Act, for an issuer’s violations of Sections 13(a), +13(b)(2), and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, 14a-3, and 14a-9 +thereunder. + + 4. The Commission’s complaint alle ges, among other things, that Goldner +directed an improper practice in the administration of Symbol’s executive stock option program. +The complaint alleges that pursuant to this practice, Goldner and his staff processed and reported +stock option exercises by certain executives in contravention of the terms of Symbol’s executive +stock option plans as disclosed in public filings with the Commission. The complaint alleges that +for stock option exercises done under this practice, a date was attributed to the exercise that was + 3 +more advantageous to the executive than the true exercise date as defined in Symbol’s executive +stock option plans. + +IV. + + 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, effectiv e immediately, that Respondent is suspended +from appearing or practicing before the Commission as an attorney. + + + + 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-2384.pdf b/raw/aaer/2006/AAER-2384.pdf new file mode 100644 index 0000000000000000000000000000000000000000..a7622dca78039a36f2a0bbab657030c306c8f398 Binary files /dev/null and b/raw/aaer/2006/AAER-2384.pdf differ diff --git a/raw/aaer/2006/AAER-2384.txt b/raw/aaer/2006/AAER-2384.txt new file mode 100644 index 0000000000000000000000000000000000000000..5115ad2c25d12e52c1c8de335c942834e2aa41b5 --- /dev/null +++ b/raw/aaer/2006/AAER-2384.txt @@ -0,0 +1,425 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES ACT OF 1933 +Release No. 8664 / February 27, 2006 + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 53379 / February 27, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2384 / February 27, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12219 + +In the Matter of : ORDER INSTITUTING PROCEEDINGS + : PURSUANT TO SECTION 8A OF THE +Helen Haiwen He, : SECURITI ES ACT OF 1933 AND SECTION + : 21C OF THE SECU RITIES EXCHANGE ACT + : OF 1934, MAKING FINDINGS AND +Respondent. : IMPOSING A CEASE-AND-DESIST ORDER +______________________________: + + +I. + +The Securities and Exchange Commission (“Commission”) deems it appropriate +that public administrative proceedings be, and hereby are, instituted pursuant to Section +8A of the Securities Act of 1933 (“Securities Act”) and Section 21C of the Securities +Exchange Act of 1934 (“Exchange Act”) against Helen Haiwen He (“Helen He” 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 Respondent admits, +Respondent consents to the issuance of this Order Instituting 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 (“Order”), as set forth +below. +III. + + On the basis of this Order and Respondent’s Offer, the Commission finds1 that: + +A. Respondent + +Helen Haiwen He, age 37, is a citizen of China with the right of permanent +residency in the United States. Helen He, a Chartered Financial Analyst, was Chief +Financial Officer of NetEase.com, Inc. (“NetEase” or the “Company”) and head of its +Finance Department from August 1999 until December 31, 2000, and a Director from +August 1999 to August 2001. + +B. Other Relevant Parties + +NetEase.com, Inc. is a Cayman Islands corporation established in July 1999 to +conduct an Internet business in China. In June 2000, NetEase raised $65 million in an +initial public offering in the United States. NetEase offers a wide range of Internet +services to Chinese customers including news, email, instant messaging, chat rooms and +online auctions. During the relevant time, NetEase had approximately 250 employees +and operated through offices in Beijing, Shanghai and Guangzhou, China. NetEase’s +American Depositary Shares (“ADS”) are registered with the Commission pursuant to +Section 12(g) of the Exchange Act and trade on the Nasdaq Stock Market under the ticker +symbol NTES. + +C. Facts + +1. Summary + +During 2000 and 2001, NetEase employees circumvented the Company’s internal +accounting controls and falsified the Company’s books and records in connection with +hundreds of advertising and e-commerce contracts. NetEase then recorded revenue from +the transactions in a manner that did not conform with U.S. Generally Accepted +Accounting Principles (“GAAP”). As a result, NetEase materially overstated its revenue +and made numerous false and misleading statements about its financial condition in +annual and periodic reports filed with the Commission and in other public statements, +including earnings releases.2 + +During 2000, Helen He contributed to NetEase’s recognition of revenue for two +barter arrangements that lacked economic substance. The arrangements called for +NetEase to perform advertising or e-commerce services for customers, and for the +customers to provide an offsetting amount of products and services to NetEase. + +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 The Commission filed a related case against NetEase in Federal District Court on +February 27, 2006. + 2 +However, none of the parties ever performed the services. Nevertheless, without +engaging in sufficient due diligence, Helen He allowed the company to record revenue in +connection with these arrangements in NetEase’s books and records. The revenue helped +NetEase “close-the-gap” between its actual results and analysts’ expectations. + +As a result, NetEase materially overstated its revenue in financial statements +furnished to the Commission, three of which Helen He signed. By engaging in this +conduct, Helen He violated Sections 17(a)(2) and 17(a)(3) of the Securities Act and Rules +13b2-1 and 13b2-2 under the Exchange Act, and was a cause of NetEase’s violations of +Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and +13a-16 thereunder. + + 2. Background + +In April 2001, a potential purchaser of NetEase identified and questioned a large +amount of past due accounts receivable balances. As a result, NetEase’s audit committee +conducted an internal investigation, which found that the Company’s management had +directed employees to circumvent internal controls on a widespread basis causing the +Company to materially overstate revenue. Specifically, NetEase materially inflated +revenue by $4.3 million, or 109%, and understated net loss by 16% for the fiscal year +ended December 31, 2000. NetEase also overstated revenue by approximately 5%, 36%, +138%, 290% and 116% for the fiscal quarters ended March 31, June 30, September 30, +and December 31, 2000, and March 31, 2001, respectively and understated net loss by +6%, 20% and 23% for the final three quarters of year 2000. Due to its improper +accounting, NetEase restated previously reported fiscal year 2000 financial results and +corrected, before public dissemination, its financial results for the quarter ended March +31, 2001. + +3. Relevant GAAP + +GAAP permits revenue recognition when, among other things, the seller has +provided the product or service to the customer. Statement of Financial Accounting +Concepts No. 5, “Recognition and Measurement in Financial Statements of Business +Enterprises.” When a company renders services over time, revenue generally is +recognized on a straight line basis over the service period. Staff Accounting Bulletin: +No. 101, “Revenue Recognition in Financial Statements.” For barter transactions, a +company is required to record revenue based on the fair values of the assets or services +exchanged by the parties. Accounting Principles Board Opinion No. 29, “Accounting for +Nonmonetary Transactions”; Emerging Issues Task Force Issue No. 99-17, “Accounting +for Advertising Barter Transactions.” Finally, GAAP requires that companies account +for a transaction in accordance with its substance, rather than its form. Statement of +Financial Accounting Concepts No. 2, “Qualitative Characteristics of Accounting +Information.” + +As is discussed below, NetEase improperly accounted for hundreds of advertising +and e-commerce transactions during 2000 and 2001. For some arrangements, NetEase’s + 3 +accounting did not conform with GAAP because the Company recognized revenue when +it had not rendered any services to the customer. In other instances, NetEase improperly +accelerated revenue recognition by recording revenue over an artificially shortened +service period. Finally, NetEase improperly recognized revenue in connection with +barter arrangements lacking economic substance in that neither party provided any +products or services to the other or because the Company had no evidence establishing +that anything of value had been provided. + +4. Circumvention of Internal Controls + +NetEase established a system of internal accounting controls in 2000 that +segregated revenue recognition controls among three departments – Sales, Contracts and +Finance. The Sales Department was responsible for negotiating contracts. The Contracts +Department was responsible for signing contracts, arranging for advertising placements, +and completing documents evidencing that the advertisements were shown on NetEase’s +website. The Finance Department, the only department that reported to Helen He, was +responsible for affixing NetEase’s corporate seal on the contracts and for preparing +revenue recognition journal entries. However, this system did not provide reasonable +assurances that services actually were performed before recognizing revenue. NetEase +also failed to maintain its internal controls by verifying whether NetEase employees were +complying with them. + +In 2000 and 2001, NetEase’s employees in these departments circumvented the +Company’s internal controls in order to materially inflate reported revenue. NetEase’s +improper revenue recognition can be classified into the following three categories, even +though some transactions may involve more than one category: + +a. Recording approximately $2 million in revenue in connection with barter +arrangements lacking economic substance; +b. Shifting approximately $1.1 million in revenue into earlier quarters by +artificially bifurcating advertising arrangements with customers into two +contracts and improperly recognizing revenue over a shortened time. +NetEase employees referred to this technique as “revenue-brought- +forward”; and +c. Recording approximately $1.2 million in fictitious revenue in situations in +which NetEase had not performed the required advertising or e-commerce +services. +For all three categories, NetEase’s Contracts Department, which was responsible +for arranging provision of the services, prepared reports falsely showing that NetEase had +performed the advertising. The Finance Department, which placed the Company’s seal +on the contracts, prepared revenue recognition journal entries using the Contract +Department’s false performance records. Finally, the Sales Department artificially +bifurcated sales arrangements into two contracts in order to accelerate revenue into earlier +quarters. For example, a contract having a six-month term was divided into two + 4 +agreements, one having a three-month term and another “bonus contract” for which +NetEase provided “free” services for three additional months. Contrary to GAAP, +NetEase recognized revenue over the shortened three-month period instead of the true +term of six months. To identify which contracts to conceal from its independent auditor, +employees marked the initial contracts with the prefix “G” and the bonus contracts with +the prefix “Z.” + +5. Joyo.com/Kingsoft Barter Arrangement + +During the third quarter of 2000, NetEase recognized $330,000 in revenue from +two contracts with Joyo.com. Under these contracts, NetEase purportedly agreed to host +an online shopping mall for Joyo. The same quarter, NetEase also purportedly purchased +dictation software worth in excess of $330,000 from Kingsoft, one of China’s largest PC +software vendors and a related party to Joyo. In fact, NetEase did not provide any +services to Joyo and Kingsoft did not provide any software to NetEase. In its +restatement, NetEase reversed the Joyo revenue because it was part of a three-way barter +arrangement that lacked economic substance. + + In October 2000, a NetEase employee informed Helen He about two Joyo +contracts, dated July 10, 2000 and August 15, 2000, that had not been recorded in +NetEase’s books. The employee did not provide Helen He with an explanation as to why +the revenue from these contracts had not already been recorded in the third quarter. +Nonetheless, without doing any due diligence as to whether the contract dates had been +backdated or whether the contracts represented legitimate third quarter sales, Helen He +approved NetEase’s revenue recognition as of September 30, 2000. The Joyo revenue +made up approximately 33% of the revenue shortfall that NetEase had identified only two +weeks before the end of the third quarter of 2000. Helen He also represented to the +company’s independent auditor that the Joyo contracts were for legitimate third quarter +sales. In fact, the contracts had been backdated and were not signed until October 2000, +after the third quarter had ended. By her actions, Helen He facilitated NetEase’s +improper recognition of the Joyo revenue. + +Revenue recognition in the third quarter of 2000 was improper because the +contracts were not executed until the fourth quarter of 2000 and because they were part of +a barter arrangement lacking economic substance. Helen He failed to follow-up on red +flags associated with the Joyo contracts at a time when she knew that NetEase was under +pressure to close the gap between actual results and expectations, and she knew or should +have known that NetEase’s recognition of revenue in connection with them was +improper. + +6. Techpacific.com + +In the fourth quarter of 2000, Helen He signed an advertising contract with +Techpacific.com, a key NetEase shareholder from prior to NetEase’s initial public +offering in the United States. The contract, which was negotiated by a member of the +Sales Department, called for Techpacific to pay $50,000 to sponsor NetEase’s electronic + 5 +holiday card site. The agreement was modified by a supplementary contract signed by +another NetEase employee that included an improper “revenue-brought-forward” +element, about which Helen He should have known, requiring NetEase to provide free +advertising services after December 31, 2000. The revenue from this contract helped +NetEase close the gap on its revenue shortfall for the fourth quarter of 2000. Helen He +also negotiated and signed another contract with Techpacific, dated January 2001, calling +for NetEase to pay Techpacific $50,000 for financial advisory services, purportedly in +connection with merger discussions between NetEase and various third parties. + In connection with the year-end audit of NetEase for 2000, Helen He was aware +that NetEase’s independent auditor would audit the $50,000 in revenue recognized from +the advertising contract with Techpacific. She did not inform the independent auditor +that she had also executed a $50,000 financial advisory agreement, so that the auditor +could consider that fact in making a judgment about whether NetEase’s revenue +recognition on the advertising contract was appropriate. In fact, NetEase did not provide +any advertising services under the first contract and Techpacific did not provide any +genuine financial advisory work under the second contract. As a result, in its +restatement, NetEase reversed the $50,000 of revenue recorded in December 2000 +because it was part of a barter arrangement that lacked economic substance. +As CFO, Helen He ultimately was responsible for revenue recognition decisions +for the fourth quarter of 2000. In that capacity, she permitted NetEase to recognize +revenue despite the fact that she had executed contracts for offsetting amounts and for +which she did insufficient due diligence to determine whether either party had performed. +As a result, Helen He knew or should have known that the contracts lacked economic +substance and that NetEase’s accounting was improper. +7. False Financial Results + +Based on her actions and inactions discussed above, Helen He contributed to +NetEase’s public dissemination of materially false and misleading financial results for the +quarters ended March 31, June 30 and September 30, 2000, and the quarter and year +ended December 31, 2000, as follows: + +a. First Quarter Ended March 31, 2000 – NetEase’s registration statement for +its June 30, 2000 IPO, which was filed with the Commission on June 29, +2000, included financial statements for the quarter ended March 31, 2000, +which overstated quarterly revenue by approximately 5%. Helen He +signed this registration statement. + +b. Second Quarter Ended June 30, 2000 – NetEase’s earnings press release +issued on July 31, 2000, and Form 6-K furnished to the Commission on or +about August 3, 2000, overstated second quarter revenue by +approximately 36% and understated net loss by 6%. The earnings release +also falsely claimed 103% revenue growth over the previous quarter. The +restated results reflect 56% growth. Helen He signed this Form 6-K, +which contained the false press release. + 6 + +c. Third Quarter Ended September 30, 2000 – NetEase’s earnings press +release issued on October 31, 2000, and Form 6-K furnished the same day, +overstated quarterly revenue by approximately 138% and understated net +loss by 20%. The press release falsely claimed revenue growth of 47% +over the previous quarter and a 539% increase over the same quarter in the +prior year. The restated results reflect a 16% decline in revenue from the +previous quarter and a 169% increase from the prior year’s quarter. Helen +He signed this Form 6-K, which contained the false press release. + +d. Fourth Quarter Ended December 31, 2000 – NetEase’s earnings press +release for the quarter and year ended December 31, 2000 (issued on +March 1, 2001), and Form 6-K furnished to the Commission the same day, +overstated quarterly revenue by approximately 290% and annual revenue +by 109% and understated net loss by 23% for the quarter and 16% for the +year. The earnings release claimed fourth quarter revenue growth of 25% +over the previous quarter and a 159% increase over the same quarter in the +prior year. The release also claimed that full year 2000 revenue increased +311% over the prior year. The restated fourth quarter results reflect a 24% +drop from the previous quarter, a 34% drop from the prior year’s quarter, +and the restated full year results reflect a 97% increase from the prior year. +NetEase falsely attributed increases in its advertising revenue to a +continued increase in the number of advertisers as well the size of their +purchases. + +e. Year Ended December 31, 2000 – NetEase’s glossy annual report for +fiscal 2000, which was disseminated to investors with the Company’s +proxy materials on or about April 1, 2001, overstated full year revenue by +$4.3 million, or 109% ($4.0 million versus $8.3 million), understated its +net loss by $3.2 million, or 16% (-$20.5 million versus -$17.3 million) and +understated its ADS loss per share by $.13, or 16% (-$.82 versus -$.69). +The glossy annual report falsely represented that NetEase’s annual +advertising revenue grew by 456% ($1.3 million to $7.3 million). The +Company’s annual report on Form 20-F for fiscal 2000, which was filed +with the Commission on August 31, 2001, included corrected financial +results (based upon the August 2001 restatement). + +After she no longer was the Company’s CFO, but at a time when she remained a +director, Helen He was asked to sign, and did sign, along with NetEase’s then-CFO, +NetEase’s management representation letter to its independent auditor dated February 14, +2001. In the letter, Helen He stated, among other things, that NetEase’s financial +statements were “fairly presented” in conformance with GAAP, that the Company and its +executives, including Respondent, had given the auditor “all financial records and related +data,” and that all material transactions had been properly recorded in the Company’s +accounting records. These statements were materially false or misleading. Based in part +on this letter, NetEase’s auditor issued an audit report containing an unqualified opinion + 7 +for fiscal 2000, which was included in the Company’s annual report disseminated to +investors along with proxy materials. + +IV. + +LEGAL DISCUSSION + +A. Violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act + +Section 17(a) of the Securities Act proscribes a variety of fraudulent practices in +the offer or sale of securities. Section 17(a)(2) of the Securities 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) of the +Securities Act 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. To prove a violation of these provisions, it must be shown that the alleged +misrepresentations or omitted facts were material. Information is deemed material upon +a showing that there is a substantial likelihood that the omitted facts would have assumed +significance in the investment deliberations of a reasonable investor. Basic, Inc. v. +Levinson, 485 U.S. 224 (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). + +During 2000, Helen He contributed to NetEase’s improper recording of revenue +in connection with offsetting barter arrangements that lacked economic substance. These +barter arrangements contributed to the Company’s material overstatement of its revenue +in its registration statement, which NetEase distributed to investors and furnished to the +Commission. As a result, Helen He violated Sections 17(a)(2) and (3). + +B. Causing NetEase’s Violations of the Reporting and Recordkeeping +Provisions of the Exchange Act +Section 13(a) of the Exchange Act and Rule 13a-16 thereunder generally require +foreign private issuers with securities registered under Section 12 of the Exchange Act to +file certain reports on Form 6-K with the Commission, and the obligation to file such +reports includes the requirement that they be true and correct. Exchange Act Rule 12b-20 +provides that in addition to the information expressly required to be included in a +statement or report, there shall be added such further material information, if any, as may +be necessary to make the required statements, in the light of the circumstances under +which they were made, not 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). +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 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, among other things, transactions are recorded as necessary to + 8 +permit preparation of financial statements in conformity with GAAP and to maintain the +accountability of assets. + +No showing of scienter is required to prove violations of Sections 13(a), +13(b)(2)(A) and 13(b)(2)(B). See, e.g., SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 +(D.C. Cir. 1978), cert. denied, 440 U.S. 913 (1979); SEC v. World-Wide Coin +Investments, Ltd., 567 F. Supp. 747, 749-50 (N.D. Ga. 1983). + +As discussed above, Helen He’s conduct contributed to NetEase’s improper +recording of revenue from two barter arrangements that lacked economic substance. The +Company’s books and records did not accurately and fairly reflect the terms of the two +arrangements, causing the Company to materially overstate its revenue. As a result, +Helen He was a cause of NetEase’s violations of the reporting, recordkeeping and +internal controls provisions of the Exchange Act. + + C. Violations of Exchange Act Rules 13b2-1 and 13b2-2 + + 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). Rule 13b2-2 of the Exchange Act prohibits directors and officers +from, directly or indirectly, making or causing materially false or misleading statements +to an accountant in connection with an audit or the preparation of Commission filings. +As detailed above, Helen He was a cause of NetEase’s improper recognition of revenue +from the Joyo and Techpacific barter arrangements, which lacked economic substance. +Helen He did not adequately inquire into and fully disclose the nature of the +arrangements to NetEase’s independent auditor and also, at the independent auditor’s +request, signed an inaccurate management representation letter to the auditor, which it +relied on in issuing an audit report containing an unqualified opinion for NetEase’s fiscal +2000 financial statements. As a result, NetEase’s books, records and financial statements +were false and misleading and Helen He violated Rules 13b2-1 and 13b2-2 of the +Exchange Act. + +V. + +Based on the foregoing, the Commission finds that Helen He violated Sections +17(a)(2) and 17(a)(3) of the Securities Act and Rules 13b2-1 and 13b2-2 under the +Exchange Act, and was a cause of NetEase.com, Inc.’s violations of Sections 13(a), +13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-16 +thereunder. + + 9 +VI. + +Accordingly, IT IS HEREBY ORDERED, pursuant to Section 8A of the +Securities Act and Section 21C of the Exchange Act, that Helen He cease and desist from +committing or causing any violations and any future violations of Sections 17(a)(2) and +17(a)(3) of the Securities Act and Rules 13b2-1 and 13b2-2 under the Exchange 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-16 thereunder. + +By the Commission. + + N ancy M. Morris + S ecretary + 10 \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2385.txt b/raw/aaer/2006/AAER-2385.txt new file mode 100644 index 0000000000000000000000000000000000000000..889658262947c83c72692630bff409b0a7cf9107 --- /dev/null +++ b/raw/aaer/2006/AAER-2385.txt @@ -0,0 +1,282 @@ + + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 53380 / February 27, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2385 / February 27, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12220 + + +In the Matter of + +GREGORY G. NELSON, 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 Gregory G. Nelson, CPA +(“Respondent” or “Nelson”) 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 +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. + + +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. + + 2 + +III. + + On the basis of this Order and Res pondent’s Offer, the Commission finds2 that: + +A. RESPONDENT + +Gregory G. Nelson, a certified public accountant in Michigan from 1973 until his licensed expired +on December 31, 2003, was a partner in the Detroit office of PricewaterhouseCoopers LLP +(“PwC”). He is currently retired. From 1997 to June 2002, the date of his retirement from PwC, +Nelson was the engagement partner on PwC’s audits of Sun Communities, Inc. + +B. ISSUERS + +Sun Communities, Inc. (“Sun”) is a self-administered and self-managed real estate investment +trust. Sun, as the general partner of Sun Communities Operating Limited Partnership (“SCOLP”), +owns, operates, develops and finances manufactured housing communities concentrated in the +Midwestern and Southeastern United States. Sun went public in 1993 and is listed on the New +York Stock Exchange. In 1999, a subsidiary of SCOLP (Sun/Forest, LLC) formed a joint venture +with MHCDC, LLC, a subsidiary of Champion Enterprises (“Champion”); the joint venture was +called SunChamp, LLC (“SunChamp”). + +Sun Communities Operating Limited Partnership is the main operating subsidiary through +which Sun owns, operates, develops and finances manufactured housing communities concentrated +in the Midwestern and Southeastern United States. SCOLP was a separate filer with the +Commission until May 2004. Sun consolidated SCOLP’s financial statements within its own +financial statements during the time at issue in this proceeding. + +C. SUN’S FALSE FINANCIAL STATEMENTS + +Sun’s financial statements for the years ended December 31, 2000 and 2001 and the quarter +ended March 31, 2002 were materially inaccurate and were not in accordance with Generally +Accepted Accounting Principles (“GAAP”) because Sun failed to properly account for its interest +in SunChamp. + +1. Sun Failed to Account Properly for its Investment in SunChamp + + Beginning in 1999, SunChamp was formed to purchase land for development and to +develop manufactured housing communities. Pursuant to the terms of the agreement, Sun had and +retains significant rights as to SunChamp, which resulted in Sun having the ability to exercise +significant influence over SunChamp. + + Beginning in the third quarter of 2000, SC OLP transferred portions of its SunChamp +ownership to outside investors in an attempt to reduce its ownership below 20% and thereby avoid + +2 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 +recording SunChamp losses in its financial statements. The consideration received from the +outside investors consisted of cash in excess of $7 million and, in most instances, non-recourse +notes totaling $6 million. After recognizing the transfers of SunChamp ownership to the outside +investors, Sun determined that it owned less than 20% of SunChamp and did not record any of +SunChamp’s operating losses during Q3 2000, Q4 2000 and 2001. As Nelson informed Sun at the +time, this determination was not supported by GAAP. + + The outside investor transactions were stru ctured in such a way that the full risks and +rewards of ownership did not transfer to the investors. Therefore, the transactions did not +constitute “sales” under GAAP. Although Sun maintained significant influence over SunChamp, +Sun failed to apply equity method accounting during 2000 and 2001. Proper application of equity +method accounting required that Sun record its allocable share of SunChamp’s losses. Sun’s +incorrect determination to not record its share of SunChamp’s losses led Sun to materially +overstate its income in 2000 and 2001. In 2002, Sun made additional capital contributions to +SunChamp that Sun believed increased its ownership to greater than 20% of SunChamp. +Beginning in Q1 2002 Sun applied equity method accounting for its interest in SunChamp. During +that quarter, however, Sun continued to improperly account for the SunChamp investment by, +among other things, failing to recognize its entire share of the SunChamp losses as required under +GAAP. +During PwC’s 2000 and 2001 audits, Nelson correctly concluded that Sun’s accounting +for SunChamp did not comply with GAAP and thus proposed that Sun record adjusting entries to +account for Sun’s share of the SunChamp losses under the equity method of accounting. After +management refused to make the adjustments, Nelson incorrectly concluded that the adjustments +were immaterial to Sun’s financial statements. Nelson failed to review and objectively evaluate +the documents underlying the engagement team’s materiality analysis. Specifically, he failed to +review the outside investor transactions to determine whether Sun transferred the risks and +rewards of ownership in SunChamp. The documents for these transactions were provided to the +PwC engagement team. Because of Nelson’s lack of review and objective evaluation of the +documents, he did not see that: (1) the transfers were funded, in part, by non-recourse notes that +did not require principal or interest payments to be made, (2) the operating agreement contained +a put option, and (3) the agreements contained a prohibition against pledging or selling the +alleged interest and did not contain a requirement that the outside investors fund additional +capital contributions. The terms of these notes preclude accounting for these transactions as +sales under Statement of Financial Accounting Standards No. 66. Thus, the engagement team’s +materiality analysis -- which was based on the conclusion that the transactions with the outside +investors were sales – was invalidated. Instead, Nelson substantially relied on oral +representations from Sun's Chief Financial Officer (“CFO”) describing the SunChamp +transactions and Nelson failed to apply the auditing procedures necessary to provide a reasonable +basis for an opinion. + + + 4 +2. Sun Also Failed to Comply with Other GAAP During Nelson’s Tenure as Engagement +Partner. + + a. Accounting for Transactions with Retroactive Effective Dates +During 2000 and 2001, Sun accounted for transactions with three outside investors +retroactively, using effective dates reflecting the dates on which oral purchase and sales +agreements supposedly occurred. The effective dates were months before the agreements were +finalized, the papers were signed, or money changed hands. Sun considered the transactions +effective at the time of the supposed oral agreements, despite having neither a contemporaneous +written record of the transactions, nor a down payment. Accounting for these transactions before +they were finalized had the effect of reducing Sun’s perceived ownership percentage in SunChamp +prematurely in several quarters. Sun thereby reduced its perceived ownership below 20% and +consequently believed that it could avoid equity method accounting and was not required to record +any SunChamp losses in those quarters. + Nelson accepted the representations of the CF O as to the closing dates on the agreements +with outside investors and never inspected the underlying documents. He failed to properly review +the agreements and to corroborate the representations of the CFO, which would have resulted in +the discovery that the agreements were not completed as of the time they were made effective in +Sun’s financial statements. + +b. 90-Day Lag + + During 2000 and the first qua rter of 2002, Sun delayed recording SunChamp’s losses for +90 days. Sun justified its use of a 90-day lag on the grounds that Sun did not timely receive +SunChamp’s financial statements from a Champion subsidiary that maintained the SunChamp +accounting records. However, contrary to Sun’s assertions, Sun could have timely recorded the +SunChamp losses without any lag, as evidenced by the fact that Champion, using the same +SunChamp financial statement results, timely reported its share of SunChamp’s results. +Nelson told Sun that the SEC was generally opposed to reporting on a lag because of its +interest in real time reporting. Nonetheless, Nelson relied exclusively on representations from +Sun's management, and failed to take additional steps to obtain competent evidential matter to +determine whether Sun’s application of a 90-day lag was factually justified and supportable +under GAAP. In fact, Sun’s application of a 90-day lag was not supportable under GAAP. +Corroboration by Nelson of management’s assertion would have revealed that Sun received the +SunChamp financial statements sufficiently early to timely report SunChamp’s results without +any lag. + + + + 5 +D. IMPROPER PROF ESSIONAL CONDUCT +In connection with PwC’s audits of Sun’s 2000 and 2001 year end financial statements and +a review of Sun’s Q1 2002 financial statements, Nelson failed to meet several professional +standards outlined in the Codification of Statements on Auditing Standards (“AU”). Nelson failed +to exercise due professional care in performing the Sun audits and preparing the audit reports as +required by AU § 150.02. Nelson also failed to obtain sufficient competent evidential matter +through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an +audit opinion regarding the financial statements under audit. AU § 150.02. +Representations from management are part of the evidential matter the independent auditor +obtains, but they are not a substitute for the application of those auditing procedures necessary to +afford a reasonable basis for an opinion regarding the financial statements under audit. AU § +333.02. Nelson accepted the uncorroborated representations of Sun’s CFO as to the structure of +the SunChamp transactions with outside investors and the effective dates on those transactions, and +failed to review the underlying documents. Had Nelson properly reviewed the transactions and +appropriately corroborated their supposed effective dates, he would have discovered that: 1) the +structure of the transactions precluded the transfer of the full risks and rewards of ownership, 2) the +transactions were not completed as of the time they were recorded by Sun, and 3) the engagement +team’s materiality analyses were invalid. Nelson also relied exclusively on statements from Sun's +management to determine whether Sun’s application of a 90-day lag was factually justified and +supportable under GAAP. Nelson failed to adequately corroborate management’s +representations and consequently failed to discover that Sun did not have a supportable basis on +which to report SunChamp’s losses on a lag. +In conducting an audit, an auditor is required to state in the auditor’s report whether the +financial statements are presented in conformity with GAAP and the audit was conducted in +accordance with GAAS. AU § 410, 411 and 508.07. Nelson caused PwC to render unqualified +audit reports on the 2000 and 2001 financial statements included in Sun's annual reports on Form +10-K for fiscal years 2000 and 2001. As described in this Order, however, PwC’s audits of +Sun’s 2000 and 2001 year-end financial statements and review of Sun’s financial statements for +the first quarter of 2002 were not conducted in accordance with GAAS, and the financial +statements were not prepared in conformity with GAAP. +E. FINDINGS + +Based on the foregoing, the Commission finds that, in connection with the 2000 and 2001 +audits and the 2002 review of financial statements of Sun, Nelson engaged in improper +professional conduct (as defined by Rule 102(e)(1)(iv)(B)(2) of the Commission’s Rules of +Practice) 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 Nelson’s Offer. + 6 + + Accordingly, it is hereby ORDERED, effective immediately, that: + + A. Nelson is denied the privilege of appe aring or practicing before the Commission as +an accountant. + + B. After two years from th e 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 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. + +C. The Commission will consider an app lication 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 + 7 +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-2388.pdf b/raw/aaer/2006/AAER-2388.pdf new file mode 100644 index 0000000000000000000000000000000000000000..10a7ea90aa456c848586a045f252f438136bc225 Binary files /dev/null and b/raw/aaer/2006/AAER-2388.pdf differ diff --git a/raw/aaer/2006/AAER-2389.pdf b/raw/aaer/2006/AAER-2389.pdf new file mode 100644 index 0000000000000000000000000000000000000000..8b03c872a71affc5e62a1b12332de9290240f557 Binary files /dev/null and b/raw/aaer/2006/AAER-2389.pdf differ diff --git a/raw/aaer/2006/AAER-2390.pdf b/raw/aaer/2006/AAER-2390.pdf new file mode 100644 index 0000000000000000000000000000000000000000..d62b1487dc13507b42d5594b47b0f9c19e24e998 Binary files /dev/null and b/raw/aaer/2006/AAER-2390.pdf differ diff --git a/raw/aaer/2006/AAER-2390.txt b/raw/aaer/2006/AAER-2390.txt new file mode 100644 index 0000000000000000000000000000000000000000..b8b73d4b6b2920e768f1f488ab0c485e5ccd09f7 --- /dev/null +++ b/raw/aaer/2006/AAER-2390.txt @@ -0,0 +1,160 @@ + UNITED STATES OF AMERICA +Before The +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 53392 / March 1, 2006 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2390 / March 1, 2006 +ADMINISTRATIVE PROCEEDING +File No. 3-12226 + +In the Matter of +Ronald A. Safran, CPA, +Respondent. + +: +: +: +: +: +: +: +: +ORDER INSTITUTING PUBLIC +ADMINISTRATIVE PROCEEDINGS, MAKING +FINDINGS AND IMPOSING REMEDIAL +SANCTIONS PURSUANT TO RULE 102(e) +OF THE COMMISSION'S RULES OF PRACTICE +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 Respondent +Ronald A. Safran, CPA ("Safran" 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, Safran has 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 to which the +Commission is a party, and without admitting or denying the findings, except as to the +Commission's jurisdiction over the subject matter of these proceedings and as to the entry of the +injunction set forth in Section III, which are admitted, Safran consents to the entry of this Order + +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. + + 1 + + +Instituting Public Administrative Proceedings, Making Findings and Imposing Remedial +Sanctions Pursuant to 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 finds that: +A. Safran, age 51, is a certified public accountant licensed in New York and was, during the relevant +period covered by this Order, a partner at KPMG LLP (“KPMG”). Safran was the engagement +partner on KPMG’s audits of the Xerox Corporation (“Xerox” or the “Company”) for the years 1998 +and 1999. +B. KPMG is a national public accounting firm and, during the relevant period covered by this Order, +served as the independent public accountant for Xerox. +C. Xerox is a New York corporation with its principal place of business in Stamford, Connecticut. +At all times pertinent to the period covered by this Order, the common stock of Xerox 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. Xerox’s fiscal year ends on December 31. +D. On January 29, 2003, the Commission filed a complaint against Safran and others in the United +States District Court for the Southern District of New York. SEC v. KPMG LLP, et al., No. 03-0671 +(DLC). On February 27, 2006, the Court entered a final judgment permanently enjoining Safran +from violating Sections 17(a)(2) and (3) of the Securities Act of 1933 (“Securities Act”) and from +aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and +13a-13 thereunder. Safran consented to the entry of the final judgment without admitting or denying +the allegations of the Commission's complaint.2 +E. The Commission’s complaint alleged, among other things, that Safran violated Sections 17(a)(2) +and (3) of the Securities Act and aided and abetted violations of Section 13(a) of the Exchange Act +and Rules 12b-20, 13a-1 and 13a-13 thereunder. The complaint alleged that in the course of serving +as the engagement partner for Xerox, Safran authorized the issuance of KPMG audit reports that +accompanied the 1998 and 1999 Annual Reports on Form 10-K filed by Xerox with the SEC. Those +audit reports stated that KPMG conducted an audit of Xerox’s financial statement in accordance with +Generally Accepted Audit Standards, that KPMG planned and performed the audit to obtain +reasonable assurance that the financial statements were free of material misstatement, that KPMG +assessed the accounting principles used and significant estimates made by Xerox management and +that it evaluated the overall consolidated financial statement presentation. The audit reports further +represented that, as a result of KPMG’s audit, it was KPMG’s opinion that Xerox’s financial +statements presented fairly, in all material respects, Xerox's financial position and results of + +2 Scienter is not required to prove violations of Sections 17(a)(2) or (3) of the Securities Act. Aaron v. +SEC, 446 U.S. 680, 697 (1980). Violations of these sections may be established by showing negligence. +SEC v. Hughes Capital Corp., 124 F.3d 449, 453-54 (3d Cir. 1997); SEC v. Steadman, 967 F.2d 636, 643 +n.5 (D.C. Cir. 1992). + + 2 + + +operations in conformity with Generally Accepted Accounting Principles. The Complaint further +alleged that each of these representations was materially false and misleading or omitted to disclose +material information which would make the statements not false and misleading. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to accept +Safran’s Offer of Settlement. + + Accordingly, it is hereby ORDERED, effective immediately, that: + A. Safran is suspended from appearing or practicing before the Commission as an +accountant. + B. After three (3) years from the date of this order, Safran 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 Safran’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) Safran, 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) Safran, or the registered pub lic 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 Safran’s or the firm’s quality control system that would indicate that Safran will +not receive appropriate supervision; + (c) Safran has resolved all disc iplinary 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) Safran acknowledges his respons ibility, as long as Safran 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 Safran to resume appearing or + 3 + + +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 +Safran’s character, integrity, professional conduct, or qualifications to appear or practice before +the Commission. + + By the Commission. + Nancy M. Morris + Secretary + + + + + + + + 4 + + \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2391.txt b/raw/aaer/2006/AAER-2391.txt new file mode 100644 index 0000000000000000000000000000000000000000..4c5c6b0b260afa08780266009e953e7cabfd87c7 --- /dev/null +++ b/raw/aaer/2006/AAER-2391.txt @@ -0,0 +1,1389 @@ + + + + + + + + + + + + + + + + SEC.gov | Symbol Technologies, 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\/498491","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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Symbol Technologies, Inc., et al. , 04 CV 2267 (LDW)(EDNY) + + Former General Counsel of Symbol Technologies, Inc. Consents to Permanent Injunctive Relief, Officer-and-Director Bar and Administrative Order Under Rule 102(E) + + + + On February 7, 2006, the Honorable Leonard D. Wexler, United States District Judge for the Eastern District of New York entered a final judgment against Leonard Goldner ("Goldner"), the former General Counsel and Senior Vice President of Symbol Technologies, Inc. ("Symbol"). Goldner consented to entry of an order that prohibits him from acting as an officer or director of a public company and imposes permanent injunctive relief for violations of the relevant antifraud, corporate reporting, books and records and internal control provisions of the federal securities laws. Specifically, Goldner, without admitting or denying the allegations in the Commission's complaint, is permanently enjoined from violating, or engaging in conduct that would make him liable for violations of, Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2), 13(b)(5), 14(a), and 16(a) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, 14a-3, 14a-9, and 16a-3. The Commission's claims for disgorgement and civil penalties against Goldner were withdrawn in view of Goldner's civil forfeiture payment of $2 million in connection with his guilty plea in a parallel criminal case. + + The Commission instituted on February 27, 2006, and simultaneously settled an administrative proceeding pursuant to Rule 102(e) of the Commission's Rules of Practice against Goldner, an attorney and a member of the bar of the State of New York. The administrative proceeding was based on the entry of the final judgment against Goldner. Goldner consented, without admitting or denying the Commission's findings, to entry of an order suspending him from appearing or practicing before the Commission as an attorney. + + The Commission's complaint was filed on June 3, 2004, and named Symbol, Goldner and ten other former Symbol executives as defendants. The complaint alleges that from 1998 until early 2003, the defendants engaged in a fraudulent scheme to inflate revenue, earnings and other measures of financial performance in order to create the false appearance that Symbol had met or exceeded its financial projections. While the accounting fraud was occurring, Goldner manipulated stock option exercise dates to enable select senior executives, including himself, to profit unfairly at the company's expense. Rather than use the actual exercise date as defined by the company's stock option plans, Goldner instituted, without board approval or public disclosure, a practice of selecting a more advantageous exercise date chosen from a 30-day "look-back" period so as to reduce the cost of the exercise to the executive or, in some cases, to decrease the executive's tax liability. To create the false appearance that these exercises occurred on the selected dates, Goldner had his staff backdate transactional documents and record the phony exercise dates in the forms on which the executives reported their stock acquisitions to the Commission and the public. + + On October 27, 2004, Goldner pled guilty to criminal charges brought by the United States Attorney's Office for the Eastern District of New York ("USAO") based on the same conduct alleged in the Commission's complaint against Goldner. In conjunction with his guilty plea, Goldner also agreed to pay $2 million to resolve a related civil forfeiture proceeding. + + On June 3, 2004, Symbol consented to entry of a final judgment imposing, among other relief, a permanent injunction and a civil penalty in the amount of $37 million, and James Dean, a former Manager and Director of Operations Finance, consented to entry of a partial final judgment imposing permanent injunctive relief. On February 17, 2005, Brian Burke, a former Senior Vice President, consented to entry of a partial final judgment imposing permanent injunctive relief and a bar prohibiting him from acting as an officer or director of a public company. + + A separate complaint filed by the Commission on June 19, 2003, named Robert Korkuc, a former Chief Accounting Officer of Symbol, for his role in the fraudulent scheme. On May 11, 2005, Korkuc consented to entry of a partial final judgment imposing permanent injunctive relief and a bar prohibiting him from acting as an officer or director of a public company. Korkuc also settled an administrative proceeding pursuant to Rule 102(e) of the Commission's Rules of Practice by consenting, without admitting or denying the Commission's findings, to entry of an order suspending him from appearing or practicing before the Commission as an accountant. + + The Commission acknowledges the assistance and cooperation of the USAO and the U.S. Postal Inspection Service in this matter. + + + For additional information see Litigation Release No. 19319 (August 1, 2005), Litigation Release No. 19086 (February 17, 2005), Litigation Release No. 18734 (June 3, 2004), Litigation Release No. 18194 (June 19, 2003), Litigation Release No. 18050 (March 25, 2003). + + + + + + 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-2395.pdf b/raw/aaer/2006/AAER-2395.pdf new file mode 100644 index 0000000000000000000000000000000000000000..00df53caac9886f5e21d0dad3bea727136e7db85 --- /dev/null +++ b/raw/aaer/2006/AAER-2395.pdf @@ -0,0 +1,587 @@ +%PDF-1.6 % +1 0 obj <>/Metadata 356 0 R/Pages 2 0 R/StructTreeRoot 271 0 R/Type/Catalog>> endobj 356 0 obj <>stream + + + + + 2006-03-20T17:01:51Z + POP90 + 2010-02-22T13:32:27-05:00 + 2010-02-22T13:32:27-05:00 + + + Corel PDF Engine Version 9.654 + Release Nos. 34-53517, AAER-2395 File No. 3-12242 Date: 2006-03-20 + + + application/pdf + + + Administrative Proceeding: Bruce G. Hill, Esq. + + + + + US SEC + + + + + ORDER INSTITUTING PUBLIC ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION’S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS + + + + + Release Nos. 34-53517 + AAER-2395 + File No. 3-12242 + Date: 2006-03-20 + + + + + uuid:f9781b12-8714-47cf-b3c5-f7dce825b84a + uuid:05c79e5d-5ca0-40b6-a508-a0f1ba3f534a + + + + + + + + + + + + + + + + + + + + + + + + + +endstream endobj 2 0 obj <> endobj 271 0 obj <> endobj 75 0 obj <> endobj 139 0 obj <> endobj 138 0 obj <>/CM2<>/CM3<>/CM4<>/CM5<>/CM6<>/CM7<>>> endobj 76 0 obj [272 0 R 273 0 R 275 0 R 276 0 R 279 0 R 281 0 R 283 0 R 284 0 R 285 0 R 288 0 R 289 0 R 292 0 R 293 0 R 295 0 R 296 0 R 297 0 R 300 0 R 301 0 R 304 0 R 305 0 R 307 0 R 308 0 R 309 0 R 312 0 R 316 0 R 319 0 R 320 0 R 321 0 R 322 0 R 324 0 R 323 0 R 325 0 R] endobj 158 0 obj [326 0 R 327 0 R 329 0 R 330 0 R 333 0 R 334 0 R 336 0 R 337 0 R 339 0 R 340 0 R 341 0 R 340 0 R 342 0 R 342 0 R 343 0 R 343 0 R 344 0 R] endobj 191 0 obj [345 0 R 346 0 R 347 0 R 348 0 R 349 0 R 350 0 R 351 0 R] endobj 345 0 obj <> endobj 346 0 obj <> endobj 347 0 obj <> endobj 348 0 obj <> endobj 349 0 obj <> endobj 350 0 obj <> endobj 351 0 obj <> endobj 328 0 obj <> endobj 14 0 obj <>/ProcSet[/PDF/Text]>>/Type/Page>> endobj 268 0 obj <>stream +HWn8}70 8.,EbvT`ATF$rH ,rA3gΌw?@܏~ aq=^'ºw_=% iOcIfob ordJՃAgя:`vZY|n֝K#y[i + \C`w܂[ʗ,- +JYZw{n`59@m)>-~Fhȓ9U5NjX򃷺dIƿ;тfx1vX`[{8Lq-Ž? 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{"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/498646","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 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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 + + + Bruce Hill, et al. + + + + + + + + + + + + Bruce Hill, et al. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19617 / March 21, 2006 + + Accounting and Auditing Release No. 2396 / March 21, 2006 + + Securities and Exchange Commission v. Bruce Hill, et al. , (United States District Court for the District of Massachusetts, Civil Action No. 02-11244 (EFH), filed June 21, 2002) + + Court Enters Final Judgment by Consent Against Former General Counsel of Inso Corp. in Accounting Fraud Case + + The Commission announced today that on March 2, 2006, a final judgment by consent was entered by the United States District Court for the District of Massachusetts against Bruce G. Hill, of Belmont, Massachusetts, in an accounting fraud case. Hill is the former general counsel of Inso Corporation, later known as eBT International, Inc., a now-defunct software company formerly located in Boston, Massachusetts and later headquartered in Providence, Rhode Island. The final judgment permanently enjoins Hill from violating various federal securities laws, orders him to pay approximately $97,000 in disgorgement and prejudgment interest, and permanently bars him from serving as an officer or director of public companies. Hill consented to the judgment, without admitting or denying the allegations in the Commission's complaint. In related administrative proceedings, Hill consented to an Order issued by the Commission on March 20, 2006, that suspends him from appearing or practicing before the Commission as an attorney. + + The Commission's complaint, filed June 21, 2002, alleged that, when an anticipated sales transaction with a major customer failed to close prior to the end of Inso's third quarter on September 30, 1998, Hill and another Inso employee arranged for a Malaysian distributor, who had no prior involvement in the transaction, to place a $3 million purchase order for the transaction that evening. According to the complaint, because they promised the distributor that he would not have to pay Inso for the transaction, and that Inso, rather than the distributor, would resell the software to the intended end user, this transaction was a sham and should not have been included in Inso's reported financial results. The complaint alleged that Hill concealed the oral terms of the sale from Inso's finance department and, as a result, Inso improperly included the $3 million as revenue in its third quarter 1998 financial statements. Thereafter, the sale of the software to the intended end user was never consummated, and the complaint alleged that Hill took steps to cover up the fraudulent nature of the third quarter transaction. According to the complaint, Hill orchestrated the providing of $4 million in letters of credit to the Malaysian distributor to finance his payment of the $3 million third quarter receivable and caused a false board resolution to be provided to Inso's bank purporting to authorize the letters of credit. Among other things, the complaint sought disgorgement from Hill of losses avoided from his sale of Inso stock at inflated prices during the period of the fraud. + + To settle the Commission's charges, Hill has consented, without admitting or denying the allegations in the Commission's complaint, to the entry of a final judgment permanently enjoining him from committing future violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-13, 13b2-1 and 13b2-2 thereunder. The judgment orders disgorgement of $66,674, representing profits gained as a result of the conduct alleged in the Commission's complaint, plus prejudgment interest in the amount of $30,362, for a total of $97,036. Finally, the judgment prohibits Hill 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 is required to file reports pursuant to Section 15(d) of the Exchange Act. + + Hill was indicted on May 5, 2004, on criminal charges brought by the United States Attorney for the District of Massachusetts concerning the same conduct alleged in the Commission's complaint. Hill was charged with securities fraud, wire fraud, false statements to accountants and perjury in connection with a Commission investigation. After a trial, a federal jury convicted Hill on June 6, 2005 of committing perjury in his investigative testimony before the Commission. The jury was deadlocked as to the remaining counts against Hill, and the Court declared a mistrial as to those counts. On January 24, 2006, Hill was sentenced to a prison term of one year and one day, followed by supervised release for two years. The court also ordered Hill to perform 400 hours of community service each year during the supervised release, and ordered him to pay a criminal fine of $75,000. + + For further information see Litigation Release No. 17578 (June 21, 2002)[Hill and others charged by the Commission]; Litigation Release No. 18699 (May 7, 2004) [Hill indicted on criminal charges]; Litigation Release No. 19253 (June 7, 2005)[Hill convicted of criminal charge]; and Securities Exchange Act Release No. 53517 (March 20, 2006)[Hill suspended from appearing or practicing before the Commission as an attorney]. + + + + + + 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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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\/498681","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. 19624 / March 28, 2006 + + Accounting And Auditing Enforcement + Release No. 2400 / March 28, 2006 + + Securities and Exchange Commission 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 Executive Reagan L. Lancaster + + On March 23, 2006, the Commission settled civil charges against Reagan L. Lancaster, a former 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, Lancaster has consented to the entry of a final judgment enjoining him from violating or aiding and abetting violations of the antifraud, record-keeping, reporting and internal-controls provisions of the federal securities laws. Lancaster also has consented to pay a civil penalty and disgorgement, with prejudgment interest. The settlement is subject to approval by the United States District Court for the Northern District of Texas, the Honorable Sidney A. Fitzwater presiding. + + 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 Lancaster participated and assisted others in a fraudulent revenue-recognition scheme by (1) selling software that needed substantial modification, adaptation or customization, from which i2 recognized license revenue upfront, contrary to generally accepted accounting principles; (2) attending i2's internal quarterly revenue meetings without mentioning that i2 was selling software that needed substantial modification, adaptation or customization, facts that would have defeated upfront revenue recognition; and (3) assuring analysts that i2's customer relations were "good" when he knew they were not. The Complaint also alleges that Lancaster profited by trading on the basis of material nonpublic information. Lancaster filed a motion to dismiss the Commission's charges. + + The proposed Judgment to which Lancaster has consented, without admitting or denying the Commission's allegations, enjoins Lancaster 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, 13b2-1 thereunder. The proposed judgment also orders Lancaster to pay disgorgement and prejudgment interest of $1,172,355 and a third-tier civil penalty of $120,000. + + For further information about the Commission's action against the former i2 executives, see Litigation Release No. 19306 (July 18, 2005) and Accounting and Auditing Enforcement Release No. 2279 (July 18, 2005). + + The Commission acknowledges the assistance of the United States Attorney's Office for the Northern District of Texas and the United States Postal Inspection Service. + + + + + + + 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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Espuelas 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\/498696","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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Espuelas et al. + + + + + + + + + + + + Fernando J. Espuelas et al. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19627 / March 29, 2006 + + Accounting and Auditing Enforcement Release No. 2401 / March 29, 2006 + + SEC v. Fernando J. Espuelas et al. , Civil Action No. 06 CV 2435 (RJH) (S.D.N.Y. filed March 29, 2006) + + SEC Charges Eight Former StarMedia Network Executives for Roles in Company's Overstatement of Revenue + + + + The U.S. Securities and Exchange Commission filed a civil injunctive action today in the United States District Court for the Southern District of New York charging six former executives of StarMedia Network, Inc. with securities fraud and two former executives with other securities law violations. StarMedia was an Internet portal directed at Spanish and Portuguese speaking communities in the United States and Latin America. It was based in New York City, and its common stock was traded on the Nasdaq National Market. On February 1, 2002, Nasdaq delisted StarMedia's common stock. In 2002, the company undertook major asset dispositions, and in December 2003, it filed for bankruptcy protection. + + The Commission's complaint alleges that, in 2000 and the first two quarters of 2001, StarMedia utilized three types of transactions to inflate its revenue by over $18 million in order to meet its revenue projections and secure additional financing for its operations. StarMedia improperly recognized revenue from barter transactions, from round trip transactions, and from sales transactions with undisclosed contingencies or side agreements. The complaint further alleges that in May 2001, StarMedia used its inflated revenue figures to persuade corporate investors to purchase $35 million in convertible preferred shares. + + In addition, the complaint alleges that, as a result of the improper transactions, StarMedia made materially false disclosures and financial statements in its annual Report on Form 10-K for its fiscal year 2000 and its quarterly Reports on Form 10-Q for the first two quarters of 2001. StarMedia officers also made false statements to the company's investors and to its independent auditor. The complaint further alleges that Jack Chen, former President of the company, avoided losses by selling StarMedia common stock while in possession of material, nonpublic information regarding the undisclosed fraud. + + The Commission's complaint alleges the following violations against the named defendants and seeks the following relief: + + Fernando Espuelas, age 39, former CEO and Chairman of the Board, violated Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rules 10b-5 and 13b2-1, and aided and abetted violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and 13a-13. The complaint seeks a permanent injunction, civil penalties, and an officer and director bar. + + Jack C. Chen, age 39, former President, violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Exchange Act Rules 10b-5, 13b2-1, and 13b2-2, and aided and abetted violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and 3a-13. The complaint seeks a permanent injunction; disgorgement of his losses avoided from trading in StarMedia securities, with prejudgment interest thereon; civil penalties; and an officer and director bar. + + Steven Heller, age 40, former CFO, violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Exchange Act Rules 10b-5 and 13b2-2, and aided and abetted violations of Sections 13(a) and13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and13a-13. Heller, without admitting or denying the allegations in the complaint, has agreed to entry of a proposed final judgment: (i) permanently enjoining him from future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Exchange Act Rules 10b-5 and 13b2-2, and from aiding and abetting violations of Sections 13(a) and13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and13a-13; (ii) ordering him to pay a civil penalty in the amount of $100,000; and (iii) prohibiting him from serving as an officer or director of any public company for a period of five years. + + Betsy Scolnik, age 40, former Senior Vice President for Strategic Development, violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Exchange Act Rules 10b-5 and 13b2-1, and aided and abetted violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and 13a-13. The complaint seeks a permanent injunction, civil penalties, and an officer and director bar. + + Adriana Kampfner, age 33, former Senior Vice President, Global Sales and president of StarMedia de Mexico, violated Exchange Act Rule 13b2-1 and aided and abetted 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, and 13a-13. The complaint seeks a permanent injunction, civil penalties, and an officer and director bar. + + Walther M¶ller, age 45, former President of AdNet, a StarMedia subsidiary, violated Exchange Act Rule 13b2-1 and aided and abetted 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, and 13a-13. The complaint seeks a permanent injunction. + + Peter Morales, age 50, former Controller and Vice President, Finance, violated Exchange Act Rules 13b2-1 and 13b2-2 and aided and abetted violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and 13a-13. The complaint seeks a permanent injunction and civil penalties. + + Peter Blacker, age 35, former Senior Vice President, Global Sales Strategy & Partnerships, violated Exchange Act Rule 13b2-1 and aided and abetted violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and 13a-13. The complaint seeks a permanent injunction and civil penalties. + The Commission's complaint alleges that each of the defendants planned the fraud, played important roles in its implementation, or both, thereby violating the federal securities laws, as set forth above. Finally, defendant Heller, without admitting or denying the allegations in the complaint, has agreed to settle the Commission's charges by consenting to a permanent injunction, a $100,000 civil penalty, and a prohibition from serving as an officer or director of any public company for a period of five years. + + + + + + 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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Skoulis, Peter M. Frankl, Alan B. Lefkof and William D. Baker + + + + + + + + + + + + Thomas A. Skoulis, Peter M. Frankl, Alan B. Lefkof and William D. Baker + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19630 / March 29, 2006 + + Accounting and Auditing Enforcement Release No. 2404 / March 29, 2006 + + SEC v. Thomas A. Skoulis, Peter M. Frankl, Alan B. Lefkof and William D. Baker , Case No. C 06-2239-JF (N.D. CA filed on March 29, 2006) + + SEC Charges Executives of Northern California Internet Equipment Company With Improperly Inflating Revenue + + + + The Securities and Exchange Commission today charged two former sales executives of Emeryville, California-based Netopia, Inc. with fraudulently boosting the company's revenue. The Commission also filed, and simultaneously settled, charges against Chief Executive Officer Alan B. Lefkof and former Chief Financial Officer William D. Baker, alleging that the executives later learned of a side agreement yet failed to take timely corrective action. + + The Commission's complaint, filed in the Northern District of California, alleges that Netopia's former head of worldwide sales, Thomas A. Skoulis (of Menlo Park, CA) and former head of software sales, Peter M. Frankl (of Addison, TX) entered into two secret side deals in 2002 and 2003, each for approximately $750,000. Pursuant to the side deals, Netopia's customer, which had limited resources, would only have to pay Netopia if and when it successfully resold the software to an end-user. It was improper to record revenue for the transactions because payment was contingent on future events. Skoulis and Frankl concealed the deal terms from Netopia's finance department. In connection with the 2002 deal, the Commission alleges that Frankl directed that contingency language be physically "whited out" from the face of the customer's purchase order. For the 2003 deal, Skoulis directed Frankl to hide a copy of the customer's side letter that set forth the contingency. Their actions caused Netopia to report fraudulently inflated software revenue to the investing public, and for the fourth quarter ended September 30, 2003, allowed the company to report its first profitable quarter in three years. + + The complaint also alleges that Baker (of Fremont, CA), and later Lefkof (of Tiburon, CA), learned of the payment contingency associated with the 2003 transaction but failed to take immediate corrective action. In April 2004, while trying to collect payment from the customer, Baker learned that the customer had no obligation to pay because of the previously hidden payment contingency. Rather than take corrective action, Baker concealed the side agreement from Netopia's Audit Committee, including requesting that the customer delete references to the deal in communications with Netopia. Later, on July 2, 2004, Lefkof obtained a copy of the side agreement containing the payment contingency for the 2003 deal. Notwithstanding their knowledge of the side agreement, Lefkof and Baker allowed Netopia to issue a misleading press release on July 6, 2004, that incorrectly treated the outstanding order as merely an uncollectible bad debt. In actuality, the Commission alleges, the sale should never have been recorded as revenue, and Netopia should have restated its 2003 financial statements. + + The complaint charges Skoulis, Frankl and Baker with securities fraud (Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder; and Section 17(a) of the Securities Act of 1933 ("Securities Act") as to Baker alone), and also charges Lefkof with violating the antifraud provisions (Section 17(a)(2) and (3) of the Securities Act). The complaint also charges Skoulis, Frankl, Baker and Lefkof with causing Netopia to report false financial information to the Commission (Section 13(a) of the Exchange Act and the related Rules). The complaint additionally charges all of the defendants with causing Netopia's failure to maintain accurate books and records (Section 13(b)(2)(A) of the Exchange Act), and charges Lefkof and Baker with causing the company's failure to maintain adequate internal controls (Section 13(b)(2)(B) of the Exchange Act). The complaint also charges Skoulis, Frankl and Baker with circumventing internal accounting controls (Section 13(b)(5) of the Exchange Act) and charges Skoulis, Frankl, Baker and Lefkof with falsifying the company's books and records (Rule 13b2-1 under the Exchange Act). Baker, in the complaint, is further charged with lying to accountants (Rule 13b2-2 under the Exchange Act) and falsely certifying Netopia's financial statements (Rule 13a-14 under the Exchange Act). + + Simultaneously with the filing of the complaint, Baker and Lefkof have agreed to settle the charges, without admitting or denying the Commission's allegations. Among other things, they have consented to orders requiring them to pay civil penalties of $35,000 each, while Baker also has consented to the entry of an order barring him from serving as an officer or director of a public company for five years, and an order prohibiting him from practicing before the Commission as an accountant for five years under SEC Rule of Practice 102(e). From the remaining defendants in the litigation, Skoulis and Frankl, the Commission seeks disgorgement, civil monetary penalties, and injunctive relief, as well as an order barring Skoulis from serving as an officer or director of a public company. + + In a related proceeding, today the Commission instituted and simultaneously settled administrative cease-and-desist proceedings against Netopia. Without admitting or denying the Commission's findings, Netopia agreed to cease and desist from future violations of the corporate reporting, books and records and internal controls provisions of the federal securities laws (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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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 + + + Armand Dauplaise and Bernard Shinder + + + + + + + + + + + + Armand Dauplaise and Bernard Shinder + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19643 / April 6, 2006 + + Accounting and Auditing Enforcement Release No. 2407 / April 6, 2006 + + SEC v. Armand Dauplaise and Bernard Shinder , Civil Action No. 6:05cv1391-ORL-31-KRS (M.D. Fla.) + + SEC Settles With Former Bio One Executive Charged With Fraud + + + + The Securities and Exchange Commission today announced the United States District Court for the Middle District of Florida entered a Final Judgment on April 6, 2006 against Armand Dauplaise, of Winter Park, Florida, based on his consent. + + On September 22, 2005, the Commission filed a complaint against Dauplaise and Bernard Shinder, of Boca Raton, alleging fraud and other securities law violations during their tenure as the CEO and CFO, respectively, of Bio One Corporation, a nutritional supplement company located in Winter Springs, Florida. + + In the complaint, the Commission alleged that Dauplaise and Shinder violated the antifraud provisions of the federal securities laws when they failed to disclose the company's default on a $15 million (Canadian) promissory note and related subsequent events. According to the complaint, Bio One purchased a private company, Interactive Nutrition International Inc. (INI), on March 31, 2004, in part, by issuing the promissory note. The complaint alleges that Bio One never made any of the payments on the note, and the company's former executives signed forbearance agreements in August and November 2004 acknowledging that the company was in default of the note. According to the complaint, in December 2004, the note holder appointed a receiver for INI and provided notice to Bio One that it intended to exercise its security rights under the agreement. + + The complaint further alleges that Dauplaise and Shinder failed to disclose the default, the forbearance agreements and the appointment of a receiver in its quarterly reports filed in August and November 2004 or in its Form 8-Ks filed in November and December 2004. The Commission also alleges that the defendants violated the record-keeping and reporting provisions of the federal securities laws. + + Dauplaise, without admitting or denying the allegations of the complaint, consented to a permanent injunction which prohibits him from acting as an officer or director of any public company and that enjoins him from violating, directly or indirectly, Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b), 13(a), and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13a-11, 13a-13, 13a-14, 13b2-1 and 13b2-2 thereunder. Based on his sworn financial statements and other documents submitted to the Commission, he was not ordered to pay a civil penalty. + + The Commission's litigation against Bernard Shinder is ongoing. + + + + + + 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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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 + + + Dollar General Corp., et al. + + + + + + + + + + + + Dollar General Corp., et al. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19653 / April 12, 2006 + + Accounting and Auditing Enforcement Release No. 2411 /April 12, 2006 + + SEC v. Dollar General Corp., et al. , Civil Action No. 3:05-0283 (filed April 7, 2005) + + Court Enters Final Judgment Against Former Dollar General Chief Financial Officer Brian Burr + + Burr Will Pay Over $1.2 Million in Penalties, Disgorgement and Prejudgment Interest + + + + On April 11, 2006, the United States District Court for the Middle District of Tennessee entered a settled final judgment against Brian Burr ("Burr"), former chief financial officer and executive vice president at Dollar General Corporation ("Dollar General"). Burr was the only litigating defendant in the Commission's action filed on April 7, 2005 against Dollar General and several of its former officers and employees for alleged accounting fraud that overstated Dollar General's earnings. In settling with the Commission, Burr consented, without admitting or denying the Commission's allegations, to the entry of a final judgment, which permanently enjoins him from violating the antifraud and other provisions of the federal securities laws, orders him to pay $1,204,598.17 in civil penalties, disgorgement, and prejudgment interest, and bars him from serving as an officer or director of a public company for five years. + + In its complaint the Commission alleged that, in 1999 and 2000, Dollar General's accounting staff determined that Dollar General should have recognized $13.4 million in import freight expenses in fiscal 1999. Rather than restating prior periods, as required by GAAP, or recognizing all the expense in fiscal year 1999, Burr participated in discussions of possible ways to account for the $13.4 million in freight expenses that did not entail recognizing all such expenses in fiscal year 1999. The complaint further alleged that on February 5, 2000, Dollar General's former controller sent a memorandum to Burr and others describing a $10 million "variance" in relation to freight expenses, and Dollar General's intention to charge the "$10 million 1999 shortfall" at a rate of $833,000 per month during Dollar General's fiscal year 2000. Ultimately, Dollar General recorded the shortfall in this manner. Burr knew that deferring the bulk of the expenses to fiscal year 2000 avoided the negative impact on already announced fiscal year 1999 earnings as well as year-end bonus payments to Dollar General employees, including Burr. The Commission's complaint alleges that, by deferring the freight expenses, Dollar General met certain targets, including an internal target for employee bonuses and analysts' expectations for the Company's earnings per share for fiscal year 1999. If Dollar General had recognized the freight expenses in 1999, it would have fallen short of the bonus target and analysts' expectations. + + The complaint further alleges that Burr engaged in insider trading. After Dollar General terminated Burr in February 2001, Burr and his counsel met with Dollar General senior management. At this meeting, on April 12, 2001, Burr's counsel told Dollar General management that Burr could not sign a separation agreement until he knew that certain accounting issues were addressed by Dollar General. Burr also wanted a release from the Company for any responsibility for certain accounting issues. On April 5, 2001, Burr exercised Dollar General options at $17.5360, and immediately sold 126,597 Dollar General shares at sales prices ranging from $22.50 to $22.84. Burr exercised additional Dollar General options on April 27, 2001, selling 5,000 Dollar General shares at prices from $24 to $24.02. After the Company's April 30, 2001 press release announcing accounting irregularities and the necessity for a restatement, Dollar General's stock price dropped from its Friday, April 27, 2001 closing price of $23.00 to a Tuesday, May 1, 2001 closing price of $15.76. The complaint alleges that Burr avoided losses by his sale of Dollar General securities. + + Without admitting or denying the allegations in the Commission's complaint, the Court permanently enjoined Burr from violating the antifraud, internal controls, books and records and lying to auditor provisions of the federal securities laws, specifically, 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. The Court also enjoined Burr from aiding and abetting violations of the periodic reporting, internal controls, and books and records provisions of the Exchange Act, specifically, 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. The Court further ordered Burr to pay $1,204,598.17, comprising $494,824 in disgorgement, $143,950.17 in prejudgment interest, and civil penalties of $565,824. The Court also prohibited Burr from acting as an officer or director of a public company for five years. Dollar General and four other individuals have previously settled the Commission's actions against them. For more information, see Litigation Release No. 19174 (April 7, 2005), Administrative Release No. 34-51501 (April 7, 2005). + + + + + + 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-2412.pdf b/raw/aaer/2006/AAER-2412.pdf new file mode 100644 index 0000000000000000000000000000000000000000..e1023e4422d2f20f6ba1a0e6f6d9834004946df6 Binary files /dev/null and b/raw/aaer/2006/AAER-2412.pdf differ diff --git a/raw/aaer/2006/AAER-2412.txt b/raw/aaer/2006/AAER-2412.txt new file mode 100644 index 0000000000000000000000000000000000000000..86ed4b709c7d1b3a014439cedbb52ff1e887485b --- /dev/null +++ b/raw/aaer/2006/AAER-2412.txt @@ -0,0 +1,109 @@ + + + + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 53636 / April 12, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2412 / April 12, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12262 + + : + In the Matter of : ORDE R INSTITUTING ADMINISTRATIVE + : PROCEEDINGS PURSUANT TO RULE + Michael D. Karsch, : 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 +Michael D. Karsch (“Respondent” or “Karsch”) 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 +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 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 + +Commission, or to which the Commission is a party and without admitting or denying the +findings herein, except as to the Commission’s jurisd iction over him and the subject matter of +these proceedings, and the findings c ontained in Section III., Paragraph 3, below, which are +admitted, Respondent consents to the entry of th is Order Instituting Administrative Proceedings +Pursuant to Rule 102(e) of the Commission’s Ru les 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. Karsch, age 45, is an attorney licensed to practice in Florida, Texas and New York. + +2. 2DoTrade was, at all relevant times, a Neva da corporation with its principal place of +business in British Columbia, Canada, and London, England. 2DoTrade was purportedly engaged in +an import/export business. 2DoTrade’s comm on stock was registered with the Commission +pursuant to Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”), and its shares +were quoted on the OTC Bulletin Board. + +3. On September 30, 2003, the Commission filed a complaint against Karsch and +others in SEC v. 2DoTrade, Inc., et al. (Civil Action No. 3:03-CV-2246/NDTX). On March 29, +2006, the court entered an order permanently enjoining Karsch, by consent, from future +violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, a nd Section 10(b) of the +Exchange Act and Rule 10b-5 thereunder. Karsch was ordered to pay $2,721 in disgorgement of +ill-gotten gains from his sales of stock while pa rticipating in the fraud, and $238 in prejudgment +interest. + +4. The Commission’s complaint alleged that certain defendants engaged in a “pump +and dump” scheme designed to inflate 2DoTrade’s stock price. Between at least June and +November 2001, the defendants, among other things , issued materially false and misleading +press releases claiming that 2DoTrade had entered into several large international trading +contracts and had developed an anti-anthrax compound. During the same period, the defendants +sold shares of 2DoTrade stock for illegal tradi ng profits of at least $1.8 million. The complaint +alleged further that Karsch assisted the defenda nts in perpetrating and executing the scheme, and +that MCG Partners, Inc., of which Karsch was a director, sold shares of 2DoTrade for illegal +trading profits. + + + + + + + 3 + +IV. + + In view of the foregoing, the Commission deem s it appropriate and in the public interest +to impose the sanction agreed to in Respondent Karsch’s Offer. + + Accordingly, it is hereby ORDERED, effectiv e immediately, that Karsch is suspended +from appearing or practicing before the Commission as an attorney. + + 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-2413.txt b/raw/aaer/2006/AAER-2413.txt new file mode 100644 index 0000000000000000000000000000000000000000..463941781eba958b21fe3deaa8ab2175b7d5a481 --- /dev/null +++ b/raw/aaer/2006/AAER-2413.txt @@ -0,0 +1,1394 @@ + + + + + + + + + + + + + + + + SEC.gov | Thom A. Faria, Stephen J. McLaughlin and William M. 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Faria, Stephen J. McLaughlin and William M. Stickney + + + + + + + + + + + + Thom A. Faria, Stephen J. McLaughlin and William M. Stickney + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19656 / April 13, 2006 + + Accounting and Auditing Release No. 2413 / April 13, 2006 + + SEC v. Thom A. Faria, Stephen J. McLaughlin and William M. Stickney , United States District Court for the District of Massachusetts, Civil Action No. 06-10657 -RCL + + SEC Charges Three Former Officers of Metlife Inc. Subsidiary New England Financial With Fraudulent Scheme to Hide Expenses + + + + The Commission filed a civil fraud action today in federal district court in Massachusetts against three former officers of New England Financial (NEF), an insurance company subsidiary of MetLife, Inc., for engaging in a scheme to improperly hide NEF expenses that led directly to the publication of materially false financial statements by MetLife and NEF. The three defendants are Thom A. Faria, of Needham, Massachusetts, the former president of the NEF distribution channel and senior vice president of MetLife, Stephen J. McLaughlin, of Plainville, Massachusetts, a former senior vice president of NEF, and William M. Stickney, of Hopkinton, Massachusetts, a former assistant regional vice president at NEF. Without admitting or denying the Commission's allegations, McLaughlin and Stickney each consented to the entry of final judgments enjoining them from future violations of the federal securities laws, ordering payment of disgorgement, prejudgment interest and civil penalties, and imposing a five year officer and director bar on McLaughlin. + + The Commission's complaint alleges that over a period of years defendants engaged in a scheme to hide certain NEF expenses in an effort to make NEF appear more efficient than it actually was. The complaint alleges that defendants hid certain non-commission expenses by reclassifying them as commission expenses in NEF's internal books and records. According to the complaint, on more than one occasion McLaughlin and Stickney attempted to cover-up their reclassification activity, thereby hindering the ability of MetLife to discover the improper activity sooner. All told, the complaint alleges that the scheme resulted in the improper reclassification of over $100 million in NEF expenses, the direct result of which was the publication of materially false overstatements of MetLife and NEF net income in financial statements filed with the Commission. + + The complaint alleges that through their fraudulent conduct, defendants violated 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 and 13b2-1 thereunder, and Section 34(b) of the Investment Company Act of 1940, as well as aided and abetted uncharged MetLife 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. The Complaint also alleges that Faria aided and abetted uncharged MetLife/NEF violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. + + Without admitting or denying the allegations of the complaint, McLaughlin and Stickney have consented to the entry of final judgments that (1) permanently enjoin them from future violations of Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and Section 34(b) of the Investment Company Act, as well as 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; (2) require them to pay civil penalties of $30,000 and $15,000, respectively; (3) require them to disgorge $35,625 and $15,800, respectively, plus pre-judgment interest in the amount of $3,822.14 and $1,695.15, respectively; and (4) as to McLaughlin, bars him from serving as an officer and director of a public company for five years. + + The Commission also announced today that it would not bring any enforcement action against MetLife or NEF because of MetLife's extensive cooperation in the Commission's investigation of the improper reclassifications that are the subject of the Commission's complaint. MetLife's cooperation consisted of prompt self-reporting, an independent internal investigation, sharing the results of that investigation with the government, disciplining responsible wrongdoers, and implementing new controls designed to prevent the recurrence of the improper conduct. + + + + + + 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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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 + + + Tyco International Ltd. + + + + + + + + + + + + Tyco International Ltd. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19657 / April 17, 2006 + + Accounting and Auditing Enforcement Release No. 2414 / April 17, 2006 + + SEC v. Tyco International Ltd. , 06 CV 2942 (S.D.N.Y. filed April 17, 2006) + + SEC Brings Settled Charges Against Tyco International Ltd. Alleging Billion Dollar Accounting Fraud + + + + The U.S. Securities and Exchange Commission today filed a settled civil injunctive action in the United States District Court for the Southern District of New York against Tyco International Ltd. The Commission's complaint in that action alleges that, from 1996 through 2002, Tyco violated the federal securities laws by, among other things, utilizing various improper accounting practices and a scheme involving transactions with no economic substance to overstate its reported financial results by at least one billion dollars. + + The Commission's complaint alleges that Tyco inflated its operating income by at least $500 million as a result of improper accounting practices related to some of the many acquisitions that Tyco engaged in during that time. Tyco's improper acquisition accounting included undervaluing acquired assets, overvaluing acquired liabilities, and misusing accounting rules concerning the establishment and utilization of purchase accounting reserves. The complaint further alleges that, apart from its acquisition activities, Tyco improperly established and used various kinds of reserves to make adjustments at the end of reporting periods to enhance and smooth its publicly reported results and to meet earnings forecasts. + + The complaint alleges that Tyco inflated its operating income by $567 million from its fiscal year 1998 through its fiscal quarter ended December 31, 2002, by means of connection fees that Tyco's ADT Security Services, Inc. subsidiary charged to dealers from whom it purchased security monitoring contracts. Because the connection fee was fully offset by a simultaneous increase in the purchase price ADT allocated to the dealers' security monitoring contracts, the connection fee transaction lacked economic substance and should not have been recorded in Tyco's income statement. In 2003, Tyco restated its operating income and cash flow relating to the connection fees. + + The complaint further alleges that, from September 1996 through early 2002, Tyco failed to disclose in its proxy statements and annual reports certain executive compensation, executive indebtedness, and related party transactions of its former senior management. Tyco also incorrectly accounted for certain executive bonuses it paid in its fiscal years 2000 and 2001, thereby excluding from its operating expenses the costs associated with those bonuses. Finally, the complaint alleges that Tyco violated the antibribery provisions of the Foreign Corrupt Practices Act when employees or agents of its Earth Tech Brasil Ltda. subsidiary made payments to Brazilian officials for the purpose of obtaining or retaining business for Tyco. + + Between 1996 and 2002, as a result of these various practices, Tyco made false and misleading statements or omissions in its filings with the Commission and its public statements to investors and analysts. + + Without admitting or denying the allegations in the Commission's complaint, Tyco has consented to the entry of a final judgment permanently enjoining it from violating Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 14(a), and 30A(a) of the Securities Exchange Act of 1934, and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 14a-9. The proposed final judgment also orders Tyco to pay $1 in disgorgement and a $50 million civil penalty. + + The Commission's investigation is continuing with respect to individuals. The Commission acknowledges the assistance and cooperation of the Manhattan District Attorney and the New York City Police Department. + + See Litigation Release No. 17722 / September 12, 2002; Litigation Release No. 17896 / December 17, 2002; Exchange Act Release No. 48328 / August 13, 2003. + + + + + 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-2415.pdf b/raw/aaer/2006/AAER-2415.pdf new file mode 100644 index 0000000000000000000000000000000000000000..874facab277a565c443ea70e0a0da1fc80961ade Binary files /dev/null and b/raw/aaer/2006/AAER-2415.pdf differ diff --git a/raw/aaer/2006/AAER-2415.txt b/raw/aaer/2006/AAER-2415.txt new file mode 100644 index 0000000000000000000000000000000000000000..8be90385b6ea9c4ea9ce7170c32723db9cf2f460 --- /dev/null +++ b/raw/aaer/2006/AAER-2415.txt @@ -0,0 +1,156 @@ + UNITED STATES OF AMERICA + before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 53661 / April 17, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2415 / April 17, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12263 + + : + : + : +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE + : PROCEEDINGS PURSUANT TO RULE + DAVID T. LEBOE, 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 David +T. Leboe (“Respondent” or “Leboe”) 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. + 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 findings contained in 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 Co mmission finds that: + + 1. David T. Leboe, age 38, is and ha s been a certified public accountant +licensed to practice in the State of Texas. He served as an accountant in Enron North America +(ENA), a business unit of Enron Corp. (Enron), from 1997 until 2001. + + 2. Enron was, at all relevant times, an Oregon corporation with its principal +place of business in Houston, Texas. Until its bankruptcy filing in December 2001, Enron was the +seventh largest corporation in the United States based on reported revenue. In the previous ten +years, Enron had evolved from a regional natural gas provider to a commodity trader of natural +gas, electricity, and other physical commodities with retail operations in energy and other products. +The Company also created and traded financial products. ENA was Enron’s largest and most +profitable business unit and included Enron’s wholesale merchant business related to natural gas +and power across North America, including trading, marketing and new asset development +activities in that region. At all relevant times, the common stock of Enron 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. + + 3. On March 27, 2006, the Commission filed a complaint against Leboe in +Securities and Exchange Commission v. David T. Leboe and Dale G. Rasmussen, Civil Action No. +H-06-1020 (S.D. Tex.). On March 28, 2006, the court entered a final judgment permanently +enjoining Leboe, by consent, 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 thereunder. +Leboe was also ordered to pay $1 in disgorgement and a $30,000 civil money penalty. + + 4. The Commission’s complaint alle ged, among other things, that Leboe +engaged in a fraudulent scheme which resulted in Enron filing materially false and misleading +financial statements in the company’s annual report on Form 10-K for the fiscal year ended +December 31, 2000, and in the company’s quarterly report on Form 10-Q for the third quarter of +fiscal year 2000. The Complaint alleged that Leboe engaged in a number of improper +accounting practices that materially increased Enron’s annual and quarterly revenue and net +income in a departure from generally accepted accounting principles. These practices included, +among other things, improperly accelerating the recognition of revenue from the sale of a +construction contract, and concealing undocumented side agreements from Enron’s independent + 3 +auditors. In addition, the complaint alleged that Leboe actively sought to keep others from +disclosing information to Enron’s independent auditors about these side agreements. + +IV. + + In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Leboe’s Offer. + + Accordingly, it is hereby ORDERED, effective immediately, that: + + A. Leboe is suspended from appearing or practicing before the Commission as an +accountant. + + B. After five years from the date of th is 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 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-2416.txt b/raw/aaer/2006/AAER-2416.txt new file mode 100644 index 0000000000000000000000000000000000000000..3cc343c990766f01c463de6f4ec6db3a308ac440 --- /dev/null +++ b/raw/aaer/2006/AAER-2416.txt @@ -0,0 +1,120 @@ + UNITED STATES OF AMERICA + before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 53662 / April 17, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2416 / April 17, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12264 + + : + : + : +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE + : PROCEEDINGS PURSUANT TO RULE + DALE G. RASMUSSEN, ESQ., : 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 Dale G. +Rasmussen (“Respondent” or “Rasmussen”) 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 . . . 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 +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 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 Co mmission finds that: + + 1. Dale G. Rasmussen, age 46, is and ha s been an attorney licensed to practice +in the State of Oregon. He served as a Senior Counsel in Enron North America’s (ENA) West +Power Origination Legal Group, a business unit of Enron Corp. (Enron), from October 1997 until +February 2002. + + 2. Enron was, at all relevant times, an Oregon corporation with its principal +place of business in Houston, Texas. Until its bankruptcy filing in December 2001, Enron was the +seventh largest corporation in the United States based on reported revenue. In the previous ten +years, Enron had evolved from a regional natural gas provider to a commodity trader of natural +gas, electricity, and other physical commodities with retail operations in energy and other products. +The Company also created and traded financial products. ENA was Enron’s largest and most +profitable business unit and included Enron’s wholesale merchant business related to natural gas +and power across North America, including trading, marketing and new asset development +activities in that region. At all relevant times, the common stock of Enron 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. + + 3. On March 27, 2006, the Commission filed a complaint against Rasmussen +in Securities and Exchange Commission v. David T. Leboe and Dale G. Rasmussen, Civil Action +No. H-06-1020 (S.D. Tex.). On March 28, 2006, the court entered a final judgment permanently +enjoining Rasmussen, by consent, 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 thereunder. Rasmussen was also ordered to pay $1 in disgorgement and a $30,000 civil +money penalty. + + 4. The Commission’s complaint alleged, among other things, that Rasmussen +engaged in a fraudulent scheme to improperly accelerate the recognition of revenue from the sale +of a construction contract which resulted in Enron filing materially false and misleading financial +statements in the company’s annual report on Form 10-K for the fiscal year ended December 31, +2000, and in the company’s quarterly report on Form 10-Q for the third quarter of fiscal year +2000. The Complaint alleged that Rasmussen, the primary Enron in-house attorney working on +the sale, negotiated various terms of the transaction and drafted several of the key documents. + 3 +While doing this, he worked closely with Enron’s accountants to ensure that the wording in the +legal documents did not jeopardize ENA’s efforts to circumvent Generally Accepted Accounting +Principles. In addition, the complaint alleged that Rasmussen knew that undocumented side +agreements relating to the sale were being concealed from Enron’s independent auditors and that +he actively sought to keep others from disclosing information to the auditors about these side +agreements. + +IV. + + In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Rasmussen’s Offer. + + Accordingly, IT IS HEREBY ORDERED, effective immediately, that Rasmussen is +suspended from appearing or practicing before the Commission as an attorney for three years. +Furthermore, before appearing and resuming practice before the Commission, Rasmussen must +submit an affidavit to the Commission’s Office of the General Counsel truthfully stating, under +penalty of perjury, that he has complied with this Order, that he is not subject to 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 he 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. + + + + 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-2418.txt b/raw/aaer/2006/AAER-2418.txt new file mode 100644 index 0000000000000000000000000000000000000000..0b1c2692a0cadbacadbbfd374b680922d3d9b884 --- /dev/null +++ b/raw/aaer/2006/AAER-2418.txt @@ -0,0 +1,166 @@ + + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION + + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 53717 / April 25, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2418 / April 25, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12273 + + +In the Matter of + +ALLEN BUNTIN, + +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 Allen Buntin (“Buntin” 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 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. +Allen Buntin, age 53, is a resident of Michigan. From May 1992 through October 2001, he +was the Business Unit Controller for Hayes’ North American Fabricated/Cast Wheel Group +(“FWG”), which was a part of Hayes’ North American Wheel Group (“NAWG”). Buntin’s +responsibilities as the Business Unit Controller involved ensuring that the FWG’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 discounts 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 FWG Business Unit Controller, Buntin 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. Buntin was responsible for +reconciling various income statements and balance sheet accounts. Specifically, Buntin knew that +in 1999, 2000, and the first quarter of 2001, approximately $.75 million, $1.9 million, and $1.8 + +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 +million respectively of excessive operating expenses (such as utility costs, freight, and machine +repairs) were improperly deferred to FWG plant balance sheet accounts. Beginning in May 2000, +Buntin directed at least one FWG plant to meet its earnings targets by deferring expenses to +specific plant balance sheet accounts at almost every month-end. He also periodically made the +expense deferrals at the FWG business unit level. Also, Buntin knew that the FWG business unit +inappropriately deferred approximately $5.1 million of operating expenses in 1999, $5.6 million in +2000 and an additional $1.1 million by the close of the first quarter of 2001. Buntin knew that by +deferring operating expenses, the FWG improperly inflated net income. In 2000, Buntin failed to +adequately accrue customer discounts on FWG financial statements, causing the FWG’s net sales +to be overstated. Buntin knew that failing to adequately accrue these discounts resulted in false +entries on FWG’s balance sheet and income statements. Additionally, Buntin knew that at both the +plant and business unit level of FWG, fringe benefit liabilities were purposefully understated in +Hayes’ books and records. +B. Legal Analysis +As a result of the conduct described above, Buntin 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 under the +Exchange Act prohibits the falsification of any book, record, or account subject to Section +13(b)(2)(A) of the Exchange Act. + As FWG Business Unit Controller, Buntin 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. +Buntin 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 FWG Business Unit Controller, Buntin knew that the inappropriate accounting entries +he and others made at the FWG plants would be included in Hayes’ books, records, and financial + 4 +results. Buntin therefore caused Hayes’ books and records to contain inaccurate and incomplete +descriptions of the accounting entries, which prevented Hayes from preparing financial statements +in conformity with GAAP. Such conduct violated Section 13(b)(5) of the Exchange Act and +caused Hayes’ violation of 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, Buntin caused Hayes to file inaccurate quarterly and annual reports with the +Commission. Accordingly, Buntin 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 Buntin’s Offer. + + Accordingly, it is hereby ORDERED that Respondent Allen Buntin 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-2419.txt b/raw/aaer/2006/AAER-2419.txt new file mode 100644 index 0000000000000000000000000000000000000000..147c17f6476ab943effeb03ac9103e7666c872d2 --- /dev/null +++ b/raw/aaer/2006/AAER-2419.txt @@ -0,0 +1,164 @@ + + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION + + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 53718 / April 25, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2419 / April 25, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12274 + + +In the Matter of + +GREG JONES, + +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 Greg Jones (“Jones” 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. +Greg Jones, age 52, is a resident of Georgia. From 1997 through August 2000, 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”). Jones’ responsibilities as the +Business Unit Controller included ensuring that AWG’s books and records complied with +Generally Accepted Accounting Principles (“GAAP”) and Hayes’ internal accounting policies. +From August 2000 through May 2003, Jones was a plant manager for the Gainesville, Georgia +AWG manufacturing plant. Although Jones did not have formal accounting or finance +responsibilities in that position, he was aware of various accounting entries that were made. +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 discounts 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 Business Unit Controller of AWG, Jones was responsible for reconciling various +income statements and balance sheet accounts and directed, ratified or knew that false entries were +being made to Hayes’ books and records and were included in Hayes’ 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. + + 3 +Specifically, Jones knew that certain AWG plants were not adequately recording payroll and +employee benefit accruals to achieve internal earnings targets. In addition, Jones knew that one +AWG plant had stopped recording supply invoices to achieve internal earnings targets. + As an AWG plant manager, Jones also kne w of -- but took no steps to correct -- +inappropriate accounting entries that were made at his plant. For example, in October 2000, Jones +knew that his plant inappropriately deferred $1.2 million of tooling expenses to a balance sheet +account. Also, in late 2000 and early 2001, Jones knew that his plant had improperly deferred +approximately $295,000 of operating expenses to a balance sheet account. Finally, in March 2001, +Jones knew that his plant had inappropriately deferred approximately $230,000 of operating +expenses to a balance sheet account at the direction of an AWG vice president, to help another +plant achieve its earning targets for a particular quarter. Jones knew that these entries were false. +B. Legal Analysis +As a result of the conduct described above, Jones 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 under the +Exchange Act 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 and as an AWG plant manager, Jones 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. Jones 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 and as an AWG plant manager, Jones knew that the +inappropriate accounting entries he and others made at the AWG plants would be included in +Hayes’ books, records, and financial results. Jones therefore caused Hayes’ books and records to + 4 +contain inaccurate and incomplete descriptions of the accounting entries, which prevented Hayes +from preparing financial statements in conformity with GAAP. By engaging in such conduct, +Jones violated Section 13(b)(5) of the Exchange Act and caused Hayes’ violation of 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, Jones caused Hayes to file inaccurate quarterly and annual reports with the +Commission. Accordingly, Jones 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 Jones’ Offer. + + Accordingly, it is hereby ORDERED that Respondent Greg Jones 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-2422.txt b/raw/aaer/2006/AAER-2422.txt new file mode 100644 index 0000000000000000000000000000000000000000..899948b8c0f04786f15eeab5e06f1a4f92f24a3c --- /dev/null +++ b/raw/aaer/2006/AAER-2422.txt @@ -0,0 +1,1391 @@ + + + + + + + + + + + + + + + + SEC.gov | Ingles Markets Incorporated + + + + + + + + !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\/498926","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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Ingles Markets Incorporated , Civil Action No. 1:06cv136 (W.D.N.C., filed on April 27, 2006) + + SEC Settles Accounting Fraud Claims With Ingles Markets + + + + The Securities and Exchange Commission today announced it has filed settled accounting fraud charges against Ingles Markets Incorporated, a regional supermarket chain headquartered in Asheville, North Carolina. The Commission's complaint, filed in the Western District of North Carolina, alleges that Ingles' former officer and director, Anthony Federico (now deceased), provided false information to the company's accounting department in 2002 and 2003. + + From his office near Atlanta, Federico negotiated refundable, upfront payments with vendors worth millions of dollars at or after the end of certain quarters. The Commission alleges that Federico drafted forms to make it look like the money was nonrefundable and for past performance and signed at least two side letters that he did not provide to Ingles' accounting department. Taken by itself, Federico's misconduct accounted for more than half of the pretax income reported in quarterly reports filed in May 2002 and February 2003 and material amounts of pretax income in annual reports filed in December 2002 and 2003. The Commission alleges that Federico was able to do this in large part because Ingles had no meaningful controls over the recognition of income from upfront vendor payments during the relevant period. Ingles restated its financial statements in February 2005 to correct these and other accounting errors, and implemented internal controls to properly account for upfront vendor payments. + + Without admitting or denying the allegations, Ingles consented to the imposition of a court order prohibiting further violations of Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)]; Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") [15 U.S.C. § 78j(b)] and Rule 10b-5 promulgated thereunder [17 C.F.R. § 240.10b-5]; .and Section 13(a) of the Exchange Act [15 U.S.C. Section 78(m)(a)] and Rules 13a-1, 13a-13, and 12b-20 [17 C.F.R. Sections 240.13a-1, 240.13a-13 and 240.12b-20] promulgated thereunder. + + The Commission has brought several other vendor allowance cases in recent years, including cases involving Kmart, Fleming and Royal Ahold. See SEC v. Orr [ LR-18989 ] (Dec. 2, 2004); SEC v. Levine [ LR-19353 ] (Aug. 30, 2005); SEC v. Dean Foods [ LR-18884 ) (Sept. 14, 2004); SEC v. Shapiro [ LR-19380 ] (Sept. 15, 2005); SEC v. Bailin [ LR-19034 ] (June 13, 2005); and SEC v. Resnick [ LR-19031 ] (June 11, 2005). + + + + + 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-2427.txt b/raw/aaer/2006/AAER-2427.txt new file mode 100644 index 0000000000000000000000000000000000000000..7a68f0844e67b7d0429c2ca0fced67663511d7e3 --- /dev/null +++ b/raw/aaer/2006/AAER-2427.txt @@ -0,0 +1,278 @@ + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 53766 / May 8, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2427 / May 8, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12289 +_______________________________ + : + : ORDER INSTITUTING PUBLIC + : ADMINISTRATIVE AND CEASE- +In the Matter of : AND-DESIST PROC EEDINGS PURSUANT + : TO SECTION 21 C OF THE SECURITIES +JAMES R. AHRNS, JR., CPA, : EXCHANGE ACT OF 1934 AND RULE 102(e) OF + : THE COMMISSION’S RULES OF PRACTICE, + Respondent : MAKING FINDINGS, AND IMPOSING + : REMEDIAL SANCTIO NS 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 James R. +Ahrns, Jr., CPA (“Respondent” or “Ahrns”) 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 +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 + +1 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, or willfully aided and abetted the violation of any +provision of the Federal securities laws or the rules and regulations thereunder. + + 2 + +proceedings, 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 Rules of Practice, 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 Res pondent’s Offer, the Commission finds2 that: + +A. RESPONDENT + + Ahrns has been a certified public accountant licen sed in the state of Ohio since 1985. From +1999 through early 2004, Ahrns was the controller of MCSi, Inc. (“MCSi”), a Maryland +corporation headquartered in Dayton, Ohio. In his capacity as controller, Ahrns made accounting +entries on the books and records of MCSi, and also provided documents and information to its +auditor in connection with its annual audits of the financial statements of MCSi. Ahrns reported to +the company’s chief financial officer. + +B. FACTS + + 1. Background + + MCSi is a publicly-traded company whose st ock is currently quoted in the “pink sheets” +centralized quotation service for over-the-counter securities. However, at all times relevant to the +matters described herein the stock of MCSi was quoted on the NASDAQ National Market System. +MCSi sold and installed audio-visual presentation and broadcast integrated systems, as well as +computer products. For the year ended December 31, 2001, MCSi reported net sales of over $800 +million. In June 2003, the company filed a voluntary petition for reorganization under Chapter 11 +of the United States Bankruptcy Code. + + 2. MCSi’s accounting system. + + a. MCSi used a system called JD Edwards as its accounting software. When a +sales transaction was input into JD Edwards, the system automatically generated documents such as +invoices and packing lists, and recorded the appropriate accounting transactions on the books and +records of the company. Non-recurring, less routine transactions, however, had to be entered into +JD Edwards manually. + + b. At MCSi, journal entries for thes e non-recurring transactions were first +handwritten on sheets headed “journal voucher.” These manual journal voucher sheets were placed +in three-ring binders, together with any relevant backup documentation, and were maintained in +Ahrns’ office. The transactions shown on the journal vouchers were then entered into JD Edwards. +Some of these transactions were entered into the system by Ahrns. + +2 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 + + c. MCSi’s CFO was not familiar enough with JD Edwards to enter accounting +transactions into the system himself. Therefore, he gave Ahrns handwritten journal entry sheets +reflecting transactions he wished Ahrns to enter into the books and records of the company. On +other occasions the CFO simply instructed Ahrns orally which journal entries to record. + + d. During the first quarter of 2002, the CFO gave Ahrns several journal +vouchers which the CFO had completed himself, and instructed Ahrns to enter those transactions +into the JD Edwards accounting system. These journal vouchers had no backup documentation +attached, and did not reference any customer. The entries they contained were headed “major +projects” and “major projects 2.” The CFO did not explain to Ahrns what transactions were +referenced by these journal vouchers. + + 3. Concealment of company records from the auditors. + + a. MCSi’s CFO had in structed Ahrns not to provide the manual journal +vouchers to the company’s auditors, even if the auditors requested them specifically, without his +prior approval. During the audit of MCSi’s financial statements for the 2000 year, however, the +auditors asked to see the binder of journal vouchers. When Ahrns informed the CFO of this +request, the CFO directed Ahrns to hand him the binder. The CFO removed some of the journal +vouchers from the binder and placed them in his desk drawer. He then told Ahrns to give the +binder to the auditors. + + b. The CFO removed journal vouchers from the books and records of MCSi +on more than one occasion during the audits of MCSi’s financial statements for the years ended +2000 through 2002. Among the vouchers that were removed, and concealed from the auditors, +were those relating to “major projects” and “major projects 2.” These two entries added +$30,203,901 to the revenue MCSi reported for the quarter ended March 31, 2002, with +$16,432,341 being charged to cost of goods sold, for an increase in net income of $13,771,560 for +the quarter. The effect of these entries was to change what would have been a net loss of +$7,293,112 to net income of $6,478,448. + + c. The inflated revenue caused the financial statements of MCSi, for the +quarter ended March 31, 2002, to fail to comport with generally accepted accounting principles. + + 4. Ahrns signed the management rep resentation letters to the auditors. + + a. For each audit of MCSi’s financial statements from the 2000 year through +the 2001 year, both the CFO and Ahrns signed the management representation letter to the auditor. +In this letter, MCSi’s management was asked to confirm to the auditor that: + +i. all financial records and related data had been made available to them; + +ii. there were no material transactions, agreements or accounts that had not +been properly recorded in the company’s books and records; and + 4 + +iii. there had been no fraud involving management or employees having +significant roles in the company’s internal control. + + b. Ahrns had concerns regarding certa in manual journal entries on the books +of the company because the CFO had never provided him with any backup documentation. He +also knew that manual journal vouchers had been concealed from the auditors, denying them +access to certain financial records and related data of MCSi. Nevertheless, both the CFO and +Ahrns signed the management representation letters for the audits of the company’s financial +statements for the years ended 2000 through 2001. + +C. VIOLATIONS + + 1. Aiding and abetting liabil ity arises when there is: (a) a violation of the securities +laws by some other party; (b) a general awareness by the aider and abetter that his role is part of an +overall activity that was improper; and (c) substantial assistance by the aider and abetter in the +achievement of the primary violation. Either willfulness or "reckless indifference (to a known +obligation or set of facts)" will satisfy the scienter requirement. + + 2. Section 13(a) of the Exchange Act an d Rules 13a-1 and 13a-13 thereunder require +issuers with securities registered under Section 12 of the Exchange Act to file quarterly and annual +reports with the Commission and to keep this information current. The obligation to file such +reports embodies the requirement that they be true and correct. + + 3. Rule 12b-20 provides that, in addition to information specifically required to be +included in reports, registrants are obligated to include any material information necessary to make +the statements made in the reports not misleading. + + 4. Section 13(b)(2)(A) of the Exchange Act requires every issuer that has a class of +securities registered pursuant to Section 12 of the Exchange Act 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. . . ." Rule 13b2-1 generally prohibits the falsification of +books and records. + + 5. Ahrns rendered substantial assistance to MCSi in its primary violations of +Sections 13(a) and 13(b)(2)(A) and Rules 12b-20, 13a-1 and 13a-13 thereunder, and to MCSi’s +CFO in his primary violations of Rule 13b2-2. Not informing the auditors that the CFO had +removed manual journal vouchers from the company's books, and signing the management +representation letter made it more difficult to discover the fraudulent revenue the CFO had +recorded. This fraudulent revenue rendered the books and records of MCSi, and its public filings +with the Commission, materially false. Ahrns, as a CPA and the company controller, knew that he +was involved in an activity that was improper. + + 5 + +6. By making journal entries at the direction of the CF O, when he knew or should +have known that those entries did not properly reflect company transactions, Ahrns violated Rule +13b2-1. + + 7. Rule 13b2-2, as in effect at the time of the conduct described herein, states that ”no +officer or director of an issuer shall, directly or indirectly . . . omit to state, or cause another person +to omit to state, any material fact necessary in order to make statements made, in light of the +circumstances under which such statements were made, not misleading, to an accountant in +connection with any audit, review or examination of the financial statements of the issuer. . . .” 3 + + 8. By providing the manual journal voucher s to the auditors without disclosing that +certain of them had been removed, and by signing the management representation letter, the CFO +omitted to state a material fact to an accountant in connection with an audit. Ahrns aided and +abetted these violations of Rule 13b2-2. + +D. COOPERATION + + Ahrns has rendered substantial assistance to th e staff in its investigation of MCSi and its +officers. + +E. FINDINGS + + Based on the foregoing, the Commission finds that Ahrns (a) willfully violated Rule +13b2-1 promulgated under the Exchange Act; and (b) willfully aided and abetted and caused +MCSi’s violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 +and 13a-13, and the CFO’s violations of Rule 13b2-2 thereunder. As a consequence of these +willful violations, and by aiding and abetting others in their violations of the federal securities laws, +Ahrns should be sanctioned under Rule 102(e)(1)(iii) of the Commission’s Rules of Practice. + +IV. + + In view of the foregoing, the Commission deems it appropriate to impose the sanction and +cease-and-desist order agreed to in Respondent’s Offer. + + Accordingly, it is hereby ORDERED, effective immediately, that: + + A. Ahrns shall cease and desist from co mmitting or causing any violations and any +future violations of Rules 13b2-1 and 13b2-2 promulgated under the Exchange Act, and from +causing any violations and any future violations of Sections 13(a) and 13(b)(2)(A) of the Exchange +Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. + + B. Ahrns is denied the privilege of appe aring or practicing before the Commission as +an accountant. + + +3 Rule 13b2-2 has since been amended by the Sarbanes-Oxley Act of 2002. + 6 + C. After two years from the date of this order, Ahrns 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 Ahrns’ 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) Ahrns, or the public acc ounting 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) Ahrns, or the registered pub lic 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 his or the firm’s quality control system that would indicate that he will not +receive appropriate supervision; + + (c) Ahrns has resolved all discip linary 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) Ahrns acknowledges his res ponsibility, 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 consid er an application by Ahrns 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 his 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-2428.pdf b/raw/aaer/2006/AAER-2428.pdf new file mode 100644 index 0000000000000000000000000000000000000000..6fe7a8edb7c50008aeb86755a0e185608e3e893a Binary files /dev/null and b/raw/aaer/2006/AAER-2428.pdf differ diff --git a/raw/aaer/2006/AAER-2428.txt b/raw/aaer/2006/AAER-2428.txt new file mode 100644 index 0000000000000000000000000000000000000000..23dfbc392ef3b0e8114040f5b64cc27f29ddcbaa --- /dev/null +++ b/raw/aaer/2006/AAER-2428.txt @@ -0,0 +1,125 @@ + + + UNITED STATES OF AMERICA + before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 53803 / May 15, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2428 / May 15, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12296 +_________________________________ + : + : ORDER INSTITUTING + In the Matter of : ADMINISTRATIVE + : PROCEEDINGS PURSUANT TO + BARRY F. DUGGAN, CGA (Canad a), : RULE 102(e) OF THE + : COMMISSION’S RULES OF + Respondent. : 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 Barry F. +Duggan, CGA (Canada) (“Respondent” or “Duggan”) 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. + 2 +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 Responde nt’s Offer, the Commission finds that: + + 1. Duggan, age 61, is and has been a certified general accountant (“CGA”) in +Canada. He served as CEO and a director of Exotics.com, Inc., a Delaware corporation (“Exotics- +Delaware”) and the sole operating subsidiary of Exotics.com, Inc., a Nevada corporation (“Exotics- +Nevada”), from September 2001 until his resignation in August 2002. + + 2. Exotics-Nevada was, at all relevant times, a Nevada corporation with its +principal place of business in Vancouver, British Columbia, Canada. Through its Exotics-Delaware +subsidiary, Exotics-Nevada was engaged in the business of owning, operating and licensing adult +Web sites. At all relevant times, Exotics-Nevada’s common stock was registered with the +Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”). +From December 2000 to May 2002, its stock was quoted on the OTC Bulletin Board. + + 3. On April 25, 2005, the Commission f iled a complaint against Duggan in +SEC v. Exotics.com, Inc., et al. (Civil Action No. CV-S-05-0531-PMP-(GWF)). On April 20, +2006, the court entered an order permanently enjoining Duggan, by consent, from future violations +of Sections 10(b) and 13(b)(5) of the Exchange Act and Rule 10b-5 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-13 thereunder. Duggan was also ordered to pay a $25,000 civil money penalty and +was barred from serving 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 barred from participating in any offering of penny +stock, including engaging in activities with a broker, dealer, or issuer for purposes of issuing, +trading, or inducing or attempting to induce the purchase or sale of any penny stock. + + 4. The Commission’s complaint alleged th at Duggan participated in an accounting +fraud and stock manipulation scheme involving Exotics-Nevada stock that occurred during 1999 +through 2002. According to the complaint, the fraudulent scheme resulted in Exotics-Nevada +filing with the Commission an annual report on Form 10-KSB for the fiscal year ended December +31, 2001 (“2001 Form 10-KSB”), and a quarterly report on Form 10-QSB for the third quarter of + 3 +fiscal year 2001 (“2001 Third Quarter Form 10-QSB”) that contained materially false and +misleading statements. The complaint alleged that Duggan knowingly and substantially assisted +Exotics-Nevada in filing the false and misleading reports with the Commission and that, while +serving as the CEO and a director of Exotics-Nevada’s sole operating subsidiary, he approved the +reporting of $3.6 million of goodwill in the company’s financial statements contained in its 2001 +Third Quarter Form 10-QSB. The transaction resulted in an overstatement of Exotics-Nevada’s +assets by approximately 627%. The complaint also alleged that Duggan knowingly failed to +implement a system of internal accounting controls and was responsible for Exotics-Nevada +having inadequate books and records, which led to the company filing false and misleading +Commission reports. In addition, the complaint alleged that, in December 2001, Duggan +reviewed and approved drafts of fax and e-mail spam messages that Exotics-Nevada arranged to +have disseminated to potential investors and which contained misleading financial information +regarding Exotics-Nevada. + +IV. + + In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Duggan’s Offer. + + Accordingly, it is hereby ORDERED, effective immediately, that: + + Duggan is suspended from appearing or practicing before the Commission as an +accountant. + + + + 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-2429.txt b/raw/aaer/2006/AAER-2429.txt new file mode 100644 index 0000000000000000000000000000000000000000..d69f43e0569d30b20bd63ad839de3a9705d12642 --- /dev/null +++ b/raw/aaer/2006/AAER-2429.txt @@ -0,0 +1,1394 @@ + + + + + + + + + + + + + + + + SEC.gov | Exotics.com, 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\/499056","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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Exotics.com, Inc., et al. , (United States District Court, District of Nevada, C.A. No. CV-S-05-0531-PMP-GWF) + + Final Judgment Entered Against Canadian Accountant Barry F. Duggan in Market Manipulation and Financial Fraud Case + + + + The Securities and Exchange Commission announced on May 16, 2006, the federal court in Nevada entered a final judgment, by consent, against Barry F. Duggan, of Vancouver, British Columbia, in connection with a stock manipulation and accounting fraud scheme that occurred between 1999 and 2002. The judgment permanently enjoins Duggan from violating the antifraud, reporting, books and records and internal accounting controls provisions of the federal securities laws. The judgment also orders Duggan to pay a $25,000 civil penalty, prohibits him from acting as an officer or director of a publicly-traded company and bars him from participating in any offering of a penny stock. + + The judgment against Duggan arises out of an April 21, 2005 civil action filed by the Commission against Exotics.com, Inc., a Nevada corporation based in Vancouver, British Columbia, and 12 other principal defendants and a relief defendant. The Commission alleges in its complaint that, between at least 1999 and 2002, Exotics, which was then an Over-the-Counter Bulletin Board company in the business of operating adult Web sites, was the subject of a manipulation and accounting fraud perpetrated by, among others, its officers, attorneys and outside auditors. The Commission alleges that Duggan, who during the relevant period was a certified general accountant (CGA) in Canada and the chief executive officer and a director of Exotics' sole subsidiary, played a role in the scheme by, among other things, approving Exotics' false reporting of $3.6 million of goodwill in its financial statements (which led to an overstatement of assets by approximately 627%) and reviewing and approving drafts of fax and e-mail spam messages sent out on behalf of the company which contained misleading financial information. + + Without admitting or denying the allegations in the Commission's complaint, Duggan consented to the entry of the final judgment against him. The final judgment enjoins Duggan from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (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 and 13a-13 thereunder. The judgment also imposes a $25,000 civil penalty against Duggan, prohibits him from acting as an officer or director of a publicly-traded company and bars him from participating in any penny stock offering. + + In addition to the above, on May 15, 2006, the Commission issued a settled Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order") against Duggan, based on the April 20, 2006 final judgment entered against him. The Order, which was effective immediately, suspends Duggan from appearing or practicing before the Commission as an accountant. + + For further information, see Litigation Release Nos. 19207 (April 28, 2005) and 19645 (April 7, 2006). + + + + + + See also: Administrative Proceeding No. 34-53803 + + +  + + + + + + + + + + + Resources + + + + + Administrative Proceedings Release + + + + + + + + + + + + + + + + + + + + + + + + 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-2430.pdf b/raw/aaer/2006/AAER-2430.pdf new file mode 100644 index 0000000000000000000000000000000000000000..d72825a431640b4bd2ee1815d622b4aa9e129557 Binary files /dev/null and b/raw/aaer/2006/AAER-2430.pdf differ diff --git a/raw/aaer/2006/AAER-2432.pdf b/raw/aaer/2006/AAER-2432.pdf new file mode 100644 index 0000000000000000000000000000000000000000..23d4f7373be86a1dce8415e4bcbd93d3894661a1 Binary files /dev/null and b/raw/aaer/2006/AAER-2432.pdf differ diff --git a/raw/aaer/2006/AAER-2432.txt b/raw/aaer/2006/AAER-2432.txt new file mode 100644 index 0000000000000000000000000000000000000000..5391480953f1aff67ac12b8c036b53bc2dd9b718 --- /dev/null +++ b/raw/aaer/2006/AAER-2432.txt @@ -0,0 +1,157 @@ + + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION + + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 53830 / May 18, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2432 / May 18, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12298 + + : + In the Matter of : ORDER INSTITUTING PUBLIC + : ADMINISTRATIVE PROCEEDINGS + William D. Baker, CPA, : PURSUANT TO RULE 102(e) OF THE + : C O M M I S S I O N ’ S R U L E S O F + Respondent. : 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 William +D. Baker (“Baker” 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 + +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 + 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. Baker, age 59, is a certified public accountant who has been licensed to practice in +the State of Indiana. He served as Senior Vice President of Finance and Operations and the Chief +Financial Officer of Netopia, Inc. (“Netopia” or the “Company”) from 2001 until 2005. + +2. Netopia is a Delaware corporation headquartered in Emeryville, California that +develops, markets and supports broadband and wireless products and services including both +computer hardware and software. Netopia’s common stock is registered with the Commission +pursuant to Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”). Netopia +was delisted from NASDAQ on October 20, 2004 as a result of its failure to file a SEC Form 10- +Q for the period ended June 30, 2004. Netopia stock is currently quoted on the pink sheets. +3. On March 29, 2006, the Commission filed a complaint against Baker in SEC v. +Thomas A. Skoulis, et al. (Civil Action No. C 06-02239 JF). On May 2, 2006, the Court entered +an order permanently enjoining Baker, by consent, from future 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 +Exchange Act and Rules 10b-5, 12b-20, 13a-11, 13a-13, 13a-14, 13b2-1 and 13b2-2 thereunder. +Baker also was ordered to pay a $35,000 civil money penalty and prohibited from serving for +five years as an officer or director of a public company. + + 4. The Commission’s Complaint alleged, among other things, that Baker engaged in +actions that resulted in Netopia filing materially false financial statements for the fiscal quarters +ended June 30, 2002 and March 31, 2004 and filing a materially false Form 8-K on July 6, 2004. +The Complaint alleged that, during the quarter ended June 30, 2002, Netopia recognized revenue +on a transaction with a reseller where collectibility was not probable, in violation of Generally +Accepted Accounting Principles (“GAAP”). According to the Complaint, Baker knew, or was +reckless in not knowing, that the reseller did not have the financial ability to pay. The Complaint +also alleged that Netopia improperly recognized revenue on a transaction in its fiscal year ended +September 30, 2003 where the reseller had agreed to pay only after it was paid by its customer. +Under GAAP, revenue cannot be recognized if the customer is not obligated to pay. The +Complaint alleges that in April 2004 Mr. Baker became aware of the payment contingency and +withheld that information from the Company's audit committee and its outside auditors. +Additionally, the Complaint alleges that he did not otherwise take steps to correct Netopia's +financial statements to reflect the contingency. The Complaint further alleges that Baker +allowed the Company to issue a misleading press release (filed as an exhibit to a Form 8-K on +July 6, 2004) that falsely described the lack of payment on the transaction at the close of its +September 30, 2003 year end as a “bad debt” rather than as a contingent transaction that would +require the reversal of revenue. + + 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 Baker’s Offer. + + Accordingly, it is hereby ORDERED, effective immediately, that: + +A. Baker is suspended from appearing or practicing before the Commission as an +accountant. + +B. After five years from the date of this order, Baker 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 Baker’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) Baker, 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) Baker, 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 Baker’s or the firm’s quality control system that would indicate that Baker +will not receive appropriate supervision; + (c) Baker 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) Baker acknowledges his responsibility, as long as Baker 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 Baker to resume appearing +or practicing before the Commission provided that his state CPA license is current and he + + 4 + 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 Baker’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-2434.pdf b/raw/aaer/2006/AAER-2434.pdf new file mode 100644 index 0000000000000000000000000000000000000000..1340941e8e2682bad5d099897565edef943080b5 Binary files /dev/null and b/raw/aaer/2006/AAER-2434.pdf differ diff --git a/raw/aaer/2006/AAER-2435.pdf b/raw/aaer/2006/AAER-2435.pdf new file mode 100644 index 0000000000000000000000000000000000000000..7eaf7496c13aba450d472b1bbf6f1cc95e5fd936 Binary files /dev/null and b/raw/aaer/2006/AAER-2435.pdf differ diff --git a/raw/aaer/2006/AAER-2435.txt b/raw/aaer/2006/AAER-2435.txt new file mode 100644 index 0000000000000000000000000000000000000000..180831b277a20d7536fb105d5638be90e2432598 --- /dev/null +++ b/raw/aaer/2006/AAER-2435.txt @@ -0,0 +1,127 @@ + + + UNITED STATES OF AMERICA + before the + SECURITIES AND EXCHANGE COMMISSION + + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 53929 / June 1, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2435 / June 1, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12321 + + : + : + : +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE + : PROCEEDINGS PURSUANT TO RULE + WILLIAM T. OWENS, CPA, : 102( e) OF THE COMMISSION’S RULES OF + : PRACTICE, MAKING FINDINGS, AND + Respondent. : IMPO SING REMEDIAL SANCTION + : + : +____________________________________ : + + +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 +T. Owens (“Respondent” or “Owens”) pursuant to Rules 102(e)(2) and 102(e)(3)(i) of the +Commission’s Rules of Practice.1 + +1 Rule 102(e)(2) provides, in relevant part, that: + + Any . . . 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. + + 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 + 2 + +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 Sections III, 3 and III, 5 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 +Sanction (“Order”), as set forth below. + +III. + + On the basis of this Order and Responde nt’s Offer, the Commission finds that: + +1. William T. Owens, age 47, is and has been a certified public accountant licensed to +practice in the State of Alabama. Owens was the chief financial officer of HealthSouth Corp. +(“HealthSouth”) from February 2000 to August 2001, its president and chief operating officer from +August 2001 until August 2002, and its president and chief executive officer from August 2002 +through January 2003. Owens also served as HealthSouth’s executive vice president and chief +financial officer from January 2003 until March 2003. + +2. HealthSouth was, at all relevant times, a Delaware corporation with its principal +place of business in Birmingham, Alabama. HealthSouth was in the business of, among other +things, providing outpatient diagnosis and surgery. At all relevant times, HealthSouth’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. + +3. On March 31, 2003, th e Commission filed a complaint against Owens in SEC v. +Weston L. Smith and William T. Owens (Civil Action No. CV-03-C-0720-S, amended to CV-03- +CO-0720-S). On May 22, 2006, the court entered an order permanently enjoining Owens, by +consent, from future violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b) +and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 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 12b-20, 13a-1, 13a-13 and 13a-14 thereunder. + + 4. The Commission’s complaint alleged, am ong other things, that Owens and other +senior officers of HealthSouth engaged in a fraudulent scheme which resulted in HealthSouth +filing materially false and misleading financial statements in the company’s annual reports on +Forms 10-K and periodic reports on Forms 10-Q from 1997 through 2002. Among other + +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. + 3 +things, the complaint alleged that Owens directed other HealthSouth employees to make +entries on the company’s books which fraudulently overstated income and reflected fictitious +assets in amounts which matched generally the fraudulent overstatements of income. The +complaint alleged that the fraudulent entries were designed to avoid detection by +HealthSouth’s independent auditors. + +5. On December 9, 2005, a judgment of convi ction was entered against Owens in +United States v. Owens, CR-03-3B-00131-SLB, in the United States District Court for the +Northern District of Alabama, finding him guilty of one count of conspiracy to commit wire +fraud and securities fraud, one count of wire fraud and one count of filing a false certification of +financial information with the Commission. + +6. As a result of this conviction, Owens was sentenced to five years incarceration +followed by two years of supervised release, and was ordered to forfeit $2.5 million. + +IV. + +In view of the foregoing, the Commission finds that Owens has been convicted of a felony +within the meaning of Rule 102(e)(2) of the Commission’s Rules of Practice. The Commission +deems it appropriate and in the public interest to impose the sanction agreed to in Respondent +Owens’s Offer. + + Accordingly, it is hereby ORDERED, effective immediately, that: + + Owens is forthwith suspended from appearing or practicing before the Commission as an +accountant. + + 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-2436.pdf b/raw/aaer/2006/AAER-2436.pdf new file mode 100644 index 0000000000000000000000000000000000000000..327d7b2222ac78d94c3c7cf270dd3fd21542cf82 Binary files /dev/null and b/raw/aaer/2006/AAER-2436.pdf differ diff --git a/raw/aaer/2006/AAER-2436.txt b/raw/aaer/2006/AAER-2436.txt new file mode 100644 index 0000000000000000000000000000000000000000..49963de7b3fa59ae1f60c21a07eadfe7874fe7ce --- /dev/null +++ b/raw/aaer/2006/AAER-2436.txt @@ -0,0 +1,69 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION + +Securities Exchange Act of 1934 +Release No. 53936 / June 2, 2006 + +Accounting and Auditing Enforcement +Release No. 2436 / June 2, 2006 + +Administrative Proceeding +File No. 3-12322 + +IN THE MATTER OF JAMES T. MCCURDY + +On June 2, 2006, the Securities and Exchange Commission issued an Order Instituting Public +Administrative Proceedings Pursuant to Rule 102(e) of the Commission’s Rules of Practice and +Notice of Hearing (“Order”) against James T. McCurdy (“McCurdy”), alleging that McCurdy +engaged in improper professional conduct in his role as concurring review partner on three +mutual fund audits. + +In the Order, the Division of Enforcement (“Division”) and the Office of the Chief Accountant +(“OCA”) allege that McCurdy, formerly a partner of the accounting firm McCurdy & Associates +CPAs, Inc. (“McCurdy & Associates”) engaged in improper professional conduct in connection +with his firm’s audit of the financial statements of the Liquid Green Money Market Fund +(“Liquid Green”) for the fiscal year ended September 30, 2001, and the firm’s audits of the +financial statements of the Florida Street Bond Fund (“Florida Street”) for the fiscal years ended +October 31, 1999 and October 31, 2000. + +The Division and the OCA further allege that, during the 2001 Liquid Green audit, McCurdy +became aware that more than half of the securities in the fund’s portfolio had stated maturity +dates exceeding the 397 day period set forth in Rule 2a-7 under the Investment Company Act of +1940, but nevertheless he did not ensure that the engagement partner performed audit procedures +to determine whether the securities were in fact eligible for a money market fund. As a result, +McCurdy failed to detect that the fund’s financial statements and related notes contained material +misrepresentations, including that Liquid Green was a “money market fund” and that it was +proper for the fund to use the amortized cost method to value its portfolio securities. Because he +did not require the engagement partner to audit Liquid Green’s financial statements properly and +did not do so himself, McCurdy allowed his firm to issue an audit report with an unqualified +opinion falsely representing that Liquid Green’s financial statements fairly presented the fund’s +financial position in conformity with generally accepted accounting principles (“GAAP”) and +that McCurdy & Associates had conducted its audit in accordance with generally accepted +auditing standards (“GAAS”). + +With respect to the Florida Street audits, the Division and the OCA allege that McCurdy +assigned two inexperienced auditors as engagement partners and designated himself as the +concurring review partner for both the 1999 and 2000 Florida Street audits. Because McCurdy +did not require the engagement partner in 1999 to audit Florida Street’s statements properly, and +did not do so himself, he failed to detect that the fund was continuing to accrue and carry interest +for bonds that had missed interest payments, were in default, or had previously been sold and +were no longer held by the fund, that the fund’s interest receivable balance was overstated, and +that, as a result, Florida Street’s financial statements were not fairly presented in conformity with +GAAP. +The Division and the OCA allege that, after Florida Street’s interest accrual problems and +overstated interest receivable balance came to light during the 2000 Florida Street audit, +McCurdy allowed his firm to issue an audit report with an unqualified audit opinion on Florida +Street’s financial statements even though they failed to disclose the overstated interest receivable +and the resulting repricing, interest write-offs and return of capital to shareholders. Furthermore, +despite knowing that a portion of the interest Florida Street wrote off during the fiscal year ended +October 31, 2000 related to the prior fiscal year ended October 31, 1999, McCurdy did not +require the recording of a prior period adjustment or take any steps to determine whether Florida +Street should restate its financial statements for prior periods. +A hearing will be scheduled before an administrative law judge to determine whether the +allegations contained in the Order are true, to provide McCurdy with an opportunity to dispute +the allegations, and to determine whether McCurdy should be censured by the Commission or +temporarily or permanently denied the privilege of appearing or practicing before the +Commission. The Order requires the Administrative Law Judge to issue an initial decision no +later than 300 days from the date of service of this Order, 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-2437.txt b/raw/aaer/2006/AAER-2437.txt new file mode 100644 index 0000000000000000000000000000000000000000..73ed85bc20576d7f51776ac67e2122972cc70b51 --- /dev/null +++ b/raw/aaer/2006/AAER-2437.txt @@ -0,0 +1,311 @@ + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 53944 / June 6, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2437 / June 6, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12325 + + + + +In the Matter of + +DAVID A. RODRIGUEZ, 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 Commissi on (“Commission”) deems it appropriate that public +administrative proceedings be, and hereby are, instituted against David A. Rodriguez, CPA +(“Rodriguez” or “Respondent”) pursuant to Rule 102(e)(1)(ii) 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 in any way to any person who is found . . . to have engaged in . . . improper professional conduct. + + + 2 +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 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 Res pondent’s Offer, the Commission finds2 that: + +A. SUMMARY + +1. David A. Rodriguez, CPA, engaged in improper professional conduct in the audit +of the financial statements of the Liquid Green Money Market Fund (“Liquid Green”) for the fiscal +year ended September 30, 2001. Because he did not audit Liquid Green’s financial statements +properly, Rodriguez (i) failed to detect that the fund was holding itself out as a money market fund +and using the amortized cost method to value its securities when it was not entitled to do so, in +violation of the Investment Company Act of 1940 (“Investment Company Act”); and (ii) caused +his accounting firm, McCurdy & Associates CPAs, Inc. (“McCurdy & Associates”) to issue an +unqualified audit report falsely representing that Liquid Green’s financial statements fairly +presented the fund’s financial position in conformity with generally accepted accounting principles +(“GAAP”) and that McCurdy & Associates had conducted its audit in accordance with generally +accepted auditing standards (“GAAS”). +B. RESPONDENT +2. Rodriguez, age 49, has been an Ohio-licensed certified public accountant (“CPA”) +since 1985. From May 1993 until December 2003, Rodriguez was a partner in McCurdy & +Associates, an accounting firm in Westlake, Ohio that specialized in performing mutual fund +audits. Rodriguez was the engagement partner for McCurdy & Associates’ audit of Liquid +Green’s financial statements for the fiscal year ended September 30, 2001 (the “2001 Liquid Green +audit”). McCurdy & Associates sold its investment industry practice, including its auditing +practice, to Cohen McCurdy, Ltd. in January 2004. From January 2004 until November 2004, +Rodriguez held the position of principal at Cohen McCurdy. Since November 2004, Rodriguez +has been employed outside of public accounting. + +2 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 +C. OTHER RELEVANT ENTITY +3. AmeriPrime Advisors Trust (“AAT”), an Ohio business trust, is an open-end +series investment company3 that has been registered with the Commission since 1999. On +September 20, 2001, AAT organized Liquid Green as one of its series of funds. On September 28, +2001, Liquid Green acquired the assets and assumed the liabilities of the Unified Taxable Money +Market Fund (“UTMM”), which was a series of the open-end series investment company Unified +Funds. UTMM transferred its assets to Liquid Green and thereafter dissolved.4 As of September +30, 2001, Liquid Green had total net assets valued at $37,695,013. In February 2002, Liquid +Green dissolved after transferring all of its assets to another money market fund. +D. FACTS + +4. Between March 20, 2001 and December 6, 2001, Liquid Green’s portfolio manager +followed an investment strategy of purchasing fixed-rate, government agency bonds with +remaining maturities of between 2 1/2 and 12 years. The bonds were callable within 397 days at +the discretion of the government agency, but not at the option of the purchaser. As of September +30, 2001, the last day of fiscal year 2001, these callable bonds made up over 53.1% of the fund’s +assets. +5. Under Rule 2a-7(c)(2)(i) of the Investment Company Act, a mutual fund cannot +acquire securities with maturities in excess of 397 days and hold itself out as a money market fund +unless the securities have a maturity shortening feature as provided by the rule. Furthermore, Rule +2a-7(b)(1) expressly provides that it is a material misrepresentation under Section 34(b) of the +Investment Company Act for a mutual fund to hold itself out as a money market fund when it does +not meet the risk limiting conditions of Rule 2a-7. +6. In this case, the callable bonds purchased by Liquid Green did not have a maturity +shortening feature as provided for by Rule 2a-7 because the bonds were callable only at the +discretion of the issuer. Thus, during the time period when the fund held these bonds, Liquid +Green was not permitted to hold itself out as a money market fund and it was a material +misrepresentation for the fund to do so. +7. In addition, a money market fund that does not meet the requirements of Rule 2a-7 +is not permitted to use the amortized cost method of valuing the securities in its investment +portfolio, but instead must calculate the current net asset value of its portfolio securities on a daily +basis to reflect current market prices. Because Liquid Green did not meet the requirements of Rule +2a-7 during the time period when it held the ineligible bonds, the fund was not permitted to use the +amortized cost method to value its securities. + +3 Although a series investment company such as AAT is organized as a single corporate entity, it may be comprised +of several different series or portfolios that function as separate investment companies. + +4 For the purposes of this Order, “Liquid Green” refers collectively to both Liquid Green and its predecessor +UTMM. + + 4 + +8. AAT engaged McCurdy & Associates to provide audit and tax services to its series +funds, including Liquid Green. Rodriguez was assigned as the engagement partner for the 2001 +Liquid Green audit. As engagement partner, he had primary responsibility for planning the audit +and performing the fieldwork. +9. During the fieldwork for the 2001 Liquid Green audit, Rodriguez learned that more +than one half of Liquid Green’s investment portfolio consisted of bonds with stated maturities +greater than 397 days. Rodriguez became aware of these bonds because: (i) he reviewed Liquid +Green’s portfolio listing for the annual report, which accurately reported the bonds’ maturities; (ii) +he reviewed the “Investment Review” prepared by the fund’s portfolio manager for the annual +report, which stated that during 2001 the fund had “endeavored to maximize our yields” by +investing in agency bonds “with a duration of many years but with a right for the agency to ‘call’ +or redeem the bonds”; and (iii) he discussed the fund’s investment strategy of purchasing callable +securities with long maturities with staff of the fund administrator. +10. Despite knowing that more than half of Liquid Green’s portfolio consisted of bonds +with stated maturities that appeared to make them ineligible for a money market fund under Rule +2a-7, Rodriguez did not perform adequate audit procedures to review or test the bonds held in the +fund’s investment portfolio to determine whether they were in fact eligible for a money market +fund. +11. As a result of his failure to adequately test Liquid Green’s compliance with Rule +2a-7, Rodriguez failed to detect that the fund’s financial statements and related notes contained +material misrepresentations, including that Liquid Green was a “money market fund” and that it +was proper for the fund to use the amortized cost method to value its portfolio securities. +12. On October 10, 2001, McCurdy & Associates issued an unqualified audit report on +Liquid Green’s financial statements as of September 30, 2001 that was included in the fund’s +annual report filed with the Commission on November 28, 2001.5 +13. The unqualified audit report stated that McCurdy & Associates “audited the +statements of assets and liabilities, including the portfolios of investments, of Liquid Green Money +Market Fund (formerly Unified Taxable Money Market Fund) as of September 30, 2001.” The +report further falsely represented that (i) the fund’s financial statements were presented in +conformity with GAAP, and (ii) that McCurdy & Associates had audited the fund’s financial +statements in accordance with GAAS. +14. GAAS consist of ten auditing standards, including three general standards, three +standards of fieldwork and four standards of reporting. +15. The first standard of fieldwork requires that audit work be adequately planned and +supervised. AU §310.01. Rodriguez failed to comply with the first standard of fieldwork because + +5 Liquid Green’s 2001 annual report was originally filed on November 28, 2001 under the wrong investment +company name. After the fund administrator discovered the error, the annual report was re-filed, with no changes, +under the correct investment company name on December 26, 2001. + + 5 +he failed to include in the audit plan procedures to test the fund’s Rule 2a-7 compliance, even after +discovering that a large percentage of the fund’s portfolio appeared not to comply with Rule 2a-7. +16. The third standard of fieldwork requires that “sufficient competent evidential matter +is to be obtained through inspection, observation, inquiries, and confirmations to afford a +reasonable basis for an opinion regarding the financial statements under audit.” AU §330.01. +GAAS further provide that “representations from management are part of the evidential matter the +independent auditor obtains, but they are not a substitute for the application of those auditing +procedures necessary to afford a reasonable basis for an opinion regarding the financial statements +under audit.” AU §333.02. “[W]hen evidential matter can be obtained from independent sources +outside an entity, it provides greater assurance of reliability for the purposes of an independent +audit than that secured solely within the entity.” AU §326.21(a). +17. Rodriguez violated the third standard of fieldwork because he failed to obtain +competent evidential matter of Liquid Green’s compliance with Rule 2a-7 and did not have a +reasonable basis for opining that the fund’s financial statements and related notes were fairly +presented in accordance with GAAP. +18. The third general standard under GAAS provides that, “[d]ue professional care is to +be exercised in the performance of the audit and the preparation of the report.” AU §230.01. +Among other things, due professional care requires an auditor to observe the field work and +reporting standards of GAAS. AU §230.02. Additionally, due professional care requires an +auditor to employ professional skepticism, which is “an attitude that includes a questioning mind +and a critical assessment of audit evidence.” AU §230.07. Professional skepticism requires an +auditor to obtain no less persuasive evidence merely because he assumes that management is +honest. AU §230.09. +19. Rodriguez failed to exercise due professional care during the 2001 Liquid Green +audit by (i) failing to include in the audit plan appropriate procedures to test the fund’s Rule 2a-7 +compliance; (ii) failing to obtain sufficient competent evidential matter to determine whether the +fund was in compliance with Rule 2a-7; and (iii) signing off on the unqualified audit report for +Liquid Green even though the fund’s financial statements and related notes improperly held Liquid +Green out as a money market fund and misrepresented that the fund was properly using the +amortized cost method of valuing securities. +20. The reporting standards under GAAS provide that an audit report “shall state +whether the financial statements are presented in accordance with generally accepted accounting +principles.” AU §410.01. The auditor’s opinion that financial statements present fairly an entity’s +financial position, results of operations and cash flows in conformity with GAAP should be based +on a judgment that, among other things, the accounting principles are appropriate under the +circumstances and that the financial statements, including the related notes, are informative of +matters that may affect their use, understanding, and interpretation. AU §411.04. Furthermore, the +presentation of financial statements in conformity with GAAP includes adequate disclosure of +material matters, including matters relating to the form, arrangement and content of the financial +statements and their appended notes. AU §431.02. + + 6 +21. Rodriguez violated the reporting standards under GAAS when he caused McCurdy +& Associates to issue an unqualified audit report on Liquid Green’s financial statements as of +September 30, 2001 even though the financial statements and related notes contained material +misrepresentations and failed to disclose material matters. +E. VIOLATIONS +22. Rule 102(e)(1)(ii) of the Commission’s Rules of Practice provides, in pertinent part, +that, “[t]he Commission may . . . deny, temporarily or permanently, the privilege of appearing or +practicing before it in any way to any person who is found . . . to have engaged in unethical or +improper professional conduct.” +23. With respect to persons licensed to practice as accountants, such as Rodriguez, +“improper professional conduct” under Rule 102(e)(1)(ii) includes: + +(A) intentional or knowing conduct, including reckless conduct, that resulted in violation of +applicable professional standards; or +(B) negligent conduct, consisting of (1) a single instance of highly unreasonable conduct +that resulted in a violation of applicable professional standards in circumstances in which +an accountant knows, or should have know, that heightened scrutiny was warranted, or (2) +repeated instances of unreasonable conduct by an accountant, each resulting in a violation +of applicable professional standards, that indicate a lack of competence to practice before +the Commission. +24. The conduct described above constitutes negligent conduct consisting of a single +instance of highly unreasonable conduct that resulted in a violation of applicable professional +standards in circumstances in which Rodriguez knew, or should have known, that heightened +scrutiny was warranted. +F. FINDINGS +25. Based on the foregoing, the Commission finds that Rodriguez 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, pursuant to Rule 102(e)(1) of the Commission’s Rules of Practice, it is hereby +ORDERED, effective immediately, that: + + A. Respondent Rodriguez is denied the privilege of appearing or practicing before the +Commission as an accountant. + + + 7 + B. After twelve (12) months from the date of this order, Respondent Rodriguez +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. + + + 8 +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-2438.txt b/raw/aaer/2006/AAER-2438.txt new file mode 100644 index 0000000000000000000000000000000000000000..ab57f5d70f8c4cfee80787aeeddaef97e91aa3d7 --- /dev/null +++ b/raw/aaer/2006/AAER-2438.txt @@ -0,0 +1,1391 @@ + + + + + + + + + + + + + + + + SEC.gov | Joseph P. Micatrotto + + + + + + + + !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\/499151","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 + + + Joseph P. Micatrotto + + + + + + + + + + + + Joseph P. Micatrotto + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19719 / June 7, 2006 + + Accounting and Auditing Enforcement Release No. 2438 / June 7, 2006 + + SEC v. Joseph P. Micatrotto, Sr. , (U.S.D.C. Minnesota, Civil Action Number 06-CV-2319, filed June 7, 2006) + + + + The Securities and Exchange Commission today announced the filing of a settled civil injunctive action against Joseph P. Micatrotto, Sr. (Micatrotto), the former Chief Executive Officer, President, and Chairman of the Board of Buca, Inc. (Buca), the corporate parent of the Buca di Beppo and Vinny T's of Boston national restaurant chains. The Commission's complaint, filed today in federal court in Minneapolis, alleges that Micatrotto received undisclosed compensation and participated in undisclosed related party transactions. + + Specifically, the Commission's complaint alleges that from 2000 to 2003, Micatrotto obtained undisclosed compensation in the amount of $849,100 by improperly billing Buca for a variety of personal and non-business expenses. The complaint charges that Micatrotto improperly sought and obtained reimbursement for, among other things, $131,000 in ATM withdrawals; $127,000 in airline tickets submitted for reimbursement multiple times; the entire bill for the groom's dinner at his son's wedding; and other personal expenses, including dog kenneling and the remodeling of his homes in California, Las Vegas and Minneapolis. The complaint further alleges that, since these payments were for personal expenses, not legitimate business expenses, they constituted additional compensation to Micatrotto that should have been reflected in Buca's proxy statements. According to the Commission's complaint, Buca's proxy statements failed to disclose any of these payments as additional compensation to Micatrotto. As a result, Buca's proxy statements for this time period understated Micatrotto's annual compensation by amounts ranging from 27% to 74%. + + The Commission's complaint further alleges that Buca's public filings, which Micatrotto reviewed and approved, failed to disclose two related party transactions involving Micatrotto. First, Micatrotto sought reimbursement from Buca for his purchase and renovation of an Italian villa titled in Micatrotto's and his wife's names. Second, Micatrotto deposited into his personal bank account a payment of $65,000 from one of Buca's vendors, even though this payment was intended as a contribution towards one of Buca's corporate conferences. + + Upon the filing of the Commission's complaint, and without admitting or denying the allegations in the complaint, Micatrotto consented to the entry of a final judgment permanently enjoining him from violating Section 17(a) of the Securities Act of 1933 (Securities Act), 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 thereunder and aiding and abetting Buca's violations of Sections 13(a), 13b(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. Micatrotto also agreed to be barred from acting as an officer or director of a publicly-traded company and to pay disgorgement of $65,000 plus prejudgment interest and a civil penalty of $500,000. + + The Commission and the United States Attorney's Office for the District of Minnesota conducted parallel investigations of this matter. Simultaneous with the Commission's announcement of this action, the United States Attorney's Office announced the filing of wire fraud charges against Micatrotto. + + + + + 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-2439.txt b/raw/aaer/2006/AAER-2439.txt new file mode 100644 index 0000000000000000000000000000000000000000..8fe7c44b8896be7aecfbd84ba95a420695526544 --- /dev/null +++ b/raw/aaer/2006/AAER-2439.txt @@ -0,0 +1,1389 @@ + + + + + + + + + + + + + + + + SEC.gov | Greg A. Gadel and Daniel J. Skrypek + + + + + + + + !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\/499156","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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Gadel and Daniel J. Skrypek + + + + + + + + + + + + Greg A. Gadel and Daniel J. Skrypek + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19720 / June 7, 2006 + + Accounting and Auditing Enforcement Release No. 2439 / June 7, 2006 + + SEC v. Greg A. Gadel and Daniel J. Skrypek , (U.S.D.C. Minnesota, Civil Action Number 06-CV-2320, filed June 7, 2006) + + + + The Securities and Exchange Commission today announced that it filed an enforcement action against two former officers of Buca, Inc. (Buca), the corporate parent of the Buca di Beppo and Vinny T's of Boston national restaurant chains. The Commission's complaint, filed today in federal court in Minneapolis, alleges that Greg A. Gadel (Gadel), Buca's former Chief Financial Officer, and Daniel J. Skrypek (Skrypek), Buca's former Controller, caused various misstatements and omissions in Buca's public filings. As a result of Gadel and Skrypek's conduct, Buca's public filings understated the compensation paid to Gadel and Buca's former CEO and failed to disclose related party transactions. In addition, Gadel and Skrypek engaged in a financial statement fraud that resulted in the material overstatement of Buca's income in its financial statements. + + According to the Commission's complaint, due to Gadel and Skrypek's conduct, Buca's public filings materially understated the executive compensation received by Gadel and Joseph Micatrotto, Sr. (Micatrotto), Buca's former CEO. The Commission's complaint alleges that from 2000 to 2003, Gadel received approximately $96,630 in undisclosed compensation from Buca, including reimbursements for family vacations and visits to strip clubs. The complaint also alleges that from 2000 to 2003, Gadel and Skrypek routinely approved Micatrotto's inappropriate requests for reimbursement of a wide variety of personal and non-business expenses resulting in undisclosed compensation to Micatrotto of $849,100. The complaint further alleges that Gadel and Skrypek knew about and failed to ensure disclosure of a series of related party transactions totaling more than $1 million between Buca and an information technology company of which Gadel was a director and shareholder. Gadel and Skrypek also failed to ensure disclosure of a related party transaction in which Micatrotto used Buca's funds to purchase an Italian villa titled in Micatrotto's and his wife's names. Finally, the Commission's complaint alleges that Gadel and Skrypek directed a scheme to meet Buca's earnings targets by improperly inflating Buca's income by nearly $12 million from 2000 to 2004 through the improper capitalization of numerous expenses. This fraudulent scheme caused Buca to overstate its annual income in amounts ranging from 18.8% to 36.9%. + + The Commission's complaint charges Gadel and Skrypek with violating 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, 13b2-1, and 13b2-2 thereunder and aiding and abetting Buca's 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, 14a-3, and 14a-9 thereunder. The complaint also alleges that Gadel violated Rule 13a-14 under the Exchange Act. In its complaint, the Commission seeks permanent injunctions, disgorgement, civil penalties, and officer and director bars against Gadel and Skrypek. + + The Commission and the United States Attorney's Office for the District of Minnesota conducted parallel investigations of this matter. Simultaneous with the Commission's announcement of this action, the United States Attorney's Office announced the filing of mail and wire fraud charges against Gadel. + + + + + 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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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 + + + Sanjay Kumar and Stephen Richards + + + + + + + + + + + + Sanjay Kumar and Stephen Richards + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19730 / June 19, 2006 + + Accounting and Auditing Enforcement Release No. 2442 / June 19, 2006 + + SEC v. Sanjay Kumar and Stephen Richards , 04 Civ. 4104 (E.D.N.Y.)(Glasser, I.L.) + + Judgments Imposing Permanent Injunctions and Officer and Director Bars Entered Against Defendants Sanjay Kumar and Stephen Richards + + + + The Securities and Exchange Commission announced that on June 14, 2006, the United States District Court for the Eastern District of New York entered partial judgments on consent against Sanjay Kumar and Stephen Richards, respectively the former CEO and Head of Sales at Computer Associates International, Inc., ("CA"). Previously, on April 24, 2006, Kumar and Richards each pleaded guilty to eight felony criminal charges in a related criminal case brought by the United States Attorney's Office for the Eastern District of New York. + + Kumar and Richards consented, without admitting or denying the allegations against them, to a judgment that imposes permanent injunctions prohibiting Kumar and Richards from violating Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a) and 13(b) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-13, and 13b2-1 promulgated thereunder. In addition, the court permanently barred both Kumar and Richards from serving as an officer or director of a publicly held company. + + On September 22, 2004, the Commission filed complaints alleging that Kumar and Richards violated the anti-fraud and other provisions of the federal securities laws. The Commission alleged that from 1998 to 2000, CA routinely kept its books open to record revenue from contracts executed after the quarter ended in order to meet Wall Street quarterly earnings estimates. In total, CA prematurely recognized over $3.3 billion in revenue. In addition, Kumar and Richards obstructed the Commission's investigation into the company's accounting practices. + + The Commission's claims for disgorgement and civil penalties against Kumar and Richards remain pending. + + The SEC acknowledges the assistance and cooperation of the United States Attorney's Office for the Eastern District of New York and the Federal Bureau of Investigation in this matter. + + For further information see Litigation Releases No. 18552 (January 22, 2004), No. 18665 (April 8, 2004), No. 18891 (September 22, 2004), and No. 18954 (November 2, 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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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 + + + Scientific-Atlanta, Inc. + + + + + + + + + + + + Scientific-Atlanta, Inc. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19735 / June 22, 2006 + + Accounting and Auditing Enforcement Release No. 2443 / June 22, 2006 + + SEC v. Scientific-Atlanta, Inc. , Civil Action No. 06 CIV. 4823 (PKC) (S.D.N.Y.) + + SEC Charges Scientific-Atlanta for Aiding and Abetting and Two Senior Executives for Causing Adelphia's Reporting Violations + + Scientific-Atlanta to Pay $20 Million in Settlement + + + + The Securities and Exchange Commission today charged Scientific-Atlanta, Inc. with aiding and abetting Adelphia Communications Corporation's violations of the reporting, books and records, and internal controls provisions of the federal securities laws. Scientific-Atlanta entered into a marketing support agreement with Adelphia in 2000 that Adelphia misused to inflate its earnings by approximately $43 million. Scientific-Atlanta has agreed to pay $20 million in disgorgement in settlement of the charges. + + The SEC also today announced that Wallace G. Haislip, Scientific-Atlanta's Senior Vice President, Operations, and Julian W. Eidson, Scientific-Atlanta's Senior Vice President, have consented to the issuance of cease-and-desist Orders for their respective roles in causing Adelphia's violations. + + The SEC's Complaint against Scientific-Atlanta, filed today in federal court in Manhattan, alleges that in or about August 2000, Adelphia requested that Scientific-Atlanta increase the price of digital cable television set-top boxes it was selling to Adelphia and pay the amount of the price increase back to Adelphia in the form of marketing support for the stated purpose of marketing the Scientific-Atlanta cable television set-top boxes. Adelphia did not use the marketing support payments to market Scientific-Atlanta cable television set-top boxes. Adelphia recorded the price increase it paid Scientific-Atlanta as a capital expense, and recognized the marketing support payments as a contra marketing expense, thereby artificially reducing its marketing expense and increasing EBITDA. The transaction did not impact Scientific-Atlanta's public financial statements. + + The Complaint alleges that Scientific-Atlanta was aware of a number of facts that together demonstrated that Adelphia was misusing the marketing support agreement. Those facts included, among others, (i) a retroactive price increase on set-top boxes previously delivered to Adelphia; (ii) Adelphia's request for a commercially unreasonable high dollar amount in marketing support payments; (iii) repeated requests for higher levels of marketing support in later periods even though the major marketing push was to have occurred in earlier periods; (iv) knowledge that Adelphia's request for the marketing support agreement was driven by its desire to obtain an accounting benefit; and (v) the inclusion of a false reason for the price increase in one of the contracts documenting the marketing support agreement. + + Scientific-Atlanta, without admitting or denying the allegations in the Complaint, has consented to the entry of a final judgment, subject to court approval, that requires Scientific-Atlanta to pay $20 million in disgorgement and enjoins Scientific-Atlanta from violating and aiding and abetting any violations and any future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 12b-20, 13a-1, and 13a-13 thereunder. The settlement takes into consideration Scientific-Atlanta's cooperation during the investigation. + + The SEC's Orders against Haislip and Eidson find that they were the most senior Scientific-Atlanta executives responsible for approving the form of the marketing support agreement, and that they should have been on notice that it was unlikely that Adelphia was using the marketing support agreement to market Scientific-Atlanta set-top boxes. The Orders order Haislip and Eidson to cease and desist 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. + + Haislip and Eidson agreed to the settlements without admitting or denying the findings in the SEC's Orders. + + + + + + SEC Complaint in this matter Administrative Proceeding No. 34-54030 Administrative Proceeding No. 34-54031 + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + Administrative Proceedings Release + + + + + Administrative Proceedings Release + + + + + + + + + + + + + + + + + + + + + + + + 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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Cox + + + + + + + + !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\/499256","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 + + + PowerLinx, Inc. (f/k/a SeaView Video Technology, Inc.), George S. Bernardich III, and James R. Cox + + + + + + + + + + + + PowerLinx, Inc. (f/k/a SeaView Video Technology, Inc.), George S. Bernardich III, and James R. Cox + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19740 / June 27, 2006 + + Accounting and Auditing Enforcement Release No. 2446 / June 27, 2006 + + SEC v. PowerLinx, Inc. (f/k/a SeaView Video Technology, Inc.), George S. Bernardich III, and James R. Cox , Civil Action No. 06-Civ-1172 (D.D.C. filed June 27, 2006) + + SEC Charges PowerLinx, Inc. and Two Former Officers with Fraud + + + + The Securities and Exchange Commission today filed a civil action in the United States District Court for the District of Columbia against PowerLinx, Inc. ("PowerLinx," formerly known as SeaView Video Technology, Inc.), a manufacturer of security products and underwater cameras that is based in St. Petersburg, Florida, its former chief executive officer, George S. Bernardich III, and its former secretary and treasurer, James R. Cox, for issuing false and misleading press releases and making false and misleading filings with the SEC at various times between 2000 and 2004. PowerLinx consented to the entry of a judgment permanently enjoining it from violating Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 ("Exchange Act"), which are general antifraud provisions of the federal securities laws. PowerLinx also consented to being enjoined from violating the periodic reporting, books and records, and internal controls provisions contained in Exchange Act Sections 13(b)(2)(A), 13(b)(2)(B), and 15(d) and Rules 15d-1, 15d-11, 15d-13, and 12b-20 thereunder. Bernardich and Cox consented to the entry of judgments permanently enjoining them from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and aiding and abetting PowerLinx's reporting violations, and barring them from serving as officers and directors of public companies for a period of ten years. PowerLinx, Bernardich, and Cox consented to the entry of the judgments without admitting or denying the allegations in the SEC's complaint. The requested relief is subject to court approval. + + The complaint alleges that in September 2004, PowerLinx violated the antifraud provisions of the federal securities laws by issuing materially misleading press releases and filing materially misleading reports with the SEC concerning a purported $23 million sales contract with a defense contractor known as Universal General Corporation ("UGC"), which, in fact, had no revenues, no assets, and no means to satisfy any portion of its $23 million contractual obligation to PowerLinx. According to the complaint, PowerLinx performed virtually no due diligence to determine whether UGC was legitimate and could meet its contractual obligations. Bernardich was responsible for PowerLinx's due diligence failures and for drafting PowerLinx's materially misleading press releases and SEC filings. + + The complaint also alleges that during the first three quarters of fiscal year 2000, PowerLinx fraudulently recognized nearly ninety percent of its reported revenues based on fictitious camera sales by initiating consignment arrangements with numerous dealers and recording the consignment order amounts as revenue before any cameras were manufactured, shipped to the dealers, or sold to customers. During this same period, PowerLinx also issued numerous deceptive press releases that materially misrepresented the company's operations and offered glowing, but unsubstantiated, revenue and earnings forecasts. In April 2001, following a management change, PowerLinx filed with the SEC an annual report for 2000 containing a misleading restatement of revenues and other materially misleading disclosures and accounting errors. According to the complaint, the principal architect of PowerLinx's fraudulent activities during 2000 was its now-deceased former chief executive officer, Richard L. McBride. However, as further alleged, Cox was responsible for certain of PowerLinx's fraud and reporting violations and Bernardich, who had replaced McBride as chief executive officer in February 2001, aided and abetted PowerLinx's reporting violations with respect to the company's 2000 annual report. + + In related SEC proceedings, PowerLinx's former independent auditors, Accounting Consultants, Inc. ("Accounting Consultants") and Carol L. McAtee, CPA, have consented to the issuance of cease-and-desist orders for causing certain of the company's reporting violations, and to orders pursuant to Rule 102(e) of the SEC's Rules of Practice denying them the privilege of appearing or practicing as accountants before the SEC with the right to reapply after two years. The SEC found that Accounting Consultants and McAtee had failed, in repeated instances, to comply with Generally Accepted Auditing Standards in performing their quarterly reviews and year-end audit of PowerLinx's 2000 financial statements. Accounting Consultants and McAtee consented to the issuance of the order without admitting or denying the findings in the Order. For further information, see Securities Exchange Act Release No. 34-54048 (June 27, 2006). + + In addition, PowerLinx's current chief financial officer, Douglas Bauer, has consented to the issuance of a cease-and-desist order for his role in causing PowerLinx's reporting violation in connection with its April 2002 restatement of a deferred tax asset. Bauer consented to the issuance of the order without admitting or denying the findings in the Order. For further information, see Securities Exchange Act Release No. 34-54049 (June 27, 2006). + + + + + SEC Complaint in this matter Administrative Proceeding No. 34-54048 Administrative Proceeding No. 34-54049 + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + Administrative Proceedings Release + + + + + Administrative Proceedings Release + + + + + + + + + + + + + + + + + + + + + + + + + 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-2447.txt b/raw/aaer/2006/AAER-2447.txt new file mode 100644 index 0000000000000000000000000000000000000000..fd065d052afcd36390b065373cc5d6c24f2c8171 --- /dev/null +++ b/raw/aaer/2006/AAER-2447.txt @@ -0,0 +1,545 @@ + + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION + + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54048 / June 27, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2447 / June 27, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12343 + + + +In the Matter of + +ACCOUNTING +CONSULTANTS, INC., and + +CAROL L. MCATEE, CPA, + +Respondents. + + + + +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 Accounting +Consultants, Inc., and Carol L. McAtee, CPA (collectively, “Respondents”), pursuant to Section +21C of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) of the +Commission’s Rules of Practice.1 + +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 + +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. + + + 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 Respondents and the subject matter of +these proceedings, Respondents consent 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 Rules of Practice, 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 Res pondents’ Offers, the Commission finds2 that: + +Respondents + +Carol L. McAtee (“McAtee”), age 43, of St. Petersburg, Florida, is a certified public +accountant duly licensed in Florida. She is the sole owner of Accounting Consultants, Inc., and +was responsible for the year-end audits and quarterly reviews of PowerLinx, Inc.’s financial +statements from June 1999 until November 2001. + +Accounting Consultants, Inc. (“Accounting Consultants”), is a Florida corporation +located in St. Petersburg, Florida. Accounting Consultants was PowerLinx’s independent auditor +for its fiscal years ended December 1999 and 2000. + +Other Relevant Entity + +PowerLinx, Inc. (“PowerLinx”), is a Nevada corporation based in St. Petersburg, Florida. +The company, which was known as SeaView Video Technology, Inc. during the relevant period, +manufactures security video cameras, underwater cameras, and accessories. PowerLinx is a +reporting public company pursuant to Section 15(d) of the Exchange Act and is quoted on the OTC +Bulletin Board under the symbol “PWNX.” + +Summary + +During the first three quarters of 2000, PowerLinx improperly recognized nearly ninety +percent of its reported revenues from fictitious sales. The company initiated consignment +arrangements with numerous third-party dealers and recorded the consignment order amounts as +revenue before any products were actually shipped to dealers or sold to consumers pursuant to the +consignment terms. PowerLinx publicized its false revenues in almost-weekly press releases and +in three consecutive quarterly reports on Form 10-Q filed with the Commission. In April 2001, +following a management change, PowerLinx restated its second- and third-quarter revenues as part +of its 2000 annual report on Form 10-K. However, PowerLinx’s restatement was incomplete and + +2 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. + + 3 + +misleading, and the financial statements included in its annual report contained other material +instances of improper accounting. + +Respondents performed quarterly reviews and a year-end audit of PowerLinx’s fiscal year +2000 financial statements, but failed to conduct their review and audit procedures in accordance +with Generally Accepted Auditing Standards (“GAAS”). Accordingly, Respondents were a cause +of PowerLinx’s violations of Section 15(d) of the Exchange Act and Rules 15d-1, 15d-13, and 12b- +20 thereunder, and also engaged in improper professional conduct within the meaning of Rule +102(e) of the Commission’s Rules of Practice. + +PowerLinx’s Improper Revenue Recognition + + From 1999 through 2001 (t he “relevant period”), PowerLinx’s business consisted of +manufacturing and selling underwater video cameras and accessories, and it sold and shipped its +products directly to consumers, mostly at boat shows.3 During the first three quarters of fiscal year +2000, PowerLinx fraudulently recognized nearly ninety percent of its reported revenues based on +fictitious sales of its cameras. Most of the cameras in question were neither manufactured nor +shipped during the relevant period. + + As part of its fraudulent scheme, PowerLinx utilized a sales program known as “dealer +floor plans,” which were consignment arrangements whereby dealers agreed to display +PowerLinx’s camera products without actually purchasing them (i.e., without accepting title and +the risks/rewards of ownership). PowerLinx recorded dealer floor plan order amounts as sales – +specifically, as accounts receivable – before any cameras were manufactured, shipped to the +dealers, or sold to customers . However, even if PowerLinx had shipped the cameras on time, the +company could not have recognized revenue on those shipments in accordance with Generally +Accepted Accounting Principles (“GAAP”) because the cameras would have been shipped +pursuant to consignment arrangements.4 + +PowerLinx publicly announced its fictitious “revenues” in press releases issued on an +almost-weekly basis, often accompanying those figures with unsubstantiated and materially +misleading revenue forecasts. PowerLinx never revealed, in its press releases or otherwise, that its + +3 In late 1999, PowerLinx began developing a video surveillance product known as “SecureView,” which +used a “camera in a light bulb” technology to transmit video signals through electrical wiring to a television monitor. +During the relevant period, PowerLinx only produced approximately two dozen functioning SecureView cameras, +primarily prototypes for testing purposes. + +4 Under GAAP, revenue recognition is inappropriate on products delivered pursuant to a consignment +arrangement because the consignor retains the risks and rewards of ownership of the product and title has not passed +to the consignee. See Statement of Financial Accounting Standards (“SFAS”) 48, Revenue Recognition When Right +of Return Exists; Statement of Position (“SOP”) 97-2, Software Revenue Recognition, ¶ 25; Statement of Financial +Accounting Concepts (“SFAC”) 5, Recognition and Measurement in Financial Statements of Business Enterprises, +¶¶ 83-84; SEC Staff Accounting Bulletin (“SAB”) 101, Revenue Recognition. Financial statements filed as part of +an issuer’s periodic reports under Sections 13(a) and 15(d) of the Exchange Act must be prepared in accordance +with GAAP. See Regulation S-X §§ 210.4-01, 210.1-01(a)(2). + + 4 + +fast-growing “revenues” derived from dealer floor plans or consignment arrangements. In +addition, PowerLinx materially overstated its year-to-date revenues for the first three quarters of +fiscal year 2000 by $232,705 (124 percent), $1,220,972 (410 percent), and $2,315,638 (1,546 +percent), respectively. The company also reported net income ranging from $280,000 to $420,000 +in those quarters, when it should have been reporting substantial losses. + + In late February 2001, PowerLinx hired a new accounting officer who, while preparing for +the fiscal year 2000 audit, determined that PowerLinx had materially overstated revenues and +accounts receivable during 2000. In April 2001, in its 2000 annual report on Form 10-K, +PowerLinx restated its financial results for the second and third quarters and amended its +corresponding quarterly filings. + +Respondents’ Fiscal Year 2000 Quarterly Reviews + +Respondents performed reviews of PowerLinx’s quarterly financial statements during fiscal +year 2000, but their reviews failed to comply with GAAS. Pursuant to GAAS, reviewers of public +company interim financial statements are required to perform inquiries and analytical procedures to +obtain a basis for reporting whether material modifications are necessary for the financial +information to conform with GAAP.5 + +As part of their first-, second-, and third-quarter 2000 reviews, Respondents failed to +exercise heightened skepticism and perform sufficient inquiries and procedures to understand the +basis for PowerLinx’s accounts receivable and revenue balances. Respondents should have made +appropriate inquiries to obtain an understanding of how PowerLinx’s accounting practices, +business activities, and internal controls may have changed since Respondents’ most recent audit in +March 2000, and to understand the impact of those changes on PowerLinx’s reporting. Such +inquiries were particularly necessary in light of the sudden and material increases in PowerLinx’s +accounts receivable since Respondents’ most recent audit.6 When Respondents had completed +their audit of PowerLinx’s 1999 annual financial statements, PowerLinx had not been extending +credit or financing to customers and did not report any trade-based accounts receivable. +PowerLinx’s 1999 annual report explicitly stated that the company “required all sales [to] be +conducted on a cash basis.” +7 However, PowerLinx’s balance sheet for the quarter ended March +31, 2000 showed that the company’s accounts receivable had increased from zero to approximately +$232,705, which represented fifty-five percent of PowerLinx’s total reported revenue of $421,068. +PowerLinx’s second- and third-quarter accounts receivables also showed similar dramatic +increases. Despite these trends, Respondents failed to ensure that PowerLinx understood and was +properly applying the accounting principles for extensions of credit. Moreover, although +Respondents knew that PowerLinx was selling cameras to dealers, they did not ask PowerLinx +about the terms of those dealer arrangements. + +5 See Codification of Statements on Auditing Standards (“AU”) § 722.09 (current version at AU § 722.07). + +6 See AU § 722.13(a), (f) (current version at AU § 722.11). + +7 SeaView Underwater Research, Inc., 1999 Annual Report on Form 10-K, at 7 (filed March 30, 2000). + + 5 + +Respondents also failed to perform sufficient analytical procedures during their quarterly +reviews to check PowerLinx’s purported accounts receivable and revenue balances against certain +other elements of PowerLinx’s financial statements.8 Respondents relied on information contained +in PowerLinx’s draft Forms 10-Q, but should have performed additional analytical procedures to +determine whether PowerLinx’s cash flow, inventory, and accounts payable balances correlated +with the company’s purported sales. + +Finally, as part of their reviews, Respondents also requested that PowerLinx provide a +listing of current accounts receivable balances, but PowerLinx failed to provide such information. +Respondents should have questioned PowerLinx’s failure to respond, particularly in light of the +rapid growth of the company’s accounts receivable during 2000. + +Respondents’ Fiscal Year 2000 Audit + +Respondents issued an audit report containing an unqualified opinion on PowerLinx’s +fiscal 2000 financial statements, which included PowerLinx’s restatement of accounts receivable +and revenue. As described below, Respondents’ audit failed to comply with GAAS in several +material respects and contributed to PowerLinx’s issuance of an inaccurate annual report on Form +10-K. + +Accounts Receivable and Revenue + +In April 2001, PowerLinx restated its financial results for the second and third quarters as +part of its Form 10-K for fiscal year 2000. However, even after the restatement, PowerLinx’s +year-end 2000 accounts receivable balances and revenue amounts continued to be materially +overstated due to revenues that were improperly recognized from consignment transactions. In +addition, as for the second- and third-quarter accounts receivable and revenues that it did restate, +PowerLinx failed to disclose that these restated amounts were the result of PowerLinx’s practice +of improperly recording consignment orders as revenue. + +Respondents’ audit procedures were insufficient to ensure that PowerLinx’s year-end 2000 +accounts receivable and revenue balances were fairly presented in accordance with GAAP.9 +Respondents sent accounts receivable confirmation letters to seven of PowerLinx’s purported +dealers, but received no responses from those dealers and failed to perform adequate alternate +procedures as required by GAAS. + + +8 See AU § 722.13(b) (current version at AU § 722.16). + +9 See AU § 330.31-.32. + + 6 +Issuance of Convertible Debentures + +During the first quarter of 2000, PowerLinx issued convertible debentures, raising cash +proceeds of over $2.5 million. The debentures entitled the holder to an eight percent return and, at +the holder’s option, were convertible at any time into restricted common stock at prices ranging +from $.50 to $8.00 per share. At that time, those conversion prices represented a substantial +discount (at least eighty percent, on average) to the prevailing price of PowerLinx’s stock traded on +the OTC Bulletin Board. + +Under GAAP, when a company issues convertible debentures that can be converted to the +issuer’s securities at a deep discount to the current market price, the issuer must account for the +discount as an expense.10 PowerLinx failed to account for the discount as an expense – a material +error in the company’s income statement. In addition, PowerLinx failed to keep adequate records +documenting the precise discount it had given to each debenture holder. + +Respondents’ audit of the convertible debentures departed from GAAS. Respondents did +not obtain sufficient competent evidential matter concerning the terms of the debentures, and, as a +consequence, they were unable to apply audit procedures to determine reasonably the amounts of +the discounts provided to PowerLinx’s debenture holders.11 Respondents improperly relied on +management’s representations about the discounts as a basis for issuing an unqualified audit report. + +Recording of a Deferred Tax Asset + +Under GAAP, a company may record a deferred tax asset based on its reasonable +expectation that current net tax operating losses will, in future years, offset expected future profits, +thereby reducing the company’s future income tax liability.12 GAAP requires that the deferred tax +asset be reduced by a “valuation allowance” to account for any likelihood that the company will +fail to be profitable as expected. + + +10 See Emerging Issues Task Force Consensus (“EITF”) 98-5, Accounting for Convertible Securities with +Beneficial Conversion Features or Contingently Adjustable Conversion Ratios. + +11 GAAS requires that an auditor obtain sufficient competent evidential matter through inspection, +observation, inquiries, and confirmations to afford a reasonable basis for an opinion on the subject financial +statements. See AU § 326.01. + +12 See SFAS 109, Accounting for Income Taxes. The specific value of a deferred tax asset is determined by +multiplying a company’s annual net loss by its estimated tax rate. For example, if a company has a $1 million net +loss in year one, and anticipates future net profits of $1 million in year two, then, at a marginal tax rate of thirty-six +percent, the value of its deferred tax asset would be $360,000. Thus, the current loss would save the company from +paying $360,000 in future income taxes on the $1 million in expected profits. + + 7 +PowerLinx improperly recorded on its fiscal year 2000 balance sheet a deferred tax asset of +$1,439,322 with no valuation allowance. This amount was material, representing approximately +thirty-eight percent of PowerLinx’s $3,841,944 in total assets.13 + +PowerLinx lacked a legitimate basis for recording the deferred tax assets. The company +had accumulated significant losses in 2000 and had no historical operating basis from which to +conclude that it would be profitable in future years. Underwater camera sales had declined +significantly, and the company had devoted most of its resources to developing its SecureView +product. The sole basis for PowerLinx’s “expectation” of future profitability was a purported $9 +million backlog of dealer orders for its new security video product, which the company’s new +management team assumed would generate taxable income. However, that purported backlog was +unsupported and, as management later determined, unlikely to be realized. The purported backlog +consisted primarily of orders with consignment terms, not orders to purchase cameras, and thus +was not reflective of actual demand for PowerLinx’s products. + +Respondents approved of PowerLinx’s recording of the deferred tax asset based on oral +representations from management that PowerLinx expected to be profitable and would soon realize +taxable income from the $9 million backlog. However, Respondents should have reviewed +supporting documentation and tested whether PowerLinx had a reasonable expectation of +profitability prior to issuing their audit report. Respondents also should have verified the existence +of the $9 million backlog or the terms of the orders that purportedly comprised the backlog. + +In late 2001, PowerLinx’s new management determined that the orders comprising the +purported $9 million backlog were unlikely to be realized. In April 2002, after hiring a new audit +firm, PowerLinx restated its 2000 financial results, reducing the value of the deferred tax asset on +its balance sheet from $1,439,322 to zero. + +Accounting for an Investment + +On July 12, 2000, PowerLinx exchanged 150,000 restricted common shares for a twenty +percent voting interest in Golden Springs, LLC (“Golden Springs”), owner and operator of a spa +and mineral spring located in Florida.14 PowerLinx materially overstated the value of this +partnership interest in its third-quarter and year-end financial statements for fiscal year 2000. + + +13 PowerLinx also recorded deferred tax assets of $180,613, $72,907, and $44,921, respectively, in its +financial statements for the first three quarters of 2000. + +14 This transaction was facilitated by PowerLinx’s issu ance of 150,000 shares to Golden Springs with the +agreement that PowerLinx’s former chief executive officer and president, Richard L. McBride (“McBride”), would +promptly replace the shares with his personal holdings. Upon replacement of the shares by McBride, the common +shares were immediately cancelled by PowerLinx. This did not, however, affect PowerLinx’s obligation to properly +account for the investment on its books and records. GAAP provides that when a corporation implicitly benefits +from transactions made on its behalf by a principal stockholder, the corporation should account for the transaction. +See AICPA Accounting Interpretation 25, Accounting for Stock Issued to Employees: Accounting Interpretations of +APB Opinion No. 25; SAB 79, Accounting for Expenses or Liabilities paid by Principal Stockholder(s). + + 8 + +Under GAAP, consideration received for the issuance of equity instruments is accounted +for based on the fair value of the consideration received or the fair value of the equity instruments +issued, whichever is more reliably measurable.15 Additionally, if the fair value of restricted stock +serves as the basis for measuring the consideration received, such a valuation should be determined +in good faith and also reflect a discount from the market price of unrestricted securities of the same +class.16 GAAP also requires that the equity method of accounting be employed by an investor +whose investment gives it the ability to exercise significant influence over operating and financial +policies of an investee.17 Pursuant to the equity method, the carrying amount of an investment is +periodically adjusted to recognize the investor’s share of the investee’s earnings or losses. The +amount of the adjustment is also recorded in the investor’s income statement. Because PowerLinx +held a twenty percent interest in Golden Springs’s voting stock and exercised significant influence, +PowerLinx was required to apply the equity method after determining the initial carrying value. + +PowerLinx determined that the fair value of the restricted shares issued was the more +reliable measure in establishing the initial carrying value of the investment. PowerLinx recorded +the initial carrying value of the restricted shares at approximately $1 million, which was the same +amount that Golden Springs had recorded on its balance sheet for the third quarter of fiscal year +2000. While this value represented a discount of approximately forty-seven percent from +PowerLinx’s stock price of $12.88 on July 12, 2000 (the closing date of the transaction), the +discount departed from the higher discount rate applied to contemporaneous sales of restricted +stock by PowerLinx to other third parties. In addition, the $12.88 per share price of PowerLinx’s +freely-tradable stock was inherently inflated as a result of the company’s contemporaneous +fraudulent conduct. + +Respondents’ audit of the Golden Springs investment was deficient for several reasons. +First, in valuing the 150,000 restricted shares that Golden Springs received in this transaction, +PowerLinx was required under GAAP to apply a good faith discount to the reported price of its +stock on the OTC Bulletin Board. In determining the appropriate discount to apply to the 150,000 +restricted shares, PowerLinx should have looked to contemporaneous sales of restricted stock by +the company to third parties. There were many such sales of restricted stock during the first and +second quarters of fiscal year 2000. As Respondents were aware, during these periods PowerLinx +had sold debentures that were convertible to restricted shares, and had valued the underlying +restricted shares at an eighty percent discount, on average, to the prevailing market price. +However, despite the availability of such contemporaneous valuations of restricted stock, +Respondents failed to require that PowerLinx apply a similar eighty percent discount as a +benchmark for assessing PowerLinx’s valuation of the restricted stock. + + +15 See SFAS 123, Accounting for Stock-Based Compensation, ¶ 8. + +16 See SEC Codification of Financial Reporting Policies 404.04, “Restricted” Securities. + +17 See Accounting Principles Board Opinion 18, The Equity Method of Accounting for Investments in +Common Stock. + + 9 + +Second, in corroborating PowerLinx’s valuation of its interest in Golden Springs, +Respondents relied on an oral representation from PowerLinx’s management that Golden Springs’s +real estate, based on a purported appraisal, was worth approximately $6.5 million and that, as a +result, PowerLinx’s twenty percent interest was worth $1.3 million. After comparing the purported +$1.3 million “appraised” amount with the carrying amount reflected in PowerLinx’s third-quarter +financial statements (approximately $1 million), Respondents concluded that the carrying amount +was appropriate, if not conservative. Respondents’ reliance on management’s oral representation, +without reviewing the appraisal or ascertaining its basis, was a departure from GAAS.18 + +Finally, Respondents failed to consider that PowerLinx’s valuation of Golden Springs was +based on an inflated stock price ($12.88 per share at the closing date of the transaction) as a result +of the company’s materially overstated revenue and receivables. By the time of Respondents’ +2000 year-end audit, PowerLinx’s stock price had declined to less than $2 per share on public +reports suggesting that PowerLinx had engaged in improper revenue recognition. + + In its 2001 Form 10-K, PowerL inx disclosed that the initial carrying value of its interest in +Golden Springs had been reduced from approximately $1 million to $146,000. After adjusting this +revised carrying value for PowerLinx’s share of Golden Springs’s losses in fiscal year 2000 under +the equity method of accounting, the carrying amount of the investment was restated to $8,618 as +of December 31, 2000. + +Departures from Generally Accepted Auditing Standards + +Commission regulations require that audits of public company financial statements be +conducted in accordance with GAAS. See Regulation S-X § 210.2-02(b). Under GAAS, an +auditor must be proficient in accounting (AU § 210) and exercise due professional care while +conducting an audit and in preparing the audit report. (AU § 230.01). Under AU § 230.04, “due +professional care concerns what the independent auditor does and how well he does it.” AU § +326.01 requires an auditor to obtain sufficient competent evidential matter through inspection, +observation, inquiries and confirmations to afford a reasonable basis for an opinion on the subject +financial statements. Similarly, an auditor is required to maintain an attitude of professional +skepticism (AU § 230.07) and cannot simply rely on management representations (AU § 333.02). +When an auditor relies on the work of a specialist, GAAS requires that the auditor evaluate the +qualifications, independence, work, and findings of the specialist. (AU § 336.08-.09.) As set forth +above, Respondents’ audit of PowerLinx’s financial statements for the fiscal year ended December +31, 2000 failed to comply with GAAS. Respondents also issued an audit report containing an +unqualified opinion and a representation that the audit was conducted in accordance with GAAS, +when such was not the case, in departure from AU § 508.07. + +In addition, Respondents’ quarterly reviews of PowerLinx’s financial statements for fiscal +year 2000 failed to comply with AU § 722.09, which requires the reviewer of public company +interim financial statements to perform inquiries and analytical procedures (AU §§ 722.13-.19) to + +18 AU § 336 requires an auditor relying on a specialist to confirm that the specialist is competent and +objective, and to gain an understanding of the basis of the appraisal. + + 10 + +obtain a basis for reporting whether material modifications are necessary for the financial +information to conform with GAAP. + +Reporting Violations + +Section 15(d) of the Exchange Act and Rules 15d-1, 15d-13, and 12b-20 thereunder require +issuers reporting pursuant to Section 15(d) of the Exchange Act to file accurate periodic reports on +Forms 10-K and 10-Q. Such reports must be accurate and not misleading. + +PowerLinx violated Section 15(d) of the Exchange Act and Rules 15d-1, 15d-13, and 12b- +20 thereunder by filing false and misleading annual and quarterly reports with the Commission for +fiscal year 2000. + +As a result of the conduct described above, Respondents were a cause of PowerLinx’s +violations of Section 15(d) of the Exchange Act and Rules 15d-1, 15d-13, and 12b-20 thereunder +by failing to conduct their quarterly reviews and year-end audit for fiscal year 2000 in accordance +with GAAS. + +Improper Professional Conduct + +Rule 102(e) of the Commission’s Rules of Practice allows the Commission to censure a +person, or deny such person, temporarily or permanently, the privilege of appearing or practicing +before the Commission, if it finds that such person has engaged in improper professional conduct. +See Rule 102(e)(1)(ii) (now codified in 15 U.S.C. § 78d-3(a)(2)).19 + +As described above, Respondents engaged in improper professional conduct within the +meaning of Rule 102(e)(1) by failing, in repeated instances, to comply with GAAS in performing +their quarterly reviews and fiscal year 2000 audit of PowerLinx’s financial statements. + +IV. + +Based on the foregoing, the Commission finds that Respondents were a cause of +PowerLinx’s violations of Section 15(d) of the Exchange Act and Rules 15d-1, 15d-13, and 12b-20 +promulgated thereunder. + +Based on the foregoing, the Commission finds that Respondents engaged in improper +professional conduct within the meaning of Rule 102(e)(1) of the Commission’s Rules of Practice. + + + +19 For accountants, the rule defines improper professional conduct to mean either: “[i]ntentional or knowing +conduct, including reckless conduct, that results in a violation of applicable professional standards,” a “single +instance of highly unreasonable conduct that results in a violation of applicable professional standards,” or +“[r]epeated instances of unreasonable conduct, each resulting in a violation of applicable professional standards, that +indicate a lack of competence to practice before the Commission.” See Rule 102(e)(1)(iv). + + 11 +V. + + 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: + + A. Accounting Consultants and McAtee sh all cease and desist from causing any +violations and any future violations of Section 15(d) of the Exchange Act and Rules 15d-1, 15d-13, +and 12b-20 promulgated thereunder; + + B. Accounting Consultants and McAtee ar e denied the privilege of appearing or +practicing before the Commission as accountants. + + C. After two (2) years from the date of this order, Accounting Consultants and +McAtee may request that the Commission consider their 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 Respondents’ work in their practice before the +Commission will be reviewed either by the independent audit committee of the public company +for which they work or in some other acceptable manner, as long as they practice before the +Commission in this capacity; and/or + +2. an independent accountant. Such an application must satisfy the +Commission that: + +(a) Accounting Consultants, or the public accounting firm with +which McAtee 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) McAtee, or the public accounting firm with which she is +associated, has been inspected by the Board and that inspection did not identify any +criticisms of or potential defects in McAtee’s or the firm’s quality control system that +would indicate that McAtee will not receive appropriate supervision; + +(c) Respondents have resolved all disciplinary issues with the +Board, and have complied with all terms and conditions of any sanctions imposed by the +Board (other than reinstatement by the Commission); and + +(d) Respondents acknowledge their responsibility, as long as +Respondents appear or practice before the Commission as independent accountants, to + 12 +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 Respondents to resume +appearing or practicing before the Commission provided that Respondents’ state CPA licenses +are current and they have 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 Respondents’ 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-2449.txt b/raw/aaer/2006/AAER-2449.txt new file mode 100644 index 0000000000000000000000000000000000000000..8f07c3ce9f316ba31f02743ebbd1e319c09697f4 --- /dev/null +++ b/raw/aaer/2006/AAER-2449.txt @@ -0,0 +1,1018 @@ +UNITED STATES OF AMERICA +BEFORE THE +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES ACT OF 1933 +Release No. 8715 / June 28, 2006 + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54057 / June 28, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2449 / June 28, 2006 + +ADMINISTRATIVE PROCEEDING +FILE NO. 3-12345 + +In the Matter of + +RAYTHEON COMPANY, +DANIEL P. BURNHAM, and +ALDO R. SERVELLO, + +Respondents. +ORDER INSTITUTING CEASE-AND-DESIST +PROCEEDINGS, MAKING FINDINGS, AND +IMPOSING A CEASE-AND-DESIST ORDER +PURSUANT TO SECTION 8A OF THE +SECURITIES ACT OF 1933 AND 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 8A of the +Securities Act of 1933 (“Securities Act”) and Section 21C of the Securities Exchange Act of +1934 (“Exchange Act”) against Raytheon Company (“Raytheon” or the “company”), Daniel P. +Burnham (“Burnham”), and Aldo R. Servello (“Servello”) [collectively, “Respondents”]. + +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 +Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order +Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange +Act of 1934 (“Order”), as set forth below. +1 + +1 In a separate civil action filed simultaneously with this proceeding, Raytheon, Burnham, and Servello each +separately consented to the entry of a judgment by the U.S. District Court for the District of Columbia pursuant to +Section 20(d) of the Securities Act and Section 21(d) of the Exchange Act ordering them to pay civil penalties of + +III. + + On the basis of this Order and Respondents’ Offers, the Commission finds that: 2 + +A. RESPONDENTS +Raytheon is a Delaware corporation, headquartered in Waltham, Massachusetts. The +company is an industry leader in defense, government electronics, space technology, and +business and special mission aircraft. Between 1997 and 2001, Raytheon reported between $13 +billion and $20 billion in net sales revenue annually and employed between 75,000 to 120,000 +individuals. During this time period and continuing through today, Raytheon’s securities have +been registered with the Commission pursuant to Section 12(b) of the Securities Act and listed +on the New York, Chicago, and Pacific Exchanges. +Burnham, age 59, became Raytheon’s President and Chief Operating Officer in July +1998. He served as Raytheon’s Chief Executive Officer from December 1998 through July 2003 +and as Chairman from August 1999 until January 2004. +Servello, age 50, held several senior positions in RAC’s financial organization between +July 1998 to July 2001, including Controller, Acting CFO, and Deputy CFO. Since July 2001, +Servello has been employed at other divisions of Raytheon. +B. SUMMARY +Between 1997 and 2001, Raytheon and certain members of its senior management made +false and misleading disclosures and used improper accounting practices that operated as a fraud +by masking the declining results and deteriorating business of Raytheon Aircraft Company +(“RAC”) and inaccurately reporting the company’s operating results on both a segmented and +consolidated basis. As set forth below, certain of these disclosures and accounting practices +were undertaken by or with the knowledge of senior company officers, including Burnham and +Servello. + +From 1997 through 1999, Raytheon prematurely recognized revenue on RAC’s sale of +unfinished aircraft through improper “bill and hold” transactions. As a result, the company +materially overstated RAC’s net sales by approximately $80 million at year-end 1997 and $110 +million at year-end 1998, which led to 13 percent overstatements of the subsidiary’s annual +operating income in both of these periods. These errors enabled both Raytheon and RAC to +meet certain internal and external earnings targets. Although Raytheon did restate for these +material errors at year-end 1999, the company misleadingly attributed the restatement to + +$12 million, $100,000, and $15,000 and disgorgement of $1.00, $875,000 plus pre-judgment interest of +$263,344.37, and $15,000 plus pre-judgment interest of $4,628.28, respectively. SEC v. Raytheon Co., et al., Civil +Action No. 06 CV 1182 (GK). +2 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. + 2 +additional “clarification” supposedly provided by “new guidance” on revenue recognition +recently issued by the Commission in Staff Accounting Bulletin No. 101 (“SAB 101”) instead of +the improper accounting practices that had occurred at RAC prior to that time. + +In addition, between 1997 and 2001, Raytheon failed to fully and accurately disclose +known risks, trends, uncertainties, and other information concerning the deteriorating state of +RAC’s commuter aircraft business and the negative impact this decline was having on asset +values associated with RAC’s line of nineteen-seat, turboprop aircraft (the “commuters” or the +“1900s”) and, thus, on the company’s (including RAC’s) results of operations. Raytheon also +engaged in several improper accounting practices that delayed and mischaracterized known +losses associated with RAC’s commuter line during this time period. + +As Raytheon’s CEO, Burnham failed to make or ensure the timely, accurate, and full +disclosure of these material trends and uncertainties in the company’s public filings during 2000 +and 2001, failed to take sufficient steps to ensure that Raytheon properly accounted for the +company’s on- and off-balance sheet commuter assets during this time period, and did not ensure +that the company maintained an adequate system of internal accounting controls related to these +assets. As RAC’s Deputy CFO and Controller, Servello failed to ensure that Raytheon properly +accounted for the company’s on- and off-balance sheet commuter assets during 2000, and he +failed to ensure that Raytheon maintained an adequate system of internal accounting controls at +RAC related to the proper recording of these assets. + +Had Raytheon properly accounted for its commuter assets, the company would have +reported material reductions in RAC’s reported operating income of at least $34 million, $22 +million, and $21 million at year-end 1998, 1999, and 2000, respectively, which represented 13 +percent of the subsidiary’s reported annual operating income in each of these periods. Moreover, +RAC’s operating results would have been further reduced by at least $67 million (41 percent) at +year-end 2000 had Burnham, Servello, and others in senior Raytheon and RAC management +timely and appropriately recognized losses inherent in a planned “soft landing” of the commuter +aircraft line. Furthermore, at this time, internal company documents and other information +indicate that these senior executives expected commuter losses of $240 million given the cash +sales prices that had been approved in the “soft landing,” and a charge of $67 million to $240 +million would have reduced Raytheon’s 2000 profit before taxes by at least 8 to 27 percent. +Burnham and other senior Raytheon officers, however, caused Raytheon to improperly take this +charge in the third quarter of 2001, when the company wrote down its on- and off-balance sheet +commuter assets by $693 million after the terrorist attacks of September 11th. Given the charge +that the company should have taken at year-end 2000, Raytheon’s third quarter 2001 commuter +loss provision was materially overstated by at least 10 to 53 percent. + +C. FACTS +In the early 1990s, Raytheon was a diversified, multi-national conglomerate, which +operated in the defense, electronics, engineering and construction, major appliances and aircraft +businesses. The company formed RAC in 1994 through the combination of Beech Aircraft and +Raytheon Corporate Jets, and the wholly-owned Raytheon subsidiary has been reported as a +separate segment in all of the company’s public filings since that time. RAC manufactures, +markets, and services business jets, turboprops, and piston-powered aircraft for the world’s + 3 +commercial, fractional ownership, and military aircraft markets. Due to the cyclical nature of +these markets, RAC often experienced fluctuating results. For example, between 1997 and 2001, +RAC generated between $2.3 billion and $3.2 billion in net sales revenue for the company +annually, accounting for 13 to 19 percent of Raytheon’s consolidated sales revenues. +In 1997, Raytheon completed two multi-billion dollar defense acquisitions in an effort to +streamline its operations and solidify its position as one of the nation’s largest military +contractors. These acquisitions led to a doubling of Raytheon’s long-term debt load (increasing +it to over $8 billion) and a substantial lowering of Raytheon’s credit rating. In an effort to reduce +the burden of its debt expense on earnings and cash flows, Raytheon began to divest many of its +“non-core” commercial units, using the cash generated by these sales to pay down debt it +incurred as a result of its defense acquisitions. RAC was ultimately targeted for divestiture as +part of this plan. +1. Raytheon’s Improper Bill and Hold Aircraft Sales +Between 1997 and 1999, RAC prematurely recognized revenue on improper “bill and +hold” aircraft sales (also known as “green sales” or “financial deliveries”) that did not comply +with generally accepted accounting principles (“GAAP”). +In particular, every quarter and more prevalently at the end of the fiscal year, members of +senior RAC management held “executive review sessions,” in which they identified unfinished +planes in the production process that could be “pulled forward” for a “financial delivery” to +“bridge” certain “gaps” or “shortfalls” in RAC’s performance targets. It was inappropriate to +recognize revenue on these sales because the aircraft were not complete and ready for shipment, +the seller (RAC) and not the purchaser had requested the bill and hold sale, and significant +incentives were being given to customers in order to induce them to accept a “sale” before +quarter- or year-end, all of which disqualified the aircraft for sales treatment under GAAP. +In 1997, RAC’s green sales resulted in an $80 million overstatement of the subsidiary’s +net sales, which artificially inflated RAC’s quarterly operating income by between 13 and 28 +percent, the subsidiary’s annual operating income by 13 percent, and Raytheon’s annual earnings +by 7 cents per share. Raytheon did not disclose RAC’s non-GAAP bill and hold practices in any +of its 1997 Forms 10-Q or its Form 10-K, which each noted RAC’s “record sales” and “record +operating income.” In January 1998, the company filed a Form S-3 registration statement and +subsequent prospectus supplements for a $3 billion shelf registration and takedown of securities. +These filings made no mention of RAC’s improper bill and hold accounting and also +incorporated by reference Raytheon’s prior misleading periodic reports as well as all future +periodic reports that Raytheon would file with the Commission. +In 1998, RAC’s bill and hold sales inflated the segment’s quarterly operating income by +20 and 100 percent in the second and fourth quarters, respectively, and RAC’s annual operating +income by 13 percent. Raytheon, however, did not disclose RAC’s bill and hold practices in its +1998 SEC filings but again described RAC’s “record” sales and operating income and +“increased” aircraft shipments. In December 1998, Raytheon was aware that RAC had only been +able to achieve its year-end sales and profit goals through “significant green sales” activity, +which increased the company’s fourth quarter earnings by 8 cents per share. As a result, + 4 +Raytheon met analyst expectations that quarter. Raytheon’s 1998 Form 10-K, however, stated +that “Revenue from aircraft sales are generally recognized at the time of shipment,” omitting a +description of RAC’s non-GAAP bill and hold accounting practices. +In 1999, RAC’s improper bill and hold sales practices led to material misstatements of +the subsidiary’s operating income in the first, second, and third quarters. Raytheon again made +no disclosure of these practices. In July 1999, the company filed another Form S-3 registration +statement and subsequent prospectus supplements related to its $3 billion shelf registration and +takedown of securities. These filings made no mention of RAC’s improper bill and hold +accounting practices and also incorporated by reference Raytheon’s prior misleading periodic +reports as well as all future filings made by the company. +At year-end 1999, Raytheon restated its prior financial results to correct the improper bill +and hold accounting that had occurred prior to that time, which indicated that the company had +materially misstated RAC’s reported quarterly and annual operating income in the nine Forms +10-Q, and two Forms 10-K that the company had filed during fiscal years 1997, 1998, and 1999. +The company, however, improperly attributed the restatement to additional “clarification” +supposedly provided by “new guidance” on revenue recognition set forth in SAB 101, which had +been issued by the Commission in December 1999, instead of the improper accounting practices +that had occurred at RAC with the knowledge and involvement of senior management prior to +that time. +2. Raytheon’s Improper Accounting and Disclosures for Its Commuter +Business +Between 1997 and 2001, Raytheon also deferred substantial losses related to RAC’s line +of commuter aircraft. These planes were typically used by small, thinly capitalized airlines to +transport passengers along regional or local routes. These carriers were generally seen as +significant credit risks, were thus frequently unable to obtain independent financing for their +aircraft purchases, and typically lacked sufficient cash on hand to make outright purchases of +RAC’s commuter aircraft. +As a result, RAC rarely sold its new or used 1900s for cash. Instead, over 90 percent of +RAC’s sales were financed by the subsidiary’s captive finance company, Raytheon Aircraft +Credit Corporation (“RACC”), which offered below-market interest rates and other favorable +terms to customers in order to increase demand for the 1900s. These terms were not favorable to +the company and contributed to its increasing debt burden. RAC also regularly took used +commuter aircraft (model 1900Bs and 1900Cs) in trade for the purchase of newer planes (model +1900Ds) which left RAC with a supply of used 1900s in inventory. +RACC sold most of its aircraft receivables, including commuter financing receivables, +into a revolving credit facility funded by an outside bank syndicate, which removed the debt +associated with these financed sales from the company’s balance sheet. Under the terms of the +credit facility agreement, Raytheon was obligated to re-purchase certain delinquent and defaulted +receivables, and the level of recourse to Raytheon averaged between 75 to 100 percent +depending upon the type of financing. RACC also renegotiated and restructured many of the + 5 +payment arrangements it had with certain RAC customers in order to keep these customers from +becoming overly delinquent or otherwise defaulting on their notes. +a. Between 1997 and 1998, Raytheon saw a declining commuter market +During the late 1990s, RAC began to experience softening demand for its commuter +aircraft due to, among other things, shifting consumer preferences, increased government +regulation of nineteen-seat aircraft, increased competition in the used aircraft market, and the +introduction of regional jets. These and other factors combined to place downward pressure on +the sales prices, lease rates, and asset values of these planes. Thus, in 1997, RAC began for the +first time to place used 1900s with customers on operating leases and substantially ceased +outright sales of used 1900s for cash. +In addition, many of the used commuters that RAC received as returns, repossessions, +and trade-ins required significant refurbishment before RAC could re-market them. These +refurbishment costs were capitalized as part of the aircraft’s book value, which led to “[h]igher +book values” that “can and do exceed fair market value.” In response, RAC adopted a policy of +depreciating the used commuter aircraft on an accelerated basis during the life of their leases to +“bring down values” to amounts that were more likely to be recovered in later cash sales. By so +doing, RAC improperly deferred and re-characterized losses associated with high commuter +book values as ordinary depreciation. +In April 1998, Raytheon’s internal audit department identified that the capitalization of +RAC’s refurbishment costs was leading to inflated book values for the commuter aircraft. +Although senior RAC management agreed to establish limits on the carrying values of used +1900Cs at $3.4 million to $3.7 million, by year-end 1999, more than twenty 1900Cs in inventory +had book values of more than $4 million per plane net of specific reserves. +By late 1998, Raytheon was aware of potential risks, uncertainties, and adverse trends in +RAC’s commuter business. For example, in October 1998, a RAC sales plan noted that the “US +market continues to be soft for this size [of] aircraft.” In December 1998, an internal Raytheon +analyst wrote that “[t]he 19-seat turboprop market is in trouble” and described several factors +that were “clearly putting the viability of the 1900D in doubt.” Later that month, after being +informed that “the market for the 1900D appears to be in decline” and “continuing 1900D +financing is probably RAC’s major financial exposure,” Burnham, who had just become +Raytheon’s CEO, observed that “clearly, the 1900D is a worry” and asked senior RAC +management “how solid is our build/sell forecast?” Burnham further authorized a series of +external studies into the future market demand for commuters and an internal financial analysis +of the risks associated with these aircraft. +b. Raytheon’s improper accountin g and disclosures in 1997 and 1998 +Raytheon made no meaningful disclosures of the known risks, trends, and uncertainties +associated with the deteriorating state of RAC’s commuter business, such as the softening +demand for commuters, the increasing trend in returns and repossessions, and the movement in +RAC’s commuter placement program away from sales and to begin offering leases, in any of the +company’s SEC filings from 1997 through 1998. + 6 +Raytheon also engaged in improper accounting for RAC’s commuter business that served +to offset the negative effects that the declining commuter market was having on asset values for +the 1900s during this time period. For example, Raytheon transferred $15 million in “corporate +reserves” to RAC at year-end 1997, which RAC initially used to “off-set” potential exposures +associated with over-valued 1900s. The company did not properly disclose or account for these +reserves, however, which represented 7 percent of RAC’s reported annual operating income that +year. Although this $15 million charge should have been taken to ordinary operating income, +Raytheon reported it as a “special charge” reflecting the write down of unidentified “non-current +assets” at RAC. In addition, instead of using the charge to write down the non-current commuter +assets held for lease, RAC ultimately used this reserve to absorb losses incurred in subsequent +periods when aircraft were refurbished. +Furthermore, during 1997 and the first three quarters of 1998, Raytheon was aware that +RAC had not implemented and was not complying with FAS 125 (the new guidance for off- +balance sheet accounting that became effective on January 1, 1997). However, in its 1997 Form +10-K, the company stated that it had adopted this standard in 1997 and that this purported +adoption “did not have a material effect on the company’s financial position or results of +operations.” In 1998, Raytheon continued to be aware that “management ha[d] yet to record the +sale of receivables in full accordance with FAS 125” and that “[t]he SEC has recently raised +concerns about registrants’ reporting under FAS 125.” Yet, it was not until the fourth quarter of +1998 that RAC began to implement FAS 125. However, RAC based its FAS 125 calculations on +incomplete and inaccurate data and also improperly measured its recourse liability obligations on +the receivables sold into the credit facility. As a result, for 1998, Raytheon reported additional +operating income of $18 million on the sale of commuter receivables to the credit facility instead +of a $9 million loss. Proper FAS 125 accounting would have reduced RAC’s reported annual +operating income by $27 million (11 percent) at year-end. +RAC also established reserves for commuter losses equal to any FAS 125 gains that were +recognized on the sale of commuter receivables. This practice of making perfectly off-setting +adjustments left no trace on RAC’s reported earnings. As a result, Raytheon’s reported financial +statements did not accurately reflect the accounting impact of declining commuter values. For +example, in the fourth quarter of 1998, Raytheon recorded a $6.5 million gain on the sale of +commuter receivables, which was offset by an equal $6.5 million reserve for commuters. No +documentation supported the amount of the $6.5 million loss provision, and the amount reserved +corresponded to nothing other than the amount of the recorded gain. At the time, the improper +$6.5 million adjustment amounted to nearly 8 percent of the subsidiary’s fourth quarter 1998 +operating income of $82 million. +c. In 1999, Raytheon deferred significant commuter losses +Due to unrelated difficulties in its defense businesses and engineering and construction +unit, Raytheon announced an unexpected $640 million charge during 1999, which caused the +price of the company’s stock to fall 44 percent in one day. The charge in 1999 also led to a +downgrading of the company’s bond and credit ratings, and Raytheon continued with its strategy +to pay down its debt by divesting certain “non-core” commercial units. RAC was one of the +segments targeted for divestiture as part of this strategy. + 7 +Throughout 1999, Raytheon and certain senior officers (including Burnham) were made +aware of potential negative and adverse trends, uncertainties, and risks related to RAC’s +commuter business. In April 1999, an outside consultant informed Raytheon that the commuter +market was “at a turning point,” that other “[c]arriers have begun to flood the market with…used +19-seat airplanes,” that “lease rates for used 19-seat aircraft [we]re declining,” that the +“[d]ownward pressure on lease rates w[ould] grow as the surplus of 19-seat aircraft expands,” +and that “[a]dditional lease rate pressures could impact the company’s asset values and re- +marketing efforts.” Burnham was briefed on this situation and management’s views of it. +Also in April 1999, a senior Raytheon financial officer was informed that these “surplus” +aircraft and “lower lease rates could drive declining asset values and represent a potential +material write down” of the commuter assets. This officer was further informed that there was +an “obvious” need for a “material write-down” of RAC’s commuter assets, that these losses were +“large and growing,” that RAC was engaging in “misleading financial reporting,” and that the +situation was “as bad as [one executive had ever] seen.” +In May 1999, an internal Raytheon study forecasted that RAC’s commuter portfolio +would generate an estimated $95 million in losses due to “[t]he lack of portfolio equity, poor +customer credit and payment behavior, high loan-to-value ratios, and the modest level of +reserves” established for these assets. That same study identified a “worst case scenario” that +could generate $200 million in additional losses depending upon the impact of the “upcoming +introduction” of regional jets. Burnham was briefed on this situation and management’s views +of it. +In June 1999, a senior Raytheon financial officer was advised that there was an estimated +exposure of $300 million to $500 million in marking the RACC portfolio to market. +Also in June 1999, Burnham and other senior Raytheon officers received a “response” +from RAC to the April and May 1999 external and internal studies. This response set forth the +view of RAC management that there was greater demand for new commuter aircraft than +forecast by the company’s outside consultant. RAC’s response also advised that it was “a +corporate decision” whether to “build reserves” on the commuters, but this would occur “at the +expense of current period profits.” RAC’s response instead proposed addressing the $95 million +commuter exposure identified in May 1999 through “third party, no recourse notes,” which +would provide an estimated $93 million “improvement.” These sales did not materialize, +however. Yet, reserves were not adequately increased. +In July 1999, in connection with an attempt to securitize all of RAC’s aircraft receivables, +the company’s investment bankers informed Raytheon that the commuter portfolio should be +valued “at a material discount to its current book value,” that “actual collateral values may be +substantially lower than loan balances,” and that “[p]ortfolio policies may be masking problems +from being recognized.” +In August 1999, as part of an initial consideration to divest RAC, Burnham and other +senior Raytheon finance executives were informed that there was “approximately $250 Million - +$350 Million risk in [the] $2.4 Billion loan/lease portfolio,” and the “risk is likely to approach +the high end of this range over time” since “about 40% of loan/lease payments are delinquent” + 8 +and “business cycle downturn may also drive up defaults [and] reduce residual values of used +aircraft.” +In the Fall of 1999, after the initial effort to divest RAC failed, Raytheon attempted to sell +RAC’s portfolio of aircraft receivables (including its commuter receivables) to an outside finance +company. The finance company, however, informed Raytheon that it would not purchase any of +the commuter loans due to concerns over their high loan-to-value ratios and high concentrations +in certain customers. The finance company also provided Raytheon with an independent +valuation analysis of the 1900s, which stated that the commuter industry was experiencing a +“distinct reduction in sales activity” and a “downturn” in leasing activity over the past year. This +report also listed estimated market values for the 1900s that were below their book values. +At year-end 1999, Burnham and others in senior Raytheon and RAC management were +informed that the company’s outside auditors had a “continued concern about commuter +portfolio exposure” and, if there is “any slip,” the commuter inventory “balance will balloon.” In +addition, following a number of production and accounting problems that arose at RAC as part of +the year-end close, the subsidiary’s CEO stepped down from his executive position, and +Burnham traveled to the subsidiary to make it clear that RAC personnel had to improve their +processes to prevent similar issues from occurring in the future. +Thereafter, in early 2000, RAC’s newly-installed CEO instructed his staff to critically +examine the subsidiary’s operations, and Servello took the lead role in identifying issues to be +examined. As part of this review, Servello and other RAC personnel identified a potential $220 +million exposure related to the commuter assets on and off the balance sheet. This estimate was +calculated by comparing “[p]rices which could be readily obtainable in today’s market” to +commuter book values. The market values used in the analysis averaged from $500,000 to $1 +million below the commuter book values. However, the company did not write down its +commuter assets or adequately increase its commuter reserves at that time. Instead, based on +overly optimistic internal analyses prepared by RAC executives, the company concluded that no +“event of impairment” had occurred. +In January 2000, Raytheon had issued an earnings advisory for the fourth quarter of 1999 +and the full year 2000 because of aircraft production delays at RAC, a restatement due to RAC’s +improper bill and hold accounting, higher interest expenses, a higher effective tax rate, and other +unfavorable results. Following this announcement, Raytheon’s stock price fell approximately 17 +percent in one day. And, by March 2000, it was reported that Raytheon’s bond and credit ratings +might be further downgraded “[i]f corrective actions do not lead to material long-term +improvements in overall performance and its balance sheet, or if material new operating +problems emerge….” +d. Raytheon’s improper account ing and disclosures in 1999 +Raytheon did not make adequate disclosures of the negative and adverse trends, +uncertainties, risks, and other information related to RAC’s commuter aircraft or the subsidiary’s +commuter business in the company’s SEC filings from 1999. Raytheon’s 1999 Form 10-K did +refer to “commuter valuation costs” as one of five factors affecting RAC’s “decline in operating +income as a percent of sales in 1999,” but this disclosure failed to provide adequate information + 9 +concerning the known material and adverse risks, uncertainties, and trends posed by the +commuters. +In addition, the forward-looking statements in Raytheon’s 1999 Form 10-K stated that +“the effect of market conditions, particularly as it affects the general aviation market, the impact +of competing products and pricing, [and] the impact on recourse obligations of RAC due to +changes in the collateral value of financed aircraft” were among the many “factors that could +cause actual results to differ,” but did not mention “commuter” aircraft by name or provide +adequate information about the negative trends, uncertainties, and risks concerning the +commuters that were known to management at the time. Likewise, another set of forward- +looking statements in Raytheon’s 1999 Form 10-K stated that “continued market acceptance of, +and government regulations affecting, 19-seat turboprop commuter aircraft” could affect RAC’s +future results of operations, but Raytheon did not disclose the significant information it had +about the declining commuter market and the exposures facing the company. +These forward-looking statements were inconsistent with disclosures in the footnotes to +the company’s 1999 financial statements, which misleadingly stated that “the Company does not +expect to incur any material losses against the net book value of the long-term receivables” +because “it is the Company’s policy to have the aircraft serve as collateral for the commuter +airline receivables;” that “any liability arising from these transactions will not have a material +effect on the Company’s financial position, liquidity, or results of operations” given Raytheon’s +experience to date with resale activities and pricing and the Company’s plan to continue +production into the foreseeable future; and that “[t]hese financial instruments are recorded at +estimated fair value. No material gain or loss resulted from the sales of receivables.” As +Raytheon was aware, the fair value of the commuter aircraft serving as collateral for the +corresponding receivables was declining given the deteriorating market conditions for these +planes. Yet, the company was not adequately increasing its reserves for these anticipated short +falls, causing significant potential future liability under its recourse provisions to the revolving +credit facility. +In addition, contrary to the company’s footnote disclosures, during 1999, RAC continued +its incorrect practice of using FAS 125 gains on commuter receivables sold into the credit facility +to set up equally off-setting commuter loss reserves. As a result, Raytheon’s reported financial +statements did not accurately reflect the accounting impact of declining commuter values. +For example, in the third quarter of 1999, RAC increased its “cushion” for commuter +losses by roughly $11 million given the improper FAS 125 gains it recognized on the sale of +commuter receivables into the credit facility. RAC, however, subsequently reduced that increase +by roughly $7 million in the fourth quarter of 1999 that offset a significant FAS 125 loss caused +by a reduction in Raytheon’s credit rating. These adjustments represented approximately 17 and +19 percent of the subsidiary’s reported operating income/loss in the third and fourth quarters of +1999, respectively. +Also, RAC still had not properly applied FAS 125 to its off-balance sheet commuter +receivables during 1999. As a result, RAC’s reported annual operating income should have been +reduced by at least $21 million (13 percent) at year-end. + 10 +e. In 2000, Raytheon remained aware that the commuter market continued to +deteriorate +In 2000, a variety of internal and external sources continued to inform Raytheon and +RAC executives that the market for 1900s was in substantial decline. These sources further +indicated that there were actual material commuter losses at RAC and that the potential losses +associated with the 1900 line were in the hundreds of millions of dollars. +In January 2000, Burnham, Servello, and other senior Raytheon and RAC officers +learned that the company’s strategic planning department viewed RAC as having a substantial +negative economic value due in large part to $240 million in negative value and exposure +associated with RAC’s off-balance sheet commuter and general aviation receivables. +In February 2000, an outside consultant reported to Raytheon that there would be +“[c]ontinued downward pressure on turboprop lease rates due to falling demand for new units +and a growing supply of used capacity” and that “demand for new [commuters] will average 7 to +12 sales annually,” well below what RAC was planning to manufacture that year. +In March 2000, auditors with a major public accounting firm that had been retained to +perform a review of RAC’s “used commuter program exposures” informed certain members of +senior Raytheon and RAC management (including Servello) that “the Company’s largest +exposure in the [commuter] portfolio is with potential returned aircraft” and that “the book +values of certain aircraft in the portfolio exceed the current market values.” In particular, these +auditors identified a $115 million “shortfall” associated with RAC’s 1900Cs that were on and off +the balance sheet. The auditors also noted that RAC personnel were “rejecting cash offers on +commuter aircraft because of the income statement repercussions . . . [implying that] the carrying +amounts of commuter airplanes exceed their fair market values.” The auditors further noted that +RAC only wrote down used commuter asset values “when the Company enters into a new +finance/lease transaction.” The auditors also reported that RAC lacked formal and documented +policies and practices concerning the accounting for commuter aircraft, commuter loan +restructurings, the creation of commuter valuation reserves, and the monitoring of customer +accounts and collections. +In April 2000, Raytheon’s internal audit department prepared a report for members of +senior Raytheon and RAC management (including Servello) on the work that had been +undertaken at the request of RAC’s new CEO, as set forth above. Although the report concluded +that no impairment of the commuters had occurred, it did inform management that there was an +“[u]ndetermined but likely to be significant” exposure related to the used commuter assets since +“[t]he book values and refurbishment costs on used aircraft may exceed fair market value of cash +sales….” The internal audit report further stated that there was another “undetermined” exposure +associated with the subsidiary’s commuter bad debt reserve since the “[v]aluation and review of +assets [wa]s not performed timely or regularly.” In addition, the internal audit report warned that +there was “[n]o active collection effort” against delinquent commuter customers and the “non- +performing segment” of the commuter portfolio was “increasing.” The report also stated that +management should “closely monitor this portfolio as changes will impact the accuracy of +assumptions…. [A]ctions which might impair used commuters further include…change[s] in +selling strategies and lease terms…large returns of aircraft which cannot be absorbed into lease + 11 +market…[and an] overt decision not to support the line (such as pulling back significantly on +new production).” +In the months that followed, senior RAC executives tracked on a quarterly basis an +estimated $220 million “net exposure” in the commuter portfolio given existing reserve levels, +and these analyses were provided to others in senior RAC management, including Servello. +In June 2000, a RAC commuter marketing plan noted that loan values for 1900s +continued to be “significantly above fair market values” by upwards of $1.3 million per aircraft. +Shortly thereafter, a draft sales plan warned RAC personnel to “[m]anage used commuter +reserves cautiously and avoid an accounting event.” +In July 2000, auditors with the same major public accounting firm that had previously +analyzed RAC’s “used commuter program exposures” prepared a report for the company that +analyzed Raytheon’s off-balance sheet commuter receivables. This report highlighted significant +problems related to the commuters, including high levels of delinquencies and repossessions and +“between $10 million and $200 million of collateral exposure” that was not reflected by RAC’s +accounting and restructuring methodologies, such as the practice of recognizing losses only upon +a new sale or lease of the aircraft instead of upon return or repossession. +Between April and July 2000, Raytheon’s outside investment bankers provided the +company with a series of valuation analyses for the commuter receivables in connection with the +company’s efforts to sell RAC and/or its portfolio of commuter financing receivables to an +outside buyer. These analyses indicated that a sale of RACC’s portfolio of commuter +receivables might generate losses of between $63 million and $622 million on a secured basis, +depending on the underlying assumptions, and that the value of discounted cash flows on the +portfolio was between $200 million and $273 million lower than the total loan balances, +depending upon the underlying assumptions. Given his involvement in the effort to divest RAC +and/or its commuter line, Burnham was aware that no buyer expressed a real interest in acquiring +the commuter business in whole or in part. +In the Summer of 2000, a senior RAC executive told Burnham and a senior corporate +financial officer of his significant concern about a problem with the commuters in the “half a +billion dollar” range based on his view of the number of idle aircraft that were then in inventory +and the substantial number of commuter returns that were forecasted at year-end. Ultimately, +Raytheon addressed this problem by transferring pension income to RAC to gradually build up +commuter reserves. +i. Raytheon’s undisclosed transfers of pension income +In the third quarter of 2000, Raytheon began to allocate $14 million in surplus pension +income to RAC each quarter, which was generated by an over-funded pension plan that had been +retained when Raytheon divested another business unit. As Raytheon’s CEO, Burnham was +informed of and approved the transfers. Servello and others were aware that the surplus pension- +related income was “to be used to help supplement reserves that we [at RAC] had on our +books…. [W]e applied it to the booked reserves as a general reserve increase….” In November +2000, senior RAC executives were told to “[a]nticipate that the $14M per quarter coming from + 12 +the ‘over[-]funded pension income is available indefinitely.’” Thereafter, RAC personnel +projected that they would continue to receive $14 million in pension-related income per quarter +through at least 2004, which would enable the subsidiary to build up nearly $260 million in +commuter reserves. +These surplus pension transfers were not disclosed in the company’s SEC filings because +management viewed them as immaterial. They, in fact, represented 24 to 353 percent of RAC’s +reported quarterly operating income between the third quarter of 2000 and the second quarter of +2001; eliminated the comparability of the segment’s current results with prior periods; +represented 17 percent of RAC’s reported annual operating income in 2000; and failed to +disclose a three-year decline in the segment’s annual operating income from $227 million in +1998, to $163 million in 1999, to $136 million in 2000 (absent the pension income). +ii. Raytheon’s improper “p ooling” of commuter aircraft +In the fourth quarter of 2000, at the direction of a senior corporate financial officer and +others, RAC personnel (including Servello) instituted an improper “pooling” analysis when +testing RAC’s on-balance sheet commuter assets for impairment under FAS 121. This approach +pooled aircraft on an aggregate basis, not on a plane-by-plane basis as required by GAAP, which +enabled the company to use $45.7 million in “cushions” associated with low-book-value aircraft +to off-set losses associated with higher-book-value aircraft. Raytheon then used these “benefits” +to lower the book values of its used 1900Bs and 1900Cs in small amounts at year-end 2000, and +the company made no disclosure of the aircraft’s declining value. +In addition, even though the company’s “pooling” analysis suggested that RAC did not +need reserves on the 1900s that were held for sale, the company kept $26.4 million in commuter +reserves on RAC’s books and continued to transfer $14 million in excess pension-related income +to the subsidiary each quarter on a going forward basis for continued increases to a “general +commuter reserve,” which indicated that the anticipated losses associated with the 1900s were +greater than the current level of reserves that had been established at RAC. +iii. Raytheon’s “soft landing” plan for the commuters +By late 2000, Burnham and other senior Raytheon and RAC officers were aware that +“[m]arket forces ha[d] created a non-performing asset problem” with the 1900s. Specifically, +contemporaneous internal company documents show that, at December 31, 2000, RAC’s +inventory of used commuters had increased to over 100 airplanes due to an exceptionally high +number of commuter returns and repossessions at year-end, and RAC expected significant +commuter returns in the years ahead. +During January 2001, in response to a perceived “market shift” concerning the +commuters, RAC drafted a new “1900 Business Plan” intended to “steer[] to a ‘soft landing’ in 4 +years” by (i) further reducing the build rate for new 1900Ds to one plane per month (the +minimum production rate that the subsidiary could sustain without incurring an operating loss); +(ii) moving away from RAC’s historic commuter financing and leasing strategies to instead “sell +1900B[s and] 1900Cs for cash” at prices that were “well below” existing book values; and (iii) + 13 +building up RAC’s commuter reserves by at least an additional $240 million through the +continued allocation of surplus pension-related income to facilitate such sales. +The new “reduced cash sale prices” were approved by senior Raytheon management +(including Burnham and senior corporate financial officers) in early January 2001, and the plan +projected that the revised “cash sale” values for the commuters would create at least $60 million +in anticipated losses in 2001 alone. These losses, however, were going to be charged against the +reserves that were being built up at RAC through the transfers of surplus pension-related income +and, thus, would not be reflected in Raytheon’s reported financial statements. +Servello and others at the company were also aware of the strategy to move to “cash +sales,” including the effort to “maximiz[e] conversion of 1900Cs for cash” and use “gross +margin generated by additional [commuter sales] to fund more sales.” Consistent with the +company’s new commuter business plan, by February 2001, RAC’s commuter sales force was +instructed that “the operating lease program they had relied upon [in] the previous few years to +place used commuters was gone…. In its place were new lower cash prices on 1900Cs and +1900Ds plus an emphasis on cargo sales.” +f. Raytheon’s inadequate disclosures in 2000 +Raytheon did not make adequate disclosures of the negative, adverse, and material trends, +uncertainties, risks, and other information described above related to RAC’s commuter +operations and the subsidiary’s commuter line in the company’s SEC filings for 2000. Raytheon +also did not disclose in its SEC filings the transfer of surplus pension income to RAC or the +improper testing of RAC’s on-balance sheet commuter assets on a “pooled” basis. In addition, +Raytheon did not disclose the “soft landing” plan for RAC’s commuter line, including the +decision to emphasize cash sales at prices that were “well below” book values to address a +perceived “market shift” in the commuter business. +Although Raytheon’s Forms 10-Q for the second and third quarter of 2000 did cite +“pricing pressure on commuter aircraft” as one of the factors affecting RAC’s operating income, +these disclosures did not adequately describe the substantial negative information concerning the +commuters that was known to management at the time. Similarly, Raytheon disclosed in its third +quarter 2000 Form 10-Q that “a downturn in demand could have a material adverse effect on the +company’s financial position or results of operations” and in its 2000 Form 10-K that the +company would “continue to…watch for any indications of a downturn in demand for RAC’s +aircraft,” but these disclosures incorrectly suggested that management was not yet aware of any +such downturn in the commuter aircraft market or its severity. +Raytheon also made disclosures concerning the effect of overall market conditions in the +forward-looking statements of the company’s SEC filings for 2000 that did not provide adequate +information concerning the deteriorating state of the commuter aircraft market and the negative +effect that this decline was having on RAC and commuter asset values. For example, in its 2000 +Form 10-K, Raytheon included the forward-looking statement that the company’s “operating +results may vary significantly over time for a variety of reasons, many of which are outside of +our control,” such as “the impact on recourse obligations at Raytheon Aircraft due to changes in +the collateral value of financed aircraft…[and] general economic conditions, particularly the + 14 +cyclical nature of the general aviation…market[] in which we participate.” These disclosures +made no mention of “commuter” aircraft by name and did not reflect that the company was +aware of significant losses related to RAC’s commuter assets and anticipating that these losses +would continue to grow in the future. +In addition, Raytheon disclosed in other forward-looking statements in the company’s +annual report that some of the “[i]mportant factors that could cause actual results to differ” were +“the effect of market conditions, particularly in relation to the general aviation and commuter +aircraft markets; [and] the impact on recourse obligations of Raytheon Aircraft due to changes in +the collateral values of financed aircraft, particularly commuter aircraft,” These statements were +contrary to other disclosures in the footnotes to the company’s 2000 financial statements, which +misleadingly stated that the company had a secure line of commuter financing receivables, that +any liability resulting from the sale of commuter receivables into the revolving credit facility +“will not have a material effect on the Company's financial position, or results of operations” +given Raytheon’s “experience to date with resale activities and pricing and the Company’s plan +to continue production into the foreseeable future,” and that “[n]o material gain or loss resulted +from the sales of receivables in 2000, 1999, or 1998.” These disclosures did not reflect a move +to cash sales of commuter aircraft at prices that were well below book value, a significant +reduction in the 1900D build rate, actual material commuter losses at RAC, and potential losses +associated with the 1900 line in the hundreds of millions of dollars. +As Raytheon’s CEO, Burnham reviewed and approved the inaccurate filings and +disclosures set forth above. +g. Raytheon’s improper accounting in 2000 +From the early 1990s and throughout 2000, RAC used an improper reserve practice +known as the “Min/Max” analysis, which was a non-GAAP practice of considering RAC’s +reserves in the aggregate and, thus, used over-accruals in some reserves to cover short-falls in +others. RAC’s process of maintaining excess reserves in some areas because they off-set short- +falls in reserves in other areas was not disclosed by Raytheon, was inconsistent with GAAP, and +led to the keeping of inaccurate books, records, and accounts at the RAC segment. For example, +between 1998 and 2000, RAC’s excess reserves related to its parts business and general aviation +aircraft, which were used to off-set under-accruals in other areas, such as those related to +commuter receivables, totaled as much as $19.6 million and represented as much as 61 percent +of the subsidiary’s total reserves. +In addition, as set forth above, the establishment of $56 million in additional commuter +reserves through the transfer of surplus pension income to RAC between the third quarter of +2000 and the second quarter of 2001 was inconsistent with GAAP. No adequate +contemporaneous documentation supported the amount of these commuter loss provisions, and +the amount reserved corresponded only to the amount of the surplus pension income available. +As Raytheon’s CEO, Burnham was informed of and approved these surplus pension-related +transfers. As RAC’s Deputy CFO and Controller, Servello was also aware of these transfers and +their use to increase commuter reserves. + 15 +In 2000, Raytheon’s outside auditors also informed members of senior Raytheon and +RAC management (including Servello) that it was “not appropriate” to pool commuter aircraft +when testing for impairment under FAS 121 because they “d[id] not represent a large pool of +homogenous assets.” The auditors, therefore, posted a $12 million audit adjustment, which +represented the supposed “benefit” that the company obtained through pooling. Raytheon, with +the knowledge of its auditors, did not book the adjustment because it was considered to be +immaterial to the company’s consolidated financial results. As Raytheon’s CEO, Burnham was +aware of this decision. The $12 million audit entry, however, represented approximately 7 +percent of RAC’s reported operating income for 2000 and, thus, was material to the financial +results reported for that segment. +In 2000, Raytheon’s outside auditors further informed senior Raytheon and RAC +executives (including Servello) that RAC “ha[d] not appropriately accounted for the gain or loss +on notes sold to [the revolving credit facility]” or properly measured other components of the +FAS 125 calculation and, thus, offered to sell RAC an improved FAS 125 model. However, +RAC took no substantive steps to comply with FAS 125 during the calendar year. Instead, senior +members of the Raytheon and RAC financial organizations “resist[ed]” the purchase of the new +model, and, at year-end 2000, the outside auditors were still raising the issue of RAC’s failure to +comply with FAS 125 with Raytheon. While the company did adopt the new FAS 125 model +advocated by its auditors before filing its 2000 Form 10-K, this model also failed to comply with +GAAP. Because much of the data serving as the inputs for this model was incomplete and +inaccurate, the new FAS 125 model materially misestimated the amount of RAC’s various off- +balance sheet assets and liabilities. Also, the new FAS 125 model calculated a $22 million +overstatement related to prior period FAS 125 gains, but Raytheon did not make this audit entry +because it was deemed immaterial to the company’s consolidated financial results. As +Raytheon’s CEO, Burnham was aware of the decision not to book this proposed adjustment. +Such a charge, however, would have reduced RAC’s reported annual operating income for 2000 +by 13 percent (from $164 million to $142 million) and, thus, was material to the segment. +Finally, had senior Raytheon and RAC management timely recognized losses inherent in +their planned “soft landing” of the commuter aircraft line, the company would have been +required to take a charge of at least $67 million at year-end 2000, and contemporaneous internal +company documents and other information indicate that Burnham, Servello, and other senior +Raytheon and RAC officers were expecting commuter losses of $240 million given the cash +sales prices that had been approved in the “soft landing.” A charge of $67 million to $240 +million at year-end 2000 would have reduced RAC’s reported annual operating income by at +least 41 to 146 percent and Raytheon’s 2000 profit before taxes by at least 8 to 27 percent. +h. In 2001, Raytheon continued to be aware of the ongoing decline in the +commuter market and wrote down these assets after September 11, +2001 +Throughout 2001, senior Raytheon executives continued to be aware of the ongoing +decline of the commuter market and how this decline was creating serious operational issues at +RAC, including substantial actual and anticipated losses associated with the 1900s on and off the +company’s balance sheet. + 16 +i. The first and second quarters of 2001 +In addition to moving to a cash sales strategy for the 1900s at prices that were +significantly below the carrying value of the aircraft, in early 2001, Raytheon attempted to +purchase risk insurance for the cash flows associated with the 1900D notes receivable in the +company’s off-balance sheet commuter portfolio. During these discussions, the insurer informed +Raytheon that an independent appraiser had determined that the company was over-valuing these +assets by roughly $220 million (approximately 20 percent above their actual market value). +In addition, during the first quarter of 2001, a senior corporate financial officer had the +lead RAC auditor removed from the engagement due to that partner’s unwillingness to “ignore +SEC and GAAP errors” at the officer’s insistence and the partner’s requests for consults on +various accounting issues with his firm’s national office, which were resulting in adverse +accounting treatments for the company. +By April 2001, Raytheon was aware that RAC had not sold any used commuters for cash +under the “soft landing” plan during the first quarter and that recent offers for used 1900Cs were +“in the $1.2M range,” which was “far below” the initial “cash sale” estimates of $2.2 million +approved by management as part of the “soft landing.” Raytheon was further aware that “each +cash order looks like it will require a great deal of focus and effort to get the ball over the goal +line. Simply put, it’s harder to sell for cash, but…we knew this ‘going in.’” In response to this +statement, one senior Raytheon executive explained that $1.5 million was a “more realistic” +price for these used aircraft and further emphasized the need to “raise cash” on these sales. +In June 2001, a RAC sales forecast informed a senior Raytheon financial officer and +others that “[a] clear trend exists that prices will have to continue to be lowered to move +inventory…. In order to get more cash sales in Q4, the price will have to be lowered to between +$1.1 - $1.5 MM. This could create accounting issues.” Senior Raytheon financial officers were +also informed that it would be necessary to “discount heavily” and offer 1900Cs at between $1.1 +million to $1.5 million in order to make sales for cash. These officers were further informed that +RAC’s 2001 sales forecast was “contingent” upon these values. These transactions, however, +were blocked by a senior corporate financial officer and others in the financial organization +because “these deals could cause a write down of the entire portfolio and, as a result, we need to +sell the airplanes at a higher value.” As set forth in internal company documents, “[w]e cannot +afford to change NRVs [the Net Realizable Values of the aircraft] below $2,500,000” due to the +income statement repercussions for the company. “Price integrity issues and limited reserves +prevent us from lowering prices to meet a large portion of the market. Market pricing will +require additional reserves.” +In July 2001, the company’s investment bankers provided Raytheon with an update of +earlier analyses of the company’s commuter portfolio. This analysis indicated that, at the close +of the second quarter, there was at least $113 million to $198 million in losses associated with +the on- and off-balance sheet commuters given the difference between their book and assumed +collateral values. This analysis also indicated that the value of the discounted cash flows from +the on- and off-balance sheet commuters were $431 million to $528 million below their total +book values. + 17 +In August 2001, Raytheon convened a “commuter summit” at the company’s corporate +headquarters to discuss the state of the commuter market and the negative effect this decline was +having on RAC’s commuter business. At this meeting, an outside consultant informed senior +Raytheon and RAC management that “[c]ompetitive market pressures are intense. Critically, +they are not anticipated to ease anytime soon…. Turboprop aircraft orders have stagnated at +best…. Only a handful of companies still operate 19-seat turboprops…. The prognosis for U.S. +19-seat operators is not very good….” Downward pricing pressure is not anticipated to ease as +the number of surplus 20 to 35 seat turboprop aircraft grows, making them more attractive as 19- +seat replacements…. With turboprop aircraft demand falling and supply raising, pricing must +reflect basic market conditions not internal benchmarks.” +At this “commuter summit,” another outside consultant reported that estimates of fair +market value for the commuters were, on average, $2 million below book value for the 1900Cs +and $1.3 million below book value for the 1900Ds. At the time, the company had over 130 +1900Cs and nearly 320 1900Ds on and off the balance sheet, making for an estimated exposure +of approximately $676 million. +ii. Raytheon’s improper disclosures in the first and second +quarters of 2001 +Despite the substantial information that Raytheon possessed concerning the decline in +RAC’s commuter aircraft business and the erosion of commuter asset values, the company’s first +quarter 2001 Form 10-Q did not adequately disclose these adverse views of and developments in +RAC’s commuter operations, including management’s decision to move from a leasing to a cash +sales strategy for used commuters. Instead, Raytheon’s disclosures in this filing discussed only +“commercial” aircraft in general, which covered several other product lines in addition to the +commuters. Because these and other disclosures covered all of RAC’s “new and used” +commercial aircraft, the company did not make adequate disclosure of the negative risks and +trends related to the commuters that were known to senior management at the time. +Raytheon’s second quarter 2001 Form 10-Q, which was filed one week after the August +2001 commuter summit, also did not adequately disclose the negative risks and trends associated +with the company’s commuter aircraft. For example, Raytheon only disclosed that RAC’s +second quarter 2001 “[o]perating income was down primarily due to the lower sales volume and +margin pressure on T-6A, Beechjet, and used aircraft due to the current market environment. +During 2001, RAC experienced softness in orders for new and used commercial aircraft. The +Company remains concerned about the market outlook at RAC. During the second quarter of +2001, RAC responded to a softening market by announcing workforce reductions and +adjustments in production rates.” These disclosures made no specific mention of “commuter” +aircraft and failed to adequately disclose the negative risks and trends concerning the commuters +that were known to senior management at the time. +The only disclosure specifically referencing “commuters” in Raytheon’s second quarter +2001 filing concerned “[t]he aging on RAC’s commuter customer financing receivables [which] +has deteriorated over the past year. Non-performance on these loans and leases, in the aggregate, +could have a material adverse effect on the Company’s liquidity.” At this time, senior Raytheon +officers had been informed that there were hundreds of millions of dollars of actual and potential + 18 +losses associated with these receivables based on the analyses that the company’s investment +bankers had performed and the other information the company had received. Thus, Raytheon +failed to adequately disclose the significant declines in the commuter market, recent restructuring +of several commuter customers to keep them from defaulting on their notes payable, and the +substantial financial repercussions that would follow given the company’s recourse obligations +to the bank facility. +In both its first and second quarter 2001 filings, Raytheon also made inadequate +disclosures about the potential effect of market conditions in its forward-looking statements. In +particular, in both Forms 10-Q, Raytheon stated that of the many “[i]mportant factors that could +cause actual results to differ” were “the effect of market conditions, particularly in relation to the +general aviation and commuter aircraft markets; [and] the impact of recourse obligations of +Raytheon Aircraft due to changes in the collateral values of financed aircraft, particularly +commuter aircraft.” These disclosures, however, failed to provide investors with sufficient +information concerning the negative trends and risks associated with the commuters that were +known by management at the time. The inclusion of these disclosures in the company’s forward- +looking statements gave the inaccurate impression that Raytheon was not presently facing any +risks associated with its on- and off-balance sheet commuter assets during these time periods. +iii. Raytheon’s equity offering +In early 2001, Raytheon turned to the equity markets to raise capital to pay down its debt. +In April and May 2001, Raytheon filed a Form S-3 and prospectus supplements in connection +with its $3 billion shelf registration and takedown of equity securities. These filings contained +materially misleading statements and omissions concerning the commuters because: +Raytheon’s Form S-3 incorporated prior filings by reference and thus +repeated the misleading statements from those periodic reports. In addition, +Raytheon did not disclose the material and adverse trends and uncertainties that +were known to management at the time concerning the commuters. The +company’s Form S-3 also incorporated by reference “any future filings made by +us…until we sell all of the securities.” As alleged below, these future filings were +also misleading. +In addition, in the forward-looking statements, Raytheon made disclosures +about “regional aircraft” and “price pressures within the market” but did not +specifically reference commuters by name. Similarly, Raytheon disclosed that “a +decline in demand in the market for our aircraft, would have an adverse effect, +which may be material, on our financial results,” but did not describe the +declining commuter market or RAC’s deteriorating commuter business. +Likewise, in other forward-looking statements, Raytheon disclosed that “[t]he +value of our securities may fluctuate as a result of considerations that are difficult +to forecast, such as…the impact on recourse obligations at Raytheon Aircraft +Company due to changes in the collateral value of financed aircraft…and general +economic conditions, particularly the cyclical nature of the general aviation and +other commercial markets in which we participate.” Raytheon, however, did not +specifically mention the known risks posed by the deteriorating state of the + 19 +commuter market, RAC’s growing inventory of used commuter aircraft, or the +over-valued commuter financing receivables that were off the company’s balance +sheet. +As Raytheon’s CEO, Burnham reviewed and approved the inaccurate filings and +disclosures set forth above. +iv. Raytheon’s improper accountin g and disclosures in the third +quarter of 2001 and at year-end +Although Raytheon was aware that its on- and off-balance sheet commuter assets were +over-valued by hundreds of millions of dollars as of August 31, 2001, it was not until after the +terrorist attacks on September 11th that the company began the process of a write down. +However, much of the information which management used to estimate fair value for the +commuters was “from three weeks earlier or four weeks earlier, in August of 2001…. [N]one of +the publicly available data [used in the write-down analysis] were post-September 11th.” Senior +Raytheon financial officers also considered offers that RAC had received from commuter +customers during “the most recent year,” even though these officers had previously refused to +sell planes for these prices in July 2001 since “these deals could cause a write down of the entire +portfolio….” Also, a post-September 11th “top down, market study” upon which Burnham and a +senior Raytheon financial officer relied to support the final charge estimated that there was $400 +million to $500 million in pre-existing exposure on the commuters as of July 2001. This amount +represented roughly 60 to 70 percent of the $693 million charge that was ultimately taken by the +company. As the Vice President of Investor Relations informed senior management near +completion of the write down, a survey of buy- and sell-side analysts prior to the upcoming +earnings call indicated that “defense companies get a free pass this quarter” given recent events. +These analysts were further “expecting a $400-500 million charge” on the commuters, and they +would be “irritated” with the company “if we do not take this opportunity to adjust these values.” +Thus, in the third quarter of 2001, Raytheon stated that it had taken a $693 million loss +provision related to RAC’s commuter aircraft as “a result of continued weakness in the +commuter aircraft market and the impact of the events of September 11, 2001.” This misleading +statement was repeated in substance in the company’s 2001 Form 10-K. Given the charge that +the company should have taken at year-end 2000 to properly account for RAC’s on- and off- +balance sheet commuter assets and the $240 million in commuter reserves that the company +planned to build to cover anticipated losses, the $693 million commuter loss provision that +Raytheon took in the third quarter of 2001 was materially overstated by at least 10 to 53 percent. +Raytheon also did not disclose that its third quarter 2001 commuter loss provision was +largely determined by implementing for the first time a market-based measure of portfolio loss +under FAS 140, the successor to FAS 125. Contrary to its public disclosures, the company had +previously been calculating its recourse liability obligations on the commuter receivables sold +into the credit facility through a pooled, probable loss analysis. In addition, Raytheon did not +disclose that certain “excess” non-commuter reserves, such as those related to RAC’s parts +business and general aviation aircraft, which had previously been used in the Min/Max analysis +to off-set under-accruals on the commuters, were not written off in the third quarter of 2001. +Instead, these reserves were retained by the company for their original, specified purposes, + 20 +indicating that they should not have been used to off-set deficiencies in the commuter reserves in +prior periods. +As Raytheon’s CEO, Burnham reviewed and approved the inaccurate filings and +disclosures described above. +3. The Impact of Raytheon’s Improper Accounting and Disclosure Practices +As a result of the improper disclosure and accounting practices described above, +Raytheon filed at least fifteen quarterly reports, five annual reports, and four registration +statements and prospectus supplements that contained materially false and misleading +disclosures and financial statements. +D. LEGAL ANALYSIS +Section 17(a)(2) of the Securities Act prohibits a person from obtaining money or +property by means of any untrue statement of a material fact or any misleading omission of +material fact in the offer or sale of securities. See 15 U.S.C. § 77q(a)(2). Section 17(a)(3) of the +Securities Act prohibits a person from engaging in any transaction, practice, or course of +business which operates or would operate as a fraud or deceit upon the purchaser in the offer or +sale of securities. See 15 U.S.C. § 77q(a)(3). Information is material where there is a substantial +likelihood that a reasonable investor would consider the information important in making an +investment decision. See Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988). Establishing a +violation of Sections 17(a)(2) and (3) does not require a showing of scienter. See Aaron v. SEC, +446 U.S. 680, 701-02 (1980). + +Section 13(a) of the Exchange Act and Exchange Act Rules 13a-1 and 13a-13 require +issuers with securities registered under Section 12 to file annual, quarterly, and other 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). Rule 12b-20 further requires the inclusion of any additional +material information that is necessary to make required statements, in light of the circumstances +under which they were made, not misleading. Information regarding the financial condition of a +company is presumptively material. SEC v. Blavin, 760 F.2d 706, 711 (6th Cir. 1985). No +showing of scienter is necessary to establish a violation of Section 13(a) or Rules 12b-20, 13a-1, +and 13a-13. See, e.g., Savoy, 587 F.2d at 1167. Additionally, Item 303 of Regulation S-K +requires registrants to disclose “any known trends or uncertainties that have had or that the +registrant reasonably expects will have a material … unfavorable impact on net sales or revenues +or income from continuing operations.” 17 C.F.R. § 229.303(a)(3)(ii). The failure to comply +with Regulation S-K constitutes a violation of Section 13(a) of the Exchange Act. +Raytheon violated Sections 17(a)(2) and (3) of the Securities Act and Section 13(a) of the +Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 thereunder. As described above, between +1997 and 2001, Raytheon filed false and misleading periodic reports with the Commission that +contained inadequate disclosures and inaccurate financial statements, which materially misstated +the company’s and RAC’s results of operations. Between 1997 and late 1999, Raytheon failed to +disclose the improper bill and hold accounting practices that were occurring at RAC, including + 21 +that such transactions did not comply with GAAP and were resulting in material overstatements +of the subsidiary’s reported operating results. Between 1997 and 2001, contrary to Item 303 of +Regulation S-K, Raytheon failed to fully disclose in its periodic reports material trends and +uncertainties associated with the deteriorating state of RAC’s commuter aircraft business. +Raytheon also failed to make full and complete disclosure concerning its implementation of and +compliance with FAS 125, its establishment of $15 million in commuter reserves at year-end +1997, and the company’s practice in 1998 and 1999 of creating reserves at RAC that were equal +to any FAS 125 gains recognized on the sale of commuter receivables. In 2000 and 2001, +Raytheon failed to disclose the deteriorating commuter aircraft market, RAC’s declining +commuter business, the increasing number of commuter returns, the quarterly transfers of +“surplus” pension-related income to RAC, the non-GAAP “pooling” analysis used to test +commuter aircraft for impairment, and the components of the “soft landing” plan, such as the +reduced cash sale prices for used commuter aircraft and the substantial reduction of the +production rate for new 1900Ds. Finally, Raytheon filed at least four registration statements and +prospectus supplements between 1997 and 2001, which incorporated by reference the inadequate +disclosures and inaccurate financial statements contained in the periodic reports identified above. +Burnham violated Sections 17(a)(2) and (3) of the Securities Act and caused certain of +Raytheon’s violations of Section 13(a) of the Exchange Act as well as Rules 12b-20, 13a-1, and +13a-13 thereunder, through conduct in 2000 and 2001. As described above, as Raytheon’s CEO, +Burnham (i) failed to make or ensure full, accurate, and adequate disclosure of the known trends +and uncertainties associated with the company’s commuter line in Raytheon’s public filings for +2000 and 2001, such as the deteriorating state of RAC’s commuter business and the various +means that the company was taking to address this problem; (ii) failed to ensure that Raytheon +properly accounted for the resulting commuter losses that were known and anticipated by +management during 2000 and 2001, which led to material misstatements of the company’s +reported results on both a segment on consolidated basis; and (iii) through such conduct, caused +Raytheon’s filing of at least six quarterly reports, two annual reports on Forms 10-Q and 10-K, +and two sets of registration statements and prospectus supplements for May 2001 and October +2001 offerings that contained inadequate disclosures and inaccurate financial statements. +Servello caused certain of Raytheon’s violations of Section 13(a) of the Exchange Act +and Rules 12b-20, 13a-1, and 13a-13 thereunder. As a result of the actions described above, as +RAC’s Deputy CFO and Controller during 2000, Servello knew or should have known that RAC +was not properly accounting for its commuter assets and the mounting losses associated with +them. During this time, Servello was also aware that RAC’s financial results were flowing +through to the company’s publicly filed quarterly and annual reports. +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. +Rule 13b2-1 prohibits the falsification of any book, record, or account subject to Section +13(b)(2)(A). No showing of scienter is necessary to establish violations of these provisions. See +SEC v. McNulty, No. 94 CIV. 7114 (MBM), 1996 WL 422259, at *7 (S.D.N.Y. July 29, 1996). + 22 +Raytheon violated Section 13(b)(2)(A) and (B) of the Exchange Act and Rule 13b2-1 +thereunder through the conduct described above. Between 1997 and late 1999, Raytheon and +RAC kept materially inaccurate books, records and accounts, and failed to maintain adequate +internal controls related to RAC’s bill and hold practices during this four-year time period. +Between 1997 and 2001, Raytheon kept materially inaccurate books, records and accounts +concerning RAC’s commuter aircraft that (i) did not maintain individual commuter loss and +liability accounts at levels that were consistent with available evidence concerning these +contingencies or management’s knowledge about the declining value of these assets; (ii) did not +record repossessed or returned commuter aircraft at their fair market value; (iii) through +improper “pooling” analysis, impermissibly grouped non-homogenous collections of used +commuter aircraft for assessment of net realizable value in 2000 and 2001, so that individual +units were not reduced to the lower of cost or market; (iv) did not timely or properly record in +accordance with GAAP the assets and liabilities associated with its off balance sheet portfolio of +commuter financing receivables between 1997 and mid-2001; (v) used reserves established for +the commuter assets between 1997 and 2001 in contravention of GAAP; and (vi) established +additional commuter reserves at RAC in 2000 and 2001 through the use of “surplus” pension- +related income in a manner that was inconsistent with GAAP, and (vii) did not properly reflect +losses inherent in a planned “soft landing” of the commuter line. Finally, between 1997 and +2001, Raytheon failed to maintain an adequate system of internal accounting controls related to +the proper measurement and recording of commuter asset values and reserve levels, the testing of +commuter assets for recoverability and impairment, and the estimation of their fair value for +purposes of measuring impairments and loss contingencies. +Burnham caused certain of Raytheon’s violations of Sections 13(b)(2)(A) and +13(b)(2)(B) of the Exchange Act and Rule 13b2-1 thereunder. As described above, during 2000 +and 2001, he failed to ensure that the company’s commuter assets and liabilities were properly +recorded in the company’s books and records. He also failed to design and maintain an adequate +system of internal controls to ensure that the company properly measured its commuter assets +and liabilities. +Servello caused certain of Raytheon’s violations of Sections 13(b)(2)(A) and 13(b)(2)(B) +of the Exchange Act and Rule 13b2-1 thereunder. As RAC’s Deputy CFO and Controller during +2000, he failed to ensure that the subsidiary’s commuter assets and liabilities were properly +accounted for in the company’s books and records. He also failed to design and maintain an +adequate system of internal controls to ensure that Raytheon was properly measuring its +commuter assets and liabilities. +Based on the foregoing, the Commission finds that: (i) Raytheon violated Sections +17(a)(2) and (3) 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, 13a-13 and 13b2-1 thereunder; (ii) Burnham violated +Sections 17(a)(2) and (3) of the Securities Act, and caused certain of Raytheon’s violations of +Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act as well as Rules 12b-20, 13a-1, +13a-13 and 13b2-1 thereunder; and (iii) Servello caused certain of Raytheon’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, 13a- +13 and 13b2-1 thereunder. + 23 +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 that: + +A. Respondent Raytheon cea se and desist from committing or causing any violations +and any future violations of Sections 17(a)(2) and (3) of the Securities Act, Sections 13(a), +13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-13, and 13b2-1 +thereunder; + +B. Respondent Burnham ceas e and desist from committing or causing any violations +and any future violations of Sections 17(a)(2) and (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, 13a-1, 13a-13, and 13b2-1 thereunder; and + +C. Respondent Servello ceas e and desist 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, 13a-13, and 13b2-1 thereunder. + + + By the Commission. + + + + N a n c y M . M o r r i s + Secretary + + + + 24 \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2450.txt b/raw/aaer/2006/AAER-2450.txt new file mode 100644 index 0000000000000000000000000000000000000000..287bf98ab8dbdee7660e21302ed604e5b9bcf2b6 --- /dev/null +++ b/raw/aaer/2006/AAER-2450.txt @@ -0,0 +1,1373 @@ + + + + + + + + + + + + + + + + SEC.gov | William T. 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Owens, et al. + + + + + + + + + + + + William T. Owens, et al. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19743 / June 28, 2006 + + Accounting and Auditing Enforcement Release No. 2450 / June 28, 2006 + + SEC v. William T. Owens, et al. , United States District Court for the Northern District of Alabama, Civil Action No. CV-03-CO-0720-S + + + + On May 22, 2006, the Honorable L. Scott Coogler, U. S. District Judge for the Northern District of Alabama, entered a Final Judgment as to defendant William T. Owens (Owens), who formerly served, during various periods, as Chief Financial Officer, Executive Vice President, President, and Chief Operating Officer of HealthSouth Corporation. The Final Judgment enjoined Owens from future violations of Section 17(a) of the Securities Act of 1933 (Securities Act) and 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 from aiding and abetting 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, 13a-13 and 13a-14 thereunder. Owens was also permanently barred from serving as an officer or director of a public company. Owens was ordered to pay disgorgement of $10,837,292 and prejudgment interest of $4,728,219, provided that $2.5 million of the disgorgement and prejudgment interest is deemed satisfied by forfeiture and restitution ordered against him in the related criminal proceeding. The judgment waived the remainder and did not order Owens to pay a civil penalty based on his sworn representations in his Statement of Financial Condition. Owens consented to the entry of the judgment without admitting or denying any of the allegations of the Commission's Complaint. + + The Commission's Complaint, filed on March 31, 2003, alleged that Owens made or directed HealthSouth employees to make false accounting entries to inflate reported operating results in order to meet or exceed Wall Street earnings expectations. In the related criminal proceeding, Owens was sentenced to serve five years incarceration, among other things. + +See also: Litigation Release Nos. 18044 (March 20, 2003), 18059 (April 1, 2003), 18060 (April 1, 2003), 18070 (April 4, 2003), 18339 (September 10, 2003), 18700 (May 10, 2004), 18904 (September 28, 2004) and 19123 (March 7, 2005). + + + + + + 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-2451.pdf b/raw/aaer/2006/AAER-2451.pdf new file mode 100644 index 0000000000000000000000000000000000000000..2690e610f2bdd2f210dc0365b61788289a3bd036 Binary files /dev/null and b/raw/aaer/2006/AAER-2451.pdf differ diff --git a/raw/aaer/2006/AAER-2453.txt b/raw/aaer/2006/AAER-2453.txt new file mode 100644 index 0000000000000000000000000000000000000000..f81e2815c5adc0ff6a8d07b1e67088c8f96d11ae --- /dev/null +++ b/raw/aaer/2006/AAER-2453.txt @@ -0,0 +1,231 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES ACT OF 1933 +Release No. 8717 / June 28, 2006 + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54062 / June 28, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2453 / June 28, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12347 + + + : ORDER INSTITUTING CEASE-AND- +In the Matter of : DE SIST PROCEEDINGS PURSUANT + : T O S E C T I O N 8 A O F T H E S E C U R I T I E S + Walco International, Inc. and : ACT OF 1933 AND SECTION 21C OF +James C. Robison, : TH E SECURITIES EXCHANGE ACT + : OF 1934, MAKING FINDINGS AND + Respondents. : 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 8A of the Securities Act of +1933 (the “Securities Act”) and Section 21C of the Securities Exchange Act of 1934 (the “Exchange +Act”) against Walco International, Inc. (“Walco”) and James C. Robison. + +II. + + In anticipation of the institution of these proceedings, Walco and Robison have submitted an +Offer of Settlement (“Offer”) that th e Commission has determined to accept. 1 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 +contained herein, except that Walco and Robison admit the Commission’s jurisdiction over them +and over the subject matter of these proceedings, Walco and Robison consent to the entry of this +Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of + +1 Simultaneously with this proceeding, the Commission has filed the following settled action in which Robison is +a party: SEC v. Virbac Corp., et al., Civil Action No. 4-06CV-453-A, U.S.D.C. N.D. Tex (hereafter, “the parallel civil +action”). + + 2 +1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a +Cease-and-Desist Order. + +III. +FINDINGS + + The Commission makes the following findings2: + +A. RESPONDENTS + +Walco, based in Westlake, Texas, is the largest food animal health products distributor in +North America, with over $600 million in annual revenues. + Robison , age 49, has served as chairman, CEO, and president of Walco since May 1997. + +B. RELATED PARTIES + +Virbac Corporation (“Virbac” or the “Company”), a Delaware corporation headquartered +in Fort Worth, Texas, is the result of the March 1999 acquisition of Agri-Nutrition Group Limited +(“AGNU”), a publicly held company, by Virbac Inc., a wholly owned subsidiary of Virbac S.A., a +French veterinary pharmaceutical manufacturer. Virbac’ s common stock is registered with the +Commission under Section 12(g) of the Exchange Act and trades in the Pink Sheets under the +symbol “VBAC” since it was delisted from the NASDAQ National Market on January 23, 2004 for +Virbac’s failure to file timely its periodic reports. + +Thomas L. Bell, age 45, served as president and CEO of Virbac from April 1999, as well as +a director from May 2002, until he resigned effective January 27, 2004. +Joseph A. Rougraff, age 46, and a CPA licensed in the state of Indiana, served as vice +president, CFO, and corporate secretary of Virbac fr om May 2000 until he resigned effective +January 27, 2004. + Douglas A. Hubert , age 38, joined Virbac in March 1991 as a sales territory manager and +served as vice president of the Veterinary Division from April 2000 until his resignation in January +2005. + + C. FACTS + + 1. Background +Shortly after the March 1999 merger of Virbac, Inc. with AGNU, Bell was named +Virbac’s CEO. Primarily through the introduction of new products, Virbac’s revenues grew from +$44 million in 1999 to $64 million in 2002. From January 2000 through September 2002, Bell, in + +2 The findings herein are made pu rsuant to Respondents’ Offer and are not binding on any other person or entity +in these or any other proceedings. + + 3 +press releases and conference calls, consistently expressed confidence that the Company would +achieve its strategic goal of more than doubling revenues to $100 million by 2004. Together with +Rougraff, Bell touted positive ear nings results in press releases, investor presentations, and +conference calls which they attributed primarily to successful product launches. Virbac’s +Veterinary Division, the larges t of its three repo rtable segments, which accounted for +approximately 50% of Virbac’s co nsolidated revenue, was portrayed as the principal driver of +the Company’s growth and success. + +Virbac’s stock price rose in response to the Company’s favorable operating results and Bell +and Rougraff’s upbeat statements—from $1.1 25 on March 5, 1999 to $8 .35 on November 12, +2003. The November 12 price peak immediately preceded Virbac’s announcement of delay in +filing its third quarter 2003 Form 10-Q. Within two weeks of this announcement, Virbac +confirmed it would be restating its financial statements. Virbac’s stock price tumbled—from $8.35 +per share on November 12, 2003, when Virbac disclosed delays in filing its Form 10-Q, to $2.70 +on February 20, 2004, when Virbac disclosed the Commission’s investigation. + +2. Elements of the Scheme + +To foster the illusion of rapid revenue and ea rnings growth, Virbac orchestrated a multi- +pronged scheme to manipulate Virbac’s financial statements. The scheme involved, among other +things: 1) accelerating revenue recognition on shipments of product that exceeded distributors’ +current demands (i.e., Virbac’s “loading” cycle); 2) recognizing revenue on sham transactions; 3) +failing to cut off sales at fiscal period-end; and 4) deferring expenses, principally by manipulating +reserves and accruals. + + Bell and Hubert were able to convince tw o distributors, one of which was Walco, to +assist in the activity. 3 Walco’s primary motivation for assisting Virbac was its ambition to gain +Virbac’s warehousing and shipping outsourcing business. + +3. Walco and Robison’s Participat ion in the Revenue Inflation and +Expense Deferral Scheme + +In early 1999, Virbac began “l oading” its distributors to meet Bell’s sales and income +targets and to fulfill its mission statement: double-digit earnings growth through successful product +launches. Virbac relied heavily upon Walco and another distributor to execute its loading strategy, +granting whatever concessions were necessary to make “sales” in excess of distributors’ current +requirements. In some instances, Virbac offe red unusually long payment terms—often 180 days +or more instead of a more typical 30 days—or even consignment terms to distributors. On other +occasions, various volume discounts and rebates were given to induce large purchases. In many +cases, Virbac promised distributors that they co uld simply return large quantities of product for +full credit, or exchange it for replacement product, at a later date. These terms were rarely + +3 The two distributors accounted for 90% of the invoices that Virbac used to inflate its revenue. + + + 4 + +reflected in Walco’s purchase orders to Virbac. Through these distributor enticements, Virbac +improperly recorded revenue in violation of Generally Accepted Accounting Principles (“GAAP”).4 + +Virbac’s most excessive loading involved new product launches, such as Preventic Plus +(flea and tick collar), Iv erhart Plus (heartworm medication), and its generic ivermectin pour-on +products (cattle de-wormers). During 2001, Virb ac entered into devel opment, license, and +supply agreements whereby it granted Walco, and two other distributors, exclusive distribution +rights to its pour-on product line. 5 In the third quarter of 2001, Virbac recognized $900,000 of +revenue from Walco’s “purchase” of pour-on which it should not have recognized at that time +because it was a consignment sale. Despite th is fact, Walco furthered Virbac’s activity by +submitting a purchase order that disguised this consignment as a sale with fixed payment terms. + +At the end of 2001, with Virbac facing a reve nue shortfall, Bell c onvinced Robison to +have Walco purchase another $800,000 of pour-on products. Walco’s additional purchase of this +product was unusual in a number of ways. First, Walco had not sold any of the $900,000 of +pour-on shipped at the end of September 2001. Wa lco, at Bell’s request, sent a purchase order +with 120-day payment terms while simultaneously en tering into an undiscl osed side agreement +with Bell pursuant to which payments were not required until Walco sold the product. In +addition, both Virbac and Walco knew that Walco was contractually unable to sell Virbac’s +pour-on products, which have a limited shelf life, until it terminated an exclusive distribution +agreement with another manufacturer, which did not occur until the second quarter of 2002. + +In addition to improperly ac celerating revenue recognition on actual tr ansactions, Virbac +improperly recognized revenue on sham transactions fabricated by Virbac management. At the end +of the fourth quarter of 2002, Bell conceived and implemented a scheme to inflate Virbac’s revenue +by shipping $560,000 of Iverhart Plus to Paragon Logistics (“Paragon”), a division of Walco. The +transaction was falsely documented in Virbac’s books and records, as well as in Walco’s purchase +order, as a sale to Walco. Bell separately negotiated an arrangement with Robison whereby Virbac +would have Paragon ship the product to other customers and Virbac would pay Paragon a logistics +fee for warehousing and freight costs. By accepting the shipment and improperly documenting the +purchase order, Walco and Robison assisted Bell in inflating Virbac’s revenue. The Virbac scheme +failed; ultimately, the entire shipment expired, no replacement product was shipped, and Virbac was +forced to issue a credit to Walco for the entire invoice amount. Bell admitted that not all the terms +of the Paragon transaction had been finalized by December 31, 2002. Hubert admitted that Bell’s +determination to recognize reve nue on this “half-baked” trans action was ill-advi sed because no +customer was obligated to purchase the product that Virbac had stuffed into a “logistics” warehouse. + +4 GAAP requires the following criteria for revenue recognition: 1) persuasi ve evidence that an arrangement +exists; 2) delivery has occurred or services have been rendered; 3) the seller's price to the buyer is fixed or determinable; +and 4) collectibility is reasonably assured. See, e.g., Statement of Financial Accounting Standards No. 48 (“FAS 48”); +Statements of Financial Accounting Concepts Nos. 2 a nd 5 (“SFAC 2” and “SFAC 5”); and Accounting Research +Bulletin No. 43 (“ARB 43”). + +5 Prior to the introduction of the pour-on product line, Virbac focused exclusively on the pet and small +companion animal market. Virbac’s pour-on products, and its subsequent introduction of other products, marked +Virbac’s entry into the large animal market. The products are applied externally on cattle—hence the name “pour-on.” + + 5 + By including this sale in its books and records, Bell was able to achieve Virbac’s operating income +target for 2002, but not its revenue target. + +IV. +VIOLATIONS + + Based on the foregoing, the Commission finds that: + + A. Walco caused Virbac’s violations of Sections 17(a)(2) and 17(a)(3) 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, and also caused Bell, Ro ugraff, and Hubert’s violations of Section +13(b)(5) of the Exchange Act, and Rule 13b2-1 thereunder; and + +B. Robison caused Virbac’s violations of Sections 17(a)(2) and 17(a)(3) 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, and also caused Bell, Rougraff, and Hubert’s violations of +Section 13(b)(5) of the Exchange Act, and Rule 13b2-1 thereunder. + +V. + + In view of the foregoing, the Commission deems it appropria te to impose the sanctions +agreed to in the Respondents’ Offer.6 + + Accordingly, IT IS HEREBY OR DERED, pursuant to Section 8A of the Securities Act and +Section 21C of the Exchange Act, that: + + A. Respondent Walco cease and desist from committing or causi ng any violation and +any future violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act, and Sections 13(a), +13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-13, and +13b2-1 thereunder; and + +B. Respondent Robison cease and desist from committing or causing any violation and +any future violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Section 13(b)(5) of +the Exchange Act, and Rule 13 b2-1 thereunder, and from causin g any violation and any future +violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, +13a-1 and13a-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 + +6 Robison has agreed to pay a $50,000 civil penalty, in connection with the parallel civil action. \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2454.txt b/raw/aaer/2006/AAER-2454.txt new file mode 100644 index 0000000000000000000000000000000000000000..51f93fe3caf9079a439f35976a2eca1bd273c6b7 --- /dev/null +++ b/raw/aaer/2006/AAER-2454.txt @@ -0,0 +1,214 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES ACT OF 1933 +Release No. 8718 / June 30, 2006 + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54075 / June 30, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2454 / June 30, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12350 +In the Matter of + + Information Architects + Corporation, + William Overhulser and + Michael Clark, + + Respondents. +: +: +: +: +: +: +: +: + +ORDER INSTITUTING CEASE-AND-DESIST +PROCEEDINGS, MAKING FINDINGS, AND +IMPOSING A CEASE-AND-DESIST ORDER +PURSUANT TO SECTION 8A OF THE SECURITIES +ACT OF 1933 AND 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 8A of the Securities +Act of 1933 (“Securities Act”) and Section 21C of the Securities Exchange Act of 1934 +(“Exchange Act”) against Information Architects Corporation (“IACH” or “company”), William +Overhulser (“Overhulser”) and Michael Clark (“Clark”) (collectively “Respondents”). + +II. + + In anticipation of the institution of these pr oceedings, Respondents have submitted Offers +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 Respondents and the subject matter of +these proceedings, which Respondents admit, Respondents consent to the entry of this Order +Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist +Order Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities +Exchange Act of 1934 (“Order”), as set forth below. + + +III. + + On the basis of this Order and Re spondents’ Offers, the Commission finds1 that: + +A. Respondents + + 1. IACH is a North Carolin a corporation with its principal executive office located +in Fort Lauderdale, Florida. IACH, a company that provides employment screening and +background investigation services, has a class of securities registered with the Commission under +Section 12(g) of the Exchange Act and that trade on the Over-the-Counter Bulletin Board. + + 2. Overhulser, 38, is the former Chief Oper ating Officer (“COO”) and a director of +IACH. Overhulser has no known disciplinary history. + + 3. Clark, 30, is the former president of IACH. Clark has no known disciplinary +history. + +B. Background + + 4. On April 6, 2004, IACH filed a Form S-8 regarding the issuance of 14.6 million +shares of IACH stock to various consultants, who were contracted to perform services through +December 31, 2004. IACH’s Form S-8 incorporated by reference subsequent filings of IACH +until such time as a post-effective amendment to the S-8 is filed disclosing that all securities +offered have been sold or which de-registers all securities that remain unsold. No such +amendment was filed during the time period relevant to the events described herein. Therefore, +the Form S-8 incorporated the filings described below. + + 5. On April 22, 2004, IACH filed with the Commission a Form 10-KSB for the year +ended December 31, 2003. The Form 10-KSB was signed and certified by Clark, as IACH’s +president. IACH relied on a non-employee management consultant, Marvin Winick, to prepare +and then file the company’s public reports. Prior to filing, Winick was to provide draft reports +for review by IACH’s officers and directors, including Clark and Overhulser. Winick prepared +the Form 10-KSB for IACH and included in the filing a Report of Independent Certified Public +Accountants dated April 15, 2004, and auditor’s consent letter, purportedly signed by an +Oklahoma City-based accounting firm (“accounting firm”). In addition, IACH’s Form 10-KSB +noted that, on August 31, 2003, the company retained the accounting firm to replace its prior +auditor, who had resigned. + + 6. On May 14, 2004, August 16, 2004 and N ovember 18, 2004, IACH filed Forms +10-QSB for the quarterly periods ended March 31, 2004, June 30, 2004 and September 30, 2004, +respectively. All of IACH’s 2004 quarterly filings were signed and certified by Clark, as +president, and Overhulser, as COO. Each filing contains a balance sheet comparing the financial +results for the current quarter with those for the year ended December 31, 2003 and designating +the 2003 period as “audited.” + +1 The findings herein are made pursuant to Respondents’ Offers of Settlement and are not binding on any +other person or entity in this or any other proceeding. + 2 + +7. In October 2004, the managing partner (“auditor”) of the accounting firm learned +that IACH’s Form 10-KSB contained an audit report purportedly issued by the accounting firm. +In fact, that accounting firm had neither audited IACH nor provided IACH with an audit report. +The auditor immediately confronted Winick about the fictitious audit report. Winick admitted to +the auditor that he had included the putative audit report in IACH’s Commission filing. The +auditor then told Winick to remove the sham report from the filing; Winick assured the auditor +that he would take care of it. + +8. In a letter dated Octobe r 19, 2004, the accounting firm notified IACH and Winick +that the firm had not performed the audit referenced in the 2003 Form 10-KSB and demanded +that the firm’s name be removed as IACH’s auditor of record. Until February 2005, IACH took +no steps to advise the investing public, in a Form 8-K, press release or by any other means, that +the accounting firm performed no audit of its financial statements. + +C. Legal Standards + +9. Sections 17(a)(2) and 17(a )(3) of the Securities Act proscribe certain fraudulent +conduct in the offer and sale of securities. Specifically, Section 17(a)(2) makes it unlawful, in +the offer or sale of any securities, for any person to obtain money or property by means of any +untrue statement of a material fact or any omission to state a material fact necessary in order to +make the statements made, in light of the circumstances under which they were made, not +misleading. Similarly, Section 17(a)(3) makes it unlawful, in the offer or sale of any securities, +to engage in any transaction, practice, or course of business which operates as a fraud or deceit +upon the purchaser. Scienter is not required to establish a violation of Section 17(a)(2) or (3). In +this case, IACH’s Form S-8, described above, was a continuing offer of the sale of securities +throughout the relevant time period. + +10. Sections 13(a) and Rules 13a-1 and 13a- 13 thereunder require issuers with a class +of securities registered under Section 12 of the Exchange Act to file with the Commission annual +and periodic reports, and Rule 12b-20 of the Exchange Act requires that periodic reports contain +all information necessary to ensure that the statements made in them are not materially +misleading. It is implicit in these requirements that the information in the reports be accurate. +See SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978), cert. denied, 440 U.S. 913 +(1979). + + 11. Section 13(b)(2)(A) of the Exchange Act requires issuers to make and keep +books, records, and accounts that, in reasonable detail, accurately reflect transactions and asset +dispositions, and Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and +maintain a system of internal controls sufficient to provide reasonable assurances that +transactions are recorded as necessary to permit the preparation of financial statements in +accordance with Generally Accepted Accounting Principles. + + 12. Rule 13b2-1 (promulgated under Secti on 13(b)(2)(A) 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) of the Exchange Act. + 3 + + 13. Exchange Act Rule 13a-14 requires princi pal executives and financial officers to +certify in quarterly and annual Commission filings that, among other things, they have read the +filing; that it does not contain any untrue statements, or omissions, of material facts; that the +filing fairly presents the financial condition and results of operations and cash flows of the +issuer; and that they have disclosed to the audit committee and auditors all significant +deficiencies of internal controls of the company. Rule 13a-14 further requires certifying officers +to certify that they have, among other things, reviewed the issuers’ internal controls. + +D. Conclusions + + 14. As a result of the conduct described above, IACH violated Sections 17(a)(2) and +17(a)(3) 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. + + 15. As a result of the conduct described a bove, Overhulser violated Sections 17(a)(2) +and 17(a)(3) of the Securities Act, and Rules 13a-14 and 13b2-1 of the Exchange Act, and +caused IACH’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. + + 16. As a result of the conduct described a bove, Clark violated Sections 17(a)(2) and +17(a)(3) of the Securities Act, and Rules 13a-14 and 13b2-1 of the Exchange Act, and caused +IACH’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. + + 4 +IV. + + In view of the foregoing, the Commission deems it appropriate to impose the sanction +agreed to in Respondents’ Offer. + + Accordingly, it is hereby ORDERED that: + +Respondent IACH cease and desist from committing or causing any violations and any +future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act, 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 Overhulser cease and desist from committing or causing any violations and +any future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Rules 13a-14 +and 13b2-1 of the Exchange 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, 13a-1, and +13a-13 thereunder. + +Respondent Clark cease and desist from committing or causing any violations and any +future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Rules 13a-14 and +13b2-1 of the Exchange 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, 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 + 5 \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2455.txt b/raw/aaer/2006/AAER-2455.txt new file mode 100644 index 0000000000000000000000000000000000000000..59403b578e4e1ec7ea2b3dff7a77cfa9a229b569 --- /dev/null +++ b/raw/aaer/2006/AAER-2455.txt @@ -0,0 +1,197 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES ACT OF 1933 +Release No. 8719 / June 30, 2006 + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54076 / June 30, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2455 / June 30, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12351 + +In the Matter of + Greentech USA, Inc. and + Roland L. Breton, + + +Respondents. +: +: +: +: +: +: +: +: + +ORDER INSTITUTING CEASE-AND-DESIST +PROCEEDINGS, MAKING FINDINGS, AND +IMPOSING A CEASE-AND-DESIST ORDER +PURSUANT TO SECTION 8A OF THE +SECURITIES ACT OF 1933 AND 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 8A of the Securities +Act of 1933 (“Securities Act”) and Section 21C of the Securities Exchange Act of 1934 +(“Exchange Act”) against Greentech USA, Inc. (“Greentech” or “company”) and Roland L. Breton +(“Breton”) (collectively “Respondents”). + +II. + + In anticipation of the institution of these pr oceedings, Respondents have 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 Respondents and the subject matter of +these proceedings, which Respondents admit, Respondents consent to the entry of this Order +Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist +Order Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities +Exchange Act of 1934 (“Order”), as set forth below. + +III. + + On the basis of this Order and Re spondents’ Offer, the Commission finds1 that: + +A. Respondents + + 1. Greentech is a Florida co rporation headquartered in Fort Lauderdale, Florida. +During the time period relevant here, Greentech, a company engaged in the sale, marketing and +rental of portable trade show displays, had a class of securities registered with the Commission +under Section 12(g) of the Exchange Act that were traded on the Over-the-Counter Bulletin +Board. + + 2. Roland L. Breton is the president, CEO and a director of Greentech. Breton has +no known disciplinary history and is not an officer or director of any other publicly traded +company. + +B. Background + + 3. On October 14, 2003, Greentech filed a Fo rm S-8 regarding the issuance of 15.6 +million shares to several consultants for various services. Greentech’s Form S-8 incorporated by +reference subsequent filings of Greentech until such time as a post-effective amendment to the S- +8 is filed disclosing that all securities offered have been sold or which de-registers all securities +that remain unsold. No such amendment was filed during the time period relevant to the events +described herein. Therefore, the Form S-8 incorporated the filings described below. + + 4. On April 16, 2004, Greentech filed with the Commission a Form 10-KSB for the +year ended December 31, 2003. The Form 10-KSB was signed and certified by Breton, as +Greentech’s CEO and principal accounting and financial officer. Greentech relied on a non- +employee management consultant, Marvin Winick, to prepare and then file the company’s public +reports. Prior to filing, Winick was to provide draft reports for review by Breton. Winick +prepared the Form 10-KSB for Greentech and included in the filing an audit report, dated April +15, 2004, purportedly provided by an Oklahoma City-based accounting firm (“accounting firm”) +and auditor’s consent letter, purportedly signed by the accounting firm. In addition, Greentech’s +Form 10-KSB noted that, on December 1, 2003, the company retained the accounting firm to +replace its prior auditor, who had resigned. + + 5. On May 19, 2004, August 19, 2004 and November 26, 2004, Greentech filed +Forms 10-QSB for the quarterly periods ended March 31, 2004, June 30, 2004 and September +30, 2004, respectively. All of Greentech’s 2004 quarterly filings were signed and certified by +Breton, as CEO and principal financial and accounting officer. Each filing contains a balance +sheet comparing the financial results for the current quarter with those for the year ended +December 31, 2003 and designating the 2003 period as “audited.” + + +1 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 +6. In October 2004, the managing partner (“auditor”) of the accounting firm learned +that Greentech’s Form 10-KSB contained the accounting firm’s purported audit report. In fact, +the accounting firm neither audited Greentech nor provided Greentech with an audit report. The +auditor immediately confronted Winick about the fictitious audit report. Winick admitted to the +auditor that he had included the accounting firm’s audit report in Greentech’s Commission +filing. The auditor then told Winick to remove the sham report from the filing; Winick assured +the auditor that he would take care of it. + +7. In a letter dated Oct ober 19, 2004, the accounting firm notified Greentech and +Winick that the firm had not performed the audit referenced in the 2003 Form 10-KSB and +demanded that the firm’s name be removed as Greentech’s auditor of record. Greentech took no +steps until February 2005 to advise the investing public, in a Form 8-K, press release or by any +other means, that the accounting firm performed no audit of its financial statements. + +C. Legal Standards + +8. Sections 17(a)(2) and 17(a )(3) of the Securities Act proscribe certain fraudulent +conduct in the offer and sale of securities. Specifically, Section 17(a)(2) makes it unlawful, in +the offer or sale of any securities, for any person to obtain money or property by means of any +untrue statement of a material fact or any omission to state a material fact necessary in order to +make the statements made, in light of the circumstances under which they were made, not +misleading. Similarly, Section 17(a)(3) makes it unlawful, in the offer or sale of any securities, +to engage in any transaction, practice, or course of business which operates as a fraud or deceit +upon the purchaser. Scienter is not required to establish a violation of Section 17(a)(2) or (3). In +this case, Greentech’s Form S-8, described above, was a continuing offer of the sale of securities +throughout the relevant time period. + +9. Sections 13(a) and Rules 13a-1 and 13a- 13 thereunder require issuers with a class +of securities registered under Section 12 of the Exchange Act to file with the Commission annual +and periodic reports, and Rule 12b-20 of the Exchange Act requires that periodic reports contain +all information necessary to ensure that the statements made in them are not materially +misleading. It is implicit in these requirements that the information in the reports be accurate. +See SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978), cert. denied, 440 U.S. 913 +(1979). + + 10. Section 13(b)(2)(A) of the Exchange Act requires issuers to make and keep +books, records, and accounts that, in reasonable detail, accurately reflect transactions and asset +dispositions, and Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and +maintain a system of internal controls sufficient to provide reasonable assurances that +transactions are recorded as necessary to permit the preparation of financial statements in +accordance with Generally Accepted Accounting Principles. + + 11. Rule 13b2-1 (promulgated under Secti on 13(b)(2)(A) 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) of the Exchange Act. + + 3 + 12. Exchange Act Rule 13a-14 requires princi pal executives and financial officers to +certify in quarterly and annual Commission filings that, among other things, they have read the +filing; that it does not contain any untrue statements, or omissions, of material facts; that the +filing fairly presents the financial condition and results of operations and cash flows of the +issuer; and that they have disclosed to the audit committee and auditors all significant +deficiencies of internal controls of the company. Rule 13a-14 further requires certifying officers +to certify that they have, among other things, reviewed the issuers’ internal controls. + +D. Conclusions + + 13. As a result of the conduct described above, Greentech violated Sections 17(a)(2) +and 17(a)(3) 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. + +14. As a result of the conduct described above , Breton violated Sections 17(a)(2) and +17(a)(3) of the Securities Act and Rules 13a-14 and 13b2-1 of the Exchange Act, and caused +Greentech’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. + + 4 +IV. + + In view of the foregoing, the Commission deems it appropriate to impose the sanction +agreed to in Respondents’ Offers. + + Accordingly, it is hereby ORDERED that: + +Respondent Greentech cease and desist from committing or causing any violations and +any future violations of Sections 17(a)(2) and 17(a)(3) 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. + +Respondent Breton cease and desist from committing or causing any violations and any +future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Rules 13a-14 and +13b2-1 of the Exchange 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, 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 + 5 \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2457.txt b/raw/aaer/2006/AAER-2457.txt new file mode 100644 index 0000000000000000000000000000000000000000..24c79c902845f148ad4c909bf5672b33dda432ec --- /dev/null +++ b/raw/aaer/2006/AAER-2457.txt @@ -0,0 +1,287 @@ + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54099 / July 5, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2457 / July 5, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12356 + + + +In the Matter of + + Craig M. Waggy + +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 Craig M. Waggy (“Waggy”). +II. + +In anticipation of the institution of these proceedings, Waggy 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, Waggy 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 Waggy’s Offer, the Commission finds that1: + + +1 The findings herein are made pursuant to Waggy’s offer of settlement and are not binding on +any other person or entity in this or any other proceeding. + + A. SUMMARY + From September 1997 to May 2002, Waggy was the Chief Financial Officer of TV Guide, +Inc., which became a subsidiary of Gemstar-TV Guide International, Inc. (“Gemstar”) in July +2000. Prior to the merger, Waggy was responsible for TV Guide’s books and records; after the +merger, Waggy, in consultation with Gemstar’s Chief Financial Officer, was responsible for TV +Guide’s books and records, which were consolidated into Gemstar’s financial records. + From the quarter ended June 30, 2000, th rough the quarter ended March 31, 2002, Waggy +caused TV Guide to recognize and record certain revenue and expenses that were subsequently +determined not to be in accordance with Generally Accepted Accounting Principles (“GAAP”). +Waggy reasonably should have known, based on information he had received or could have +reasonably determined, that the expense or revenue was improperly recorded at TV Guide and that +revenue would be improperly recognized, recorded, and reported by Gemstar. As a result, Waggy +was a cause of Gemstar’s violations of the reporting and record-keeping provisions of the federal +securities laws. + B. RESPONDENT +Craig M. Waggy is a resident of Tulsa, Oklahoma. Beginning in September 1997, +Waggy was the CFO of TV Guide, which became a Gemstar subsidiary in July 2000. In May +2002, Waggy resigned from TV Guide. + C. RELATED PARTIES +Gemstar-TV Guide International, Inc. (“Gemstar”) is a Delaware corporation with its +principal place of business in Hollywood, California. Gemstar’s common stock is registered with +the Commission pursuant to Section 12(g) of the Exchange Act and listed on the NASDAQ Stock +Market. + +TV Guide, Inc. (“TV Guide”) was a public company until Gemstar acquired it in July +2000. + + D. FACTS + 1 . Background +Gemstar was the product of a July 2000 merger between Gemstar, a company that licensed +an interactive program guide (“IPG”) for televisions and sold advertising on the IPG, and TV +Guide, a company that published TV Guide magazine and owned various other media properties. +IPG is a product that allows TV viewers to navigate through, sort, obtain information on, and select +television programs. Gemstar reported revenue for IPG advertising as Interactive Platform Sector +(“IP Sector”) revenue. From 1999 through the quarter ended September 30, 2002, Gemstar +materially overstated its financial results by recording revenue not in accordance with GAAP. +Some of the improperly recorded revenue is discussed below. + 2 + +a. TV Guide Awards Show Advertising +In the quarter ended June 30, 2000, which was the quarter immediately preceding +Gemstar’s acquisition of TV Guide, Gemstar and TV Guide recognized and reported $1.3 million +IP Sector revenue and expense, respectively, for IPG advertising relating to the 2000 TV Guide +Awards Show. Gemstar issued an invoice to TV Guide for the advertising, which was approved +for payment by TV Guide’s President and COO. However, the Awards Show had aired in the +quarter ended March 31, 2000, and there was no evidence that Gemstar ever ran IPG advertising +for the TV Guide Awards Show in the quarter ended June 30, 2000. Because Gemstar and TV +Guide recorded the $1.3 million in the pre-merger quarter, the revenue, but not the expense, carried +forward to Gemstar’s financial statements in its Form 10-K for the nine-months ended December +31, 2000. This revenue was material to Gemstar’s separately reported IP Sector financial results. + +Gemstar improperly recognized the $1.3 million in advertising revenue for the 2000 +Awards Show because the revenue was neither realized or realizable nor earned. See SFAC No. 5, +¶83-84; ARB No. 43, Chapter 1A, ¶1; APB Opinion No. 10, ¶12; SAB No. 101. TV Guide should +not have recorded the $1.3 million expense for the Awards Show IPG advertising because no +economic benefit had been used up in delivering or producing goods, rendering services or other +activities. See FASB Statement of Financial Accounting Concepts No. 5, “Recognition and +Measurement in Financial Statements of Business Enterprises” ¶ 85. (expenses are generally +recognized when an entity’s economic benefits are used up in delivering or producing goods or +rendering services). Gemstar reversed the recognition of this IP Sector revenue in March 2003. + +b. Roush Corp. + +In June 2000, TV Guide entered into an agreement with Roush Corp. (“Roush”), a private +company that operated a NASCAR racing team, under which TV Guide agreed to provide Roush +advertising on TV Guide media in exchange for Roush’s agreement to provide TV Guide +advertising and promotional services. In the quarter ended December 31, 2000, Gemstar ran IPG +advertising for Roush, and TV Guide, in consultation with Gemstar’s CFO, recognized, recorded, +and, through Gemstar, reported $1.4 million in IP Sector revenue from Roush. This revenue was +material to Gemstar’s separately reported IP Sector financial results. + +Gemstar improperly recognized the $1.4 million in IP Sector revenue from its non- +monetary transaction with Roush, because the fair value of the IPG advertising was inaccurately +determined. See EITF 99-17, Accounting for Advertising Barter Transactions (to determine the +fair value of a barter transaction, a period not to exceed six months prior to the date of the barter +transaction should be used to determine whether a historical practice exists of receiving cash for +similar advertising). Gemstar reversed the recognition of this IP Sector revenue in March 2003. + +c. Fantasy Sports + +In June 2001, Gemstar entered into an agreement with Fantasy Sports Properties, Inc. +(“Fantasy Sports”), a private company that created and operated Internet-based fantasy sports +games. Under the agreement, Gemstar acquired Fantasy Sports’ intellectual property for +approximately $20.75 million, of which $750,000 was to be paid in cash and $20 million was to be + 3 + +paid in the form of advertising run by Gemstar at Gemstar’s discretion in 2001. For the year 2001, +Gemstar ran IPG advertising for Fantasy Sports and recorded and reported a total of $20 million in +IP Sector revenue from Fantasy Sports. No cash payment from Fantasy Sports to Gemstar for the +$20 million in purported advertising was ever made. TV Guide, in consultation with Gemstar’s +CFO and outside auditors, recorded and, through Gemstar, reported the $20 million in 2001. The +$20 million in recorded and reported revenue from Fantasy Sports for 2001 was material to +Gemstar’s separately reported IP Sector financial results. + + Gemstar’s recognition of revenue from the Fa ntasy Sports transaction throughout 2001 did +not conform with GAAP. First, the advertising revenue was never earned because it resulted from +a transaction that lacked economic substance and was merely a pretext to permit Gemstar to record +IP Sector revenue. Second, Gemstar lacked any reasonable basis to determine the fair value of the +IPG advertising because Gemstar did not have stand-alone IPG advertising transactions with +unrelated parties from which the company received cash in amounts comparable to those +recognized in connection with the Fantasy Sports transaction. See APB Opinion No. 29 (revenue +from non-monetary transactions must be based on fair value of assets involved). In November +2002, Gemstar reversed the recognition of the $20 million in IP Sector revenue from Fantasy +Sports. + +d. Motorola and Tribune + +In October 2000, Gemstar entered into an agreement with Motorola, Inc. (“Motorola”), +under which Motorola agreed to pay Gemstar $188 million in cash and to allow Gemstar to +characterize $17.5 million of that as advertising to be run over a 48 month period. Under the +agreement, Gemstar retained final discretion as to timing and placement of the advertising. In +April 2001, Gemstar and The Tribune Company (“Tribune”) entered into a transaction which +included, among others, two agreements: (1) a Stock Purchase Agreement in which Tribune paid +$106 million in cash to Gemstar for the stock of one of TV Guide’s businesses; and (2) an +Advertising Agreement in which Tribune committed to purchase $100 million of advertising from +Gemstar over a six-year period, regardless of whether Tribune used the advertising. The +documentation for the transaction was split at the direction of Gemstar into these two component +parts. Gemstar controlled the timing and placement of the advertising that it ran for Tribune. In +2001 and the quarter ended March 31, 2002, Gemstar ran IPG advertising for Motorola and +Tribune and recognized and reported a total of $34.5 million in IP Sector revenue. Of the $34.5 +million, TV Guide, in consultation with Gemstar’s CFO, recognized, recorded, and, through +Gemstar, reported $17.9 million. This revenue was material to Gemstar’s separately reported IP +Sector results. + +Gemstar improperly recognized the $34.5 million in IP Sector advertising revenue from +its transactions with Motorola and Tribune, because the fair value of the IPG advertising +provided by Gemstar was not realizable, verifiable, or objectively determinable. See American +Institute of Certified Public Accountants, Statement of Position 97-2, “Software Revenue +Recognition,” paragraph 10 (“[i]f an arrangement includes multiple elements, the fee should be +allocated to the various elements based on vendor-specific objective evidence of fair value, +regardless of any separate prices stated within the contract for each element”); SAB 101, +Frequently Asked Questions and Answers, Question 4 (revenue from multi-element transaction + 4 + +should be allocated to various elements based on fair value that is reliable, verifiable, and +objectively determinable; prices listed in multi-element arrangement may not be representative +of fair value because prices of different components of transaction can be altered in negotiations +and still result in same aggregate consideration). In March 2003, Gemstar reversed the +recognition of the $34.5 million as IP Sector revenue and allocated it to other sectors. + 2 . Waggy’s Conduct + From September 1997 to May 2002, Waggy was the CFO of TV Guide, which became a +Gemstar subsidiary in July 2000. After July 2000 TV Guide’s books and records were consolidated +into Gemstar’s financial statements and reported in Gemstar’s periodic reports. Waggy was +responsible for TV Guide’s books and records, including causing TV Guide to record the Awards +Show expense and the Roush, Fantasy Sports, Motorola, and Tribune revenue. +While performing his duties as TV Guide’s CFO, including consulting with Gemstar’s +CFO and outside auditors, Waggy learned certain information regarding the Awards Show, Roush, +Fantasy Sports, Motorola, and Tribune transactions and Gemstar’s IPG advertising. In causing TV +Guide to record the expense and revenue discussed above, Waggy was negligent in not knowing, +based on information that he had received and/or could have reasonably determined, that the +expense or revenue was improperly recognized and recorded at TV Guide and that revenue would +be improperly recognized, recorded, and reported by Gemstar. + +E. LEGAL DISCUSSION + +1. Causing Gemstar’s Violations of the Reporting Provisions of Section +13(a) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 +Thereunder + +Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require issuers +of securities registered pursuant to Section 12 of the Exchange Act, such as Gemstar, to file with +the Commission certain annual and quarterly reports. Implicit in these provisions is the +requirement that the reports accurately reflect the issuer’s financial condition and operating results. +See SEC v. IMC Int’l, Inc., 384 F. Supp. 889, 893 (N.D. Tex.), aff’d mem., 505 F.2d 733 (5th Cir. +1974). Rule 12b-20 under the Exchange Act further requires the inclusion of any additional +material information that is necessary to make required statements, in light of the circumstances +under which they were made, not misleading. No showing of scienter is required to establish a +violation of Section 13(a) of the Exchange Act. See SEC v. Savoy Indus., Inc., 587 F.2d 1149, +1167 (D.C. Cir. 1978). Moreover, Regulation S-X requires that financial statements filed with the +Commission pursuant to Section 13(a) of the Exchange Act be prepared in accordance with +GAAP. See Peritus Software Services, Inc., Exchange Act Rel. No. 42673 (Apr. 13, 2001) (settled +proceeding). Otherwise, such financial statements shall be presumed inaccurate. + +Gemstar committed primary reporting violations by filing with the Commission periodic +reports for 2000, 2001, and the first quarter of 2002 that improperly reported Awards Show, +Roush, Fantasy Sports, Motorola, and Tribune IP Sector revenue. Waggy was a cause of those +reporting violations, because he caused TV Guide to record IP Sector revenue from, or expenses +for, the Awards Show, Roush, Fantasy Sports, Motorola, and Tribune, and he was negligent in + 5 + +not knowing, based on information he had received and/or could have determined through +additional inquiry, that the revenue or expense was improperly recognized and recorded at TV +Guide and would be improperly reported by Gemstar.2 +2. Causing Gemstar’s Violations of the Record-Keeping Provisions of +Section 13(b)(2)(A) of the Exchange Act and Committing Violations of +Rule 13b2-1 Thereunder +Section 13(b)(2)(A) of the Exchange Act requires reporting companies registered +pursuant to Section 12 of the Exchange Act to “make and keep books, records, and accounts, +which in reasonable detail, accurately and fairly reflect the transactions . . . of the issuer.” No +showing of scienter is required to establish a violation of Section 13(b)(2)(A). SEC v. World- +Wide Coin Invs., Ltd., 567 F. Supp. 724, 751 (N.D. Ga. 1983). Rule 13b2-1 under the Exchange +Act also prohibits any person from directly or indirectly falsifying any book, record, or account +described in Section 13(b)(2)(A). + +Gemstar committed primary violations of the record-keeping provisions of Section +13(b)(2)(A) of the Exchange Act by improperly recording Awards Show, Roush, Fantasy Sports, +Motorola, and Tribune IP Sector revenue. Waggy was a cause of those record-keeping violations +and violated Rule 13b2-1 under the Exchange Act, because he caused TV Guide to record IP +Sector revenue from, or expenses for, the Awards Show, Roush, Fantasy Sports, Motorola, and +Tribune, and he was negligent in not knowing, based on information he had received and/or +could have determined through additional inquiry, that the revenue or expense was improperly +recognized and recorded at TV Guide and Gemstar. + + +2 Under Section 21C(a) of the Exchange Act, the standard for establishing that a person was a +culpable cause of another person’s violation is that the person engaged in an act or omission that +he “knew or should have known would contribute” to the primary violation. This standard +requires negligence for causing the type of non-scienter violations at issue in this case. KPMG +Peat Marwick, Exchange Act Rel. No. 43862 (June 19, 2001), aff’d, KPMG v. SEC, 289 F. 3d +109 (D.C. Cir. 2002). + 6 + +IV. + +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Waggy’s Offer.3 + + Accordingly, it is hereby ORDERED that Waggy cease and desist from causing any +violations and any future violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and +Rules 12b-20, 13a-1, and 13a-13 thereunder and committing or causing any violations and any +future violations of Rule 13b2-1 thereunder. + +By the Commission. + + + N a n c y M . M o r r i s + Secretary + +3 Waggy has agreed to pay a $25,000 civil penalty in a civil action in the Central District of +California entitled SEC v. Yuen, et al., Case No. CV 03-4376 MRP (PLAx). + 7 \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2458.txt b/raw/aaer/2006/AAER-2458.txt new file mode 100644 index 0000000000000000000000000000000000000000..e2b68a2fe42e764f324cd8296f64e87bcbfb2edd --- /dev/null +++ b/raw/aaer/2006/AAER-2458.txt @@ -0,0 +1,1377 @@ + + + + + + + + + + + + + + + + SEC.gov | Rollin M. Dick and James S. 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Dick and James S. Adams + + + + + + + + + + + + Rollin M. Dick and James S. Adams + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19756 / July 7, 2006 + + + + SEC v. Rollin M. Dick and James S. Adams , United States District Court for the Southern District of Indiana, Civil Action No. 01:04-CV-0457-SEB-VSS + + Accounting and Auditing Enforcement Release No. 2458 / July 7, 2006 + + Court Enters Final Judgments Against Former Chief Financial Officer and Chief Accounting Officer of Conseco, Inc. and Conseco Finance Corporation + + + + The Securities and Exchange Commission announced that on July 3, 2006, United States District Judge Sarah Evans Barker entered final judgments against Rollin M. Dick and James S. Adams, respectively, the former Chief Financial Officer and Chief Accounting Officer of Carmel, Indiana based Conseco, Inc. and its then wholly owned subsidiary, Conseco Finance Corporation. The judgments imposed permanent injunctions prohibiting Dick and Adams from violating 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 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, 12b-20, and 13a-13 promulgated thereunder. In addition, the judgments barred Dick and Adams for a period of five years from acting as an officer or director of a publicly held company, and imposed a civil penalty against Dick in the amount of $110,000 and a civil penalty against Adams in the amount of $90,000. Dick and Adams consented to the entry of the judgments without admitting or denying the allegations of the compliant filed against them. + + In its complaint against Dick and Adams, the Commission alleged that from March 1999 through February 2000, Conseco and Conseco Finance made false and misleading statements about their earnings in filings made with the Commission and in public statements announcing their earnings, overstating their results by hundreds of millions of dollars. The complaint alleged that this massive overstatement occurred because Dick and Adams conducted a fraudulent scheme to avoid huge write downs, and corresponding charges to earnings, of certain assets held by Conseco Finance known as interest-only securities. The complaint alleged that Dick and Adams avoided these write downs through the use of improper accounting techniques in violation of United States Generally Accepted Accounting Principles. In addition, the complaint alleged that Dick and Adams made a number of unsupported and improper adjustments to the books and records of their companies at the end of the first three quarters of 1999 to further inflate Conseco and Conseco Finance's earnings for these quarters in order to meet Wall Street analysts' consensus earnings targets, and that as a result of their activities, Dick and Adams violated the antifraud provisions of the federal securities laws and aided and abetted Conseco and Conseco Finance's violations of the reporting, record keeping and internal controls provisions. + + For further information see Litigation Release No. 18621 (March 21, 2004); Matter of Conseco Inc., Release No. 34-49392 (March 10, 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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Quilty, and Jerry W. Anderson + + + + + + + + + + + + Endocare, Inc., Kevin M. Quilty, and Jerry W. Anderson + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19772 / July 25, 2006 + + Accounting and Auditing Enforcement Release No. 2464 / July 25, 2006 + + Securities and Exchange Commission v. Endocare, Inc., Kevin M. Quilty, and Jerry W. Anderson , Civil Action No. CV 06-4502 RSWL (SSx)(C.D.Cal.). + + SEC Charges Endocare With Accounting Fraud and Misleading Statements About Internal Investigation + + Endocare Agrees to Pay $750,000 Penalty; Three Senior Officials Also Agree to Settlements + + + + The Securities and Exchange Commission (Commission) announced on July 19, 2006 that Irvine, California-based Endocare, Inc. agreed to settle fraud charges for engaging in a widespread accounting fraud and then making false and misleading public statements about the results of an internal investigation. At the time, Endocare developed and distributed medical devices for use in the treatment of various types of cancers and urological ailments. + + To settle the Commission's charges, which were filed in United States District Court for the Central District of California, Endocare agreed to pay a $750,000 civil penalty and to be permanently enjoined from the antifraud, reporting, recordkeeping, and internal controls provisions of the federal securities laws. Endocare agreed to settle the Commission's action without admitting or denying the allegations. + + The Commission also announced that Endocare's senior vice president of sales, Kevin Quilty (Quilty), age 52, of Washington Crossing, Pennsylvania, and the former president of an Endocare subsidiary, Jerry W. Anderson (Anderson), age 59, of Gunter, Texas, agreed to settle Commission charges for recordkeeping and internal controls violations and (in the case of Quilty) for aiding and abetting Endocare's reporting violations. Quilty agreed to a permanent injunction and to pay $23,749 in disgorgement and interest, and a $25,000 penalty. Anderson agreed to a permanent injunction and to pay a $35,000 penalty. In a separate administrative proceeding instituted by the Commission on July 19, Endocare's former director of sales for the Southeast region, L. Michael Hart, age 58, of Fort Pierce, Florida, agreed to cease and desist from causing Endocare's reporting and recordkeeping violations. All agreed to settle the charges without admitting or denying the allegations and findings. The settlements are subject to approval by the court. + + According to the Commission's complaint, Endocare engaged in improper revenue recognition practices, ranging from false sales to undisclosed side agreements, and improperly understated or deferred expenses to inflate earnings. As alleged in the complaint, Endocare reported a consistent history of "record revenue" growth quarter over quarter, reporting $2.8 million for the first quarter of 2001 to $11.4 million for the second quarter of 2002. The complaint alleges that, as a result of its fraudulent accounting, Endocare overstated revenue by at least 33% for the second quarter of 2002. The complaint further alleges that Endocare understated its pre-tax loss for 2001 by 20% and falsely reported pre-tax earnings for the first two quarters of 2002, rather than its actual substantial losses. + + The complaint further alleges that Quilty and Anderson assisted in Endocare's improper revenue practices. The complaint alleges that Quilty entered into numerous undisclosed side agreements containing contingent terms and parked product shipped to Endocare-controlled warehouses. The complaint also alleges that Anderson created fictitious customers used to purchase $1.2 million in product in September 2002. + + Also according to the complaint, Endocare committed additional securities law violations in the course of investigating allegations of improper accounting raised by its acting controller. In late October 2002, after receiving the controller's allegations, Endocare's audit committee retained a law firm to perform an investigation. Endocare's auditors at the time, KPMG, suggested that the audit committee hire independent counsel and an independent forensic accountant to conduct the investigation. In November 2002, after reviewing the work of a forensic accountant that the audit committee had retained, KPMG informed the audit committee that it was not prepared to complete its quarterly review until an expanded internal investigation had been performed. In December 2002, KPMG informed the audit committee that it had concluded that it could no longer rely on the representations of Endocare's management, and that it was withdrawing its report on Endocare's financial statements for the last fiscal year. Following these events, however, in March 2003 Endocare issued a press release in which it announced that, after an "independent review and investigation," the audit committee and its advisors had concluded that there was "no indication of fraud or intentional wrongdoing by management." The complaint alleges that this press release was false and misleading because, first, Endocare in fact had not conducted an independent investigation, and second, its internal review had in fact revealed substantial evidence of fraud or intentional wrongdoing. + + In its complaint, the Commission charged Endocare with violating the antifraud provisions, Section 17(a) of the Securities Act of 1933 and Section 10(b) and Rule 10b-5 thereunder of the Securities Exchange Act of 1934 (Exchange Act); the reporting provisions, Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder; recordkeeping provision, Section 13(b)(2)(A) of the Exchange Act; and internal controls provision, Section 13(b)(2)(B) of the Exchange Act. The Commission further charged Quilty and Anderson with aiding and abetting and violating the recordkeeping provisions, Sections 13(b)(2)(A) and 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, and additionally as to Quilty, aiding and abetting Endocare's violations of reporting provisions, Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. + + The settled administrative proceeding against Hart finds that he executed side agreements containing contingent terms, in violation of above-described reporting and recordkeeping provisions of the federal securities laws. + + The Commission's investigation is continuing. + + + + + 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-2465.pdf b/raw/aaer/2006/AAER-2465.pdf new file mode 100644 index 0000000000000000000000000000000000000000..870cb87614894f49dc2616ac91d3c8000b9b72e9 Binary files /dev/null and b/raw/aaer/2006/AAER-2465.pdf differ diff --git a/raw/aaer/2006/AAER-2465.txt b/raw/aaer/2006/AAER-2465.txt new file mode 100644 index 0000000000000000000000000000000000000000..0d7a20981cd89948de88080a64b09ec0b599711c --- /dev/null +++ b/raw/aaer/2006/AAER-2465.txt @@ -0,0 +1,177 @@ + + + + UNITED STATES OF AMERICA + before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54207 / July 25, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2465 / July 25, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12376 + + : + : + : +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE + : PROCEEDINGS PURSUANT TO RULE + ROLLIN M. DICK, 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 Rollin +M. Dick (“Respondent” or “Dick”) 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. + 2 +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 Responde nt’s Offer, the Commission finds that: + + 1. Dick, age 74, is and has been a certified public accountant licensed to +practice in the State of Indiana. From 1986 to April 2000, Dick was Chief Financial Officer and +Executive Vice President of Conseco, Inc. (“Conseco”). From June 1998 to April 2000, Dick was +Chief Financial Officer for Conseco Finance Corporation (“Conseco Finance”), f/k/a Green Tree +Financial Corporation, a wholly owned subsidiary of Conseco during this period. + + 2. At all relevant times, Conseco wa s a financial services holding company, +incorporated in Indiana, with its principal place of business in Carmel, Indiana. Conseco’s business +consisted of two segments: (i) insurance and fee-based businesses (such as mutual funds), and (ii) +finance operations. Conseco’s finance operations were conducted through Conseco Finance, with +Conseco including Conseco Finance’s financial results in its consolidated financial statements. +Conseco’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. + + 3. At all relevant times, Conseco Fina nce was a Delaware corporation with its +principal place of business in Saint Paul, Minnesota. Conseco Finance was a diversified financial +services company with operations that originated, purchased, sold and serviced consumer and +commercial loans throughout the United States. At all relevant times, certain of Conseco Finance’s +securities were registered with the Commission pursuant to Section 12(b) of the Exchange Act. + + 4. On March 10, 2004, th e Commission filed a complaint against Dick and co- +defendant James S. Adams in Securities and Exchange Commission v. Rollin M. Dick and James +S. Adams, Case No. 1:04-CV-0457 SEB-VSS in the United States District Court for the Southern +District of Indiana. On August 30, 2005, the Commission filed an amended complaint against +Dick and Adams in this action. On July 3, 2006, the court entered a Final Judgment permanently +enjoining Dick, by consent, from future violations of Section 17(a) of the Securities Act of 1933, +Section 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5, 13b2-1 and 13b2- +2, 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 Exchange Act Rules 10b-5, 12b-20 and 13a-13. The Judgment also ordered + 3 +Dick to pay $110,000 as a civil money penalty, and barred Dick for a period of five years +following the date of entry of the Final Judgment, 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 [15 U.S.C. § +78l] or that is required to file reports pursuant to section 15(d) of the Exchange Act. + +5. The Commission’s amended complaint alleged, among other things, that +from March 1999 through February 2000, Conseco and Conseco Finance made false and +misleading statements about their earnings in filings made with the Commission and in public +statements announcing their earnings, overstating their financial results by hundreds of millions of +dollars. The complaint alleged that this massive overstatement occurred primarily because Dick +and Adams conducted a fraudulent scheme to avoid huge write-downs of certain assets held by +Conseco Finance known as interest-only securities, and corresponding charges to earnings, +through the use of improper accounting techniques in violation of United States Generally +Accepted Accounting Principles. The complaint also alleged that Dick and Adams made a variety +of improper and unsupported “top-side” adjustments to Conseco Finance’s books and records at +the end of the first three quarters of 1999 to further inflate Conseco and Conseco Finance’s +earnings for these quarters in order to meet Wall Street’s analysts’ consensus earnings targets. +Further, the complaint alleged that Conseco and Conseco Finance, under Dick and Adams’ +direction, failed to maintain a system of internal accounting controls sufficient to prevent these +and other material misstatements in their financial statements, and that Dick and Adams were +responsible for and took advantage of this failure to maintain adequate controls. Finally, the +complaint alleged that Dick and Adams made misrepresentations to Conseco and Conseco +Finance’s auditors in management representation letters. + +IV. + + In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Dick’s Offer. + + Accordingly, it is hereby ORDERED, effective immediately, that: + + A. Dick is suspended from appearing or practicing before the Commission as an +accountant. + + B. After five years from the date of th is 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 + + 4 + 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. + +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. + + + + B y t h e C o m m i s s i o n . + + + + 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-2466.txt b/raw/aaer/2006/AAER-2466.txt new file mode 100644 index 0000000000000000000000000000000000000000..8725f5c31f435a937a0cb508a5639994c8d25c92 --- /dev/null +++ b/raw/aaer/2006/AAER-2466.txt @@ -0,0 +1,179 @@ + + + UNITED STATES OF AMERICA + before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54208 / July 25, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2466 / July 25, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12377 + + : + : + : +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE + : PROCEEDINGS PURSUANT TO RULE + JAMES S. ADAMS, 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 James +S. Adams (“Respondent” or “Adams”) 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. + 2 + +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 Responde nt’s Offer, the Commission finds that: + + 1. Adams, age 46, is and has been a certified public accountant licensed to +practice in the State of Indiana. From 1996 to September 2002, Adams was Chief Accounting +Officer, Treasurer, and Senior Vice President of Conseco, Inc. (“Conseco”). From June 1998 to +July 2002, Adams was Chief Accounting Officer for Conseco Finance Corporation (“Conseco +Finance”), f/k/a Green Tree Financial Corporation, a wholly owned subsidiary of Conseco during +this period. + + 2. At all relevant times, Conseco wa s a financial services holding company, +incorporated in Indiana, with its principal place of business in Carmel, Indiana. Conseco’s business +consisted of two segments: (i) insurance and fee-based businesses (such as mutual funds), and (ii) +finance operations. Conseco’s finance operations were conducted through Conseco Finance, with +Conseco including Conseco Finance’s financial results in its consolidated financial statements. +Conseco’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. + + 3. At all relevant times, Conseco Fina nce was a Delaware corporation with its +principal place of business in Saint Paul, Minnesota. Conseco Finance was a diversified financial +services company with operations that originated, purchased, sold and serviced consumer and +commercial loans throughout the United States. At all relevant times, certain of Conseco Finance’s +securities were registered with the Commission pursuant to Section 12(b) of the Exchange Act. + + 4. On March 10, 2004, the Commission filed a complaint against Adams and +co-defendant Rollin M. Dick in Securities and Exchange Commission v. Rollin M. Dick and James +S. Adams, Case No. 1:04-CV-0457 SEB-VSS in the United States District Court for the Southern +District of Indiana. On August 30, 2005, the Commission filed an amended complaint against +Adams and Dick in this action. On July 3, 2006, the court entered a Final Judgment permanently +enjoining Adams, by consent, from future violations of Section 17(a) of the Securities Act of 1933, +Section 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5, 13b2-1 and 13b2- + 3 +2, 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 Exchange Act Rules 10b-5, 12b-20 and 13a-13. The Judgment also ordered +Adams to pay $90,000 as a civil money penalty, and barred Adams for a period of five years +following the date of entry of the Final Judgment, 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 [15 U.S.C. § +78l] or that is required to file reports pursuant to section 15(d) of the Exchange Act. + +5. The Commission’s amended complaint alleged, among other things, that +from March 1999 through February 2000, Conseco and Conseco Finance made false and +misleading statements about their earnings in filings made with the Commission and in public +statements announcing their earnings, overstating their financial results by hundreds of millions of +dollars. The complaint alleged that this massive overstatement occurred primarily because Dick +and Adams conducted a fraudulent scheme to avoid huge write-downs of certain assets held by +Conseco Finance known as interest-only securities, and corresponding charges to earnings, +through the use of improper accounting techniques in violation of United States Generally +Accepted Accounting Principles. The complaint also alleged that Dick and Adams made a variety +of improper and unsupported “top-side” adjustments to Conseco Finance’s books and records at +the end of the first three quarters of 1999 to further inflate Conseco and Conseco Finance’s +earnings for these quarters in order to meet Wall Street’s analysts’ consensus earnings targets. +Further, the complaint alleged that Conseco and Conseco Finance, under Dick and Adams’ +direction, failed to maintain a system of internal accounting controls sufficient to prevent these +and other material misstatements in their financial statements, and that Dick and Adams were +responsible for and took advantage of this failure to maintain adequate controls. Finally, the +complaint alleged that Dick and Adams made misrepresentations to Conseco and Conseco +Finance’s auditors in management representation letters. + +IV. + + In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Adams’ Offer. + + Accordingly, it is hereby ORDERED, effective immediately, that: + + A. Adams is suspended from appearing or practicing before the Commission as an +accountant. + + B. After five years from the date of th is 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 + 4 +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. + +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. + + + + B y t h e C o m m i s s i o n . + + + + 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-2467.txt b/raw/aaer/2006/AAER-2467.txt new file mode 100644 index 0000000000000000000000000000000000000000..725cf21cf1355a8a355ecdafc643ea0bf56f9423 --- /dev/null +++ b/raw/aaer/2006/AAER-2467.txt @@ -0,0 +1,1423 @@ + + + + + + + + + + + + + + + + SEC.gov | Mark P. Abide, Scott D. Sullivan, Buford Yates, Jr., Betty Vinson and Troy M. Normand, and David F. Myers + + + + + + + + !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\/499441","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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Abide, Scott D. Sullivan, Buford Yates, Jr., Betty Vinson and Troy M. Normand, and David F. Myers + + + + + + + + + + + + Mark P. Abide, Scott D. Sullivan, Buford Yates, Jr., Betty Vinson and Troy M. Normand, and David F. Myers + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19776 / July 27, 2006 + + Accounting and Auditing Enforcement Release No. 2467 / July 27, 2006 + + SEC v. Mark P. Abide , Civil Action No. 06 Civ. 5660 (S.D.N.Y.) + + SEC v. Scott D. Sullivan , Civil Action No. 04 Civ. 1706 (S.D.N.Y.) + + SEC v. Buford Yates, Jr. , Civil Action No. 02 Civ. 7958 (S.D.N.Y.) + + SEC v. Betty Vinson and Troy M. Normand , Civil Action No. 02 Civ. 8083 (S.D.N.Y.) + + SEC v. David F. Myers , Civil Action No. 02 Civ. 7749 (S.D.N.Y.) + + SEC Files Civil Fraud Action Against Mark P. Abide, Former WorldCom Director of Property Accounting; Abide Consents to Fraud Injunction and Agrees to Pay Disgorgement, Prejudgment Interest and Civil Money Penalties + + SEC Settles Actions Against Former WorldCom Chief Financial Officer Scott Sullivan and Former WorldCom Accountants David Myers, Buford Yates, Jr., Betty Vinson and Troy Normand With Respect to Monetary Relief + + + + Today the Securities and Exchange Commission filed a civil fraud action in the United States District Court for the Southern District of New York against Mark P. Abide, the former Director of Property Accounting for WorldCom, Inc., for his role in the WorldCom fraud and for illegally selling WorldCom stock in January and February 2002 based on information he possessed about the fraud and the company's true financial condition. Abide has agreed to settle the matter by consenting, without admitting or denying the allegations in the Commission's complaint, to the entry of a final judgment enjoining him from violating the anti-fraud and other provisions of the federal securities laws, requiring him to pay $57,947 in disgorgement, prejudgment interest of $12,912 and an insider trading civil money penalty of $57,947. + + Abide also has agreed to be suspended from practicing before the Commission as an accountant with the right to request his reinstatement after five years. + + The Commission's action against Abide is its seventh civil action related to the WorldCom fraud. The complaint filed today alleges from the first quarter of 2001 through the first quarter of 2002, Abide made, and directed others to make, improper accounting entries into WorldCom's depreciable asset accounts in order to conceal improperly capitalized expenses. In January and February 2002, while the fraud was being carried out by Abide and others, Abide sold 6,728 shares of WorldCom stock (99% of the WorldCom stock he owned), avoiding losses of nearly $58,000. + + If the settlement is approved by the Court, Abide would be enjoined from future violations of the antifraud, reporting, books and records and internal controls provisions of the federal securities laws-Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-13, and 13b2-1 thereunder. + + The Commission also announced that it filed today Consents and proposed Final Judgments As to Monetary Relief in the Commission's civil actions in the United States District Court for the Southern District of New York against former WorldCom Chief Financial Officer Scott Sullivan and former WorldCom accountants Buford Yates, Jr., Betty Vinson and Troy Normand. + + Sullivan consented to the entry of a final judgment holding him liable for $10 million in disgorgement, representing a retention bonus Sullivan received in 2000, and $3,591,889 in prejudgment interest. If approved by the Court, the proposed Final Judgment As to Monetary Relief, however, would waive payment of the disgorgement and prejudgment interest and would not impose a civil penalty based on Sullivan's demonstrated inability to pay. In 2005, Sullivan settled the WorldCom Securities Class Action Litigation by, among other things, surrendering the proceeds from the sale of his Boca Raton, Florida home, and his WorldCom 401(k) account. In United States v. Scott D. Sullivan, 02 Cr 1144 (BSJ) (S.D.N.Y.), a parallel criminal action filed by the United States Attorney for the Southern District of New York, Sullivan received a five year prison sentence, but was not ordered to pay restitution or a fine. + + Previously, the Court issued judgments of permanent injunction against Sullivan, imposing the full injunctive relief sought by the Commission and prohibiting him from acting as an officer or director of any public company. (Litigation Release No. 18605.) Sullivan consented to the entry of the initial judgment as well, without admitting or denying any of the allegations of the Commission's complaint against him. In addition, in separate administrative proceedings, Sullivan agreed to be suspended from practicing before the Commission as an accountant. (In the Matter of Scott D. Sullivan, Rel. 33-8402, AAE Rel. 1977, File No. 3-11435.) + + Yates consented to the entry of a final judgment holding him liable for $263,809 in disgorgement, representing a retention bonus and other payments Yates received in 2000, and $94,757 in prejudgment interest. If approved by the Court, the proposed Final Judgment As to Monetary Relief, however, would waive payment of the disgorgement and prejudgment interest and would not impose a civil penalty based on Yates' demonstrated inability to pay. + + The proposed Final Judgments As to Monetary Relief against Betty Vinson and Troy Normand, if approved by the Court, would not find Vinson or Normand liable for disgorgement since neither defendant received ill-gotten gains from their participation in the fraud. In addition, the proposed Final Judgments would not impose civil money penalties against Vinson or Normand based on their demonstrated inability to pay. + + Previously, the Court issued judgments of permanent injunction against Yates, Vinson and Normand, imposing the full injunctive relief sought by the Commission and, with respect to Yates, prohibiting him from acting as an officer or director of any public company. (Litigation Release Nos. 17842 and 17883.) The three defendants consented to the entry of the initial judgments as well, without admitting or denying any of the allegations of the Commission's complaints against them. In addition, in separate administrative proceedings, Yates and Vinson agreed to be suspended from practicing before the Commission as accountants. (In the Matter of Buford Yates, Jr., Rel. 33-8156, AAE Rel. 1684, File No. 3-10964; and In the Matter of Betty Vinson, CPA, Rel. 33-8158, AAE Rel. 1686, File No. 3-10963.) + + On July 26, 2005, the U.S. District Court for the Southern District of New York issued a Final Judgment As to Monetary Relief in the Commission's civil action against David F. Myers, former controller of WorldCom, Inc., in which the Court found Myers liable for approximately $1 million in disgorgement, representing bonuses Myers received during the pendency of the fraud. The Court, however, waived payment of the disgorgement due to Myers's demonstrated inability to pay, and did not impose a civil penalty. Myers consented to the entry of the judgment against him. + + The Court issued a judgment of permanent injunction against Myers on November 14, 2002, imposing the full injunctive relief sought by the Commission and prohibiting Myers from acting as an officer or director of any public company. Myers consented to the entry of this initial judgment as well, without admitting or denying any of the allegations of the Commission's complaint. (Litigation Release No. 17842.) In addition, in a separate administrative proceeding filed in November 2002, Myers agreed to be suspended from practicing before the Commission as an accountant. (In the Matter of David F. Myers, Rel. 33-8157, AAE Rel. 1685, File No. 3-10965.) + + The Commission's complaints filed against Abide, Sullivan, Myers, Yates, Vinson, Normand and former WorldCom Chief Executive Officer, Bernard J. Ebbers (Litigation Release No. 19301), allege that the seven former WorldCom officers and accountants caused numerous fraudulent adjustments and entries in WorldCom's books and records, often in the hundreds of millions of dollars, in furtherance of a scheme to make the Company's publicly reported financial results appear to meet Wall Street's expectations. + + The Commission acknowledges the assistance and cooperation of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation. + + The Commission's investigation into matters related to the WorldCom financial fraud is continuing. + + + + + 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-2468.pdf b/raw/aaer/2006/AAER-2468.pdf new file mode 100644 index 0000000000000000000000000000000000000000..32ed7db7ba1db459f19b0d9764b89d7724398894 Binary files /dev/null and b/raw/aaer/2006/AAER-2468.pdf differ diff --git a/raw/aaer/2006/AAER-2468.txt b/raw/aaer/2006/AAER-2468.txt new file mode 100644 index 0000000000000000000000000000000000000000..53276ed09a60ace1167b1c3c8f48f1aa2e49ac95 --- /dev/null +++ b/raw/aaer/2006/AAER-2468.txt @@ -0,0 +1,192 @@ + + + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54234 / July 28, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2468 / July 28, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12385 + + + +In the Matter of + +Eric A. McAfee, + +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 (“Co mmission”) deems it appropriate that cease- +and-desist proceedings be, and he reby are, instituted pursuant to Section 21C of the Securities +Exchange Act of 1934 (“Exchange Act”) against Eric A. McAfee (“McAfee” or “Respondent”). + +II. + + In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) whic h 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 jurisd iction 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 Impo sing 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: +Summary + +1. These proceedings involve violations of th e anti-fraud provisions of the federal securities +laws from mid-2003 through early 2004 by a pub licly-traded oil and gas field services company +then known as Verdisys, Inc. (“Verdisys”). At that time, McAfee was the controlling shareholder +and a director of Verdisys. McAfee, and others , caused Verdisys to make inaccurate disclosures +regarding its revenues and expenses.2 + +Respondent + +2. McAfee, 42, of Saratoga, Ca lifornia, was Verdisys’ CEO for five months from November +2002 to March 2003 (before it became publicly held in mid-2003), and a Verdisys director from +late 2000 until his resignation in March 2004. McAf ee was and remains Verdisys’ largest +shareholder, owning approximately 28% of Verdisys’ outstanding common stock, 2.8% directly +and 25.6% beneficially through two venture capital firms and through family holdings. + +Other Relevant Entity + +3. Verdisys, a California corporation with cor porate headquarters in Houston, Texas, is +primarily engaged in reworking existing oil a nd gas wells to renew or enhance production. +Verdisys also provides broadband sa tellite links for the remote control of oil and gas wells and +related infrastructure. Verdisys filed periodic and other reports with the SEC pursuant to Section +15(d) of the Exchange Act, and at all times rele vant herein, its common stock (or the stock of a +corporate predecessor) was quoted on the NASD’s OTC BB.3 + +Background + +4. In late 2000, McAfee purchased a controllin g interest in a privately-held corporate +predecessor of Verdisys, then base d in Fresno, California, which had attempted to establish an +Internet-based exchange for the purchase and sale of agri-business goods and services. McAfee + +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 See SEC v. Blast Energy Services, Inc. (fka Verdisys, Inc.), et al , Civ. Action No. 4:06-CV-02441 (U.S. +Dist. Ct., Southern District of Texas) (filed July 24, 2006), regarding injunctive proceedings against Verdisys and +others for, inter alia, making inaccurate disclosures regarding drilling work, expenses and revenues. + +3 References herein to Verdisys (the corporate name at the time of the violations discussed herein) shall +mean and include Verdisys’ predecessors and successors, in cluding the privately-held corporate predecessor named +Verdisys, Inc., and Reconstruction Data Group, Inc., a California corporation that ha d ceased business operations +but which was still quoted on the OTC BB on May 2, 2003, when its pending reverse merger with the privately-held +Verdisys was announced. The merger became effective July 18, 2003, at which time sh ares in the privately-held +corporation were exchanged for shares in Reconstruction Data, Inc., which was renamed Verdisys. In June 2005, +Verdisys changed its name to Blast Energy Services, Inc. + 3 +signed a consulting agreement to provide the comp any with fundraising services, and assumed a +position on its board. + +5. In January 2002, the company refocused its operations on providing satellite services to +rural markets, including energy companies. In November 2002, the directors of the privately-held +company, by then re-named Verdisys, insta lled McAfee as the CEO to revamp operations. +McAfee narrowed Verdisys’ activities to the business of oil and gas field services. In the Spring of +2003, the headquarters of the company was moved to Housto n, Texas and a new CEO was +installed in March 2003. In the Spring of 2003, in a transacti on arranged by McAfee, then a +director of the company, Verdisys issued two million shares of stock, purportedly as consideration +for software represented to monitor conditions within oil and gas well bores. At that time, McAfee +also negotiated Verdisys’ acquisition of a licen se to use patented lateral drilling technology. 4 +McAfee then negotiated Verdisys’ reverse merger with a dormant, publicly traded shell company. + +Misleading Disclosures Regarding Compensation Expense + +6. On September 29, 2003, Verd isys filed a Form 8-K/A to announce the completion of its +reverse merger, and included financial statements for the surviving entity. A footnote to the +financial statements advised that in April 2003, Verdisys issued two million shares of common +stock, valued at $1 million, ostensibly to acquire software, but that the software had been deemed +not useful, and Verdisys was therefore recording an impairment expense of $1 million. + +7. McAfee had convinced the Verdisys board to purchase the software by claiming it would +allow the remote monitoring of oil and gas well s, which would complement Verdisys’ sales of +broadband satellite links to oil and gas companie s. McAfee controlled the company selling the +software, and he knew that the software only screened job applications and resumes of health +care executives and did not monitor conditions in oil and gas wells. McAfee did not tell the +company’s directors that the transaction compensa ted a stock promoter, who received half of the +two million shares.5 As a result, McAfee caused Verdisys, essentially a start-up company, to not +disclose that it had issued one million shares and incurred a compensation expense of $500,000, +to retain the promoter, before it could claim significant assets, revenues or business operations. + +Misleading Disclosures Regarding Revenues + +8. Verdisys delayed the filing of its quarterly report for the quarter ended September 30, +2003 (the “3Q Form 10-QSB”), after its auditor raised revenue recognition issues concerning a +material $1.5 million receivable related to the co mpany’s largest drilling contract. While the + +4 As described by Verdisys in periodic reports filed w ith the SEC, the technology pumped drilling fluids at +high pressure through flexible hydraulic hoses and out a high-pressure nozzle, cutting new lateral channels from an +original vertical well bore, to enhance the flow from previously tapped reservoirs of oil and gas or to reach new +reservoirs. + +5 McAfee beneficially received 230, 000 restricted shares, and the othe r shareholders of the software +corporation received the remaining 770,000 shares. + + 4 +filing was in abeyance, McAfee caused Verdisys to issue an earnings release predicting the +company would soon report record earnings. + +9. McAfee participated in effo rts to justify recognition of the $1.5 million receivable. On +November 19, 2003, to meet the filing deadline and avoid any drop in the company’s stock price, +McAfee ordered Verdisys’ accounting staff to file the 3Q Form 10-QSB, even though the auditor +had yet to review the financial statements found in the filing. The 3Q Form 10-QSB filed as a +result claimed Verdisys had earned total curr ent period revenues of $2.09 million, including the +questioned $1.5 million receivable. The 3Q Fo rm 10-QSB did not disclose that McAfee’s +attempts to confirm recognition of the $1.5 mill ion receivable involved a buy-out agreement, by +which Verdisys would assume substantial lia bilities and forego collecting upon the $1.5 million +receivable to purchase the drilling project from which the receivable arose. + +10. On December 3, 2003, after th e auditor completed his review, Verdisys filed an amended +3Q Form 10-QSB. Verdisys still claimed approximately $2 million in revenues, but, as its auditor +advised, it classified only the $500,000 actually paid as current period revenues. The remaining +$1.5 million supposedly owed upon the receivable was re-classified as deferred revenues, because +of collection and contract contingency issues.6 + +Violations + +11. As a result of the conduct described above, McAfee caused Verdisys to violate Section +10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct in +connection with the purchase or sale of securities. + +IV. + + In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent McAfee’s Offer. + + Accordingly, it is hereby ORDERED that Respondent McAfee cease and desist from +committing or causing any violations and any future violations of S ection 10(b) of the Exchange +Act and Rule 10b-5 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 + +6 Verdisys later determined it could not substantiate the delivery of any drilling services in the second and +third quarters of 2003, and made disclosures and quarterly restatements that eliminated all unearned revenues, +including the $1.5 million in deferred revenues. \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2469.txt b/raw/aaer/2006/AAER-2469.txt new file mode 100644 index 0000000000000000000000000000000000000000..ffc08f9e902e6d2b3d9c875eb8972428029a22ab --- /dev/null +++ b/raw/aaer/2006/AAER-2469.txt @@ -0,0 +1,1379 @@ + + + + + + + + + + + + + + + + SEC.gov | James R. Powell, Ralph Mitchell, Mark J. Corjay, E. Suzanne Garrett, and Michael D. Scannell + + + + + + + + !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\/499466","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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Powell, Ralph Mitchell, Mark J. Corjay, E. Suzanne Garrett, and Michael D. Scannell + + + + + + + + + + + + James R. Powell, Ralph Mitchell, Mark J. Corjay, E. Suzanne Garrett, and Michael D. Scannell + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19781 / July 31, 2006 + + Accounting and Auditing Enforcement Release No. 2469 / July 31, 2006 + + Securities and Exchange Commission v. James R. Powell, Ralph Mitchell, Mark J. Corjay, E. Suzanne Garrett, and Michael D. Scannell , Civil Action No. 4:06 - CV - 311 , U.S.D.C./Eastern District of Texas (Sherman Division) + + SEC Sues Former Executive Officers of Daisytek International Corporation for Financial Fraud + + + On July 31, 2006, the Commission announced the filing of a civil action against five former executives of office product and computer supply distributor Daisytek International Corporation (Daisytek) of Allen, Texas. In its complaint, the Commission alleges that the defendants conducted a scheme to achieve earnings estimates by materially overstating Daisytek's earnings from 2000 through the first half of 2002. The defendants are James R. Powell (Daisytek's former CEO and president), Ralph Mitchell (Daisytek's former CFO), Mark J. Corjay (Daisytek's former controller), E. Suzanne Garrett (Daisytek's former executive vice president - merchandising division), and Michael D. Scannell (Daisytek's former executive vice president and former president of Daisytek's U.S. Operations). + + The Commission also announced that defendants Powell, Corjay, and Garrett, without admitting or denying the Commission's allegations, have agreed to settlements of the Commission's action. Powell has consented to a permanent injunction and a ten-year officer and director bar, and has agreed to pay disgorgement of $829,759, plus prejudgment interest of $148,595, provided that the Commission waive that total amount and forego seeking against him a civil penalty, based on his sworn financial statement. Corjay has consented to a permanent injunction and a five-year officer and director bar, and has agreed to pay disgorgement of $311,175, plus prejudgment interest of $51,822, provided that the Commission waive all but $100,000 of that total amount and forego seeking against him a civil penalty, based on his sworn financial statement. Corjay, a licensed CPA, has also agreed to a Commission order suspending him from practicing or appearing before the Commission as an accountant, with the right to apply for reinstatement after five years. Garrett has consented to a permanent injunction and a five-year officer and director bar, and has agreed to pay disgorgement of $107,500 plus prejudgment interest, and a $40,000 civil penalty. + + In its complaint, filed in the district court for the Northern District of Texas, Fort Worth division, the Commission alleges that, from 2000 through the first half of 2002, the defendants engaged in a fraudulent earnings enhancement scheme to make it appear that Daisytek was meeting or exceeding analysts' earnings estimates. The scheme involved improperly recording as revenue various rebates associated with inventory ordered for the sole purpose of meeting Daisytek's earnings targets, and recording fraudulent receivables. In the process, Daisytek failed to comply with Generally Accepted Accounting Principles. + + In its civil action, the Commission alleges that Mitchell and Scannell violated the antifraud provisions of the Securities Act and the Exchange Act, aided and abetted violations of the Exchange Act's reporting, record keeping and internal controls provisions, and circumvented accounting controls. In addition, the Commission alleges that Mitchell lied to Daisytek's auditors, and signed false Sarbanes-Oxley certifications. In its action, the Commission seeks from Mitchell and Scannell permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, officer and director bars, and civil penalties. Specifically, the Commission alleges that Mitchell and Scannell violated Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, and 13b2-1 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, 13a-11, and 13a-13 thereunder. In addition, the complaint alleges that Mitchell violated Exchange Act Rules 13b2-2 and 13a-14. + + In the agreed final judgment of permanent injunction (Judgment), Powell, Corjay, and Garrett are enjoined from violating the antifraud provisions of the Securities Act and the Exchange Act, aiding and abetting violations of the Exchange Act's reporting, record keeping and internal controls provisions, and circumventing accounting controls. In addition, in the Judgment, Powell and Corjay are enjoined from lying to auditors, and from signing false Sarbanes-Oxley certifications. Specifically, Powell, Corjay and Garrett are enjoined in the Judgment from violating Section 17(a) of the Securities Act, 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, 13a-11, and 13a-13 thereunder. In addition, Powell and Corjay are enjoined in the Judgment from violating Exchange Act Rule 13b2-2; and Powell is enjoined from violating Exchange Act Rule 13a-14. + + + + + + + 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-2470.txt b/raw/aaer/2006/AAER-2470.txt new file mode 100644 index 0000000000000000000000000000000000000000..ef1ed806091624f5bb0990ebb7a5d90206c3181e --- /dev/null +++ b/raw/aaer/2006/AAER-2470.txt @@ -0,0 +1,686 @@ + + +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES ACT OF 1933 +Release No. 8726 / July 31, 2006 + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54246 / July 31, 2006 + +INVESTMENT ADVISERS ACT OF 1940 +Release No. 2539 / July 31, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2470 / July 31, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12179 + + +In the Matter of + +LAWRENCE A. STOLER, CPA, + +Respondent. + + + + +ORDER MAKING FINDINGS AND +IMPOSING REMEDIAL SANCTIONS +PURSUANT TO RULE 102(e) OF THE +COMMISSION'S RULES OF PRACTICE +AND CEASE-AND-DESIST ORDER +PURSUANT TO 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 + + +I. + + On February 9, 2006, the Secu rities and Exchange Commission (“Commission”) instituted +public 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 (“Securities Act”), +Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”) and Section 203(k) of the +Investment Advisers Act of 1940 (“Advisers Act”) against Lawrence A. Stoler (“Stoler” or +“Respondent”).1 + +1 Rule 102(e)(1)(ii) provides , in pertinent part, that: + +2 + + + +II. + + In connection with these proceedings, Respon dent 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 prior to a hearing pursuant to the Commission's Rules of Practice, 17 +C.F.R. §201.100 et seq., 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 Rule 102(e) of the Commission’s Rules of Practice and Cease-and-Desist +Order Pursuant to 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 (“Order”), as +set forth below. + +III. + + On the basis of this Order and Res pondent’s Offer, the Commission finds2 that + +A. SUMMARY + +1. This proceeding concerns Stoler’s improper professional conduct in the audits of +the 2000 annual financial statements 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”) – managed by Lipper Holdings, LLC (“Lipper +Holdings”). Stoler was the engagement partner on the 2000 audits and prior years’ audits. + +2. From at least 1998 until his resignation in January 2002, the Funds’ portfolio +manager, Edward J. Strafaci (“Strafaci”) intentionally overstated the value of the convertible bonds +and convertible preferred stock in which the Funds were invested. As a result, investors and +prospective investors received materially false statements about the Funds’ value and performance. +Strafaci’s inflated valuations were reflected in Fund offering materials and in periodic reports to +investors, including audited year-end financial statements. Because Convertibles and Series II +were registered broker-dealers, their annual audited financial statements were also filed with the +Commission pursuant to Section 17 of the Exchange Act and Rule 17a-5(d) thereunder. + + +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. + +2 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 + + + 3. As a result of Strafaci’s fraud, the Funds were revalued and then dissolved. Just +weeks after Strafaci’s resignation, and following a review of his valuations, the Funds reported to +their investors that their partner capital accounts in Convertibles, Series II and Fixed Income were +being written down by approximately 40%, 15% and 22%, respectively, from their previously +reported values. Largely as a result of Strafaci’s overvaluation, Convertibles, the largest of the +Funds, lost approximately $350 million of its reported partners’ capital from December 31, 2000, +the date of its last audited financial statements, to December 31, 2001. The analysis performed in +connection with the Funds' dissolution revealed that the partners’ capital of Convertibles as +reported in those audited financial statements was overstated by approximately 49%. Strafaci +admitted his wrongdoing, pleading guilty to criminal securities fraud charges. + + 4. Throughout Strafaci’s fraud, the Funds’ year-end financial statements were audited +by PricewaterhouseCoopers LLP (“PwC”). PwC's audit reports on the Funds’ 2000 financial +statements were unqualified and stated that the financial statements were prepared in conformity +with generally accepted accounting principles (“GAAP”), and had been audited in accordance with +generally accepted auditing standards (“GAAS”). Those audit reports were provided to investors +and prospective investors. In fact, the Funds’ 2000 financial statements were not prepared in +conformity with GAAP and had not been audited in accordance with GAAS. + + 5. Stoler’s conduct in th e 2000 audits did not accord with GAAS. The 2000 audits +produced substantial evidence that Strafaci had grossly overstated the value of the Funds’ +investments, but Stoler disregarded or failed to apprise himself of that evidence. The 2000 audit +workpapers show that the Funds were substantially overvalued in comparison to prices the audit +team obtained from three independent sources: the Funds' prime brokers, Bloomberg Information +Services (“Bloomberg”), and a broker-dealer that provided quotes for eight securities – seven of +which were significantly lower than Strafaci’s values -- as part of a flawed “confirmation” process. +Stoler did not question why Strafaci’s values were significantly higher than those independent +prices. Instead, he blindly relied on results of a flawed “confirmation” process. Under Stoler’s +supervision, the audits amounted to a mechanical execution of tests, without real regard for the +results of those tests. In sum, Stoler failed to exercise due professional care and professional +skepticism, failed to obtain sufficient competent evidential matter to support PwC’s unqualified +opinions, and failed to adequately supervise the work of assistants. + + 6. Stoler’s conduct in the Funds’ 2000 audits was highly unreasonable within the +meaning of Rule 102(e)(1)(iv)(B)(1). Accordingly, Stoler engaged in improper professional +conduct within the meaning of Rule 102(e)(1)(ii). In addition, by virtue of his conduct, Stoler was +a cause of violations of certain provisions of the Securities, Exchange, and Advisers Acts +committed by the Funds, Strafaci, and/or Lipper Holdings. + +4 + + +B. RESPONDENT + + 7. Lawrence A. Stoler was an audit partner at PwC from 1980 until he retired in +2002. Stoler was the engagement partner on the Funds’ 2000 audits and on the audits from the +late-1980s until the Funds' collapse in early 2002, except for two years in the mid-1990s, when he +served as the concurring partner. During the relevant period, Stoler was a certified public +accountant licensed to practice in New York and New Jersey. Upon retirement, he allowed his +CPA licenses to lapse and is not currently licensed as an accountant. Stoler is 61 years old and +resides in Allendale, New Jersey. + +C. OTHER RELEVANT PERSONS AND ENTITIES + + 8. PwC is a Delaware limited liability partnership with its principal place of business +in New York City. PwC (and its predecessor, Price Waterhouse LLP (“Price Waterhouse”)) served +as the Funds’ auditor from 1989 until their collapse in early 2002. + + 9. The Funds - Convertibles, Series II, and Fixed Income - were hedge funds +organized as limited partnerships; none was registered or required to be registered under the +Investment Company Act of 1940. Convertibles (formerly known as Lipco Partners, L.P. and, +under prior management, Cohen, Feit & Co.) was established in 1985, Series II was established in +1998, and Fixed Income was established in 1993. At all relevant times, Convertibles and Series II +were registered with the Commission as broker-dealers and were members of the NASD. +Convertibles and Series II primarily invested in convertible securities – bonds or preferred stock +convertible by the owner into shares of common stock – and generally hedged their long positions +by selling short the common stock into which the bond or preferred stock was convertible. The +Funds also employed leverage – borrowed money – to purchase the convertible securities, which +allowed them to hold securities in an amount in excess of the equity contributed by the Funds' +partners. Fixed Income invested approximately 60% of its capital in Convertibles, and thus +indirectly invested in Convertibles’ hedged portfolio of convertible securities. Convertibles and +Fixed Income are in the process of being liquidated; Series II has been liquidated. + + 10. Lipper Holdings, LLC was a Delaware limited liability company that, during the +relevant period, was the general partner for each of the Funds.3 Lipper Holdings managed the +portfolio for Convertibles and Series II. Kenneth Lipper was chairman, president and chief +executive officer of Lipper Holdings. + + 11. Edward J. Strafaci was, during the relevant period, the Funds’ portfolio manager +and executive vice president and director of fixed income money management for Lipper & Co. +From at least 1998 until January 2002, Strafaci intentionally overstated the value of the convertible + +3 An affiliated entity, Lipper & Co. L.P. (“Lipper & Co.”) managed the portion of Fixed +Income's portfolio that was not invested in Convertibles and acted as placement agent for +the Funds. During the relevant period, Lipper & Co. was registered with the Commission +as an investment adviser and a broker-dealer. +5 + + +bonds and convertible preferred stock held by the Funds, resulting in the dissemination of +materially false and misleading fund valuations and performance figures to investors and +prospective investors, and the filing of inaccurate reports with the Commission. On the basis of +this conduct, Strafaci has been the subject of enforcement action by the Commission and a criminal +prosecution. He pleaded guilty to one felony count of securities fraud for overstating the value of +Convertibles’ and Series II’s portfolios, in United States v. Edward Strafaci, 03 Crim. 1182 +(S.D.N.Y), is currently serving a seventy-two month prison sentence, and has been ordered to pay +restitution of $89,282,416. In addition, Strafaci has, by consent, been enjoined from future +violations of certain provisions of the securities laws in Securities and Exchange Commission v. +Edward J. Strafaci, 03 Civ. 8524 (S.D.N.Y.), and barred from association with any broker, dealer, +or investment adviser in Edward J. Strafaci, Exchange Act Release No. 50422 (Sept. 22, 2004). + +D. FACTS + +Strafaci’s Overstatement of the Funds’ Assets + + 12. Strafaci was the Funds' portfolio manage r and the person to whom Lipper Holdings +delegated responsibility for valuing the Funds’ portfolios. The Funds’ audited financial statements +represented that securities held by the Funds were “valued at market.” + + 13. On January 14, 2002, Strafaci abruptly le ft Lipper Holdings, purportedly to start his +own money-management firm. Shortly after his departure, Lipper Holdings reviewed his +valuations and concluded that they were not within a reasonable range of the securities’ actual +market values for December 31, 2001. In late-February 2002, Lipper Holdings announced that the +partners’ capital of Convertibles, Series II, and Fixed Income were being written down by +approximately 40%, 15%, and 22%, respectively. Shortly thereafter, Lipper Holdings announced +that it had decided to dissolve the Funds and by March 26, 2002, it had liquidated most of the +Funds’ investments. In a November 2002 report, counsel retained by the Funds to conduct an +independent investigation into the Funds’ valuation practices (the “Special Counsel”) concluded +that since at least January 1, 1996 (or, with respect to Series II, at least January 1, 1999), Strafaci’s +valuations were inconsistent with the Funds’ stated valuation policies and procedures and “[could] +not be supported by any rational basis.” + + 14. In October 2002, Lipper Holdings commenced court proceedings to liquidate the +Funds. In connection with the liquidation proceedings, Lipper Holdings directed an independent +consultant (“Consultant”) “to determine a reasonable method of determining the investors' +ownership interest . . . without significant use of the 'market values' of the securities held by the +Fund as contemporaneously reported in the Fund’s records.” The Consultant revalued the Funds’ +convertible securities based on prices obtained from one of two commercial pricing services, or the +Funds’ prime brokers. +4 On that basis, the Consultant revalued long positions of Convertibles and +Series II, with the resulting impact on partners’ capital as follows: + +4 The term “prime broker” as used in this order refers to a broker-dealer that provides +services to hedge funds, money managers and others, such as preparing daily account +6 + + +Values for Convertibles as of December 31, 2000 +(in millions) + + Per Audited +Financials +As Revalued Difference +Long Positions $2,297.8 $2,017.0 $280.8 (12.2%) +Partners’ Capital $ 568.7 $ 287.9 $280.8 (49.4%) + +Values for Series II as of December 31, 2000 +(in millions) + + Per Audited +Financials +As Revalued Difference +Long Positions $186.9 $175.3 $11.6 (6.2%) +Partners’ Capital $ 82.9 $ 71.3 $11.6 (14.0%) + + + 15. As revalued by the Consultant, the partners’ capital of Convertib les as of December +31, 1999 and December 31, 1998 was, respectively, 34% and 36% less than had been reported in +the Fund’s audited financial statements. + +The 2000 Audits + + 16. Price Waterhouse was first hired as Conv ertibles’ independent accountant in 1989. +Lipper Holdings selected Price Waterhouse in part because of its touted expertise with respect to +hedge funds and valuation of hard-to-price securities. By the time of the 2000 audits, PwC was the +auditor for all the Funds and several other affiliated entities, including several registered +investment companies, and Stoler had been the engagement or concurring partner on the Funds' +audits for approximately ten years. + + 17. As the engagement partne r on the 2000 audits, Stoler was responsible for ensuring +that the audits were conducted in accordance with GAAS, and was required, among other things, to +supervise the work of subordinate members of the audit team to ensure that the audit work was +adequately performed and supported the conclusions presented in PwC’s reports on the financial +statements. + + +statements, clearing and settlement of securities transactions, financing or leverage, and +custodial services. On December 31, 2000, the Funds dealt with seven prime brokers, +sometimes also referred to as “clearing brokers” or “custodians.” +7 + + + 18. In the 2000 audit of Strafaci’s valu ation of the Funds’ convertible securities5 – the +most critical part of the audits – Stoler failed to act in accordance with GAAS. He failed to +exercise due care and appropriate professional skepticism, obtain sufficient competent evidential +matter, or adequately supervise the work of assistants. + + Stoler Was Aware of the Funds' Internal Control Weaknesses + + 19. At the time of the 2000 audits, Stol er knew that the Funds’ internal control +weaknesses called for heightened scrutiny of the valuation of their investments. The audit team +had observed in prior audits that the internal controls in place with respect to valuation were +inadequate and that the Funds’ investments were valued by Strafaci without oversight. The +workpapers for the Funds’ 1996 and 1997 audits noted this internal control weakness, stating: + +[d]ue to the complexity of the process all pricing work is performed by the front +office (Ed Strafaci with assistance from [a Fund trader].) There is no formal review +of the marks external of the front office, because of a lack of technical knowledge +(convertible arbitrage securities). In order to have proper segregation of duties, the +pricing function should be monitored in a Middle/Back Office capacity by a party +outside the front office (Product Control, Accounting). Point to be considered for +inclusion in letter to management. + + 20. In addition, during the pl anning of the 2000 audits, the audit team noted that the +Funds had certain internal control weaknesses. The team prepared a risk analysis, referred to +internally as a “FRISK” analysis, for the Funds, which Stoler approved. That analysis identified +the Funds’ “management governance and oversight of management” as a “high risk” area, as had +the FRISK analysis for the Funds’ 1999 audits. PwC never sent a management letter concerning +the inadequacy of the Funds’ internal controls regarding valuation. + + The Audit Work on the Valuation of the Funds’ Investments + + 21. The procedures performed by the audit team to audit the valuation of the Funds’ +investments are identified in the audit workpapers. According to the workpapers, the basis for the +values for the convertibles securities was “quotes received from approximately six brokers” that +Strafaci traded with. The workpapers, however, do not include either the quotes that were +supposedly the source of Strafaci’s values or any indication that the audit team reviewed those +quotes. + + +5 Convertibles' long securities positions consis ted of forty-seven convertible preferreds and +seventy convertible bonds. Series II's long positions consisted of smaller positions in +some of those securities. For its audits of Series II and Fixed Income, the audit team took +no separate steps to test the valuation of the convertible securities in which those funds +were invested, directly in the case of Series II and indirectly in the case of Fixed Income. +8 + + + 22. Although the audit team did not obt ain the quotes that supposedly supported +Strafaci’s values, it did obtain from the Funds’ prime brokers the statements of the Funds’ accounts +as of December 31, 2000. These statements listed market values for the convertible securities held +by the Funds. According to the workpapers, the audit team’s analysis of the prime broker +statements revealed that Strafaci’s valuation of the convertible bonds and preferreds held by +Convertibles exceeded the prime brokers’ valuation of those securities by approximately $274 +million, or 13.5%. Stoler did not discuss this material difference with anyone at Lipper Holdings, +and the workpapers do not indicate how the audit team resolved this difference. This difference, +moreover, ignored the impact of leverage on the portfolio. Had the audit team considered the effect +of leverage, it would have seen that the prime brokers’ prices indicated that Convertibles’ partners’ +capital was overstated by approximately 48%. The workpapers do not reflect any consideration of +the impact of the Funds’ leverage on the differences produced by the prime broker test. + + 23. According to the workpapers, the audit team also used “Bloomberg to obtain an +independent price for 65% of the total market value of positions held at 12/31/00.” The +Bloomberg prices then were compared to Strafaci’s values and “any significant variances” were to +be noted. Any Bloomberg prices that were “greater than 2% of what Lipper Convertibles has +recorded” were to be “independently confirmed” by “directly contact[ing]” the brokers with whom +Convertibles traded and from whom Strafaci purportedly obtained the quotes on which he based +his values for the securities “so that they may confirm the price of the positions.” + + 24. The Bloomberg comparis on indicated, and the workpapers noted, that the tested +portion of Convertibles portfolio was overstated by approximately 12.9%. Strafaci’s values for +thirty-four of the forty-four convertible bonds and nineteen of the twenty convertible preferreds +tested differed by 2% or more from the corresponding Bloomberg prices, with Strafaci’s values +being higher for all but four securities. Strafaci’s values for almost half of the preferreds exceeded +the Bloomberg prices by 20% or more, and his values for almost half of the bonds exceeded the +Bloomberg prices by 5% or more. Had the audit team taken leverage into account, it would have +seen that the Bloomberg test indicated that Convertibles’ partners’ capital was overstated by +approximately 34.4%. The workpapers do not reflect any consideration of the impact of the +Funds’ leverage on the differences produced by the Bloomberg test. + + 25. The audit program called for the team to further test the valuation of securities for +which Strafaci’s value differed from Bloomberg’s price by more than 2% by asking the broker- +dealers from whom Strafaci had purportedly obtained the quotes that were the basis for his values +to “confirm the prices of the positions.” + + 26. To perform this test, a ju nior auditor sent faxes to institutional salespeople at five +broker-dealers asking them to “please verify that the attached schedule of broker quotes as of +12/31/00 were [sic] provided by you to Lipper Convertibles,” by signing the schedules “for our +records,” and faxing them back. The faxes contained no further instruction or explanation. The +attached schedules listed the fifty-four securities as to which Strafaci’s value had differed from +Bloomberg’s price by more than 2%, with Strafaci’s value listed next to each security. Each +9 + + +salesperson received the same list of fifty-four securities, regardless of whether his firm traded in, +or previously provided a quote to the Fund for, a particular security. + + 27. Of the five broker-dealer “confirmatio ns” obtained by the audit team, four were +faxed back with the salesperson’s signature on the schedule and without any notation or comment +(the so-called “clean confirmations”). Only one was returned with any indication that the +salesperson had actually reviewed any of the values. That “confirmation,” from Broker A, was +unsigned and noted a bid-ask range next to Strafaci's value for eight of the fifty-four securities +listed. For seven of the eight, Strafaci’s value was significantly higher than even the ask-side price +provided by Broker A. + + 28. The confirmation process was flawed in several significant respects. For example, +although the audit team asked the salespeople to verify “that the attached schedule of broker quotes +. . . were [sic] provided by you to Lipper Convertibles,” the attached schedule was not a schedule +of quotes that the broker-dealer had provided but rather was a schedule prepared by the audit team, +listing Strafaci’s values for the securities. The faxes did not ask the salespeople to provide quotes +for the specified securities or ask them to attest to the reasonableness of the values listed on the +schedules. As a result, except for Broker A, there is no evidence in the workpapers that the +salespeople who returned signed confirmations had actually ascertained the broker-dealer’s quote +or valued the security. In addition, each broker-dealer’s salesperson was asked to “confirm” values +for a large number of securities (fifty-four), without regard to whether the firm made a market in +the securities. These flaws made the confirmation process unreliable. + + The Evaluation of the Audit Evidence + + 29. The workpapers show the substantial ga p between Strafaci’s values and the prices +the audit team obtained from the independent sources. For example, the audit team obtained prices +from Bloomberg for the Chiquita $3.75, MGC Comm., Loral and Intermedia 144a securities held +by Convertibles. The Bloomberg prices were, respectively, 88.5%, 78.9%, 64.8% and 63.2% +lower than the Strafaci’s values. The differences between Strafaci’s values and the independent +prices for these four securities and selected other examples are shown below: + +Security + + + +Strafaci +Value +Bloomberg +Price +Prime +Broker +Price +Broker A +Confirm +Average* +Chiquita $3.75 $31.00 $3.56 $3.56 n/a +Human Genome 5% 157.00 138.02 138.00 122.56 +Human Genome 3.75% 100.00 83.88 84.00 81.06 +Intermedia 144a 33.00 12.15 9.99 n/a +Liberty Media 90.00 68.08 66.50 67.37 +Loral 31.22 11.00 12.60 n/a +MGC Comm. 35.54 7.50 7.50 n/a +United Global Comm. 39.00 15.88 15.88 n/a +10 + + + * Represents average of bid/ ask range provide by Broker A. + + 30. The prime broker prices, the Bloomber g prices, and the quotes obtained from +Broker A all constituted evidence that Strafaci’s values were significantly higher than market +prices or fair value. Other than stating “no exceptions were noted,” the workpapers contain no +indication as to how the audit team evaluated that evidence. Thus, the workpapers do not +document the basis for the unqualified audit reports PwC issued on the Funds’ financial statements. + + 31. The evidence obtained by the audit t eam was insufficient to support Strafaci’s +values or PwC’s unqualified audit reports. Most of that evidence indicated that Strafaci’s valuation +of the Funds’ assets was substantially overstated, as discussed at paragraphs 22-24 and 29 above. +The “clean” confirmations were insufficient to support that valuation because they were unreliable, +as discussed at paragraphs 26-28 above. + + 32. Stoler ignored, discounted, or failed to apprise himself of, the evidence produced by +the audit tests and the flaws in the confirmation process discussed above. Thus, he failed to +exercise due professional care and maintain an attitude of professional skepticism, failed to obtain +sufficient competent evidential matter concerning the valuation of the Funds’ assets, and failed to +adequately supervise the assistants working on the audit. + + 33. The workpapers for the 1998 and 1999 audits – on which Stoler was also the +engagement partner – reflect similar failures to exercise professional skepticism and obtain +competent evidential matter to support Strafaci’s valuation of the Funds’ assets and PwC’s +unqualified reports on the Funds’ financial statements. In the 1998 audits, for example, the +confirmation process produced broker-dealer quotes lower than Strafaci’s values, which suggested +that his values were substantially overstated. The only documented consideration of the results of +the confirmation process indicates that the audit team simply accepted Strafaci’s self-serving +explanation for why his values were higher, without taking any steps to test that explanation. + + Stoler Signed Unqualified Audit Reports + + 34. On February 26, 2001, Stoler, on behalf of PwC, signed Reports of Independent +Accountants for each Fund stating, in part, that in PwC’s opinion the Fund’s “statements of +financial condition, including the condensed schedule of investments, and the related statements of +. . . changes in partners’ capital . . . present fairly, in all material respects, the financial position of,” +the Fund, at December 31, 2000. The audit reports further stated that the financial statements were +presented in conformity with GAAP and that PwC’s audit had been conducted in accordance with +GAAS. + + 35. On March 1, 2001, as required by Sec tion 17 of the Exchange Act and Rule 17a-5 +thereunder, Convertibles and Series II filed their audited annual financial statements with the +Commission, which included PwC’s reports on the financial statements. Also included were +PwC’s supplemental reports describing any material inadequacies found since the date of the +11 + + +previous audit (commonly referred to as "internal control reports"). The internal control reports, +which Stoler signed on behalf of PwC, stated in part: + +A material weakness is a condition in which the design or operation of one or more +of the specific internal control components does not reduce to a relatively low level +the risk that error or fraud in amounts that would be material in relation to the +employees in the normal course of performing their assigned functions. However, +we noted no matters involving internal control, including procedures for +safeguarding securities, that we consider to be material weaknesses as defined +above. + + 36. The Funds’ long securities were not va lued in conformity with GAAP because, +among other reasons, Strafaci valued the convertible bonds and convertible preferred stock in +which the Funds were invested at prices higher than readily available market prices. Moreover, the +Funds failed to maintain supporting documentation for Strafaci’s valuation. Accordingly, the +Funds’ 2000 financial statements were not presented in conformity with GAAP. In addition, the +audits of the financial statements were not conducted in accordance with GAAS and the internal +control reports filed by Convertibles and Series II were inaccurate. + +E. Violations by the Funds, Strafaci, and Lipper Holdings + + 37. Strafaci, a senior official of the Fund s and Lipper Holdings, caused those entities to +make materially misleading statements to investors in the offer or sale, and in connection with the +purchase or sale, of interests in the Funds, concerning the value and performance of the Funds, and +the method by which the Funds’ portfolio securities were valued. Interests in the Funds were +securities within the meaning of Section 2(a)(1) of the Securities Act. Investors and potential +investors in the Funds were, respectively, clients and potential clients under the Advisers Act and +are referred to herein as “investors/clients” and “prospective investors/clients.” The Funds’ audited +financial statements for the year ended December 31, 2000 were disseminated to investors/clients +and prospective investors/clients, along with PwC’s unqualified audit reports on those statements. +PwC’s unqualified audit reports on those statements gave comfort to investors/clients, among +others, that the Funds were being properly valued. Investors/clients who received those audited +financial statements were solicited to make, and in some cases made, investments or additional +investments in the Funds. + + 38. Strafaci’s conduct, which is attributab le to the Funds and Lipper Holdings, in the +offer and sale of interests in the Funds violated, among other provisions, Sections 17(a)(2) and (3) +of the Securities Act, in that Strafaci, the Funds, and Lipper Holdings directly and indirectly, by the +use of the means or instruments of transportation or communication in, or the means or +instrumentalities of, interstate commerce, or by use of the mails, in the offer or sale of interests in +the Funds: (a) obtained money or property by means of untrue statements of material fact or +omitted to state material facts necessary in order to make the statements made, in the light of the +circumstances under which they were made, not misleading; and (b) engaged in transactions, +practices and courses of business which operated or would have operated as a fraud or deceit upon +12 + + +purchasers of interests in the Funds. In addition, by virtue of Strafaci’s fraudulent valuations, +Lipper Holdings violated Section 206(2) of the Advisers Act in that it engaged in acts, practices or +courses of business which operated as a fraud or deceit upon clients and prospective clients. +Scienter is not required to establish violations of Sections 17(a)(2) and 17(a)(3) of the Securities +Act or Section 206(2) of the Advisers Act. Steadman v. SEC, 603 F.2d 1126, 1133 (5th Cir. 1979). + + 39. Section 17 of the Exchange Act and Rule 17a-5(d) thereunder generally require +registered broker-dealers to file with the Commission, among other things, audited financial +statements on an annual basis. Pursuant to paragraph (g)(1) of Rule 17a-5, the audit “shall be +made in accordance with [GAAS],” and “shall include a review of the accounting system, the +internal accounting controls and procedures for safeguarding securities.” Further, pursuant to +paragraph (j) of that Rule, a registered broker-dealer must file, “concurrently with its annual audit +report, a supplemental report by the accountant describing any material inadequacies found to have +existed since the date of the previous audit.” Pursuant to paragraph (g)(3) of that Rule, the term +“material inadequacy” includes “a material inadequacy in the accounting system, internal +accounting controls, and procedures for safeguarding securities [. . .] which has contributed +substantially to or, if appropriate action is not taken, could reasonably be expected to [. . .] result in +material misstatements in the broker’s or dealer’s financial statements.” Implicit in the +requirement that a registered broker-dealer file an audited annual financial report is the requirement +that the information contained in those reports be accurate. See Nikko Securities Co. International, +Inc., Exchange Act Release No. 32331 (May 19, 1993). Because the audits of Convertibles’ and +Series II’s financial statements were not conducted in accordance with GAAS and because the +internal controls reports they filed were inaccurate, Convertibles and Series II violated Section 17 +of the Exchange Act and Rule 17a-5 thereunder. + +F. Applicable GAAS + + 40. Under GAAS, an auditor must exercise due professional care in performing the +audits of financial statements and preparing the audit reports.6 “Due professional care” requires, +among other things, that auditors: (a) exercise due professional care in the planning and +performance of the audit, and professional skepticism in assessing audit evidence; and (b) obtain +sufficient competent evidential matter through inspection, observation, inquiries, and confirmations +to afford a reasonable basis for their opinions regarding financial statements under audit. AU 230, +230.07 & 326.01. The requirement to obtain sufficient competent evidential matter dictates that +the evidence obtained through the audit “be sufficient for the auditor to form conclusions +concerning the validity of the individual assertions embodied in the components of financial +statements.” AU 326.13. The auditor should “consider relevant evidential matter regardless of + +6 During the relevant period, GAAS was em bodied in various Statements on Auditing +Standards (“SAS”), as well as the Codification of Statements of Auditing Standards +(“AU”), both issued by the Auditing Standards Board of the American Institute of +Certified Public Accountants. The citations herein are to the Codification in effect at the +time of the 2000 audits. +13 + + +whether it appears to corroborate or contradict the assertions in the financial statements.” AU +326.25. + + 41. GAAS further requires that audits be ad equately planned and assistants be properly +supervised. AU 311.01. Supervision includes keeping informed of problems encountered, +assuring that the work of subordinates is properly performed, and assuring that the audit work +supports the conclusions reached. AU 311.11 & 311.13. One factor to be considered in planning +an audit is “[c]onditions that may require extension or modification of audit tests.” AU 311.03. +Moreover, “[t]he auditor's understanding of internal control may heighten or mitigate the auditor’s +concern about the risk of material misstatement.” AU 312.16. Accordingly, GAAS requires +auditors to evaluate whether the audited entity’s controls that address identified risks of material +misstatement due to fraud have been suitably designed and used to assess these risks. AU 316.21- +.25. Among the risk factors indicative of possible misstatements due to fraud are: (1) management +compensation that is based in significant part on incentives, the value of which is contingent; and +(2) inadequate monitoring of significant controls. AU 316.16-.19. + +G. Findings + + 42. In the 2000 audits, Stoler failed to co mply with GAAS because he did not exercise +due professional care and professional skepticism, obtain sufficient competent evidential matter to +support the auditor’s opinion on the financial statements, or adequately supervise the work of +assistants. In those audits, he ignored, discounted, or failed to apprise himself of, the substantial +audit evidence that Strafaci’s values for the Funds’ investments were not presented in accordance +with GAAP and were materially overstated, and the flaws in the process that produced the “clean” +confirmations. In light of his awareness of the inadequacies of the Funds’ internal controls on +valuation, and Strafaci’s and Lipper Holdings’ incentive compensation, Stoler's deviations from +GAAS were highly unreasonable. + + 43. By engaging in the conduct described above in the 2000 audits, Stoler engaged in +improper professional conduct within the meaning of Rule 102(e)(1)(ii) of the Commission’s Rules +of Practice because his conduct constituted negligent conduct within the meaning of Rule +102(e)(1)(iv)(B)(1), consisting of a single instance of highly unreasonable conduct that resulted in +a violation of applicable professional standards in circumstances in which Stoler knew, or should +have known, that heightened scrutiny was warranted. + + 44. By engaging in the conduct described above in the 2000 audits, Stoler was a cause +of Strafaci's and the Funds’ violations of Sections 17(a)(2) and (3) of the Securities Act, Lipper +Holdings’ violations of Section 206(2) of the Advisers Act, and Convertibles’ and Series II’s +violations of Section 17 of the Exchange Act and Rule 17a-5 thereunder, because he 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 the internal controls reports, would contribute to those violations, including the +Funds’ and Lipper Holdings’ false representations to investors/clients and prospective +14 + + +investors/client about the Funds’ value and performance and Convertibles’ and Series II’s filings of +inaccurate annual audited financial reports. + +IV. + + In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Stoler’s Offer. + + Accordingly, it is hereby ORDERED, effective immediately, that: + +A. Stoler shall cease and de sist from committing or causing any violations and any +future violations of Sections 17(a)(2) and (3) of the Securities Act and Section 206(2) of the +Advisers Act, and from causing any violations and any future violations of Section 17 of the +Exchange Act and Rule 17a-5 thereunder. + + B. Stoler is denied the privilege of appe aring or practicing before the Commission as +an accountant. + + C. After one year from th e date of this order, Stoler 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 re viewer, 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 Stoler’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) Stoler, 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) Stoler, or the registered p ublic 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 Stoler’s or the firm’s quality control system that would indicate that the +Stoler will not receive appropriate supervision; + + (c) Stoler has resolved all disc iplinary 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 +15 + + + + (d) Stoler acknowledges his res ponsibility, 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 Stoler 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 Stoler’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-2472.txt b/raw/aaer/2006/AAER-2472.txt new file mode 100644 index 0000000000000000000000000000000000000000..90918a614e58bc72ef3e13df0081cf11058329e9 --- /dev/null +++ b/raw/aaer/2006/AAER-2472.txt @@ -0,0 +1,1404 @@ + + + + + + + + + + + + + + + + SEC.gov | Jacob (“Kobi”) Alexander, David Kreinberg, and William F. Sorin + + + + + + + + !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\/499541","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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Sorin + + + + + + + + + + + + Jacob (“Kobi”) Alexander, David Kreinberg, and William F. Sorin + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19796 / August 9, 2006 + + Accounting and Auditing Release No. 2472 / August 9, 2006 + + Securities and Exchange Commission v. Jacob ("Kobi") Alexander, David Kreinberg, and William F. Sorin , United States District Court for the Eastern District of New York, Civil Action No. 06-CV-3844 (GJ) (E.D.N.Y. August 9, 2006) + + SEC Charges Former Comverse Technology, Inc. CEO, CFO, and General Counsel in Stock Option Backdating Scheme + +On August 9, 2006, the Securities and Exchange Commission ("Commission") filed a civil injunctive action in the United States District Court for the Eastern District of New York against Jacob "Kobi" Alexander, the co-founder and former Chairman and Chief Executive Officer of Comverse Technology, Inc. ("Comverse"), David Kreinberg, Comverse's former Chief Financial Officer, and William F. Sorin, Comverse's former General and Senior General Counsel, and a former Comverse director, alleging that they engaged in a decade-long fraudulent scheme to grant undisclosed, in-the-money options to themselves and to others by backdating stock option grants to coincide with historically low closing prices of Comverse common stock. In addition, the Complaint alleges that Alexander and Kreinberg created a slush fund of backdated options by causing options to be granted to fictitious employees and, later, used these options, some of which were made immediately exercisable, to recruit and retain key personnel. The Complaint alleges that as part of the scheme, the former executives made material misrepresentations to Comverse investors regarding Comverse's stock option grants and concealed from investors that Comverse had not recorded compensation expenses for option grants. As a result, Comverse materially overstated its net income and earnings per share between 1991 and at least 2002. + + According to the Complaint, the former executives collectively realized millions of dollars of ill-gotten compensation through the exercise of illegally backdated option grants and the subsequent sale of Comverse common stock. + + The complaint alleges, among other things, that: + + Comverse is a maker of software, systems, and related services for multimedia communication and information processing applications headquartered in New York, New York. + + Beginning in 1991, Alexander, 54, of New York, New York, repeatedly used hindsight to select a date when the closing price of Comverse's common stock was at or near a quarterly or annual low. Alexander later communicated this date and closing price to Sorin, 56, of New York, New York, in order for it to be used as the date of, and exercise price for, a grant of Comverse options. Sorin, with Alexander's knowledge, then created company records that falsely indicated that a committee of Comverse's board of directors had actually approved the option grant on the date Alexander had "cherry-picked" when, in fact, the committee acted to make the grant on a different, and later, date. Kreinberg, 41, of Teaneck, New Jersey, joined the scheme no later than 1998, and assisted Alexander in using hindsight to select a backdated grant date. Kreinberg knew that company records reflected false grant dates. + + Alexander and Kreinberg also created a slush fund of backdated Comverse options between 1999 and 2002 by, among other things, secretly inserting fictitious names among the names of actual Comverse employees on proposed option grantee lists which then were submitted to a committee of Comverse's board of directors for approval. Once the committee approved these options, Alexander, with Kreinberg's knowledge, used the slush fund's backdated options to recruit and retain key personnel until at least 2002. + + Kreinberg instructed a Comverse employee to conceal the existence of the slush fund from Comverse's auditors and in March 2006, after learning that a special committee of Comverse's board would investigate the company's option grants, Kreinberg undertook to hide the existence of the slush fund by altering records in Comverse's electronic option-tracking system. Alexander, Kreinberg, and Sorin also made misrepresentations to Comverse's auditors in order to conceal the backdating scheme. + + As a result of the scheme, Alexander, Kreinberg, and Sorin received undisclosed, in-the-money options which had an immediate intrinsic gain because the exercise price of the option was lower than the market price of the underlying common stock on the date of the grant. Alexander realized actual gains of nearly $138 million from sales of stock underlying the exercises of backdated options that were granted during the 1991 to 2001 period. At least $6.4 million of this gain represents the in-the-money portion of the options at the time of the grant to Alexander. Kreinberg realized an actual gain of nearly $13 million from the sales of stock underlying the exercises of backdated options granted during the 1994 to 2001 period, with at least $1 million of this gain representing the in-the-money portion of the options at the time of the grant to Kreinberg. Sorin realized an actual gain of more than $14 million from the sales of stock underlying the exercises of backdated options granted during the 1991 to 2001 period, with approximately $1 million of this gain representing the in-the-money portion of the options at the time of the grant to Sorin. + + From fiscal year 2001 to 2002, Kreinberg, with Sorin's knowledge, initiated a similar backdating scheme at Ulticom, Inc., a publicly-traded, majority-owned subsidiary of Comverse. + + Comverse and Ulticom have publicly announced that they expect to restate their historical financial results for multiple years in order to record additional, material non-cash charges for option-related compensation expenses. + + The Complaint charges the defendants with fraud and other violations of the federal securities laws, including the books and records, internal controls, lying to auditors and, as to Alexander and Kreinberg, the Sarbanes-Oxley certification provisions. The Commission is seeking permanent injunctions, officer and director bars, disgorgement with prejudgment interest, and civil money penalties. + + The Commission's investigation in this matter is continuing. + + 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-2473.txt b/raw/aaer/2006/AAER-2473.txt new file mode 100644 index 0000000000000000000000000000000000000000..99ee689d72c98fdd6e26e7602bbbd5ba751bc1d1 --- /dev/null +++ b/raw/aaer/2006/AAER-2473.txt @@ -0,0 +1,1391 @@ + + + + + + + + + + + + + + + + SEC.gov | Paul W. Mikus and John V. Cracchiolo + + + + + + + + !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\/499561","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 + + + Paul W. Mikus and John V. Cracchiolo + + + + + + + + + + + + Paul W. Mikus and John V. Cracchiolo + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19800 / August 10, 2006 + + Accounting and Auditing +Enforcement Release No. 2473 / August 10, 2006 + + SEC v. Paul W. Mikus and John V. Cracchiolo , Civil Action No. SACV 06-734 JVS (MLGx)(C.D.Cal.). + + SEC Charges Former CEO and CFO of Endocare With Fraud + + The Securities and Exchange Commission (Commission) announced that, on August 9, 2006, it filed securities fraud charges against Paul W. Mikus, the former chief executive officer and chairman of the board of Endocare, Inc., and John V. Cracchiolo, Endocare's former chief financial officer and chief operating officer, for orchestrating a financial fraud perpetrated on the investing public in 2001 and 2002. At the time, Endocare, based in Irvine, Calif., developed and distributed medical devices for use in the treatment of various types of cancers and urological ailments. + The Commission's complaint, filed in U.S. District Court in Santa Ana, Calif., alleges that Mikus, age 40, of Irvine, Calif., and Cracchiolo, age 50, of Gardnerville, Nev., significantly overstated Endocare's income by booking false sales, engaging in improper revenue recognition practices, and improperly understating or delaying the recognition of expenses in order to inflate Endocare's earnings. The complaint further alleges that, during conference calls with Wall Street analysts, Mikus and Cracchiolo misled investors about the number of procedures that had been performed using Endocare's devices. According to the complaint, the procedure numbers were critical to Endocare because these numbers reflected the present and future market acceptance for Endocare's devices. + The complaint alleges that, as a result of the fraudulent accounting, Endocare overstated net revenue by at least 16% for 2001, 17% for the first quarter of 2002, and 33% for the second quarter of 2002. Additionally, Endocare's financial statements understated its pre-tax loss for 2001 by 20%, and falsely reported pre-tax earnings for the first two quarters of 2002, rather than properly reporting substantial pre-tax losses. + The complaint further alleges that Mikus and Cracchiolo approved a press release announcing the termination of Endocare's acting controller for conduct "materially injurious to the company" after the acting controller had raised questions about Endocare's accounting practices. The complaint alleges that the press release was misleading because it was issued one week after Endocare had disclosed that the company's independent auditors, KPMG LLP, had concluded that KPMG could no longer rely on the representations of management, which included Mikus and Cracchiolo. As alleged in the complaint, the press release falsely implied that Endocare had terminated the bad actors responsible for KPMG's concerns. The complaint also alleges that Mikus approved another misleading press release in which Endocare announced that, after an independent investigation, the audit committee had concluded that there "was no indication of fraud or intentional wrongdoing by management." The complaint alleges this statement was false and misleading because, first, the company in fact had not conducted an "independent" investigation, and second, an internal review had in fact revealed substantial evidence of fraud or intentional wrongdoing. + The Commission charged Mikus and Cracchiolo with violating the antifraud provisions, Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; the record-keeping and internal controls provisions, Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder; and the false statements to auditors provision, Rule 13b2-2 of the Exchange Act. Mikus and Cracchiolo were also charged with aiding and abetting Endocare's violations of the reporting provisions, Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder; the record-keeping provision, Section 13(b)(2)(A) of the Exchange Act; and the internal controls provision, Section 13(b)(2)(B) of the Exchange Act. + The Commission seeks permanent injunctions against Mikus and Cracchiolo, an order that they repay their ill-gotten gains, civil monetary penalties, and an order barring them from serving as officers or directors of publicly-traded companies. + The Commission previously filed settled actions against Endocare, its senior vice president of sales, Kevin Quilty, and the former president of an Endocare subsidiary, Jerry W. Anderson, see Litigation Release No. 19772 (July 25, 2006), and instituted a settled cease-and-desist proceeding against Endocare's former director of sales for the Southeast region, L. Michael Hart, see Exchange Act Release No. 54172, Accounting and Auditing Enforcement Release No. 2460 (July 19, 2006). + The Commission's investigation is continuing. + + + + + 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-2474.txt b/raw/aaer/2006/AAER-2474.txt new file mode 100644 index 0000000000000000000000000000000000000000..2630397a3dbaf542d5afbc8f4a68fbc1e796348a --- /dev/null +++ b/raw/aaer/2006/AAER-2474.txt @@ -0,0 +1,113 @@ + UNITED STATES OF AMERICA + before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54303 / August 11, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2474 / August 11, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12391 + + : + : + : +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE + : PROCEEDINGS PURSUANT TO RULE + JOSEPH A. ROUGRAFF, CP A, : 102(e) OF THE COMMISSION’S RULES OF + : PRACTICE, MAKING FINDINGS, AND +Respondent. : IMPO SING REMEDIAL SANCTIONS + : + : +____________________________________ : + + +I. + + The Securities and Exchange Commission (“Commission”) deem s it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against Joseph +A. Rougraff (“Respondent” or “R ougraff”) 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”) whic h 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 jurisd iction over him and the subject matter of these + +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 +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, Maki ng Findings, and Imposi ng Remedial Sanctions +(“Order”), as set forth below. + +III. + + On the basis of this Order and Responde nt’s Offer, the Commission finds that: + +1. Rougraff, age 47, is a CPA licensed in th e State of Indiana. He served as vice +president, CFO, and corporate secretary of Virbac Corporation (“Virbac”) from May 2000 until he +resigned effective January 27, 2004. + +2. Virbac, a Delaware corporation headquartered in Fort Worth, Texas, is the result of +the March 1999 acquisition of Agri-Nutrition Group Limited (“AGNU”), a publicly-held company, +by Virbac Inc., a wholly-owned subsidiary of Vi rbac S.A., a French vete rinary pharmaceutical +manufacturer. Virbac is a manufacturer and distributor of animal health products. Virbac’s +common stock is registered with the Commission under Section 12(g) of the Securities Exchange +Act of 1934 (“Exchange Act”) and trades in th e Pink Sheets under the symb ol “VBAC” since it +was delisted from the NASDAQ National Market on January 23, 2004 for Virbac’s failure to file +timely its periodic reports. + +3. On August 4, 2006 , a final judgment was entered against Rougraff, permanently +enjoining him from future violations of Section 17(a) of the S ecurities Act of 1933 and 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, and imposing an officer and director bar in +the civil action entitled +Securities and Exchange Commission v. Virbac Corp., et. al, Civil Action +Number 4:06-CV-0453-A, in the United States District Court for the Northern District of Texas. +Rougraff was also ordered to pay $26,668 in disgorgement and $5,656 in prejudgment interest, and +a $100,000 civil money penalty. + +4. The Commission’s complain t alleged, among other things, that from December +2000 to November 2003, Virbac engaged in a re venue inflation and expense deferral scheme and +that Rougraff participated in the scheme. According to the complaint, the scheme involved the +improper recognition of revenue by means of channel-stuffing, or “loading” of product to +distributors, by recording revenue from sham transactions, and by recording revenue from +transactions occurring after period-end. The Commission also alleges in the complaint that, as a +result of the scheme, Virbac met unrealistic reve nue and earnings projections and managed to +sustain the illusion of rapid growth—by fraudulently inflating its revenues and net income by as +much as 9% and 694%, respectively and that, in the process, Virbac failed to comply with +Generally Accepted Accounting Principles (“GAA P”). The Commission further alleges that +Rougraff failed to cause Virbac to record appropriate reserves and accruals to overstate earnings; +that in furtherance of the scheme , Virbac personnel falsely docume nted terms of transactions on +invoices and other underlying documents; and that the true terms were established in side + 3 +arrangements, per conversations and e-mails, whic h Rougraff and others failed to disclose to +Virbac’s auditors. + +IV. + + In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Rougraff’s Offer. + + Accordingly, it is hereby ORDERED, effectiv e immediately, that Rougraff is suspended +from appearing or practicing before the Commission as an accountant. + + 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-2475.txt b/raw/aaer/2006/AAER-2475.txt new file mode 100644 index 0000000000000000000000000000000000000000..5f6aa2a3fdbd2cf5d92bc8348ba44e7635f191f0 --- /dev/null +++ b/raw/aaer/2006/AAER-2475.txt @@ -0,0 +1,1394 @@ + + + + + + + + + + + + + + + + SEC.gov | Dawn M. 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Schlegel and Sandra Hatfield + + + + + + + + + + + + Dawn M. Schlegel and Sandra Hatfield + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19806 / August 17, 2006 + + Accounting and Auditing Enforcement Release No. 2475 / August 17, 2006 + + SEC v. Dawn M. Schlegel and Sandra Hatfield , (U.S. District Court for the Southern District of Florida, Civil Action No. 06-61251-CIV-SEITZ/McAliley filed August 17, 2006) + + + + The Securities and Exchange Commission today announced the filing of securities fraud charges against Dawn M. Schlegel and Sandra L. Hatfield, two former officers of DHB Industries, Inc., a major supplier of body armor to the United States military and law enforcement agencies. The SEC alleges that Schlegel, DHB's former Chief Financial Officer, and Hatfield, DHB's former Chief Operating Officer, routinely overstated the value of the company's inventory and directed the booking of numerous fraudulent journal entries in order to reduce the company's cost of goods sold. This had the effect of falsely increasing the company's gross profit margins, and in some instances, net income. As a result of their misconduct, DHB materially misstated key financial information in filings with the SEC and in public statements. + + According to the SEC's complaint, Schlegel, of Eastport, N.Y., and Hatfield, of Pompano Beach, Fla., regularly overstated the value of DHB's inventory by fraudulently increasing inventory quantities, labor costs, overhead costs, and the amount of raw materials used in DHB's products. The complaint alleges that together Hatfield and Schlegel also transferred millions of dollars of expenses from cost of goods sold to research and development costs to materially increase the company's gross profit. The complaint further alleges that Schlegel falsely inflated DHB's $60 million charge against earnings taken in the third quarter of 2005 to mask her and Hatfield's fraudulent conduct. Schlegel is alleged to have lied to DHB's auditors and provided fake inventory schedules and other documents to conceal the fraud. + + The complaint also alleges that during the period of their fraudulent conduct, Schlegel and Hatfield collectively profited by over $8.2 million from the cashless exercise of warrants and sale of over 400,000 DHB shares. Schlegel and Hatfield sold these shares at the end of 2004 at the height of DHB's stock price and before the public knew about the misrepresentations in DHB's filings and public statements. + + The Commission's complaint charges Schlegel and Hatfield with violating 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 aiding and abetting DHB'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, 13a-11 and 13a-13 thereunder. The complaint also alleges that Schlegel violated Rules 13b2-2 and 13a-14 under the Exchange Act. In its complaint, the Commission seeks permanent injunctions, disgorgement, civil penalties, insider trading penalties, and officer and director bars against Schlegel and Hatfield. + + The United States Attorney's Office for the Eastern District of New York conducted a parallel investigation of this matter. Simultaneous with the SEC's announcement of this action, the United States Attorney's Office announced the filing of charges against Hatfield and Schlegel for securities fraud and conspiracy to commit securities fraud. + + The staff's investigation is continuing. + + + + + 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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Armand Dauplaise and Bernard Shinder , Civil Action No. 6:05cv1391-ACC-DAB (M.D. Fla.) + + SEC Settles With Former Bio One Executive Charged With Fraud + + + + The Securities and Exchange Commission today announced that the United States District Court for the Middle District of Florida entered a Final Judgment on August 14, 2006 against Bernard Shinder, of Boca Raton, based on his consent. + + On September 22, 2005, the Commission filed a complaint against Armand Dauplaise, of Winter Park, Florida, and Shinder alleging fraud and other securities law violations during their tenure as the CEO and CFO, respectively, of Bio One Corporation, a nutritional supplement company located in Winter Springs, Florida. The court entered final judgment by consent against Dauplaise on April 6, 2006. + + In the complaint, the Commission alleged that Dauplaise and Shinder violated the antifraud provisions of the federal securities laws when they failed to disclose the company's default on a $15 million (Canadian) promissory note and related subsequent events. According to the complaint, Bio One purchased a private company, Interactive Nutrition International Inc. (INI), on March 31, 2004, in part, by issuing the promissory note. The complaint alleges that Bio One never made any of the payments on the note, and the company's former executives signed forbearance agreements in August and November 2004 acknowledging that the company was in default of the note. According to the complaint, in December 2004, the note holder appointed a receiver for INI and provided notice to Bio One that it intended to exercise its security rights under the agreement. + + The complaint further alleges that Dauplaise and Shinder failed to disclose the default, the forbearance agreements and the appointment of a receiver in its quarterly reports filed in August and November 2004 or in its Form 8-Ks filed in November and December 2004. The Commission also alleges that the defendants violated the record-keeping and reporting provisions of the federal securities laws. + + Shinder, without admitting or denying the allegations of the complaint, consented to a permanent injunction that enjoins him 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, 13a-11, 13a-13, 13b2-1 and 13b2-2 thereunder. He also consented to a permanent bar from acting as an officer or director of any public company. The court will determine at a later date whether Shinder will be ordered to pay a penalty and the amount. + + For additional information, see Litigation Release No. 19387 (September 22, 2005) and Litigation Release No. 19643 (April 6, 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. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2006/AAER-2477.pdf b/raw/aaer/2006/AAER-2477.pdf new file mode 100644 index 0000000000000000000000000000000000000000..ae85d6bba24980336c7a58b37591cfa1ee4ac9f3 Binary files /dev/null and b/raw/aaer/2006/AAER-2477.pdf differ diff --git a/raw/aaer/2006/AAER-2477.txt b/raw/aaer/2006/AAER-2477.txt new file mode 100644 index 0000000000000000000000000000000000000000..bf3d77fe53884f07e4f140551376128da1cbe7eb --- /dev/null +++ b/raw/aaer/2006/AAER-2477.txt @@ -0,0 +1,169 @@ + UNITED STATES OF AMERICA + before the + SECURITIES AND EXCHANGE COMMISSION + + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54345 / August 22, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2477 / August 22, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12394 + + : + : + : +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE + : PROCEEDINGS PURSUANT TO RULE + MARK J. CORJAY (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 Mark J. +Corjay (“Respondent” or “Corjay”) 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 + +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 +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 Responde nt’s Offer, the Commission finds that: + +1. Corjay, age 43, is and has been a certified public accountant (“CPA”) +licensed in the state of Oklahoma. He served as Daisytek International +Corporation’s (“Daisytek”) controller from 1994 to 2003. + +2. On May 7, 2003, Daisytek, a Delaware corporation based in Allen, Texas, +filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in +the U.S. Bankruptcy Court for the Northern District of Texas, Dallas +Division. Prior to filing for bankruptcy, Daisytek was engaged, in the +United States and internationally, in the sale and distribution of office +products and computer supplies. At all relevant times, Daisytek’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 +NASDAQ. On March 30, 2004, Daisytek filed a Form 15-12G to deregister +its common stock. On January 24, 2005, the Commission instituted settled +cease-and-desist proceedings against Daisytek, in which Daisytek consented +to the entry of a cease-and-desist order containing findings, which Daisytek +neither admitted nor denied, that Daisytek had violated Section 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 Exchange Act and Rules 10b-5, 12b-20, +13a-1, 13a-13, and 13b2-1 thereunder. + +3. On August 10, 2006, a final judgment was entered against Corjay, +permanently enjoining him from direct or indirect future violations of +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 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. Mark J. +Corjay, et al., Civil Action Number 4:06-CV-311, in the United States +District Court for the Northern District of Texas. Corjay was also ordered +to pay $311,175 in disgorgement of ill-gotten gains from his sales of +Daisytek stock while participating in the fraud, and $51,822 in prejudgment +interest, but the Commission waived all but $100,000 of that amount and +did not seek against Corjay a civil penalty based on his sworn financial +statements. + 3 + +4. The Commission’s complaint alleged, among other things, that throughout +Daisytek’s fiscal years 2001 and 2002 (i.e., from April 1, 2000 through +March 31, 2002), and through Daisytek’s second quarter of fiscal year 2003 +(i.e., through September 30, 2002), Corjay participated in a scheme through +which Daisytek managed its earnings by recording non-existent and +uncollectible receivables, and by improperly accelerating revenue +recognition. According to the complaint, the scheme involved the improper +booking as revenue of various rebates associated with inventory Daisytek +ordered for the sole purpose of meeting its earnings targets. The +Commission alleged that Corjay booked these receivables with knowledge +that they were improper. The Commission also alleged in the complaint +that, as a result of the scheme, Daisytek met unrealistic earnings projections +by fraudulently inflating its net income. + +IV. + + In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Corjay’s Offer. + + Accordingly, it is hereby ORDERED, effective immediately, that: +A. Respondent is suspended from appeari ng or practicing before the Commission as +an accountant. +B. 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 pers on 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; + 4 +(b) Respondent, or the registered publ ic 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 disc iplinary 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 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-2478.txt b/raw/aaer/2006/AAER-2478.txt new file mode 100644 index 0000000000000000000000000000000000000000..d888ef5183fccdec219d805de9a0714356686b3c --- /dev/null +++ b/raw/aaer/2006/AAER-2478.txt @@ -0,0 +1,120 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54355 / August 23, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2478 / August 23, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12396 + + + + +In the Matter of + +DENNIS R. STAAL, + +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 Dennis +R. Staal (“Respondent” or “Staal”) 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. 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. Dennis R. Staal, age 57, is a resident of Chadron, Nebraska. Staal was Stansbury’s CFO, +treasurer, secretary, and a director from January 2000 through October 31, 2002. Staal +received his license to be a certified public accountant (“CPA”) in Nebraska in 1972 which +became inactive in 1978. Staal currently serves as a director of Capco Energy, Inc., a public +company located in Houston, Texas, but is not otherwise employed. +2. Stansbury Holdings Corporation is a Utah corporation based in Philadelphia, Pennsylvania. +Through January 2003, its principal place of business was in Denver, Colorado. At all +relevant times, Stansbury purported to be engaged in the mining and processing of +vermiculite or garnet on properties located in Montana. Stansbury’s common stock had been +registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of +1934 (“Exchange Act”) since at least 1985. On May 7, 2003, the Commission instituted +administrative proceedings against Stansbury pursuant to Section 12(j) of the Exchange Act. +On July 14, 2003, an order revoking the registration of Stansbury’s securities was issued. In +the Matter of Stansbury Holdings Corporation, Initial Decision Rel. No. 232 (July 14, 2003). +3. On August 9, 2006, a final judgment was entered against Respondent permanently enjoining +him from violations of Section 17(a) of the Securities Act of 1933 (“Securities Act”), +Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder and +from aiding and abetting violations of Sections 13(a) and 13(b)(2) of the Exchange Act and +Rules 12b-20, 13a-1, and 13a-13 thereunder, in civil action S.E.C. v. Stansbury Holdings +Corporation, et. al. (Civil Action 1:06-cv-00088-REB-BNB, Dist of Colorado). Respondent +was barred from serving as an officer and director of any public company for five years from +the date of the court’s judgment and ordered to pay a $35,000 civil money penalty. +4. The Commission's complaint alleged, among other things, that Respondent reviewed, signed +and approved the Stansbury Holdings Corporation’s Form 10-KSB reports for the years +ended June 30, 2000 and June 30, 2001, and the company’s Form 10-QSB and Form 10-Q +reports for the quarters ended March 31, 2000, September 30, 2000, and September 30, 2001. +For periods ended June 1999 through March 2002, Stansbury, a public mining company +formerly based in Denver, falsely claimed in its periodic filings and offering documents that +it held between $19.2 million and $25.5 million in assets. Between 75% and 99% of +Stansbury’s reported assets in each of these periods consisted of Stansbury’s rights to mine +two properties, rights which Stansbury had purchased to extract the mineral vermiculite. +However, Stansbury did not adjust the values of, or disclose potential losses relating to, these + 2 +purported assets after numerous events demonstrated that the company could not generate +income from them, including foreclosure actions filed against both properties and +Stansbury’s own business decision to focus its limited resources on mining a different +mineral. During the relevant period, Stansbury used its false financial statements to raise +almost $2 million from investors to fund the company’s anticipated activities, but Stansbury +was never able to commence any significant mining operations. Respondent knew about the +nature of Stansbury’s assets, the foreclosure proceedings, and Stansbury’s change in business +focus; he was involved in Stansbury’s continuing efforts to raise money from investors and +did not adjust the value of Stansbury’s reported assets to reflect the actual value of its limited +holdings. +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: +Staal is suspended from appearing or practicing before the Commission as an accountant. + +By the Commission. + + + + + +Nancy M. Morris +Secretary + + + + + 3 \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2479.txt b/raw/aaer/2006/AAER-2479.txt new file mode 100644 index 0000000000000000000000000000000000000000..bb7904a24a0a388dc3cde140ce5b4feafcb8e878 --- /dev/null +++ b/raw/aaer/2006/AAER-2479.txt @@ -0,0 +1,1393 @@ + + + + + + + + + + + + + + + + SEC.gov | Jim Bob Brown + + + + + + + + !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\/499726","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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Jim Bob Brown , Civil Action No. 06-CV-2919, U.S.D.C./Southern District of Texas (Houston Division) + + SEC Charges Former Employee of A Willbros Group, Inc. Subsidiary With FCPA Violations + + + + Today, the United States Securities and Exchange Commission (Commission or SEC) filed a civil action against Jim Bob "J.B." Brown, a former employee of a subsidiary of Willbros Group, Inc., alleging that Brown violated and aided and abetted violations of the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA), the prohibitions against circumventing internal controls and falsifying records, and the books and records and internal controls provisions of the Securities Exchange Act of 1934 (Exchange Act). Willbros Group is a global provider of construction and engineering services in the oil and gas industry. It has a class of securities that is registered under Section 12(b) of the Exchange Act and that trades on the New York Stock Exchange. Brown has agreed to settle the charges against him, without admitting or denying the allegations in the Commission's complaint. + + The Commission alleges in its complaint that Brown, a former supervisory employee in Willbros's Nigerian and Latin American operations, participated in three separate schemes to bribe foreign officials. First, the complaint alleges that, in February and March 2005, Brown procured $1 million on behalf of a Willbros affiliate and delivered that money as partial payment of previously-made commitments to Nigerian government officials and to employees of the operator of a joint venture majority owned by an arm of the Nigerian government. He also assisted, according to the complaint, in the payment of an additional $550,000 that was also used to satisfy the earlier commitments. Second, Brown, in return for the granting to Willbros of a $3 million contract, knowingly assisted a scheme to pay a $300,000 bribe to officials of an oil and gas company owned by the government of Ecuador and its subsidiary. Finally, Brown knowingly assisted a long-running scheme in which employees of Willbros affiliates used fabricated invoices to procure cash from the company's administrative headquarters in Houston that was used to, among other things, bribe Nigerian tax and court officials. + + The Commission alleges that, through these activities, Brown violated Sections 13(b)(5) and 30A of the Exchange Act and Rule 13b2-1 thereunder. In addition, the complaint alleges that Brown aided and abetted violations of Sections 13(b)(2)(A), 13(b)(2)(B) and 30A of the Exchange Act. Without admitting or denying the allegations in the complaint, Brown 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, at a later date upon motion by the Commission, whether to order Brown to pay a civil penalty and the amount of such penalty. + + The Commission's investigation into the events underlying these violations is ongoing. The Commission acknowledges the assistance of the Department of Justice 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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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 + + + Billy David Deaton + + + + + + + + + + + + Billy David Deaton + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19834 / September 14, 2006 + + Accounting and Auditing Enforcement Release No. 2480 / September 14, 2006 + + SEC v. Billy David Deaton , Civil Action No. 3:06-CV-1681-K/Northern District of Texas (Dallas Division) + + SEC Settles Fraud Charges Against Former Head of Sourcecorp, Inc. Subsidiary + + + + On September 14, 2006, the Securities and Exchange Commission filed a settled civil action in Dallas federal court against Billy David Deaton, the former CEO of Image Entry, Inc., a data entry services provider with its principal office in London, Kentucky. Image Entry is a wholly owned subsidiary of Dallas-based Sourcecorp, Inc., whose common stock previously traded on the Nasdaq National Market but which now is privately owned. + + Sourcecorp acquired Image Entry in 2001 from Deaton and members of his family. As part of the acquisition, Sourcecorp entered into employment agreements with Deaton providing, among other things, that Deaton would receive an annual bonus, over a three-year "earn out" period, tied to Image Entry's performance against certain earnings criteria. The Commission alleges that Deaton managed a scheme to overstate Image Entry's earnings so that he could increase the amount of this "earn out" bonus. The Commission's complaint describes an alleged scheme to inflate Image Entry's earnings from 2001 through the first quarter of 2004 by (1) recognizing unearned revenue from state and federal government data entry contracts, (2) prematurely recognizing revenue from a federal government data entry contract that Image Entry had not yet been awarded, and (3) diverting various Image Entry expenses to other companies Deaton owned to reduce Image Entry's expenses and increase its earnings. The Commission contends that Deaton's alleged misconduct artificially inflated Image Entry's earnings and, by extension, his "earn out" bonus. Moreover, because the allegedly inflated figures were included in Sourcecorp's publicly reported consolidated financial results, the Commission's complaint asserts that Sourcecorp's earnings were materially overstated. + + Without admitting or denying the Commission's allegations, Deaton has consented to entry of a final judgment permanently enjoining him from violating 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 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, 13a-11, and 13a-13 thereunder. As part of the settlement, Deaton also will be barred from serving as an officer or director of a public company for five years and will pay a $240,000 civil penalty. Because Deaton already repaid his "earn out" bonus to Sourcecorp, plus additional costs incurred by the company, the Commission does not seek disgorgement from Deaton. + + The Commission's investigation is continuing. + + + + + + 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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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 + + + Diane Kayser + + + + + + + + + + + + Diane Kayser + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19835 / September 14, 2006 + + Accounting and Auditing Enforcement Release No. 2481 / September 14, 2006 + + SEC v. Diane Kayser , Case No. C-06-5635-HRL (N.D. CA filed on September 14, 2006) + + SEC Charges Former CFO of Monterey, California Company With Financial Fraud + + + + The Securities and Exchange Commission today charged Diane Kayser, the former Chief Financial Officer of Excelligence Learning Corporation, a Monterey, California-based educational product company, with falsifying the Company's financial statements. Kayser, currently of Spokane, Wash., agreed to settle the claims against her by paying a S35,000 penalty and consenting to other sanctions. + + The Commission's complaint, filed in federal court in San Jose, alleges that Kayser manipulated Excelligence's accounting records in order to avoid reporting negative financial information to securities analysts and investors. According to the Commission, in February and March 2005, Kayser altered the company's records to make it appear that the company had less unpaid inventory than was actually the case. As part of the scheme, Kayser hid unpaid invoices in her office, concealing them from the company's auditors. As a result of this conduct, Kayser caused Excelligence to report operating income for the 2004 fiscal year that was fraudulently inflated by nearly 10%. + + The Commission's complaint charges Kayser with violations of the antifraud provisions of the securities laws (Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder) as well as other violations including lying to accountants (Rule 13b2-2 under the Exchange Act) and filing false certifications with the Commission (rule 13a-14 under the Exchange Act). + + Simultaneously with the filing of the complaint, Kayser has agreed to settle the charges, without admitting or denying the Commission's allegations. Kayser has consented to an order requiring her to pay civil penalties of $35,000 plus post-judgment interest, and imposing a permanent injunction against future violations of the securities laws. Kayser also consented to the entry of an order barring her from serving as an officer or director of a public company for five years, and an order prohibiting her from practicing before the Commission as an accountant for five years under SEC Rule of Practice 102(e). + + + + + 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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Cash + + + + + + + + !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\/499801","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 + + + James N. Stanard, Martin J. Merritt And Michael W. Cash + + + + + + + + + + + + James N. Stanard, Martin J. Merritt And Michael W. Cash + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19847 / September 27, 2006 + + Accounting And Auditing Enforcement Release No. 2484 / September 27, 2006 + + Securities and Exchange Commission v. James N. Stanard, Martin J. Merritt And Michael W. Cash , (S.D.N.Y. Civ. 06 CV 7736 (GEL)) + + SEC Sues Three Individuals in Accounting Fraud Case + + The Securities and Exchange Commission announced that it filed an enforcement action in federal district court in the Southern District of New York against James N. Stanard and Martin J. Merritt, the former CEO and former controller, respectively, of RenaissanceRe Holdings Ltd. (RenRe), and also against Michael W. Cash, a former senior executive of RenRe's wholly-owned subsidiary, Renaissance Reinsurance Ltd. In its complaint filed today, the Commission alleges that Stanard, Merritt, and Cash structured and executed a sham transaction that had no economic substance and no purpose other than to smooth and defer over $26 million of RenRe's earnings from 2001 to 2002 and 2003. In partial settlement of the Commission's claims, without admitting or denying the allegations, Merritt consented to the entry of an antifraud injunction and other relief. + + In its complaint, the Commission alleges that Stanard, Merritt and Cash committed fraud in connection with a sham transaction that they concocted to smooth RenRe's earnings. The complaint concerns two seemingly separate, unrelated contracts that were, in fact, intertwined. Together, the contracts created a round trip of cash. In the first contract, RenRe purported to assign at a discount $50 million of recoverables due to RenRe under certain industry loss warranty contracts to Inter-Ocean Reinsurance Company, Ltd. in exchange for $30 million in cash, for a net transfer to Inter-Ocean of $20 million. RenRe recorded income of $30 million upon executing the assignment agreement. The remaining $20 million of its $50 million assignment became part of a "bank" or "cookie jar" that RenRe used in later periods to bolster income. + + The second contract was a purported reinsurance agreement with Inter-Ocean that was, in fact, a vehicle to refund to RenRe the $20 million transferred under the assignment agreement plus the purported insurance premium paid under the reinsurance agreement. This reinsurance agreement was a complete sham. Not only was RenRe certain to meet the conditions for coverage; it also would receive back all of the money paid to Inter-Ocean under the agreements plus investment income earned on the money in the interim, less transactional fees and costs. + + RenRe accounted for the sham transaction as if it involved a real reinsurance contract that transferred risk from RenRe to Inter-Ocean, when in fact, the complaint alleges, each of these individuals knew that this was not true. Merritt and Stanard also misrepresented or omitted certain key facts about the transaction to RenRe's auditors. As a result of RenRe's accounting treatment for this transaction, RenRe materially understated income in 2001 and materially overstated income in 2002, at which time it made a "claim" under the "reinsurance" agreement. It then received as apparent reinsurance proceeds the funds it had paid to Inter-Ocean and that Inter-Ocean held in a trust for RenRe's benefit. + + On Feb. 22, 2005, RenRe issued a press release announcing that it would restate its financial statements for the years ended Dec. 31, 2001, 2002 and 2003. On March 31, 2005, RenRe filed its Form 10-K for the year ended Dec. 31, 2004, which contained restated financial statements for those years. Stanard signed and certified the Form 10-K. Both the press release and the Form 10-K attributed the restatement of the Inter-Ocean transaction to accounting "errors" due to "the timing of the recognition of Inter-Ocean reinsurance recoverables." These statements were misleading. In fact, the transaction contained no real reinsurance and the Company's restated financial statements accounted for the transaction as if it had never occurred. In short, the entire transaction was a sham, and the Company failed to disclose that fact and misrepresented the reasons for the restatement. + + The Commission's complaint charges Stanard, Merritt and Cash with securities fraud in violation of Section 17(a) of the Securities Act and Section 10(b) and Rule 10b-5(a), (b) and (c) of the Exchange Act; with violating the reporting, books-and-records and internal control provisions of Exchange Act Section 13(b)(5) and Rule 13b2-1; and with aiding and abetting RenRe's violations of Exchange Act Sections 10(b), 13(a) and 13(b)(2) and Exchange Act Rules 10b-5(a), (b) and (c), 12b-20, 13a-1 and 13a-13. In addition, the complaint charges Stanard and Merritt with violating Exchange Act Rule 13b2-2 for making materially false statements to RenRe's auditors and charges Stanard with violating Exchange Act Rule 13a-14 for certifying financial statements filed with the Commission that he knew contained materially false and misleading information. The complaint seeks permanent injunctive relief, disgorgement of ill-gotten gains, if any, plus prejudgment interest, civil money penalties, and orders barring each defendant from acting as an officer or director of any public company. + + Without admitting or denying the allegations in the Commission's complaint, Merritt has consented to a partial final judgment that, upon entry by the court, will permanently enjoin him from violating or aiding or abetting future violations of the securities laws, bar him from serving as an officer or director of a public company, and defer the determination of civil penalties and disgorgement to a later date. + + In addition, Merritt has agreed to a Commission administrative order, based on the injunction, barring him from appearing or practicing before the Commission as an accountant, under Rule 102(e) of the Commission's Rules of Practice. Merritt was a certified public accountant licensed to practice in Massachusetts + + + + + 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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Cotton + + + + + + + + !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\/499816","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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Cotton + + + + + + + + + + + + Steven V. Cotton + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19850 / September 28, 2006 + + Accounting and Auditing Enforcement Release No. 2487 / September 28, 2006 + + SEC v. Steven V. Cotton , Civil Action No. SA CV-06-905 AG (ANx) (C.D.Cal.) + + SEC Charges Former CFO of Lantronix, Inc. With Fraudulently Inflating Revenues and Earnings + + Lantronix Agrees to Cease and Desist From Future Securities Law Violations + + + + The Securities and Exchange Commission today filed securities fraud charges against Steven V. Cotton, the former chief financial officer and chief operating officer of Lantronix, Inc., an Irvine, Calif. technology company, for perpetrating a scheme to defraud the investing public by falsely inflating Lantronix's financial results in its fiscal 2002 and 2001 years. + + Separately, Lantronix agreed to the issuance of an order that it cease and desist from future violations of the antifraud provisions of the federal securities laws. + + The Commission's complaint, filed in U.S. District Court in Los Angeles, California, alleges that Cotton, age 43, of Huntington Beach, California, orchestrated a scheme to inflate the company's revenues and earnings by deliberately sending excessive product to distributors and granting them undisclosed expanded return rights and unusual extended payment terms (a fraudulent practice known as "channel stuffing"). The complaint further alleges that, as part of the channel stuffing scheme and to prevent imminent product returns, Cotton caused Lantronix to loan funds to a third party to purchase Lantronix product from one of its distributors. According to the complaint, Lantronix, through Cotton, also engaged in other improper revenue recognition practices, including shipping product that had not been ordered and recognizing revenue on a contingent sale. + + The complaint alleges that as a result of Cotton's scheme, Lantronix overstated its revenues by up to 21 percent and understated pre-tax losses by up to 98 percent for its second and third quarters of fiscal year 2001, its fiscal year 2001, and the first quarter of fiscal 2002. Lantronix publicly reported its false financials in periodic reports on Form 10-Q and 10-K and in a registration statement for a public offering of stock in July 2001. Lantronix subsequently restated its financial results for the relevant periods. + + The complaint further alleges that Cotton made substantial profits from his scheme through bonuses and through the sale of Lantronix stock at artificially inflated prices. + + The Commission charged Cotton with violating the antifraud provisions, Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; the record-keeping and internal controls provisions, Section 13(b)(5) of the Exchange Act and Rule 13b2-1; and the false statements to auditors provision, Rule 13b2-2 of the Exchange Act. Cotton was also charged with aiding and abetting Lantronix's violations of the reporting provisions, Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder; the record-keeping provision, Section 13(b)(2)(A) of the Exchange Act; and the internal controls provision, Section 13(b)(2)(B) of the Exchange Act. + + The Commission seeks a permanent injunction against Cotton, an order that he repay his ill-gotten gains, civil monetary penalties, and an order barring him from serving as an officer or director of a publicly-traded company. +  +The Commission also issued a cease-and-desist order against Lantronix requiring it to cease and desist from committing or causing any violations and any future violations of the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; the reporting provisions of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder; the record-keeping provision, Section 13(b)(2)(A) of the Exchange Act; and the internal controls provision, Section 13(b)(2)(B) of the Exchange Act. Lantronix consented to the issuance of the cease-and-desist order. + + + + + 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-2488.pdf b/raw/aaer/2006/AAER-2488.pdf new file mode 100644 index 0000000000000000000000000000000000000000..21fb5d8178af566e5d5e874a072d08f2d2d6ab87 Binary files /dev/null and b/raw/aaer/2006/AAER-2488.pdf differ diff --git a/raw/aaer/2006/AAER-2488.txt b/raw/aaer/2006/AAER-2488.txt new file mode 100644 index 0000000000000000000000000000000000000000..9e00be2954368e0b78031745221fae5bc402152a --- /dev/null +++ b/raw/aaer/2006/AAER-2488.txt @@ -0,0 +1,110 @@ + UNITED STATES OF AMERICA + before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54532 / September 28, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2488 / September 28, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12444 + +______________________________________ + : + : + In the Matter of : ORDER INSTITUTING ADMINISTRATIVE + : PROCEEDINGS PURSUANT TO RULE + WILLIAM SCOTT DELOACH (CPA), : 102(e) OF THE COMMISSION’S RULES OF + : PRACTICE, MAKING FINDINGS, AND + Respondent. : IMPOSING REMEDIAL SANCTIONS + : +______________________________________ : + +I. + + The Securities and Exchange Commission (“Commission”) deem s it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against William +Scott DeLoach (“Respondent” or “DeLoach”) 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 an d any other proceedings + +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 +brought by or on behalf of the Commission, or to which the Co mmission 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, and the findings contained in +paragraph 3 below, which are admitted, Respondent consents to the entry of this Order Instituting +Administrative Proceedings Pursuant to Rule 1 02(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: + + 1. DeLoach, age 47, is a certified public accountant licensed to practice in the +State of Florida. He served as Controller of The PBSJ Corp. (“PBSJ” or the “company”) from 1992 +to 2004, and as PBSJ’s Chief Financial Officer from 2004, until his resignation in March 2005. + + 2. PBSJ is an employee-o wned Florida corporation with its principal place of +business in Miami, Florida. PBSJ provides a broad range of planning, designing, and construction +services to a variety of public and private sector clients related to transportation, environmental, +civil engineering, and construction management. Since 2000, PBSJ’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 15, 2006, the Commission filed a complaint against DeLoach +in SEC v. William Scott DeLoach, et al. (Case No. 06-22329-CIV-GOLD) in the United States +District Court for the Southern District of Flor ida. On September 19, 2006, the court entered an +order permanently enjoining DeLoach, 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. + + 4. The Commission’s co mplaint alleged, among other things, that, over the +course of 13 years, DeLoach, with the assistance of two other PBSJ employees, embezzled more +than $35 million of PBSJ funds. This fraudulent scheme re sulted in numerous, material +inaccuracies in PBSJ’s financial statements and the impending restatements by the company of +its financial statements for up to the past si x years. The complaint alleged that DeLoach +knowingly falsified PBSJ’s books and records in an effort to conceal the massive theft and that, +from 2004 through the first fiscal quarter of 2005, he certified several of PBSJ’s annual and +quarterly reports filed by PBSJ with the Commission that contained material misrepresentations +as a result of his fraud. DeLoach also signed management representation letters to PBSJ’s public +auditors from several years, affirming that there had been no fraud at the company involving +management. + + + + + 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 DeLoach’s Offer. + + Accordingly, it is hereby ORDERED, effective immediately, that: + +DeLoach is suspended from appearing or practicing before the Commission as an +accountant. + + 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-2489.txt b/raw/aaer/2006/AAER-2489.txt new file mode 100644 index 0000000000000000000000000000000000000000..16440a4454bfad3aacd21c02bf1413fc0325550b --- /dev/null +++ b/raw/aaer/2006/AAER-2489.txt @@ -0,0 +1,153 @@ + + + + UNITED STATES OF AMERICA + before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54534 / September 28, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2489 / September 28, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12445 + + : + : + : +In the Matter of : ORDER INSTITUTING PUBLIC + : ADMINISTRATIVE PR OCEEDINGS + Diane Kayser (CPA), : P URSUANT TO RULE 102(e) OF THE + : COMMISSION’S RULES OF + Respondent. : 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 Diane +Kayser (“Respondent” or “Kayser”) 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. + 2 +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.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 Responde nt’s Offer, the Commission finds that: + + 1. Kayser, age 51, is an d has been a certified public accountant licensed to +practice in the State of Ohio. She served as Chief Financial Officer and Executive Vice President of +Excelligence Learning Corporation from September 2004 until September 2005. + + 2. Excelligence Learning Co rporation was, at all relevant times, a California +corporation with its principal place of business in Monterey, California. Excelligence was engaged +in the business of distributing children’s educational products. At all relevant times, Excelligence’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. + + 3. On September 14, 20 06, the Commission filed a complaint against Kayser +in SEC v. Diane Kayser (Civil Action No. C 06 5635 HRL). On September 22, 2006, the court +entered an order permanently enjoining Kayser, 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, 13a-11 and 13a-13 thereunder. Kayser was also ordered to pay a +$35,000 civil money penalty. + + 4. The Commission’s complaint alleged, among other things, that Kayser +fraudulently manipulated Excelligence’s books and records which resulted in Excelligence filing +materially false and misleading financial statements in the company’s annual report on Form 10- +K for the fiscal year ended December 31, 2004, and in the company’s quarterly report on Form +10-Q for the first quarter of fiscal year 2005. The Complaint alleged that Respondent engaged in +a number of improper accounting practices that materially increased Excelligence’s annual and +quarterly operating income in a departure from generally accepted accounting principles. These +practices included, among other things, making unsupported journal entries and removing unpaid +inventory invoices from payment processing. In addition, the complaint alleged that Kayser +made material misrepresentations and failed to disclose information to Excelligence’s +independent auditors. + + 3 +IV. + + In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Kayser’s Offer. + + Accordingly, it is hereby ORDERED, effective immediately, that: + + A. Kayser is suspended from appearing or practicing before the Commission as an +accountant. + + B. After five years from the date of th is order, Respondent may request that the +Commission consider her 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 her practice before the +Commission will be reviewed either by the independent audit committee of the public company +for which she works or in some other acceptable manner, as long as 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 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 +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 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 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 her state CPA license is +current and she 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 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-2490.txt b/raw/aaer/2006/AAER-2490.txt new file mode 100644 index 0000000000000000000000000000000000000000..fad9a7df22cdb24921f460af03758a1824ce8d44 --- /dev/null +++ b/raw/aaer/2006/AAER-2490.txt @@ -0,0 +1,1374 @@ + + + + + + + + + + + + + + + + SEC.gov | William S. DeLoach, Maria M. Garcia and Rosario F. Licata + + + + + + + + !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\/499831","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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DeLoach, Maria M. Garcia and Rosario F. Licata + + + + + + + + + + + + William S. DeLoach, Maria M. Garcia and Rosario F. Licata + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19853 / September 29, 2006 + + Accounting and Auditing Enforcement +Release No. 2490 / September 29, 2006 + + Securities and Exchange Commission v. William S. DeLoach, Maria M. Garcia and Rosario F. Licata , (U.S. District Court for the Southern District of Florida, Civil Action No. 06-22329-CIV-GOLD filed September 29, 2006) + + The Securities and Exchange Commission announced the filing of a settled civil injunctive action against William S. DeLoach, Maria M. Garcia, and Rosario F. Licata, three former employees of The PBSJ Corp., an employee-owned engineering, planning and architectural firm based in Miami, Florida. The Commission's complaint alleges that DeLoach, PBSJ's former Chief Financial Officer, and Garcia and Licata, two former employees in PBSJ's accounting department, stole more than $35 million from the company. As a result of the defendants' embezzlement scheme, PBSJ filed materially false quarterly and annual reports with the Commission. + According to the SEC's complaint, from approximately 1992 until March 2005, DeLoach, of Aventura, Florida, Garcia of Hialeah, Florida and Licata of Davie, Florida, stole tens of millions of dollars by writing checks for their benefit directly from the company's master cash disbursement account and by diverting funds from PBSJ's medical benefits account to two secret bank accounts that DeLoach controlled. The complaint alleges that the defendants concealed their theft by failing to include the fraudulent checks in the company's accounting journals, preparing phony bank reconciliations and recording false and unsupported journal entries on PBSJ's books and records. Following the company's discovery of the fraudulent scheme in March 2005, the defendants resigned their respective positions and confessed to the theft. + Upon the filing of the Commission's complaint, and without admitting or denying the allegations in the complaint, DeLoach, Garcia and Licata consented to the entry of a final judgment permanently enjoining them from violating 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 aiding and abetting PBSJ'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, 13a-11 and 13a-13 thereunder. DeLoach also consented to the entry of a final judgment permanently enjoining him from violating Rules 13b2-2 and 13a-14 under the Exchange Act and agreed to be barred from acting as an officer or director of a publicly-traded company. The Court will determine at a later date whether it is appropriate to order disgorgement of ill-gotten gains and civil penalties against the defendants. + The United States Attorney's Office for the Southern District of Florida conducted a parallel investigation of this matter. Simultaneous with the SEC's announcement of this action, the United States Attorney's Office announced the filing of charges against DeLoach, Garcia, and Licata. Defendants have pleaded guilty to criminal mail and wire fraud charges. + The staff's investigation is continuing. + + + + + + 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-2491.txt b/raw/aaer/2006/AAER-2491.txt new file mode 100644 index 0000000000000000000000000000000000000000..e404eb7ab420b437820606499d0c88a3cfb2df26 --- /dev/null +++ b/raw/aaer/2006/AAER-2491.txt @@ -0,0 +1,162 @@ + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION + + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54564 / October 3, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2491 / October 3, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12450 + + : + : + : +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE + : PROCEEDINGS PURSUANT TO RULE + MARK P. ABIDE, 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 Mark P. +Abide (“Abide” 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. + 2 +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 Responde nt’s Offer, the Commission finds that: + + 1. Abide, age 44, was a certified public accountant licensed to practice in the +State of Texas from March 1993 through February 28, 2006, when he did not renew his license. He +served as Director of Property Accounting at WorldCom, Inc. (“WorldCom”) from January 2000 +until he left the company in March 2003. + + 2. WorldCom was at all relevant time s a Georgia corporation with principal +offices in Clinton, Mississippi. It provided a broad range of communications services to both U.S. +and non-U.S. based businesses and consumers. At all relevant times, WorldCom’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. + + 3. On July 27, 2006, the Commission filed a complaint against Abide in +Securities and Exchange Commission v. Mark P. Abide, (06 CV 5660 (JSR)). On September 27, +2006, the United States District Court for the Southern District Court of New York entered an +order permanently enjoining Abide, by consent, from future violations of Section 17(a) of the +Securities Act of 1933 and 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 thereunder. Abide was also +ordered to pay $57,947.22 in disgorgement of ill-gotten gains from his sales of WorldCom stock +while participating in the fraud, and $12,912.20 in prejudgment interest; and a $57,947.22 civil +money penalty. + + 4. The Commission’s complaint alleged, among other things, the following: +at the direction of WorldCom senior management, Abide and other WorldCom employees +caused WorldCom to materially overstate its earnings in contravention of generally accepted +accounting principles (GAAP) from the first quarter of 2001 through the first quarter of 2002. +During this time, Abide altered previously prepared quarterly reports, which were routinely +provided to WorldCom’s auditors and personnel responsible for preparing WorldCom’s SEC +filings, to include improperly capitalized line costs. Abide also made, and directed others to + 3 +make, false accounting entries into WorldCom’s depreciable asset accounts to conceal +improperly capitalized line cost expenses from WorldCom’s independent auditors and the +investing public. Abide knew, or was reckless in not knowing, that these capitalized line cost +entries were made without supporting documentation, were not in conformity with GAAP, were +not disclosed to the investing public, and were designed to allow WorldCom to appear to meet +Wall Street analysts’ quarterly earnings estimates. As a result of Abide’s and the other +employee’s actions, WorldCom understated expenses and overstated pre-tax earnings by +approximately $3.6 billion. Abide further improperly benefited from his knowledge of and +participation in the ongoing fraud, when he sold 99% of the WorldCom stock he held in his +401(k) account at the end of January 2002 and the beginning of February 2002, just months +before the fraud became public. Abide used the $57,947.22 of losses avoided to diversify and +therefore safeguard his 401(k) holdings. + + +IV. + + In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Abide’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 five years from the date of th is 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 + 4 +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. + +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-2496.pdf b/raw/aaer/2006/AAER-2496.pdf new file mode 100644 index 0000000000000000000000000000000000000000..a7b9de0b1354a61e15fd55985518e04c9c229dde Binary files /dev/null and b/raw/aaer/2006/AAER-2496.pdf differ diff --git a/raw/aaer/2006/AAER-2496.txt b/raw/aaer/2006/AAER-2496.txt new file mode 100644 index 0000000000000000000000000000000000000000..682df98a1a71f04a4a30c403a12838ee63be5ec5 --- /dev/null +++ b/raw/aaer/2006/AAER-2496.txt @@ -0,0 +1,149 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54634 / October 20, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2496 / October 20, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12460 + + + + +In the Matter of + +RONALD J. GOEDDE, 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 Ronald +J. Goedde (“Respondent” or “Goedde") 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 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 Ronald J. Goedde, age 56, is a certified public accountant licensed in the state of +California since 1977 whose license has been inactive since about 1996. From 1996 until +June 30, 2001 he was the Chief Financial Officer of Cornerstone Propane Partners, L.P. +("Cornerstone"). +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 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 October 10, 2006, 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, 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 S.E.C. v. Keith G. Baxter, et al. (Civil Action 05-3843 RMW, +N.D. Cal.). Respondent was ordered to pay disgorgement of $82,717, prejudgment interest +of $20,629.88, and a $35,000 civil money penalty. +4. The Commission's complaint alleged, among other things, that Respondent signed a +materially false Form 10-K for Cornerstone for fiscal year 2000 and three Forms 10-Q for +fiscal year 2001 that he knew or was reckless in not knowing 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. It also alleged that +CEG, before the 2000 Form 10-K was filed, had embarked on a project to systematically +reconcile numerous account balances at the company. The complaint further alleged that +Cornerstone’s financial statements were not presented in conformity with GAAP because all +material transactions had not been properly recorded and the company’s accounting records +did not accurately reflect its transactions. It also alleged the financial statements in +Cornerstone’s 2000 Form 10-K and 2001 Forms 10-Q failed to conform with GAAP in at +least three respects. First, GAAP requires that all assets, liabilities and other items contained +in an issuer’s balance sheet be based upon reliable information. The complaint alleged that +the scope of Cornerstone’s unsupported accounts rendered Cornerstone’s financial statements +materially unreliable. Second, GAAP requires that when an issuer identifies a reasonably + 2 +possible loss, the issuer disclose the potential loss in its financial statement footnotes. The +complaint alleged that Cornerstone failed to include any disclosure of this potential loss in +Cornerstone’s Commission filings. Third, provisions governing consolidation in GAAP and +Regulation S-X require that inter-company items and transactions eliminate in the +preparation of the consolidated financial statements. If an issuer’s inter-company balances +are not eliminated in consolidation, Regulation S-X requires disclosure of the balances and +the methods of treatment. The complaint further alleged the financial statements did not +include such disclosure. The complaint also alleged that Respondent signed four +management representation letters to the company's outside auditors that were false. +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. Goedde is suspended from appearing or practicing before the Commission as an +accountant. +B. After five years from the date of this Order, Goedde 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 Goedde’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. Goedde, 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. Goedde, 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 Goedde’s or the firm’s quality control +system that would indicate that Goedde will not receive appropriate supervision; +c. Goedde has resolved all discip linary 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 + 3 +d. Goedde acknowledges his res ponsibility, as long as Goedde +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 applic ation by Goedde 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 Goedde’s character, +integrity, professional conduct, or qualifications to appear or practice before the Commission. + +By the Commission. + + + +Nancy M. Morris + Secretary + 4 \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2497.txt b/raw/aaer/2006/AAER-2497.txt new file mode 100644 index 0000000000000000000000000000000000000000..575606f1fd921bbb4e932d212f7308d1b209b38e --- /dev/null +++ b/raw/aaer/2006/AAER-2497.txt @@ -0,0 +1,1381 @@ + + + + + + + + + + + + + + + + SEC.gov | Jacob ("Kobi") Alexander, David Kreinberg, and William F. Sorin + + + + + + + + !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\/499956","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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Sorin + + + + + + + + + + + + Jacob ("Kobi") Alexander, David Kreinberg, and William F. Sorin + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19878 / October 24, 2006 + + Accounting and Auditing + Release No. 2497 / October 24, 2006 + + Securities and Exchange Commission v. Jacob ("Kobi") Alexander, David Kreinberg, and William F. Sorin , United States District Court for the Eastern District of New York, Civil Action No. CV-063844 (GJ) (E.D.N.Y. August 9, 2006) + + David Kreinberg, Former CFO of Comverse Technology, Inc., Agrees to Settle SEC Charges in Options Backdating Case; Relief Includes Officer-And-Director Bar and Nearly $2.4 Million in Disgorgement and Interest + + The Securities and Exchange Commission today settled civil charges against David Kreinberg, the former Chief Financial Officer of Comverse Technology, Inc., and a defendant in the Commission's August 2006 enforcement action against three former Comverse executives arising from an alleged scheme to backdate stock option grants. The Commission also alleged that, from 1999 through at least April 2002, Kreinberg and Comverse's former Chairman and Chief Executive Officer created a slush fund of backdated options that the former Chairman and Chief Executive Officer, with Kreinberg's knowledge, used to recruit and retain key personnel. + + Without admitting or denying the allegations of the Commission's complaint, Kreinberg has consented to the entry of a final judgment permanently enjoining him from violating and/or aiding and abetting violations of the antifraud, reporting, record-keeping, internal controls, false statements to auditors, Sarbanes-Oxley certification, and securities ownership-reporting provisions of the federal securities laws. Specifically, the proposed final judgment would permanently enjoin Kreinberg from violating 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 Rules 10b-5, 13a-14, 13b2-1, 13b2-2, 14a-9, and 16a-3 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. + + Kreinberg has consented to the entry of an order permanently prohibiting him 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. Pursuant to the order, Kreinberg is required to pay $1,769,255.80 in disgorgement, of which $989,434.00 represents the "in-the-money" benefit from exercises of backdated option grants. In addition, Kreinberg will pay $625,661.88 in prejudgment interest thereon, for a total of $2,394,917.68. Kreinberg also has agreed to cooperate in the Commission's ongoing litigation. The settlement is subject to the approval of the United States District Court for the Eastern District of New York. + + As part of the settlement, and following the entry of the proposed final judgment, Kreinberg, without admitting or denying the Commission's findings, has consented to the entry of an administrative order, pursuant to Rule 102(e)(3) of the Commission's Rules of Practice, suspending him from appearing or practicing before the Commission as an accountant. + + In a separate matter also filed in the United States District Court for the Eastern District of New York, Kreinberg today pled guilty to one criminal count of conspiracy to commit securities fraud, mail fraud, and wire fraud, and one criminal count of securities fraud. The plea was the result of an agreement between Kreinberg and the United States Attorney's Office for the Eastern District of New York. + + The Commission's investigation in this matter is continuing. + + For further information, see Litigation Release No. 19796 (August 9, 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-2502.txt b/raw/aaer/2006/AAER-2502.txt new file mode 100644 index 0000000000000000000000000000000000000000..08f7c1e473a81ba01a18573336a320037d239a46 --- /dev/null +++ b/raw/aaer/2006/AAER-2502.txt @@ -0,0 +1,174 @@ + + + +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54667 / October 30, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2502 / October 30, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12465 + +In the Matter of + +LAURA MARION, + +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 (the “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 (the “Exchange Act”), against Laura Marion (“Marion” or the +“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 her 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. +1 + +1 In a separate civil action filed simultaneously with this proceeding, Marion has separately consented to the +entry of a judgment by the U.S. District Court for the Eastern District of Michigan pursuant to Section +21(d) of the Exchange Act ordering her to pay a civil penalty of $40,000. SEC v. Delphi Corporation, et +al., Civil Action No. 2:06-cv-14891 (AC) (E.D. Mich. Oct. 30, 2006). +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that:2 +A. Respondent and Delphi Corporation +1. Respondent +Marion, 34, is a resident of Rochester Hills, Michigan. Marion is an accountant and, at +all relevant times, was Director of Financial Accounting and Reporting of Delphi Corporation +(“Delphi”). +2. Delphi +Delphi is an auto parts supplier headquartered in Troy, Michigan. At all relevant times, +Delphi’s common stock was registered with the Commission pursuant to Section 12(b) of the +Exchange Act and was listed on the New York Stock Exchange (“NYSE”) under the symbol +“DPH.” On October 8, 2005, Delphi filed for bankruptcy in the Southern District of New York. +On November 11, 2005, Delphi was delisted from the NYSE. Delphi’s common stock is now +registered with the Commission pursuant to Section 12(g) of the Exchange Act and trades in the +over the counter market and is quoted in the pink sheets under the symbol “DPHIQ.” +B. Facts +1. Introduction +This case involves Marion’s involvement in Delphi’s reporting and books-and-records +violations related to two inventory transactions in the fourth quarter of 2000. The transactions +involved Delphi’s purported sales of inventory to a financial institution (the “Financial +Institution”) and a Michigan consulting company (the “Consulting Company”), and Delphi’s +simultaneous agreement to repurchase the inventory in the first quarter of 2001, at the original +purchase prices plus fees. Delphi improperly accounted for the transactions as sales, rather than +as financing transactions. +2. Delphi’s inventory transactions +In the fourth quarter of 2000, Delphi personnel conceived of a scheme to temporarily +move precious metals, automotive batteries and generator cores off of Delphi’s balance sheet in +order to generate income and operating cash flow. On or about December 5, 2000, these Delphi +employees wrote a handwritten note, addressed to Marion, stating that they had been instructed +by a member of senior management to “maximize the financial engineering relating to [precious +metals], cores and batteries.” + +2 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 + +In December 2000, Delphi entered into an arrangement whereby Delphi sold precious +metals inventories to the Financial Institution for approximately $199 million and simultaneously +entered a forward agreement, by which Delphi agreed to repurchase the metals from the +Financial Institution in January 2001, for approximately $202.5 million. Consistent with the +agreement, Delphi did, in fact, repurchase the inventory from the Financial Institution in January +2001 for approximately $202.5 million. As Director of Financial Accounting and Reporting, +Marion reviewed the transaction documents and transmitted a document to Delphi’s auditors, +prepared by another Delphi employee and edited by Marion, that purported to support the +$202.5 million purchase price through an analysis of the future price of metals. +Also in December 2000, Delphi entered into an arrangement whereby it sold automotive +battery and generator core inventory to the Consulting Company for $70 million. Marion +understood that Delphi had described this transaction to Delphi’s auditors as a sales transaction +and had told the auditors that there was no agreement to repurchase the battery and core +inventory from the Consulting Company. In fact, outside of Marion’s presence, a Delphi +executive had entered an oral agreement with the Consulting Company to repurchase the +inventory for $70 million plus a $350,000 fee. Prior to Delphi filing its Form 10-K for the period +ended December 31, 2000, Marion became aware that Delphi had repurchased the inventory in +January 2001 for the original $70 million purchase price and had paid the Consulting Company a +fee. +3. Marion receives a document characterizing the inventory transactions +as structured finance transactions. +On February 5, 2001, prior to Delphi filing its Form 10-K for the period ended December +31, 2000, Marion was asked by Delphi’s then controller and chief accounting officer to obtain a +“spec[ific] breakout of costs” for the December inventory transactions, including detail of the +structuring fees and financing costs. Within a day, Marion received a document with those +details (the “February 2001 Document”). The February 2001 Document provided several pieces +of information that indicated that the December 2000 transactions were not sales of inventory, +but instead were financing transactions. First, the February 2001 Document was titled “4th +Quarter 2000 Structured Finance Initiatives Cost Breakdown.” In addition, the February 2001 +Document showed that Delphi had paid the Financial Institution a $2 million structuring fee and +approximately $1.5 million in interest and other costs. The total of these fees and costs was +equal to the difference between the $199 million price at which the Financial Institution +purchased the precious metals from Delphi and the $202.5 million price reflected in the forward +contract. Finally, the February 2001 Document showed that Delphi had paid the Consulting +Company a Structuring Fee of $350,000. Marion reviewed and annotated the document. Her +annotations indicated that she understood that Delphi had repurchased the inventory for the +original sales price, plus the structuring fees and associated interest and other costs. On February +6, 2001, Marion forwarded the document, with her annotations, to Delphi’s controller and chief +accounting officer. +3 + +4. Marion assists in preparation of financial statements and disclosures +that improperly report inventory transactions. +On February 8, 2001, Delphi issued its 2000 Form 10-K. Marion had a substantial role in +preparing and reviewing the filing. The Form 10-K reflected Delphi’s improper accounting for +the inventory transactions as sales rather than as financing transactions. As a result of Delphi’s +improper accounting, Delphi improperly recognized approximately $200 million in cash flow +from operations and overstated its earnings per share by approximately 13 cents or 36% of the +originally reported earnings for the quarter and 7% of the originally reported earnings for the full +year. Also in the filing, Delphi reported year-end reductions in inventory and associated costs, +and improperly attributed those reductions to Delphi’s “aggressive inventory management.” In +fact, the majority of Delphi’s purported inventory improvements were the result of the temporary +“structured finance” transactions with the Financial Institution and Consulting Company. +Moreover, these transactions resulted in approximately $4 million in cost increases to Delphi. +5. Marion’s role in Delphi’s books and records and reporting violations +As a senior accountant and Director of Financial Accounting and Reporting at Delphi, +Marion was one of several Delphi officers and employees who was responsible for ensuring that +Delphi’s financial statements and related disclosures in its periodic reports, and well as its other +books and records, accurately reflected the true substance of the inventory transactions. Based +on the February 2001 Document, Marion knew or should have known that Delphi had not +engaged in sales transactions with the Financial Institution and Consulting Company, but instead +had engaged in financing transactions. Nevertheless, Marion took no steps to follow up on the +information contained in the February 2001 Document, to consider how it might impact Delphi’s +accounting for the transactions or to share the information in the document with Delphi’s +auditors. Marion also did not correct language in Delphi’s Form 10-K that falsely attributed +Delphi’s inventory reductions to “aggressive inventory management.” +C. Conclusion +As a result of the conduct described above, Marion was a cause of Delphi’s violations of +Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 promulgated thereunder, which +require reporting companies to file accurate annual reports with the Commission. +Also as a result of the conduct described above, Marion was a cause of Delphi’s +violations of 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. +4 + +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Marion’s Offer. +Accordingly, it is hereby ORDERED that Respondent Marion cease and desist from +causing any violations and any future violations of Sections 13(a) and 13(b)(2)(A) of the +Exchange Act and Rules 12b-20 and 13a-1 promulgated thereunder. +By the Commission. + + + +Nancy M. Morris +Secretary +5 + \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2504.txt b/raw/aaer/2006/AAER-2504.txt new file mode 100644 index 0000000000000000000000000000000000000000..94dfabf57304f1acd498f2d4f8598ae8e79726f7 --- /dev/null +++ b/raw/aaer/2006/AAER-2504.txt @@ -0,0 +1,1475 @@ + + + + + + + + + + + + + + + + SEC.gov | Delphi Corporation, J.T. Battenberg, III, Alan Dawes, Paul Free, John Blahnik, Milan Belans, Catherine Rozanski, Judith Kudla, Scot McDonald, B.N Bahadur, Atul Pasricha, Laura Marion, Stuart Doyle and Kevin Curry + + + + + + + + !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\/500021","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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Battenberg, III, Alan Dawes, Paul Free, John Blahnik, Milan Belans, Catherine Rozanski, Judith Kudla, Scot McDonald, B.N Bahadur, Atul Pasricha, Laura Marion, Stuart Doyle and Kevin Curry + + + + + + + + + + + + Delphi Corporation, J.T. Battenberg, III, Alan Dawes, Paul Free, John Blahnik, Milan Belans, Catherine Rozanski, Judith Kudla, Scot McDonald, B.N Bahadur, Atul Pasricha, Laura Marion, Stuart Doyle and Kevin Curry + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19891 / October 30, 2006 + + Accounting and Auditing Enforcement Release No. 2504 / October 30, 2006 + + SEC v. Delphi Corporation, J.T. Battenberg, III, Alan Dawes, Paul Free, John Blahnik, Milan Belans, Catherine Rozanski, Judith Kudla, Scot McDonald, B.N Bahadur, Atul Pasricha, Laura Marion, Stuart Doyle and Kevin Curry , United States District Court for the Eastern District of Michigan, SEC v. Delphi Corporation, et al. , Civil Action No. 2:06-cv-14891 (AC) (E.D. Mich. Oct. 30, 2006) + + SEC Charges Delphi Corporation and Nine Individuals, Including Former CEO, CFO, Treasurer and Controller, in Wide-Ranging Financial Fraud; Four Others Charged with Aiding and Abetting Related Violations; Delphi and Six Individuals Settle + + + + The Securities and Exchange Commission today filed settled financial fraud charges in federal court in Detroit against Delphi Corporation, a Troy, Mich. auto parts supplier. In its complaint, the Commission charges Delphi with engaging in a pattern of fraudulent conduct between 2000 and 2004. The Commission also charges thirteen individuals for their alleged roles in the fraudulent conduct and/or in related reporting and books-and-records violations by Delphi. + + The complaint charges seven former Delphi employees and two others with participating in or aiding and abetting Delphi's fraud. + + J.T. Battenberg, III of Bloomfield Hills, Mich., and Naples, Fla., the former Chief Executive Officer of Delphi and Chairman of its Board of Directors;   + + Alan Dawes of Palm Beach Gardens, Fla., the former Chief Financial Officer of Delphi;   + + Paul Free of Oakland, Mich., a former Controller and Chief Accounting Officer of Delphi;   + + John Blahnik of Bloomfield Hills, Mich., a former Treasurer and Senior Vice President of Delphi;   + + Milan Belans of Farmington Hills, Mich., a former Director of Capital Planning and Pension Analysis at Delphi;   + + Catherine Rozanski of Troy, Mich., a former Director of Financial Accounting and Reporting at Delphi;   + + Judith Kudla of Bloomfield Hills, Mich., a former Director of Finance in Delphi's information technology department;   + + Scot McDonald of Carrollton, Texas, who is employed by a Texas-based information technology company and formerly served as its Manager of U.S. GAAP Consulting and Reporting; and   + + B.N. Bahadur of West Bloomfield, Mich., who, in the relevant period, was the founder, sole owner and principal of a Michigan-based private management consulting company. + The complaint also charges four individuals with aiding and abetting Delphi's reporting and books-and-records violations. + + Atul Pasricha of Bloomfield Hills, Mich., a former Assistant Treasurer at Delphi;   + + Laura Marion of Rochester Hills, Mich., a former Director of Financial Accounting and Reporting at Delphi;   + + Stuart Doyle of Rochester Hills, Mich., a former client executive supporting the Texas IT company's relationship with Delphi; and   + + Kevin Curry of Hilton Head, S.C., also a former client executive supporting the Texas IT company's relationship with Delphi. + The Commission's complaint alleges that, between 2000 and 2004, Delphi engaged in multiple schemes that resulted in Delphi materially misstating its financial condition and operating results in filings with the Commission, offering documents, press releases, and other documents and statements. The allegations include the following. + + In 2000, Delphi engaged in two fraudulent accounting and disclosure schemes, which had the purpose of and ultimately resulted in Delphi hiding a $237 million warranty claim asserted by its former parent company and inflating its net income by $202 million.   + + In the fourth quarter of 2000, Delphi entered into two improper inventory schemes, through which it agreed to sell approximately $270 million of metals, automotive batteries and generator cores to two third parties at year end, while simultaneously agreeing to repurchase the inventory in the following quarter for the original sales price, plus interest charges and structuring fees. The purpose and result of the schemes was for Delphi to inflate its cash flow from operations by $200 million, engineer $270 million in inventory reductions and improperly report $80 million in net income.   + + In the fourth quarter of 2001, Delphi solicited a $20 million lump sum payment from an IT company in return for Delphi providing new business to the IT company. Delphi agreed to repay the $20 million over five years, with interest, which made the payment, in substance, a loan to the IT company. However, in order to meet earnings forecasts for the quarter, Delphi improperly accounted for the $20 million payment as if it was a nonrefundable rebate on past business, rather than a liability.   + + From 2003 to 2004, Delphi hid up to $325 million in factoring, or sales of accounts receivable, in order to improperly boost non-GAAP, pro forma measures of Delphi's financial performance that were relied upon by investors, analysts and rating agencies. Hiding this factoring allowed Delphi to overstate materially its "Street Net Liquidity," a pro forma measure, during that two-year period. In addition, in one quarter, Delphi also manipulated the hidden factoring to create a false $30 million boost in its "Street Operating Cash Flow," another pro forma measure. + Delphi simultaneously settled the charges, without admitting or denying the Commission's allegations, by consenting to the entry of a final judgment permanently enjoining it from violating Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. + + The Commission simultaneously settled with six individuals, who also neither admitted nor denied the Commission's allegations. + + Dawes agreed to a five-year officer-and-director bar and to pay disgorgement of $253,000 plus prejudgment interest of $134,000, and a penalty of $300,000. He also consented to the entry of a final judgment permanently enjoining him from violating 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 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.   + + Pasricha agreed to pay a penalty of $55,000. He also consented to the entry of a final judgment permanently enjoining him 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.   + + In connection with the civil action, Bahadur agreed to pay disgorgement of $350,000 with prejudgment interest of $139,257 and a penalty of $80,000, Marion and Doyle each agreed to pay penalties of $40,000, and Curry agreed to pay a penalty of $25,000. Additionally, Bahadur, Marion, Doyle and Curry have each agreed to the institution of settled administrative cease-and-desist proceedings against them. The Commission's Order as to Bahadur orders him to cease and desist from committing or causing violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. In addition, the Commission's orders as to Bahadur, Marion, Doyle and Curry, order each of them to cease and desist from causing violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. + Each of the settlements is subject to court approval, and Delphi's settlement is also subject to approval by the U.S. Bankruptcy Court overseeing Delphi's bankruptcy. + + The Commission's complaint alleges that the non-settling defendants Battenberg, Free, Blahnik, Belans, Rozanski, Kudla and McDonald violated and/or aided and abetted Delphi's violations of the federal securities laws as follows: + + Battenberg violated Section 17(a) of the Securities Act, 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 Delphi's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder;   + + Free violated Section 17(a) of the Securities Act, 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 Delphi'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;   + + Blahnik violated Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and aided and abetted Delphi's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-11 thereunder;   + + Belans violated Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and aided and abetted Delphi's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder;   + + Rozanski violated Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and aided and abetted Delphi's 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;   + + Kudla violated Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and aided and abetted Delphi's 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 and 13a-1 thereunder; and   + + McDonald aided and abetted Delphi's violations of Sections 10(b), 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 10b-5, 12b-20 and 13a-1 thereunder. + As to all of the non-settling defendants, the complaint seeks permanent injunctions against future violations of these provisions, disgorgement of ill-gotten gains, with prejudgment interest, and civil penalties. The complaint also seeks officer-and-director bars against Battenberg and Blahnik. + + The Commission acknowledges the assistance and cooperation in this investigation of the U.S. Department of Justice, Criminal Division, the U.S. Attorney's Office for the Eastern District of Michigan, the U.S. Postal Inspection Service and the Federal Bureau of Investigation. + + The Commission's investigation is continuing. + + + + + SEC Complaint in this matter ; Administrative Proceeding Nos. 34-54665 , 34-54666 , 34-54667 and 34-54668 + + +  + + + + + + + + + + + Resources + + + + + Complaint in this matter + + + + + Administrative Proceedings Release + + + + + Administrative Proceedings Release + + + + + Administrative Proceedings Release + + + + + Administrative Proceedings Release + + + + + + + + + + + + + + + + + + + + + + + + + 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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Borrmann + + + + + + + + + + + + Eric G. Borrmann + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19895 / October 31, 2006 + + Accounting and Auditing Enforcement + Release No. 2505 / October 31, 2006 + + Securities and Exchange Commission v. Eric G. Borrmann , Civil Action No. C-06-6722-MHP, N.D. Cal., October 30, 2006 + + SEC Charges Former McAfee, Inc. Financial Officer with Fraud + + On October 30, 2006, the Securities and Exchange Commission filed a complaint in the United States District Court for the Northern District of California against Eric G. Borrmann, a former senior financial officer for McAfee, Inc., formerly known as Network Associates, Inc. The complaint charges that Borrmann aided and abetted a multimillion dollar financial fraud at McAfee from mid-1999 until his departure from the company in July 2000. The complaint further charges that Borrmann traded in the securities of McAfee while in possession of material, nonpublic information concerning the financial fraud and that his profits from the illegal trading were approximately $314,517. + + Simultaneously with the filing of the complaint, Borrmann has consented, without admitting or denying the allegations of the complaint, to the entry of an order permanently enjoining him from violating, directly or indirectly, Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, which are the antifraud provisions of the federal securities laws. Borrmann also has consented to the entry of an order that bars him for five years from serving as an officer or director of a public company. The order further requires Borrmann to pay $757,563, consisting of $314,517 in disgorgement of his unlawful trading profits, $128,529 in prejudgment interest thereon, and a civil penalty of $314,517. + + The Commission's complaint alleges that mid-1999 until his departure in July 2000 Borrmann held various senior financial positions at McAfee, including serving as McAfee's treasurer, and was responsible for all financial planning and investor relations at the company. During that period, Borrmann routinely assisted other senior McAfee executives in calculating and forecasting the company's quarterly and yearly financial performance. Through regular meetings with McAfee's senior executives and managers, Borrmann learned of certain fraudulent schemes that McAfee was using during 1999 and 2000 to inflate its revenues. In the second quarter of 2000, Borrmann assisted McAfee's executives and senior managers in the preparation and dissemination to investors of false and misleading information about McAfee's financial results, including its inflated revenues and earnings. + + The complaint further alleges that, after his resignation from McAfee, Borrmann engaged in insider trading when, during the period from July through September 2000, he sold McAfee securities while in possession of material, nonpublic information concerning the fraud and McAfee's deteriorating financial condition. Later, on December 26, 2000, after years of employing fraudulent schemes to inflate its reported revenues, McAfee stated in a press release that its sales for the fourth quarter 2000 would be only $55 million, dramatically lower than the company's earlier prediction of $245 million. The news sent Network Associates' stock price down sharply and slashed more than $1 billion from the company's market capitalization. By trading in advance of the fourth quarter 2000 earnings announcement, Borrmann realized unlawful profits of $314,517. + + On October 31, 2003, McAfee restated its financial results to correct for, among other things, the fraudulent accounting and sales practices that had inflated McAfee's revenue and earnings during 1998 through 2000. Focusing on the second quarter of 2000 alone, the period during which Borrmann assisted in compiling the financial information that was relayed to investors and analysts in McAfee's earnings press release and subsequent conference calls, the effect of the October 2003 restatement on McAfee's financial statements was dramatic. Revenues of $233.7 million as reported in the second quarter of 2000 earnings release were reduced to $158.6 million, a forty-seven percent overstatement. Similarly, previously reported net income of $11.4 million was restated as a loss of $101.3 million, or a decrease of nine hundred and eighty-nine percent. + + The Commission's action against Borrmann is its fifth civil enforcement action related to the accounting fraud at McAfee. Previously, the Commission filed civil actions against McAfee, Inc. (Litigation Release No. 19520), McAfee's former Chief Financial Officer Prabhat Goyal (Litigation Release No. 18748), and two former Controllers Terry Davis (Litigation Release No. 18189) and Evan S. Collins (Litigation Release No. 18986). + + The Commission acknowledges the assistance and cooperation of the U.S. Attorney's Office for the Northern District of California and the Federal Bureau of Investigation. + + + + + + + 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-2507.pdf b/raw/aaer/2006/AAER-2507.pdf new file mode 100644 index 0000000000000000000000000000000000000000..099ac45b8bedf3ac8be1e7a9f4a1c7c3fcded419 Binary files /dev/null and b/raw/aaer/2006/AAER-2507.pdf differ diff --git a/raw/aaer/2006/AAER-2507.txt b/raw/aaer/2006/AAER-2507.txt new file mode 100644 index 0000000000000000000000000000000000000000..3d8805ae7decef7487b741c5024beb32fde2d828 --- /dev/null +++ b/raw/aaer/2006/AAER-2507.txt @@ -0,0 +1,224 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54689 / November 2, 2006 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2507 / November 2, 2006 +ADMINISTRATIVE PROCEEDING +File No. 3-12470 +In the Matter of +HORST HANSEN, +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 Horst Hansen (“Hansen” or “Respondent”). +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has agreed 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. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Respondent, 71 years old, is a German citizen and resides in Ahrenberg, Germany. +In 1966 Respondent joined the German company OTTO (Gmbh & Co.) KG (hereinafter “OTTO”). +In 1974 he was appointed to OTTO’s Board of Directors and was promoted to the Chief Financial +Officer of OTTO. OTTO acquired Spiegel, Inc. (“Spiegel”) in 1982 and Respondent was then +appointed to Spiegel’s Board of Directors. Respondent became a member of Spiegel’s Audit + + + + + + + + + + + + + + + + + + + + + + + + + +Committee in 1987 and from 2000 to 2003 Respondent was the Chair of Spiegel’s three-member +Audit Committee. +2. Section 13(a) of the Exchange Act requires publicly held companies to file certain +information and documents with the Commission, in accordance with rules and regulations the +Commission prescribes as necessary or appropriate to protect investors and insure fair dealing in +securities. Pursuant to Section 13(a)(2) of the Exchange Act, and Rules 13a-1 and 13a-13 +promulgated thereunder, documents that must be filed include annual and quarterly reports. +3. As a publicly held company whose securities traded on the Nasdaq, Spiegel was +required to comply with Section 13(a) of the Exchange Act. In compliance with that section, +Spiegel timely filed its required quarterly and annual reports with the SEC through the filing of its +third quarter 2001 Form 10-Q quarterly report on November 13, 2001. Spiegel’s 2001 Form 10-K +annual report was due to be filed with the Commission on March 31, 2002. +4. In February 2002 Spiegel’s independent auditor advised that it would have to +consider including a “going concern” modification on its audit report of Spiegel’s 2001 financial +statements unless Spiegel obtained either new credit or waivers from its lending banks for all +breaches of loan covenants through December 31, 2002. +5. Spiegel had not obtained either new credit facilities or waivers of all breaches of +loan covenants through 2002 on the day its 2001 Form 10-K was to be filed with the Commission. +Spiegel’s management did not want to file its 2001 Form 10-K with a “going concern” +modification. Thus, on March 31, 2002 Spiegel filed a Form 12b-25 which advised that its 2001 +Form 10-K would be filed within 15 days. The Form 12b-25 stated that Spiegel was “not in a +position to issue financial statements for its 2001 fiscal year pending resolution of” its lack of +compliance with its loan covenants and its sale of FCNB. The Form did not mention the “going +concern” modification of Spiegel’s independent auditor. +6. Spiegel still had not obtained either new credit facilities or waivers of its breaches +of loan covenants on April 15, 2002, when the 15 day period provided under the Form 12b-25 +expired. Spiegel’s American management recommended on that day that Spiegel not file at all +rather than file with a “going concern” modification. +7. Spiegel’s first quarter 2002 Form 10-Q was due to be filed with the Commission on +May 15, 2002. Spiegel again did not file its required report but instead filed a Form 12b-25, which +stated only that it was not in a position to file its Form 10-Q pending resolution of its debt covenant +violations and acquisition of new credit facilities. +8. Spiegel’s decision not to file its 2002 first quarter Form 10-Q kept material +information from the public markets. Had Spiegel timely filed, it would have been required to +disclose that on February 18, 2002 Spiegel reached its $700 million borrowing capacity under its +revolving credit facility and it had no other available letter of credit facilities. +2 + + + + + + + + + + + + + + + + + + + + +9. On May 29, 2002 Spiegel’s general counsel advised Respondent that Section 20(c) +of the Exchange Act [15 U.S.C. § 78t(c)] prohibited directors and officers from hindering, delaying +or obstructing the filing of a required report without just cause. On May 29, 2002 Spiegel’s Chief +Executive Officer (“CEO”) wrote to Respondent, acknowledging that although not filing the 2001 +Form 10-K violated federal securities laws, he preferred a delisting of Spiegel’s stock rather than +filing with a “going concern” modification. The CEO changed his mind the next day and +recommended that Spiegel file the 2001 Form 10-K under any circumstances. The CEO, however, +did not inform Respondent that he had changed his mind. +10. On May 31, 2002 Respondent, who had his own vote and the proxy of the second +member of Spiegel’s Audit Committee, met with the third member of the Audit Committee. +Respondent and the other Audit Committee member telephoned Spiegel’s American corporate +counsel to ask what the consequences were if Spiegel still did not file its 2001 Form 10-K. +Spiegel’s outside counsel advised filing and told them Spiegel and its individual employees were +running risks by the continued refusal to file. Despite this legal advice, Respondent and the other +member of the Audit Committee voted shortly thereafter to recommend postponing Spiegel’s 2001 +Form 10-K and 2002 first quarter Form 10-Q until Spiegel’s auditor provided an unqualified audit +opinion. +11. Thereafter Spiegel’s three-member Board Committee, which made all decisions for +Spiegel between the semi-annual Board of Directors meetings, adopted the Audit Committee’s +recommendation not to file until an unqualified audit opinion was obtained. Respondent was not a +member of Spiegel’s Board Committee. +12. Spiegel filed its 2001 Form 10-K on February 4, 2003, only after SEC staff advised +that they intended to recommend the Commission take enforcement action against Spiegel. The +Form 10-K, filed over fifteen months after Spiegel’s prior public filing, disclosed that +shareholders’ equity had decreased from $792 million to $215 million, total assets had shrunk from +$2.7 billion to $1.9 billion and total debt increased from $795 million to $1 billion. +13. On February 26, 2003 Spiegel filed its first, second and third quarter 2002 Forms +10-Q with the Commission. +14. On March 7, 2003 the Commission filed a complaint against Spiegel, Inc. in the +U.S. District Court for the Northern District of Illinois which in part alleged that Spiegel’s failure +to timely file its required reports violated Section 13(a) of the Exchange Act and Rules 13a-1 and +13a-13 promulgated thereunder. On March 27, 2003, the Court entered an Amended Partial Final +Judgment in which Spiegel, without admitting or denying the substantive allegations of the +Commission’s complaint, agreed to the Judgment including an Order that in part permanently +enjoined it from violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 +promulgated thereunder. Spiegel filed for bankruptcy on March 17, 2003 and on July 23, 2004 +registration of its shares was revoked pursuant to Section 12(j) of the Exchange Act. +15. Respondent caused Spiegel to violate Section 13(a) of the Exchange Act and Rules +13a-1 and 13a-13 promulgated thereunder by recommending, as a Director of Spiegel and the +3 + + + + + + + + + + + + + + + + + + + +Chair of Spiegel’s Audit Committee, that Spiegel withhold filing its required reports with the +Commission until Spiegel obtained the opinion it desired from its outside auditor. +Undertakings +16. In connection with any related judicial or administrative proceeding or +investigation commenced by the Commission or to which the Commission is a party, Respondent +has undertaken to be interviewed by Commission staff, either in Germany or by telephone, and +to testify, either in Germany or by telephone, as requested by the staff upon reasonable notice. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Hansen’s Offer. +Accordingly, it is hereby ORDERED that Respondent cease and desist from causing any +violations and any future violations of Section 13(a) 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 +4 + \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2512.txt b/raw/aaer/2006/AAER-2512.txt new file mode 100644 index 0000000000000000000000000000000000000000..fe5654570098f7f21082060a141d632493fcdff6 --- /dev/null +++ b/raw/aaer/2006/AAER-2512.txt @@ -0,0 +1,1374 @@ + + + + + + + + + + + + + + + + SEC.gov | Stuart Wolff and Peter Tafeen + + + + + + + + !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\/500086","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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Stuart Wolff and Peter Tafeen , (U.S. District Court for the Central District of California, Civil Action No. CV 05 3132 GAF (RZx) + + Former Executive Vice President of Homestore Agrees to Pay Over $2.6 Million and to be Barred as Officer or Director of a Public Company + + The Securities and Exchange Commission today announced that Peter B. Tafeen, a former top executive of Homestore.com, Inc., now known as Move, Inc., agreed to a settlement by which he will pay over $2.6 million to resolve SEC charges that he defrauded Homestore shareholders by inflating the company's on-line advertising revenues in 2001. During the period of the misconduct, Tafeen, age 37, of Parkland, Fla., was the executive vice president for business development of Homestore.com. + In addition to paying over $2.6 million as disgorgement of ill-gotten gains and interest, Tafeen will be permanently barred from serving as an officer or director of a public company. He also agreed to be permanently enjoined from future violations of numerous provisions of the federal securities laws, including the antifraud, reporting, record-keeping, internal controls, and false statements to the auditors provisions. + In addition to the civil charges, Tafeen was indicted in April 2005 for his role in the scheme at Homestore. In March 2006, he pleaded guilty to one count of securities fraud and was sentenced yesterday by United States District Judge Percy Anderson to thirty months in federal prison and ordered to pay $240,000 in restitution to harmed Homestore investors. + The Commission's complaint, filed in April 2005, alleged that Tafeen orchestrated the fraud scheme, and participated in executing fraudulent "round-trip" transactions to artificially inflate Homestore's revenue in order to exceed Wall Street analysts' expectations. Tafeen knew that the transactions were a circular flow of money in which Homestore recognized its own cash as revenue, and he concealed the scheme from the company's auditors. + The Commission has sued a total of 16 individuals for their roles in the Homestore scheme. All of these defendants have settled the SEC charges and agreed to cooperate with the government, with the exception of Stuart Wolff, Homestore's former chief executive officer, who was also charged by the SEC in April 2005. Wolff was also indicted in April 2005. On June 22, 2006, a federal court jury returned a guilty verdict against Wolff in his criminal trial on 18 counts, including conspiracy, insider trading, filing false reports with the SEC, falsifying corporate records, and lying to the auditors. On Oct. 12, 2006, Wolff was sentenced by Judge Anderson to 15 years in federal prison and ordered to pay a $5 million fine. On Nov. 13, 2006, Judge Anderson will determine whether Wolff will pay restitution in the criminal matter. + The final judgment against Tafeen, which is subject to approval by United States District Judge Stephen Wilson for the Central District of California, permanently enjoins 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 and Rules 10b-5, 13b2-1, and 13b2-2 thereunder and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13. Tafeen consented to the final judgment without admitting or denying the allegations in the Commission's complaint. + The SEC will seek to have the monies paid by Tafeen included in a fund established for harmed shareholders of Homestore pursuant to the Fair Funds provision of the Sarbanes-Oxley Act of 2002. The fund also includes payments from previous SEC settlements with former Homestore executives. + + + + + + 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-2513.txt b/raw/aaer/2006/AAER-2513.txt new file mode 100644 index 0000000000000000000000000000000000000000..90515af42cca38eaf36e632f6335c057c3bc9f97 --- /dev/null +++ b/raw/aaer/2006/AAER-2513.txt @@ -0,0 +1,117 @@ + + + + UNITED STATES OF AMERICA + before the + SECURITIES AND EXCHANGE COMMISSION + C O R R E C T E D +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54736 / November 9, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2513 / November 9, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12477 + + : + : +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE + : PROCEEDINGS PURSUANT TO RULE + THOMAS P. CLARK , : 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 Thomas +Clark (“Respondent” or “Clark”) 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 + +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 +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 Co mmission finds that: + + 1. Thomas Clark, age 58, was, but no longer is, a certified public accountant +licensed to practice in the State of Minnesota. In addition to other positions, he served as Chief +Financial Officer of Health Risk Management, Inc. (“HRMI”) from 1987 until October 2000 and +served as the president of HRMI’s wholly owned HMO subsidiary from December 2000 until his +resignation in March 2001. + + 2. HRMI was, at all relevant times, a Minnesota corporation with its principal +place of business in Minneapolis, Minnesota. HRMI was a healthcare management company that, +among other activities, administered HRM PA, Inc., a small Medicaid HMO in Pennsylvania (the +“HMO”). At all relevant times, HRMI’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. + + 3. On January 27, 2006, the Commission filed a complaint against Clark in +SEC v. Thomas P. Clark, (Civil Action No. 06-cv-00380). On October 19, 2006, the court entered +an order permanently enjoining Clark, by consent, from future violations of 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 and 13a-13 thereunder. Clark was also ordered to pay a $20,000 civil money penalty and +was barred from acting as an officer or director of a public company for five years. + + 4. The Commission’s complaint alleged, among other things, that: (a) Clark +deliberately mischaracterized a $1.35 million payment by HRMI which resulted in HRMI filing +materially false and misleading financial statements in the company’s quarterly reports on Form +10-Q for the second and third quarters of fiscal year 2000; (b) on August 1, 2000, Clark and one +of the HMO’s healthcare providers, agreed that HRMI would pay the provider $1.85 million to +settle an arbitration initiated by the provider; (c) because the HMO’s net worth had declined to +the point that state regulators were threatening to put the HMO in receivership, Clark did not +want the entire $1.85 million payment to be categorized as an expense; (d) accordingly, Clark +negotiated a “Consulting Agreement” with the provider that disguised $1.35 million of the $1.85 +million settlement as a pre-paid retainer for consulting services that HRMI never used or needed; +(e) Clark disclosed $500,000 of the settlement, and HRMI’s legal expenses, in HRMI’s second +quarter 2000 Form 10-Q, which was filed three weeks after the settlement was reached; (f) Clark +failed, however, to disclose the $1.35 million prepaid “retainer” in that Form 10-Q; (g) Clark +finally disclosed the payment in HRMI’s third quarter 2000 Form 10-Q, but improperly booked +the settlement as a prepaid asset rather than as an expense; (h) in doing so, Clark materially + 3 +understated HRMI’s expenses for the second quarter of 2000 and materially overstated HRMI’s +assets for the third quarter of 2000; and (i) Clark hid the Consulting Agreement, and the true +dollar amount of the settlement, from HRMI’s auditor and falsely represented to HRMI’s auditor +that HRMI had informed the auditor of all material contracts for the second and third quarters of +2000. + +IV. + + In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Clark’s Offer. + + Accordingly, it is hereby ORDERED, effective immediately, that: + + Clark is suspended from appearing or practicing before the Commission as an accountant. + + + 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-2517.txt b/raw/aaer/2006/AAER-2517.txt new file mode 100644 index 0000000000000000000000000000000000000000..4f88be983ddcd3ae1324153e7643541c777cd028 --- /dev/null +++ b/raw/aaer/2006/AAER-2517.txt @@ -0,0 +1,239 @@ +SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. +SECURITIES EXCHANGE ACT OF 1934 +Rel. No. 54824 / November 28, 2006 +ACCOUNTING AND AUDITING ENFORCEMENT +Rel. No. 2517 / November 28, 2006 +Admin. Proc. File No. 3-10764 +In the Matter of +Kenneth W. Haver, CPA +ORDER DENYING MOTION TO REOPEN PROCEEDING OR VACATE SUSPENSION +I. +On March 4, 2002, the Commission filed a complaint in federal district court against +Kenneth W. Haver, a certified public accountant and formerly the chief financial officer of +Telxon Corporation ("Telxon"), seeking an injunction against violating the federal securities +laws. The complaint alleged that Haver "knowingly or recklessly violated or aided and abetted +violations of" the antifraud, reporting, and recordkeeping provisions of the Securities Exchange +Act of 1934 and rules thereunder. The complaint alleged specifically that Haver "caused Telxon +to improperly recognize revenue for three purported sales transactions" on financial statements +contained in a Form 10-Q for the quarter ended September 30, 1998, which "inflated Telxon's +quarterly revenues by 23% and quarterly profits by 270%." On March 13, 2002, Haver, without +admitting or denying the allegations in the complaint, consented to the entry of a permanent +injunction. The federal district court imposed the injunction, without the presentation of any +evidence or the adjudication of any issue of fact or law, on April 9, 2002. 1/ +1/ See SEC v. Haver, Docket No. 5:02 CV 414 (N.D. Ohio Apr. 9, 2002). The court +enjoined Haver from violating Exchange Act Sections 10(b) and 13(b)(5) and Rules +10b-5 and 13b2-1 thereunder and from aiding and abetting violations of Exchange Act +Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 12b-20, 13a-1, and 13a-13 +thereunder. Haver also consented to, and the court imposed, a civil penalty of $75,000. +2 +On March 13, 2002, the same day as he consented to the entry of the permanent +injunction, Haver submitted an offer of settlement to the Commission which stated that, "in +anticipation of the institution of public administrative proceedings against him" pursuant to +Commission Rule of Practice 102(e), he consented to a suspension from appearing or practicing +before the Commission as an accountant. The Commission imposed the suspension on April 24, +2002 (the "Rule 102(e) Order"). 2/ The Commission based the suspension on the existence of +the federal court injunction entered with Haver's consent. Rule 102(e)(3) provides that the +Commission may suspend from appearing or practicing before it an accountant who has been +permanently enjoined, in an action brought by the Commission, from violating or aiding and +abetting the violation of any provision of the federal securities laws or the rules and regulations +thereunder. 3/ The Rule 102(e) Order made no findings regarding the misconduct alleged in the +injunctive complaint. Haver consented to the suspension without admitting or denying any +findings, except that he admitted the permanent injunction had been entered against him. The +Rule 102(e) Order provided that Haver could apply for reinstatement after five years. +Haver now seeks relief from the Rule 102(e) Order. According to Haver, "compelling +new evidence" obtained in a related class action by Telxon shareholders against Haver, Telxon, +and its auditor, PricewaterhouseCoopers LLP ("PWC"), justifies such relief. The "new evidence" +proffered by Haver consists of PWC workpapers produced in the class action which suggest, +according to Haver, that Telxon disclosed the three violative transactions to PWC. Haver +contends that "the Commission's finding that [he] acted knowingly or recklessly when accounting +for [the three violative transactions] . . . was, to a large degree, supported by the testimony of the +senior members of the PWC engagement team that Mr. Haver failed to disclose these +transactions to the engagement team voluntarily and in response to specific inquiry." Haver +argues, therefore, that the "[e]vidence produced by PWC in the securities litigation . . . +establishes that this testimony . . . was false and otherwise not credible" and that Haver "did not +act with a knowing or reckless intent to defraud." +Haver claims that he "did not have access to PWC's workpapers . . . in support of his +defense to the Commission's charges" at the time of his settlement. Haver asserts further that the +Commission did not have access to "some" of these workpapers, noting that the judge in the class +action lawsuit found that PWC had not "produced a complete set of workpapers to the SEC in +good faith." According to Haver, the "existence of compelling evidence (none of which Haver +had access to at the time he consented to the Rule 102(e) Order, and some of which was +unlawfully withheld from the SEC by Telxon's auditor) supporting Haver's position that he did +not act willfully when misreporting the subject transactions, is a compelling circumstance +supporting his request for equitable relief." +2/ Kenneth W. Haver, CPA, Securities Exchange Act Rel. No. 45814 (Apr. 24, 2002), 77 +SEC Docket 1427. +3/ 17 C.F.R. § 201.102(e)(3). +3 +Haver seeks two forms of relief. First, he seeks "reconsideration of [the Commission's] +findings that Mr. Haver violated Sections 10(b) and 13(b)(5) and Rule 13b2-1 of the Exchange +Act." Second, he requests that the Commission "reconsider his acceptance of a suspension from +practice before the Commission as a term required in settlement of all charges brought against +him." Haver notes that the Ohio Accountancy Board revoked his CPA certificate solely on the +basis of his acceptance of a suspension from practice before the Commission. 4/ +The Division of Enforcement opposes Haver's request on the grounds that he has not +"demonstrated compelling facts or circumstances that would support a grant of relief." +According to the Division, "Haver does not present a basis for vacating or modifying the +sanctions imposed in the Rule 102(e) proceedings," which were based, not on a hearing with a +record, but on the consent injunction entered against Haver. The Division notes that the +revocation of his CPA certificate by the Ohio Accountancy Board was a foreseeable consequence +of the Commission's suspension order. The Division also notes that, as early as next April, +Haver may apply for reinstatement to resume appearing or practicing before the Commission. +For the reasons discussed below, we have determined to deny Haver's requested relief. +II. +We have generally considered petitions to vacate orders imposed with a respondent's +consent in the context of petitions to vacate administrative bar orders imposed in settled +proceedings. 5/ In these cases, we have stated that our "long-standing approach to petitions to +vacate or modify . . . reflects [our] statutory obligation to ensure that a request for relief or +modification comports with the public interest and investor protection." 6/ The factors that guide +this public interest/investor protection inquiry are: +4/ In his reply brief, Haver states that his petition is "fairly characterize[d]" as a "request to +vacate the suspension from appearing or practicing before [the Commission]." +5/ See, e.g., William Masucci, Exchange Act Rel. No. 53121 (Jan. 13, 2006), 87 SEC +Docket 347 (considering petition to vacate a bar imposed with respondent's consent after +respondent consented to injunction by a federal district court); Jesse M. Townsley, +Exchange Act Rel. No. 52161 (July 29, 2005), 85 SEC Docket 4341 (same); see also +Mark S. Parnass, Exchange Act Rel. No. 50730 (Nov. 23, 2004), 84 SEC Docket 727; +Peter F. Comas, Exchange Act Rel. No. 49894 (June 18, 2004), 83 SEC Docket 251; +Stephen S. Wien, Exchange Act Rel. No. 49000 (Dec. 29, 2003), 81 SEC Docket 3758; +Ciro Cozzolino, Exchange Act Rel. No. 49001 (Dec. 29, 2003), 81 SEC Docket 3769; +Edward I. Frankel, Exchange Act Rel. No. 49002 (Dec. 29, 2003), 81 SEC Docket 3778. +6/ Wien, 81 SEC Docket at 3764; see also Cozzolino, 81 SEC Docket at 3774; Frankel, 81 +SEC Docket at 3784. +4 +the nature of the misconduct at issue in the underlying matter; the time that has passed +since issuance of the administrative bar; the compliance record of the petitioner since +issuance of the administrative bar; the age and securities industry experience of the +petitioner, and the extent to which the Commission has granted prior relief from the +administrative bar; whether the petitioner has identified verifiable, unanticipated +consequences of the bar; the position and persuasiveness of the Division of Enforcement's +response to the petition for relief; and whether there exists any other circumstance that +would cause the requested relief from the administrative bar to be inconsistent with the +public interest or the protection of investors. 7/ +Not all of these factors will be relevant in determining the appropriateness of relief in a particular +case, and no one factor is dispositive. 8/ We have held that bars should "remain in place in the +usual case and be removed only in compelling circumstances." 9/ We agree with the Division of +Enforcement, which, as indicated, opposes Haver's request, that Haver's petition does not present +such compelling circumstances. +We have noted previously our "strong interest" in the finality of our settlement orders. 10/ +"Public policy considerations favor the expeditious disposition of litigation, and a respondent +cannot be permitted to [follow] one course of action and, upon an unfavorable [result], to try +another course of action." 11/ "If sanctioned parties easily are able to reopen consent decrees +years later, the SEC would have little incentive to enter into such agreements. There would +7/ Wien, 81 SEC Docket at 3765-66; see also Cozzolino, 81 SEC Docket at 3774-75; +Frankel, 81 SEC Docket at 3784-85. +8/ Wein, 81 SEC Docket at 3765 (stating that, in considering the factors that guide this +public interest/investor protection inquiry, "no one factor is dispositive"); cf. IFG +Network Secs., Exchange Act Rel. No. 54127 (July 11, 2006), __ SEC Docket __, __ +(stating that, in considering the factors that determine whether a cease-and-desist order is +appropriate, "not all factors need to be considered, and no factor is dispositive"). +9/ Wien, 81 SEC Docket at 3766; see also Masucci, 87 SEC Docket at 348; Townsley, 85 +SEC Docket at 4343; Parnass, 84 SEC Docket at 729; Comas, 83 SEC Docket at 252-53; +Cozzolino, 81 SEC Docket at 3775; Frankel, 81 SEC Docket at 3785. +10/ Putnam Invest. Mgmt., Order Denying Motion to Vacate Administrative Orders, +Exchange Act Rel. No. 50039 (July 20, 2004), 83 SEC Docket 1262, 1265. +11/ David T. Fleischman, 43 S.E.C. 518, 522 (1967) (finding that "the failure of a respondent +to testify and adduce available evidence to meet the charges against him . . . does not +entitle him to have the proceedings reopened after the issuance of an adverse decision") +(quoted with approval in Gross v. SEC, 418 F.2d 103, 108 (2d Cir. 1969)). +5 +always remain open the possibility of litigation on the merits at some time in the distant future +when memories have faded and records have been destroyed." 12/ +Haver acknowledges that "the Commission, as a matter of policy, does not generally +'revisit' matters that are closed," but contends that "the circumstances presented here warrant an +exception to any such rule." One such circumstance, according to Haver, is his claim that "the +Commission found that he acted intentionally or recklessly . . . chiefly on the basis of the false +testimony of members of the PWC engagement team that he did not disclose the[] [violative] +transactions to his auditors." Haver claims that his new evidence -- certain PWC workpapers -­ +establishes that he made the appropriate disclosures and did not act intentionally or recklessly. +Haver misconceives the basis for our suspension. The Rule 102(e) Order contained no +finding that Haver acted knowingly or recklessly. We based the order on the district court's +injunction and Haver's offer of settlement. Commission Rule of Practice 102(e)(3)(iv) provides +that one who, like Haver, "has consented to the entry of a permanent injunction . . . shall be +presumed . . . to have been enjoined by reason of the misconduct alleged in the complaint." 13/ +The injunctive complaint against Haver alleged, as noted above, that he knowingly or recklessly +violated the federal securities laws. Haver, therefore, is deemed enjoined by reason of such +knowing or reckless violations. We did not, and were not required to, make any findings +regarding Haver's misconduct, 14/ and so do not consider here whether Haver's alleged new +evidence refutes such findings. 15/ +Haver also fails to appreciate the significance of his offer of settlement. Commission +Rule of Practice 240(c)(4) provides explicitly that a settling respondent waives all hearings, the +filing of proposed findings of fact and conclusions of law, proceedings before, and an initial +12/ Miller v. SEC, 998 F.2d 62, 65 (2d Cir. 1993) (affirming Commission order denying a +petition to set aside a censure imposed by the Commission with respondent's consent). +13/ 17 C.F.R. § 201.102(e)(3)(iv). +14/ Cf. Milton J. Shuck, 38 S.E.C. 69, 72 (1957) (finding it unnecessary to determine whether +respondent violated Exchange Act Section 15(c)(3) where court had enjoined respondent +from violating that provision because "the existence of the injunction . . . itself clearly +furnishe[d] a statutory basis for revocation of registrant's registration under Section 15(b) +of the Exchange Act"), aff'd, 264 F.2d 358 (D.C. Cir. 1958). +15/ We did not make any findings regarding whether Haver acted knowingly or recklessly +because such findings could conflict with the basis for the district court's injunction. +Haver could request that the court now vacate his injunction. See Fed. R. Civ. Pro. 60(b). +We do not intend to suggest in this order any view regarding such a petition. +6 +decision by, a hearing officer, and all post-hearing procedures. 16/ Moreover, Haver's offer of +settlement states expressly that "[b]y submitting this Offer, Haver hereby acknowledges his +waiver of those rights specified in Rules 240(c)(4) and (5) of the Commission's Rules of +Practice." Haver does not suggest that his offer to settle was not voluntary, knowing, or +informed. 17/ Haver thus forfeited his opportunity to adduce his evidence, 18/ which would +require evaluation at the hearing before an administrative law judge that Haver waived. Haver +may not now complain that the record is inaccurate or incomplete. 19/ +Haver contends that another circumstance warranting relief is the action of the Ohio +Accountancy Board in revoking his CPA certificate "solely on the basis of his acceptance of a +suspension from practice before the Commission." According to Haver, "an automatic loss of his +Ohio CPA certificate was an unforeseeable consequence of his consent to a suspension." +Although, as noted above, one of the factors we consider in evaluating petitions to vacate bar +orders is whether the petitioner has identified verifiable, unanticipated consequences of the bar, +we do not believe that revocation of Haver's CPA certificate was an "unforeseeable consequence" +of the suspension. Ohio law provides that the accountancy board may "revoke, suspend, or +refuse to renew any CPA certificate" based on the "suspension or revocation of the right to +16/ 17 C.F.R. § 201.240(c)(4) (2001). +17/ Cf. Sargent v. Dep't of Health and Human Servs., 229 F.3d 1088, 1091 (Fed. Cir. 2000) +("It is well-established that in order to set aside a settlement, an appellant must show that +the agreement is unlawful, was involuntary, or was the result of fraud or mutual +mistake."). +18/ See William H. Pike, Investment Company Act Rel. No. 20417 (July 20, 1994), 57 SEC +Docket 589, 590-91 (rejecting applicant's request that we either expunge an order entered +with his consent or allow him to litigate the issues in a reopened administrative +proceeding on the ground that he could produce evidence that his misconduct "was far +less significant than would appear" because regardless of the significance of any such +evidence, applicant had "forfeited the opportunity to adduce it"). +19/ See Edward I. Frankel, 52 S.E.C. 1237, 1239 n.5 (1997) (rejecting petition to vacate bar +order where petitioner contended that bar order "relied upon erroneous information" +because respondent "elected to settle the matter and did not develop the record further" +and thus could not "now complain that the record is inaccurate or incomplete"); Cf. +Gleason v. Jandrucko, 860 F.2d 556 (2d Cir. 1988) (refusing to set aside a settlement +despite plaintiff's assertion that evidence discovered in a subsequent proceeding revealed +that defendants perjured themselves at their depositions and concealed evidence because +plaintiff "voluntarily chose to settle the action" and could not "be heard now to complain +that he was denied the opportunity to uncover the alleged fraud" where "nothing +prevented plaintiff during the pendency of the prior proceeding" from attempting to +obtain the evidence that plaintiff believed impeached the defendants' testimony). +7 +practice before any state or federal agency." 20/ Haver therefore was in a position to anticipate +and foresee the action of the Ohio board. The Ohio Board's action is not a basis for relief. 21/ +The other factors noted above that we generally consider in determining whether it is +appropriate to vacate an administrative bar order also suggest that vacating Haver's suspension is +inappropriate here. The underlying misconduct alleged in the injunctive complaint involved +antifraud violations, and "the fact that a person has been enjoined from violating antifraud +provisions 'has especially serious implications for the public interest.'" 22/ The time that has +passed since issuance of the suspension further militates against relief because even the five-year +period after which Haver may apply for reinstatement has not yet elapsed. Under these +circumstances, and based on our consideration of the factors previously identified, it would not +comport with the public interest or investor protection to vacate Haver's suspension. +Accordingly, it is ORDERED that the motion of Kenneth W. Haver to reopen the +proceeding or vacate the suspension imposed on April 24, 2002, be, and it hereby is, denied. +By the Commission. +Nancy M. Morris + Secretary +20/ See OH. REV. CODE ANN. § 4701.16. +21/ Cf. Townsley, 85 SEC Docket at 4342, 4344 (denying motion to vacate bar order on the +ground that "the bar order has prevented [movant] from becoming registered as a +commodity trading advisor with the National Futures Association" because movant's +inability to become so registered "was a consequence of the bar that he should have +anticipated"). +22/ Michael T. Studer and Castle Secs. Corp., Exchange Act Rel. No. 50411 (Sept. 20, 2004), +83 SEC Docket 2853, 2861 (quoting Marshall E. Melton, Investment Advisers Act Rel. +No. 2151 (July 25, 2003), 80 SEC Docket 2812, 2825). \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2519.txt b/raw/aaer/2006/AAER-2519.txt new file mode 100644 index 0000000000000000000000000000000000000000..02c007503428558b944b012396d2c5f6e2dc8b44 --- /dev/null +++ b/raw/aaer/2006/AAER-2519.txt @@ -0,0 +1,1375 @@ + + + + + + + + + + + + + + + + SEC.gov | Andrew J. Zahn, Philip J. Sexauer, and Cynthia K. 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Zahn, Philip J. Sexauer, and Cynthia K. Berryman + + + + + + + + + + + + Andrew J. Zahn, Philip J. Sexauer, and Cynthia K. Berryman + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19931 / December 4, 2006 + + Accounting And Auditing Enforcement Release No. 2519 / December 4, 2006 + + Securities and Exchange Commission v. Andrew J. Zahn, Philip J. Sexauer, and Cynthia K. Berryman , Case No. 04C4948 (N.D. Ill.) + + The Commission announced that on November 27, 2006 the United States District Court for the Northern District of Illinois entered a Final Judgment as to Defendant Andrew J. Zahn, based on his Consent. In SEC v. Andrew J. Zahn, Philip J. Sexauer, and Cynthia K. Berryman, each of the defendants is a former officer of DFG, L.L.C. ("DFG"), a Chicago-based company that was a subsidiary of a subsidiary of IBP, Inc. ("IBP"). + + The Commission alleged in the complaint that Zahn, among other defendants, engaged in an array of accounting improprieties to inflate DFG's earnings. These misstatements caused IBP to materially misstate its own financial results for the fourth quarter of 1999 and the first three quarters of 2000. Specifically, the Commission alleged that Zahn and others directed that DFG not charge certain expense items in the period they were incurred, but instead improperly included these amounts in inventory, prepaid expense, and accounts receivable asset accounts to overstate DFG's earnings. The Commission alleged that Zahn was motivated by personal compensation tied to DFG's financial performance. + + In its complaint, the Commission claims that, through these actions, each of the defendants violated Section 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 13b2-1 thereunder, and aided and abetted IBP's 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. It further claims that Zahn violated Section 10(b) of the Exchange Act and Rules 10b-5 and 13a-13 thereunder. + + The Final Judgment enjoins Zahn from future violations of the federal securities laws and imposes a five year officer and director bar. Zahn was also ordered to pay a civil penalty of $50,000.00 and post judgment interest on any delinquent amounts pursuant to 28 USC § 1961. + + + + + + + + + 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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Thielbar, David A. Monaghan, Keith W. Beachler, Jana L. Quam And Cary B. Griswold + + + + + + + + + + + + Bart A. Thielbar, David A. Monaghan, Keith W. Beachler, Jana L. Quam And Cary B. Griswold + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19932 / December 4, 2006 + + Accounting and Auditing Enforcement Release No. 2520 / December 4, 2006 + + SEC v. Bart A. Thielbar, David A. Monaghan, Keith W. Beachler, Jana L. Quam And Cary B. Griswold , (United States District Court for the District of South Dakota, Civil Action No. 06-4253) + + SEC Charges Five Former Employees of a Northwestern Corporation Subsidiary with False Financial Reporting + + The Securities and Exchange Commission today filed a complaint against five individuals for misstating the financial results of NorthWestern Communications Solutions ("NCS"), a former division of NorthWestern Corporation's utility subsidiary. The Commission's complaint, filed in the United States District Court for the District of South Dakota, alleges that these misstatements caused NorthWestern to report materially false financial results in Commission filings and press releases relating to the fourth quarter of 2001 and the first two quarters of 2002. In its complaint, the Commission named Bart A. Thielbar, the former head of NCS, Keith W. Beachler, a former vice president of NCS, and Cary B. Griswold, a former NCS accountant; as well as David A. Monaghan and Jana L. Quam, the former vice president of finance and controller, respectively, for NorthWestern's utility subsidiary. + + During the time period referenced in the Commission's complaint, NCS was headquartered in Sioux Falls, South Dakota, and sold and installed telecommunications equipment. The Commission's complaint alleges that, during the fourth quarter of 2001 and the first two quarters of 2002, NCS improperly recognized approximately $3.2 million of revenue by recording revenue on non-existent contracts and by recording revenue before work had been performed on existing contracts. The Commission's complaint also alleges that, for the fourth quarter of 2001, NCS improperly reclassified approximately $1 million in unsubstantiated assets to a goodwill account to avoid a year-end charge against income. The complaint further alleges that, during the third quarter of 2002, Thielbar and Monaghan attempted to cover up the improper accounting after it was exposed by internal auditors, mischaracterizing the nature and extent of the improprieties in reports to NorthWestern's audit committee and outside auditors. + + The Commission's complaint charges Thielbar, Monaghan and Beachler with violations of Section 10(b) of the Securities and Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933. The complaint further charges all defendants with violations of Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, and with aiding and abetting NorthWestern'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-11 thereunder. It further charges Thielbar, Beachler and Griswold with violating Exchange Act Rule 13a-13. The Commission's complaint seeks permanent injunctions, disgorgement with prejudgment interest, and civil penalties. The Commission also seeks an officer and director bar against Thielbar. + + Monaghan, Beachler, Quam and Griswold, without admitting or denying the allegations in the Commission's complaint, each consented to the entry of a final judgment permanently enjoining them from violating or aiding and abetting violations of the provisions they allegedly violated. Monaghan consented to pay a $25,000 civil penalty, and Griswold consented to pay a $10,000 civil penalty. The Commission waived the imposition of a civil penalty against Beachler based upon his sworn financial statements. Quam's consent does not include a penalty. + + + + + + + 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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DeSimone + + + + + + + + !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\/500241","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 + + + John Giesecke, Jr., Joseph J. Shew, and John R. DeSimone + + + + + + + + + + + + John Giesecke, Jr., Joseph J. Shew, and John R. DeSimone + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19935 / December 5, 2006 + + Accounting and Auditing Enforcement Release No. 2521 / December 5, 2006 + + SEC v. John Giesecke, Jr., Joseph J. Shew, and John R. DeSimone , (U.S. District Court for the Central District of California, Civil Action No. 02 CV 7471 SVW (RZx) + + Former Homestore Executives Sentenced for Role in Financial Fraud Scheme + + + + The Securities and Exchange Commission today announced that the Honorable Percy Anderson, U.S. District Judge for the Central District of California, sentenced John Giesecke, Jr., 45, Joseph J. Shew, 41, and John R. DeSimone, 37, based upon their 2002 guilty pleas for their role in a scheme to inflate Homestore's advertising revenues. Giesecke, Homestore's former COO, was sentenced on November 13, 2006, to serve twelve months in federal prison followed by six months of home detention. Shew, Homestore's former CFO, was sentenced on November 20, 2006, to serve six months in federal prison followed by six months of home detention. Giesecke and Shew were also ordered to serve three years of supervised release following their prison terms. DeSimone, Homestore's former vice president of finance, was sentenced on October 30, 2006, to serve six months of home detention followed by three years of probation, plus 300 hours of community service. + + In their plea agreements, Giesecke, Shew, and DeSimone each admitted that during the first three quarters of 2001, each participated in a scheme to inflate Homestore's advertising revenues through the use of illegal round-trip transactions. All three individuals settled with the Commission on September 25, 2002, by consenting to the entry of permanent injunctions against them in addition to other monetary and non-monetary relief. The Commission has settled enforcement actions with a total of 15 individuals for their roles in the Homestore scheme. All of the money collected from these individuals in connection with their settlements, has been paid into a fund to benefit the defrauded Homestore shareholders pursuant to the Fair Funds provision of the Sarbanes-Oxley Act of 2002. To date, approximately $9 million has been collected and deposited into the fund. + + + + +  + + + + + + + + + + + + + + + + + + + + + + + + + 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-2522.txt b/raw/aaer/2006/AAER-2522.txt new file mode 100644 index 0000000000000000000000000000000000000000..4999bd8973080cbd5642b7fb4a6c5aa31994cae2 --- /dev/null +++ b/raw/aaer/2006/AAER-2522.txt @@ -0,0 +1,510 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54906 / December 11, 2006 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2522 / December 11, 2006 +ADMINISTRATIVE PROCEEDING +File No. 3-12501 +ORDER INSTITUTING CEASE- +In the Matter of +THOMAS F. GARBE, +AND-DESIST PROCEEDINGS, +MAKING FINDINGS, AND IMPOSING +A CEASE-AND-DESIST ORDER +PURSUANT TO SECTION 21C OF THE +Respondent. 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 against Thomas F. Garbe (“Garbe” or +“Respondent”) pursuant to Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”). +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement of Thomas F. Garbe (“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. + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +III. +On the basis of this Order and Respondent’s Offer, the Commission finds1 that: +A. SUMMARY +In 2001, the PNC Financial Services Group, Inc. (“PNC”) endeavored to remove certain +loans and venture capital investments from its financial statements by transferring them to certain +entities that were specially created to receive these assets. PNC made these transfers in order to +reduce its exposure to loan losses and venture capital investment losses. PNC intended that the +entities receiving these assets be regarded as “special purpose entities” (“SPEs”) under generally +accepted accounting principles (“GAAP”) that would not have to be consolidated with PNC. For +the second and third quarters of 2001, PNC filed financial statements with the Commission that did +not consolidate these entities. +PNC’s accounting with respect to these entities was improper under GAAP, and PNC made +materially inaccurate statements in its filings with the Commission about its financial condition +and performance, including, among other things, a material oversta tement of its 2001 earnings. +PNC’s failure to account properly for these transactions, and its inaccurate disclosures, created a +materially inaccurate picture that it was reducing its exposure to commercial lending and venture +capital activities. Further, PNC’s books and records were inaccurately maintained in connection +with these transactions. Accordingly, PNC violated, among other provisions, reporting and +recordkeeping provisions of the federal securities laws. +2 +Respondent Garbe failed to inquire adequate ly about facts and circumstances and was a +cause of PNC’s violations of the reporting and recordkeeping provisions of the federal securities +laws. During 2001, Garbe was the head of PNC’s Accounting Po licy department, and, as such, +had responsibility for ensuring that PNC’s accounting for each of the three transactions described +below was in conformity with GAAP. Garbe participated in discussions for the three transactions +into which PNC entered with American International Group, Inc. (“AIG”) during 2001, reviewed +transaction-related documents, and researched and analyzed the proposed accounting treatment for +those transactions. Garbe should have inquired fu rther to determine if certain features of the +transactions made nonconsolidation of th e entities by PNC improper under GAAP. Most +significantly, Garbe failed to adequately inquire whether the fees paid to AIG reduced AIG’s +investments in the SPEs below the point at which nonconsolidation would be appropriate under +GAAP. Garbe, however, as head of PNC’s Accounting Polic y department, approved PNC’s +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 The Commission previously brought settled proceedings against both PNC and AIG related to +their roles in these matters. PNC Financial Services Group, Inc., Securities Act Release No. 8112, +Exchange Act Release No. 46225, Accounting and Auditing Enforcement Release No. 1597 (July 18, +2002); SEC v. American International Group, Inc., No. 1:04CV02070 (GK) (D.D.C. judgment entered +Dec. 7, 2004). +2 + + + + + + + + + + + + + + + + + + + + + + + + +accounting for the three transactions and thereby was a cause of PNC’s violation of Sections 13(a) +and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20 and 13a-13. +B. RESPONDENT +Thomas F. Garbe, age 54, was the director of PNC’s Accounting Policy department from +December 2000 to December 2001. The Accounting Policy department followed and reported on +relevant accounting literature and examined the accounting for all significant transactions at PNC +to determine the proper accounting for them. In January 2002, Garbe became director of Financial +Accounting at PNC. Garbe resides in Pittsburgh, Pennsylvania and is a certified public accountant +licensed in North Carolina and Pennsylvania. +C. RELEVANT ENTITIES +1. The PNC Financial Services Group, Inc. is a Pennsylvania corporation with its +principal place of business in Pittsburgh, Pennsylva nia. PNC is a bank holding company that is +regulated by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank +of Cleveland (together the “Federal Reserve”) and has a national bank subsidiary that is regulated +by the Comptroller of the Currency. +2. American International Group, Inc. is a Delaware Corporation with its +principal place of business in New York, New York. Through its subsidiaries, AIG is engaged in +a broad range of insurance-related and asset management activities in the United States and +abroad. +D. FACTS +1. Structure and Accounting Treatment of Special Purpose Entity Transactions +During 2001, PNC entered into three transactions with AIG, “PAGIC I,” “PAGIC II”, and +“PAGIC III,” respectively. Each PAGIC transaction was intended to transfer certain loan or +venture capital assets from PNC’s balance sheet to a SPE. Each transaction involved the creation +of two limited liability companies, one of which sold a substantial ownership interest to PNC and a +minority ownership interest to AIG. With funds received in exchange for its shares, each PAGIC +entity purchased loan or venture capital assets from PNC; some assets were acquired directly in +exchange for shares. Many of the loan and other assets transferred by PNC were volatile, troubled +or nonperforming. +In each of the second, third and fourth quarters of 2001, PNC entered into a PAGIC +transaction. In its original financial reports filed with the Commission for the second and third +quarters of 2001, PNC treated the loan and other assets transferred to the SPEs as if they were no +longer assets of PNC. PNC intended that, as a result of the PAGIC transactions, PNC’s balance +sheet would reflect a reduction in exposure to troubled loans and volatile assets. PNC also +intended, as a result of the PAGIC transactions, not to charge losses on the loans and other assets +transferred to the SPEs against its income. +3 + + + + + + + + + + + + + + + + +In sum, PNC transferred a total of approximately $762 million in loan and venture capital +assets to the PAGIC SPEs, and PNC received preferred stock in exchange. PNC continued to +service the loans and other assets transferred to the SPEs. +PNC’s ability to treat the assets transferred to the PAGIC SPEs as no longer owned by +PNC depended upon whether the transactions complied with the GAAP requirements for +nonconsolidation of SPEs. As is discussed in greater detail below, at the time PNC entered into +each of the PAGIC transactions, GAAP required, among other things, that an independent third +party be the majority owner of each PAGIC SPE and that the independent third party provide a +substantive capital investment in the SPE. Three percent was the minimally acceptable amount +under GAAP to indicate a substantive capital investment sufficient for nonconsolidation. GAAP +further provided that fees paid to the owner of the SPE for structuring the transaction were treated +as a return of the owner’s initial capital investment. +In fact, none of the PAGIC transactions complied with the GAAP requirements for +nonconsolidation, in part because, in each transaction, AIG was to receive a fee that was in +substance a structuring fee that eroded its minimum capital investment in the SPE. Therefore, +PNC’s second and third quarter 2001 financial statements included in the company’s Forms 10-Q +were not presented in conformity with GAAP. In short, PNC improperly treated the transfers of +assets to the PAGIC SPEs as sales, when it should have consolidated the assets of the PAGIC +entities in its financial statements. This failure to consolidate resulted in, among other things, (a) a +material overstatement of PNC’s earnings per share for the third quarter of 2001 by 21.4%, (b) +material understatements of the amounts of PNC’s nonperforming loans and nonperforming assets, +and (c) material overstatements of the amounts of reductions in loans held for sale and +overstatements in the amounts of securities available for sale. +2. The PAGIC Transactions +PAGIC I closed on June 28, 2001 (two days before the end of PNC’s second quarter), +PAGIC II closed on September 27, 2001 (three days before the end of PNC’s third quarter), and +PAGIC III closed on November 30, 2001 (during PNC’s fourth quarter). In the PAGIC I and +PAGIC II transactions, PNC transferred to the PAGIC entities loans and participations in loans +(“loan assets”) held by PNC’s principal bank subsidiary, PNC Bank, N.A., and in the PAGIC III +transaction, PNC transferred venture capital investments held by a non-bank subsidiary. In the +PAGIC I transaction, PNC transferred $257.3 million in loan assets plus cash to a PAGIC entity, +and in the PAGIC II transaction, PNC transferred $334.8 million in loan assets plus cash to a +PAGIC entity. In the PAGIC III transaction, PN C transferred $169.6 million of venture capital +assets plus cash to a PAGIC entity. +Each of the PAGIC transactions provided for AIG to receive, in the first five years, total +fees exceeding the amount that AIG contributed to the transaction. For PAGIC I, AIG was to +receive fees exceeding the $11.6 million that it contributed; for PAGIC II, AIG was to receive +fees exceeding the $16.9 million that it contributed; and for PAGIC III, AIG was to receive fees +exceeding the $8 million that it contributed. In each transaction, a portion of the fees was paid +4 + + + + + + + + + + + + + + + + +by the PAGIC entity to AIG at the closing of the transaction, and the remainder was to be paid +over the following four years. The agreements further provided that, if PNC liquidated its +interest in the PAGIC entities, AIG would receive the present value of the remainder of the fees +for the remainder of the five-year period. +3. PNC’s Form 10-Q for the Quarter Ended June 30, 2001 +In its Form 10-Q for the quarter ended June 30, 2001, filed with the Commission on August +14, 2001, PNC disclosed its financial performance and financial condition for the second quarter of +2001. PNC did not include on its balance sheet, as set forth in this Form 10-Q, the assets it +transferred to the PAGIC I SPE but did include its holdings of the PAGIC I preferred stock on its +balance sheet, in the line item entry for securities available for sale. Among other things, PNC +stated in the Form 10-Q that (1) management was evaluating opportunities to reduce lending +exposure, (2) loans at the end of the quarter were $44.2 billion, a $6.4 billion decrease from year- +end 2000, and (3) PNC had $374 million in nonperforming loan assets and $390 million in total +nonperforming assets. The figures on nonperforming loan assets and nonperforming assets did not +include $84 million in nonperforming assets among the $257 million in loan assets that PNC had +transferred to the PAGIC I SPE. PNC’s Form 10-Q did not include any reference to the PAGIC I +transaction. +4. PNC’s Form 10-Q for the Quarter Ended September 30, 2001 +In its Form 10-Q for the quarter ended September 30, 2001, filed on November 14, 2001, +PNC reported that earnings per share for that quarter were $1.02 per share. PNC did not include on +its balance sheet, as set forth in this Form 10-Q, the assets it transferred to the PAGIC I and +PAGIC II SPEs but did include its holdings of the PAGIC I and PAGIC II preferred stock on its +balance sheet, in the line item entry for securities available for sale. Among other things, PNC +stated in the Form 10-Q that (1) loans at the end of the quarter were $42.1 billion, an $8.5 billion +decrease from year-end 2000 and (2) PNC had $361 million in nonperforming loan assets and +$374 million in total nonperforming assets. The figures on nonperforming loan assets and +nonperforming assets did not include a total of $207 million in nonperforming assets among the +$592 million of loan assets that PNC had transferred to the SPEs established for PAGIC I and +PAGIC II. PNC’s Form 10-Q also did not include any reference to the PAGIC I or PAGIC II +transactions. +5. PNC’s January 17, 2002 Press Release +On January 11, 2002, the Federal Reserve directed PNC to consolidate the entities +created in the three PAGIC transactions in PNC’s bank holding company regulatory reports for +2001. +On January 17, 2002, PNC issued a press release announcing its fourth quarter and full- +year 2001 financial results. In this release, PNC stated that its earnings per share were $1.91, +and that its fourth quarter loss would be ($1.15) per share. PNC also stated that it had reduced its +institutional loan portfolio through, among other things, “sale of institutional loans to +5 + + + + + + + + + + + + + + +subsidiaries of a third party financial institution.” The release reported PNC’s results as though +PNC did not consolidate the assets of the three PAGIC SPEs for financial reporting purposes. +6. PNC Announces a Restatement with Respect to PAGIC Entities and Files +Restated Financial Results +On January 29, 2002, PNC announced that it would reverse the accounting for all three +PAGIC transactions, restate its financial statements for the second and third quarters of 2001, +and revise its previously announced fourth quarter and full-year 2001 financial results. The +change in accounting and restatement resulted in, among other things, a $155 million charge to +PNC’s earnings and a $0.53 per share drop (equivalent to 38%) in PNC’s previously reported +earnings per share for 2001. +On March 29, 2002, PNC filed amended Forms 10-Q for the quarters ended June 30, +2001, and September 30, 2001, that included restated financial results. The amended Form 10-Q +for the quarter ended September 30, 2001 set forth PNC’s restated financial results for the third +quarter of 2001, including, among other things, PNC’s earnings per share for this quarter, which +were $0.84 per share (approximately 18% less than the $1.02 per share reported in PNC’s +original Form 10-Q for this quarter). +7. Garbe’s Role in the PAGIC Transactions +In late May or early June 2001, Garbe learned from others that PNC was contemplating +entering into the first of the PAGIC transactions. PNC senior management asked Garbe, as head +of PNC’s Accounting Policy department, to review PNC’s accounting for the proposed +transaction. Garbe participated in internal meetings with other PNC personnel in which the +terms of the transactions were discussed. He discussed the transaction with personnel from Ernst +& Young, LLP, PNC’s auditor. Garbe was also present for certain conversations between PNC +and AIG personnel during which certain transaction terms were discussed, and he reviewed +transaction documents. Prior to the closing of PAGIC I, Ernst & Young provided to PNC and +Garbe a draft “Guidance Letter,” which opined that nonconsolidation of the PAGIC SPE +conformed with GAAP. This letter, however, made no mention of the fee paid to AIG. A +similar Guidance Letter was provided by Ernst &Young to PNC for PAGIC II and PAGIC III. +Garbe subsequently reviewed and approved a memorandum prepared by PNC’s Accounting +Policy department for each PAGIC transaction that analyzed the accounting for the transaction +and mentioned the fee paid to AIG, but without analyzing the accounting implications of such a +fee. These memos concluded that PNC’s nonconsolidation of the PAGIC entities was the +appropriate accounting treatment under GAAP. +Throughout the relevant period, Garbe received information that should have prompted +him to inquire further to determine whether PNC’s nonconsolidation of the PAGIC entities was +proper under GAAP. Most significantly, he sh ould have known that, although the final +transaction documents referred to AIG’s fee as “fee to the managing member” and “management +fee,” the fee was in fact a structuring fee that would cause AIG’s investment to be reduced below +the 3% minimally acceptable amount required for nonconsolidation under GAAP. In connection +with the PAGIC I transaction, Garbe knew that AIG initially proposed that PNC directly pay +6 + + + + + + + + + + + + + + +AIG a fee at the closing of the transaction. Garbe rejected that proposal because such a fee +would be viewed as a structuring fee. The mann er in which the fee would be paid to AIG was +thereafter renegotiated. As subsequently renegotiated, a PAGIC entity would pay AIG’s fee. +For the first five years, AIG would receive a fixed annual fee that, in total, exceeded the amount +that AIG invested in the transaction. AIG would receive the present value of this fee even if +PNC liquidated its interest in the PAGIC entities during the five-year period, and AIG would +receive the same amount regardless of what took place with respect to the value or disposition of +the loan assets that PNC contributed in the transaction.3 The facts relating to the funding and +payment of the fee were understood by Garbe. +Garbe further knew that PNC would be the servicer of the loan assets that it transferred to +the PAGIC entities. PNC would retain the relevant loan records and establish bank accounts for +loan collections. As the loan servicer, PNC would receive payments, would be responsible for +valuing the loans annually and for developing action plans for managing the workout of the loans, +which would be reviewed by AIG periodically. AIG’s actual management of the PAGIC entities +was limited, at best. For its role as servicer of the loan assets, PNC was to receive a servicing fee +paid by a PAGIC entity separately from the fee that the PAGIC entity paid to AIG. The servicing +fee paid to PNC, however, was significantly less than the fee paid to AIG, and, unlike the fee paid +to AIG for the first five years, varied based on the value of the loan assets that PNC transferred in +the transaction.4 This and other information that arose during the course of the negotiations with +AIG presented Garbe with reasons to evaluate whether AIG’s fee for management services was +actually a structuring fee that would reduce AIG’s investment below the required 3% minimum +and accordingly would cause the accounting for the transaction not to be in conformity with +GAAP. Consequently, Garbe should have made further inquiry into the nature of AIG’s fee. +Nevertheless, Garbe, as head of PNC’s Accounting Policy department, approved PNC’s +nonconsolidation of the SPE established for the PAGIC I transaction without making such an +inquiry. +For accounting purposes, the PAGIC II and PAGIC III transactions were substantially +similar to the PAGIC I transaction. In each case, Garbe should have made further inquiry to +determine if the fees paid to AIG in the PAGIC II and PAGIC III transactions also were +structuring fees that reduced AIG’s investments in those transactions below the 3% level. +Nevertheless, Garbe approved PNC’s nonconsolidation accounting for the PAGIC II and PAGIC +III transactions without making such inquiry. +3 During the first five years, AIG could not liquidate the PAGIC entities without PNC’s consent. +To help ensure that AIG would receive its fee, the agreements further provided that, with one minor +exception, the first monies received in connection with the loan assets would be deposited into a +“Management Fee Account” until that account had a sufficient amount to pay AIG the fee when it became +due. +4 After the first five years, AIG’s fee would vary based on the value of both the loan assets and the +value of a zero-coupon Treasury security purchased with some of the cash that PNC had contributed in +the transaction. +7 + + + + + + + + + + + + + + + + + + + + + + +E. DISCUSSION +Section 13(a) of the Exchange Act requires issuers of registered securities to file periodic +reports with the Commission containing information prescribed by specific Commission rules. +Rule 13a-1 requires the filing of annual reports on Form 10-K. Rule 13a-13 requires the quarterly +filing of a Form 10-Q. Rule 12b-20 requires, in addition to information required by Commission +rules to be included in periodic reports, such further material information as may be necessary to +make the required statements not misleading. These reports are required to be complete and +accurate.5 Under the federal securities laws,6 PNC is, and was at all relevant times, required to +comply with GAAP in its filings with the Commission. +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 the transactions and +dispositions of the assets of the issuer.” “A company’s ‘books and records’ include not only +general ledgers and accounting entries, but also memoranda and internal corporate reports.”7 +1. PNC Violated Sections 13(a) and 13(b)(2)(A) of the Exchange Act and +Exchange Act Rules 12b-20 and 13a-13 +PNC’s accounting for the PAGIC transactions was not in conformity with GAAP. Among +other things, the transactions did not satisfy the requirement that the majority owner (in this case +AIG) make a substantive capital investment. Because AIG’s fees were structuring fees, they +should have been treated under GAAP as a return of AIG’s investment in the transaction, which +reduced that investment below the 3% threshold. Because the PAGIC transactions did not satisfy +the criteria for nonconsolidation, PNC should have consolidated the PAGIC entities in its financial +statements. +The failure to account properly for the PAGIC transactions resulted in a material +overstatement of PNC’s earnings for the third quarter of 2001, among other things, and in +inaccurate disclosures in the company’s Forms 10-Q for the second and third quarters of 2001. +Those disclosures, described above, created a materially inaccurate picture of the extent to which +PNC was reducing its exposure to commercial lending activities and the risks attendant thereto. +Thus, for example, the amounts of nonperforming loans, nonperforming assets, and reductions in +loans held for sale, were all materially inaccurate, in that they were improperly recorded on the +assumption that the assets transferred to PAGIC I and PAGIC II had been removed from PNC’s +financial statements. In fact, PNC’s nonperforming assets and loans were materially greater than +disclosed, because they should have included certain assets transferred to PAGIC I and PAGIC II, +and its reductions in loans were materially overstated. As a result of PNC’s improper accounting +5 See SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978), cert. denied, 440 U.S. 913 +(1979). +6 17 CFR § 210.4-01(a)(1). +7 Gibson Greetings, Inc., Exchange Act Release No. 36357, 60 SEC Docket 1401 (Oct. 11, 1995). +8 + + + + + + + + + + + + + + + + + + + +for the PAGIC transactions for the second and third quarters of 2001 and the resulting misleading +disclosures in the company’s Forms 10-Q for those periods, PNC violated Sections 13(a) and +13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20 and 13a-13. +2. Garbe Was a Cause of PNC’s Violations +For the reasons discussed above, Garbe should have known that the fee paid to AIG in each +PAGIC transaction was a structuring fee and that PNC’s nonconsolidation of the PAGIC entities +did not comply with GAAP. Garbe, as head of PNC’s Accounting Policy department, had +responsibility for ensuring that the accounting for each of the PAGIC transactions was in +conformity with GAAP. By his actions described above, Garbe was a cause of PNC’s violations of +Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20 and 13a-13. +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: + Respondent Garbe cease and desist from causing any violations and any future violations of +Sections 13(a) and 13(b)(2)(A) of the Exchange Act, and Exchange Act Rules 12b-20 and 13a-13. + By the Commission. + N a n c y M . M o r r i s + S e c r e t a r y +9 + \ No newline at end of file diff --git a/raw/aaer/2006/AAER-2524.pdf b/raw/aaer/2006/AAER-2524.pdf new file mode 100644 index 0000000000000000000000000000000000000000..c6f829e7fc92538d28829a08fedee658d99779e5 Binary files /dev/null and b/raw/aaer/2006/AAER-2524.pdf differ diff --git a/raw/aaer/2006/AAER-2525.pdf b/raw/aaer/2006/AAER-2525.pdf new file mode 100644 index 0000000000000000000000000000000000000000..9096377f7f6de946e2081e08a51719eeeb225991 Binary files /dev/null and b/raw/aaer/2006/AAER-2525.pdf differ diff --git a/raw/aaer/2006/AAER-2527.txt b/raw/aaer/2006/AAER-2527.txt new file mode 100644 index 0000000000000000000000000000000000000000..add9c8d5ee4307e3222307ebe4ff88ec27e8c698 --- /dev/null +++ b/raw/aaer/2006/AAER-2527.txt @@ -0,0 +1,1397 @@ + + + + + + + + + + + + + + + + SEC.gov | Richard D. Power, Edward Federman, and Richard J. 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Power, Edward Federman, and Richard J. "Skip" Heger + + + + + + + + + + + + Richard D. Power, Edward Federman, and Richard J. "Skip" Heger + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 19953 / December 21, 2006 + + Accounting and Auditing Enforcement Release No. 2527 / December 21, 2006 + + SEC v. Richard D. Power, Edward Federman, and Richard J. "Skip" Heger , Civil Action No. 06 CV 15343 (S.D.N.Y. filed December 21, 2006) + + SEC Charges Two Former Tyco Executives for Fraud That Overstated Income by More Than One-Half Billion Dollars + + Third Former Tyco Executive Settles Financial Reporting and Record-keeping Charges + + The U.S. Securities and Exchange Commission today filed a civil injunctive action in the United States District Court for the Southern District of New York against Richard D. Power and Edward Federman, two former executives of Tyco International Ltd. The Commission's complaint alleges that Power and Federman designed and implemented fraudulent accounting practices at Tyco and thereby violated the antifraud and record-keeping provisions of the federal securities laws and aided and abetted Tyco's violations of the antifraud, reporting, and record-keeping provisions. The complaint alleges that Richard J. "Skip" Heger, a third former Tyco executive, violated the record-keeping provisions of the federal securities laws and aided and abetted Tyco's violations of the reporting and record-keeping provisions. + + The Commission's complaint alleges that Power and Federman inflated Tyco's operating income by hundreds of millions of dollars through the use of a sham transaction. In that transaction, Tyco charged authorized dealers of Tyco's ADT Security Services, Inc. (ADT) subsidiary a "dealer connection fee" whenever the company purchased security monitoring contracts from them. However, the connection fee was fully offset by a simultaneous increase in the purchase price ADT allocated to the dealers' security monitoring contracts. Thus, the transaction lacked economic substance. No additional money changed hands as a result of the dealer connection fee transaction. The sham transaction was designed by Power immediately following Tyco's 1997 merger with ADT Ltd. Federman subsequently defended the transaction when concerns were raised in meetings with Tyco's independent accountant. His defense was successful, and the income inflation from the transaction continued unabated. The complaint alleges that the transaction inflated Tyco's operating income by $567 million from the company's fiscal year 1998 through its fiscal quarter ended December 31, 2002. + + The complaint alleges that Power and Federman further inflated Tyco's operating income by means of fraudulent acquisition accounting, including the pre-acquisition reduction of asset valuations and overstatement of liabilities in connection with several of Tyco's most significant business acquisitions. In addition, Federman engaged in the improper use of accounting reserves to enhance Tyco's reported financial results, directing the reversal of reserves at Tyco's fiscal year-end to offset an unanticipated $40 million compensation expense. + + Heger was responsible for the financial results of the Tyco division that included the company's security monitoring business. He approved division financial results that he knew, or was reckless in not knowing, had been inflated by the sham transaction and improper acquisition accounting and that had been enhanced or smoothed by the improper use of reserves. + + The complaint alleges that Power and Federman violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5 and 13b2-1 thereunder, and aided and abetted Tyco's violations of Sections 10(b), 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder. The complaint alleges that Heger violated Exchange Act Rule 13b2-1 and aided and abetted Tyco's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. The complaint seeks permanent injunctions, disgorgement with prejudgment interest thereon, and penalties from each of the defendants, as well as an order barring Power and Federman from serving as an officer or director of a public company. + + Heger, without admitting or denying the complaint's allegations, has consented to the entry of a proposed final judgment permanently enjoining him from violating Exchange Act Rule 13b2-1 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, and ordering him to pay disgorgement of $300,000, prejudgment interest of $100,000, and a penalty of $50,000. The Commission intends to have any disgorgement, prejudgment interest, and penalty amounts paid into a court account pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002, for ultimate distribution to victims of the fraud. + + See Litigation Release No. 17722 / September 12, 2002; Litigation Release No. 17896 / December 17, 2002; Exchange Act Release No. 48328 / August 13, 2003; Litigation Release No. 19657 / April 17, 2006; Litigation Release No. 19678 / May 1, 2006. + + + + + 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-2528.txt b/raw/aaer/2006/AAER-2528.txt new file mode 100644 index 0000000000000000000000000000000000000000..5cd8373bb13c0016d9787cfbacaebcd2ea971db9 --- /dev/null +++ b/raw/aaer/2006/AAER-2528.txt @@ -0,0 +1,289 @@ + + + + + + +____________________________________ + + + + + + + + + + + + + + +UNITED STATES OF AMERICA +before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 54994 / December 21, 2006 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2528 / December 21, 2006 +ADMINISTRATIVE PROCEEDING +File No. 3-12515 +: +In the Matter of : ORDER INSTITUTING CEASE-AND- +: DESIST PROCEEDINGS, MAKING +Interstate Bakeries Corporation, : FINDINGS, AND IMPOSING A CEASE- +: AND-DESIST ORDER PURSUANT TO +Respondent. : SECTION 21C OF THE SECURITIES +: EXCHANGE ACT OF 1934 +____________________________________: +I. +The Securities and Exchange 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 Interstate Bakeries Corporation (“Respondent,” “IBC,” or +“the Company”). +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 over 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: +1 +RESPONDENT +1. Interstate Bakeries Corp. (“IBC”), a Delaware corporation headquartered in +Kansas City, Missouri, is one of the nation’s largest wholesale bakers and distributors of fresh +baked breads and snack cakes, selling Wonder, Dolly Madison, Hostess, and other well-known +brands. On September 22, 2004, IBC voluntarily file d a bankruptcy petition seeking relief under +chapter 11 of title 11 of the United States Bankruptcy Code, and currently is planning to +reorganize.2 +IBC’s common stock was registered with the Commission pursuant to Section 12(b) of +the Exchange Act until it was delisted from the NYSE in September 2004, after the Company +filed the bankruptcy petition. Since that time , IBC’s stock has been deemed registered under +Section 12(g). It currently is quoted in the Pink Sheets. +OVERVIEW +2. As described below, IBC violated the record-keeping, internal controls and +reporting provisions of the Exchange Act in connection with its financial reporting of its +workers’ compensation reserves and, consequently, its earnings during the second and third +quarters of fiscal 2004.3 During those periods, IBC’s then principal financial officer disregarded +the estimates of its future workers’ compensation liabilities provided by its insurance consultant, +on which IBC historically had relied for this critical piece of its workers’ compensation reserve +analysis. Instead of recording the $30 to $32 million in additional workers’ compensation +reserves that IBC’s insurance consultant had estimated and confirmed with an independent +actuarial firm, the principal financial officer set IBC’s quarterly workers’ compensation reserve +for the fiscal 2004 second and third quarters using obsolete information and estimates derived +from a methodology that he had been advised was no longer considered reliable. +3. The principal financial officer, whose quarterly reserve determinations were not +reviewed by other IBC personnel, failed to disclose to IBC’s accountants, its board, its Audit +Committee, its auditor, and the public that IBC had disregarded its consultant’s estimates in +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 In re Interstate Bakeries Corporation, Case No. 04-45814-jwv11 (W.D. Mo.). +3 IBC ends its fiscal year on the Saturday closest to the last day of May. Most of IBC’s reporting years +contain 52 weeks of operating results, while every fifth or sixth year includes 53 weeks. In addition, each quarter of +its fiscal year represents a period of 12 weeks, except the third quarter, which covers 16 weeks, and the fourth +quarter of any 53-week year, which covers 13 weeks. + + + + + + + + + + + + + + + + + + +setting the second and third quarter 2004 reserves. As a result, IBC’s financial statements +contained in its Forms 10-Q for the fiscal second and third quarters 2004 understated the +Company’s reserves by at least $30 million. Because IBC failed to record the expense necessary +to increase the reserve, the Company materially overstated its fiscal second quarter pre-tax +income in its Form 10-Q for the period ended November 15, 2003, and its cumulative fiscal third +quarter pre-tax income in its Form 10-Q for the period ended March 6, 2004. +4 +BACKGROUND +4. IBC historically has self-insured for its estimated workers’ compensation +liabilities. As a self-insurer, IBC is required to accrue a reserve for the potential losses +associated with its workers’ compensation self-insurance program when the loss contingency is +probable and the Company can estimate the amount of the loss. See Statement of Financial +Accounting Standards No. 5, Accounting for Contingencies, (“FAS 5”). The nature of the +contingency, the amount of the accrual, and, if appropriate, the possibility of further losses +should be disclosed if doing so is necessary to prevent the financial statements from being +misleading. Even if the loss contingency is reasonably possible, rather than probable, FAS 5 +requires IBC to disclose in its financial statements the possibility of the additional loss, the +nature of the loss contingency, and an estimate of the possible loss or range of loss.5 +5. From at least the mid-1990s through fiscal 2004, IBC’s principal financial officer, +or de facto chief financial officer,6 set IBC’s workers’ compensation reserve quarterly relying +upon an actuarially-based estimate from the Company’s insurance consultant. No one at IBC +substantively reviewed the principal financial officer’s quarterly workers’ compensation reserve +determination, or the methodology or rationale for his reserve determination. +6. Toward the end of fiscal 2003, in early May 2003, IBC’s insurance consultant +advised the principal financial officer that because of recent anomalies in IBC’s loss experiences, +the insurance consultant’s methodology for estimating IBC’s future liability for workers’ +compensation claims potentially was no longer reliable. The insurance consultant further +advised that even under this possibly unreliable methodology, IBC likely had a $16 million +deficit in its reserve accrual, and that, if other methodologies were used to calculate the reserve, +IBC’s reserve deficit could be substantially higher. +4 +On December 20, 2006, the Commission filed a dist rict court action against IBC’s former principal +financial officer seeking a permanent injunction, civil penalties and additional relief. See Litigation Rel. No. 19951 +(December 20, 2006). +5 A loss is probable if it is likely to occur, and it is reasonably possible if the chance of the loss occurring is +more than remote but less than likely. FAS 5, ¶3. +6 Despite financial challenges in fiscal 2003, IBC postponed hiring a new CFO until fiscal 2005 after its +former CFO retired in May 2003, in part because a qualified CFO would be expe nsive and would skew the +Company’s compensation scale. + + + + + +7. At the same time, IBC’s auditors scrutinized the reserve and developed their own +estimates as part of the fiscal 2003 audit. This action ultimately prompted IBC to add $15 +million to its workers’ compensation reserve in the fourth quarter of fiscal 2003, which brought +the total to approximately $103.6 million, or the low end of the range that the auditor had +determined was acceptable. In July 2003, IBC announced that it would report $.61 per share +earnings in fiscal 2003, down substantially from the prior year’s earnings of $1.36 per share, due +in part to the workers’ compensation reserve increase. IBC’s stock price fell more than 10% +after the July 14 announcement. +IBC UNDERSTATES ITS WORKERS’ COMPENSATION RESERVE +8. In late July or early August 2003, the insurance consultant, in conjunction with +discussing its estimate of IBC’s workers’ compensation liability for the fiscal first quarter 2004, +reiterated its concerns about the reliability of the methodology it was using. The report itself +continued its reliance on the same methodology, but the insurance consultant again advised +IBC’s principal financial officer that it was considering changing methodologies, and indicated +that if a different methodology was used, IBC’s workers’ compensation liability could be +considerably higher than the then current reserve. +9. In early November 2003, IBC’s insurance consultant advised IBC’s principal +financial officer that, consistent with the concerns it had expressed in the two prior quarterly +meetings, it had changed the methodology it used to estimate IBC’s workers’ compensation +reserve. The insurance consultant indicated that it estimated IBC’s workers’ compensation +reserve should be within a range from $134 million to $152.2 million. The low end of this +estimate was approximately $32 million higher than IBC’s fiscal first quarter 2004 reserve. The +principal financial officer did not accept the insurance consultant’s report for the quarter, in part +because of concerns about the impact of the estimate on IBC. Instead, the insurance consultant +and the principal financial officer agreed that the insurance consultant would hire an actuarial +firm to substantiate its estimate. +10. By at least early December 2003, the insurance consultant informed the principal +financial officer that it had confirmed its new, much higher estimate with an independent +actuarial firm. The principal fina ncial officer failed to disclose the insurance consultant’s change +of methodology, its new, much higher workers’ compensation reserve estimate, or the +independent confirmation of the consultant’s new estimate to IBC accountants, the Company’s +board, its Audit Committee, or its auditor. As a result, IBC failed to disclose these material facts +or contingencies to the investing public in its fiscal second quarter 2004 Form 10-Q or in its +second quarter earnings releases, which were filed with the Commission on a Form 8-K. +11. Instead, IBC set its workers’ compensation reserve at approximately $101.6 +million, or $32 million below the low end of the insurance consultant’s estimate range. If, +consistent with the consultant’s estimate, IBC had recorded a current period expense to increase +its reserve by the additional $32 million, the Company’s pretax earnings for the period would +have been reduced by a corresponding amount. Consequently, IBC reported fiscal second +quarter 2004 pretax income of $11.25 million when it should have reported a substantial loss. + + + + + + +12. In early February 2004, during IBC’s fiscal third quarter 2004, IBC’s insurance +consultant, after updating the numbers to reflect the most recent quarter, advised the Company’s +principal financial officer that its workers’ compensation reserve estimate essentially had not +changed. Later in February 2004, the insurance consultant provided IBC with a reserve estimate +of $137 million. The principal financial officer again failed to disclose the insurance +consultant’s change of methodology, its new, much higher workers’ compensation reserve +estimate, or the independent confirmation of the consultant’s new estimate to IBC’s accountants, +its board, its Audit Committee, or its auditor. As a result, IBC again failed to disclose these +material facts or contingencies to the investing public in its fiscal third quarter 2004 Form 10-Q +or in its third quarter earnings releases, filed on Form 8-K. +13. IBC instead set the third quarter fiscal 2004 workers’ compensation reserve at +$107 million, approximately $30 million below the low end of the most recent estimate provided +by its insurance consultant. As a result, IBC materially understated its workers’ compensation +reserve, and the company reported pre-tax income of $15,394,000 for the 40 weeks ended March +6, 2004, when it should have reported a substantial loss. +14. During the fiscal second and third quarters of 2004, IBC was close to violating its +debt covenants, and likely would have violated those covenants had it used its insurance +consultant’s workers’ compensation reserve estimate in setting its reserve for those periods. +15. In early May 2004, IBC’s principal financial officer advised IBC’s Audit +Committee that management was reviewing the workers’ compensation reserve for a possible +year-end charge in the fourth quarter, without disclosing the potential magnitude of the issue. In +late May 2004, IBC management advised the board, the Audit Committee, and IBC’s auditor of +the workers’ compensation reserve issue and the magnitude of the anticipated reserve increase. +Upon learning this information, the IBC board reacted by directing disclosure of the issue to the +public and commencing an internal investigation, first by company counsel and then by the +Audit Committee, as advised by independent counsel. On June 3, 2004, IBC announced that it +had increased its workers’ compensation reserve during fiscal 2004 with a charge to pretax +income of approximately $40 million, and that it was reviewing whether all or part of the charge +related to earlier quarters, thus necessitating a restatement of fiscal 2004 quarterly results of +operations. +16. IBC has failed to timely file Forms 10-K for fiscal 2004, 2005, and 2006, and has +failed to timely file Forms 10-Q for each of its fiscal 2005 and fiscal 2006 quarters. +VIOLATIONS +17. As a result of the conduct described above, IBC 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. Section 13(a ) of the Exchange Act requires issuers to file periodic reports with the +Commission containing such information as the Commission prescribes by rule. Exchange Act +Rules 13a-1 and 13a-13 require issuers to file annual and quarterly reports, respectively, and +Rule 13a-11 requires issuers to file current reports. Under Exchange Act Rule 12b-20, such + + + + + + + + + + + + + + + + +reports must contain, in addition to disclosures expressly required by statute and rule, such other +information as is necessary to ensure that the statements made are not materially misleading +under the circumstances. Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act require +issuers to make and keep books, records and accounts which, in reasonable detail, accurately and +fairly reflect the transactions and disposition of the assets of the issuer and to maintain an +adequate system of internal controls, respectively. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in IBC’s Offer. +Accordingly, it is hereby ORDERED that Respondent IBC 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. + 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-2529.txt b/raw/aaer/2006/AAER-2529.txt new file mode 100644 index 0000000000000000000000000000000000000000..5e07e1f273b5ccf9fb42f465ec10e1c78dd98217 --- /dev/null +++ b/raw/aaer/2006/AAER-2529.txt @@ -0,0 +1,278 @@ + + + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION +CORRECTED COPY +SECURITIES EXCHANGE ACT OF 1934 +Release No. 55030 / December 29, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2529 / December 29, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12521 + + +In the Matter of + +WHITEMARK HOMES, INC., +KENNETH L. WHITE, +ROBERT B. EARLY, AND +MITCHELL R. GORDON, + +Respondents. + + + + + +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 Whitemark Homes, Inc. (“Whitemark”), +Kenneth L. White, Robert B. Early, and Mitchell R. Gordon (collectively, “Respondents”). + +II. + + In anticipation of the institution of these pr oceedings, Respondents have each submitted an +Offer of Settlement (collectively, 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 + 2 +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 Res pondents’ Offers, the Commission finds1 that: + +Respondents + + 1. Whitemark, a Colorado corporation based in Oveido, Florida, develops and builds +residential communities. Whitemark stock is registered under Section 12(g) of the Exchange Act, +and has been traded on the Over the Counter Bulletin Board since April 2001. + + 2. Kenneth L. White, age 57, is a resident of Winter Springs, Florida. White was the +founder of Whitemark and served as its chief executive officer until July 2005. White obtained a +Texas CPA license in 1975, but his license is not currently active. White sold Whitemark stock in +April 2002 at a price that was inflated as a result of Whitemark’s false financial reporting as further +described below. + + 3. Robert B. Early, age 49, is a reside nt of Abilene, Texas. Early served as +Whitemark’s chief financial officer (“CFO”) from June 2000 until March 2002. Early has held a +Texas CPA license since 1981. + + 4. Mitchell R. Gordon, age 39, is a resident of Orlando, Florida. Gordon served as +Whitemark’s CFO from April 2002 until November 2003. Gordon has held a Maryland CPA +license since 1994. + +Improper Consolidation + + 5. In the Fall of 2001, White mark acquired North Florida Consulting, Inc. (“NFC”). +With the acquisition of NFC, Whitemark’s reported inventory increased from approximately $9.5 +million before the acquisition to approximately $77.1 million after the acquisition. In 2003, +Whitemark and NFC settled litigation and rescinded the acquisition. + + 6. After it acquired NFC, Whitemark imprope rly consolidated the financial statements +of five entities which NFC had an option to acquire. NFC did not have an ownership interest in +these entities, and the options it held did not provide control of these entities’ management or +direction sufficient to support consolidation under generally accepted accounting principles +(“GAAP”). As a result of this improper consolidation, inventory was overstated in Whitemark’s +financial statements and other information included in Whitemark’s Form 10-K for the year ended + +1 The findings herein are made pursuant to Respondents' Offers of Settlement and are not binding +on any other person or entity in this or any other proceeding. + + + 3 +December 31, 2001; its Forms 8-K filed in November 2001, January 2002, and July 2002; and its +Forms 10-Q for the first three quarters of 2002. + + 7. White, Early, and Gordon were re sponsible for assuring the accuracy of +Whitemark’s periodic and current filings during the time periods they were employed at +Whitemark. Although each of them knew that Whitemark had consolidated the financial +statements of entities in which Whitemark did not have any ownership interest, none of these +officers took the steps necessary to assure that Whitemark’s consolidation practices conformed +with GAAP. Each of these officers signed filings with the Commission in which Whitemark +materially overstated its inventory as a result of Whitemark’s improper consolidation. + +Failure to Disclose and Adjust for Expired Purchase Options + + 8. After it ac quired NFC, Whitemark included in its reported inventory the value of +certain options NFC held to purchase development properties or to purchase entities that owned +development properties. Pursuant to the terms of NFC’s contracts with property owners, five of +these purchase options were set to expire in the first quarter of 2002. + + 9. The value of these options represente d approximately 30% of Whitemark’s reported +inventory balance in its financial statements for the year ended December 31, 2001. Although +Whitemark filed its Form 10-K for the year ended December 31, 2001 after the expiration of these +options, Whitemark did not disclose the status of these options in its Form 10-K. + + 10. Whitemark failed to make the appropriat e adjustments to its financial statements, +including a reduction in the inventory balance and corresponding expense adjustments, when these +options expired in the first quarter of 2002. As a result, Whitemark materially overstated its +inventory, materially understated its associated expenses, and materially understated its net loss in +its Form 10-Q for the first quarter of 2002. Whitemark also failed to disclose the expiration of +these options in its first quarter 2002 Form 10-Q. + + 11. Whitemark continued to carry values associated with the expired purchase options +in its inventory account through the second and third quarters of 2002. As a result, Whitemark +materially overstated its inventory balance, materially understated its associated year-to-date +expenses, and materially understated its year-to-date net losses in its Forms 10-Q filed for the +second and third quarters of 2002. Whitemark also failed to disclose the expiration of these +options in its Forms 10-Q for the second and third quarters of 2002. + + 12. White, Early, and Gord on each knew that Whitemark included in its reported +inventory account the value of purchase options Whitemark had acquired at the time it acquired +NFC. Although these officers were responsible for the accuracy of Whitemark’s books, records, +and filings with the Commission, none of them took the steps necessary to assure that Whitemark +made required adjustments and included appropriate disclosures in Whitemark’s filings when these +purchase options expired. White and Gordon signed filings with the Commission in which +Whitemark materially misstated its financial results and omitted to disclose information relating to + 4 +the status of purchase options. Early signed filings with the Commission in which Whitemark +omitted to disclose information relating to the status of purchase options. + +Improper Reallocation of the NFC Purchase Price + + 13. When Whitemark acquired NFC in 2001, it allocated the price it paid to purchase +NFC to the various assets it acquired based on the appraised value of each asset. Later, in its +financial statements for the third quarter of 2002, Whitemark changed its method for allocating the +purchase price for the NFC acquisition and instead based its allocation on the projected cash flows +Whitemark expected to realize from each development project. When Whitemark reallocated the +NFC purchase price, Whitemark calculated the expected future cash flows from the development +projects based in part on events that occurred after the NFC acquisition. + + 14. Whitemark’s change in method for accounting for the NFC acquisition and +consideration of post-acquisition events when reallocating the NFC purchase price were improper +under GAAP. In addition, Whitemark did not disclose its change in allocation method in its +original and amended Forms 10-Q for the third quarter of 2002. + + 15. Also in the third qu arter of 2002, Whitemark decided to reduce its inventory +account to write off most of the value associated with two development projects for which its +purchase options had expired. Whitemark wrote off values associated with these projects based on +its reallocation of the NFC purchase price, and as a result reported a net loss for the quarter of +approximately $1.9 million. Had Whitemark written off the same assets without reallocating the +NFC purchase price, it would have reported a net loss for the quarter of approximately $29.9 +million. Since Whitemark’s reallocation of the NFC purchase price was improper, its adjustments +to write off the value of these development projects were insufficient. As a result, Whitemark +materially overstated its inventory, materially understated its associated expenses, and materially +understated its net loss for the third quarter of 2002. Whitemark also did not disclose the impact of +the reallocation on its adjustments associated with these two development projects. + + 16. In its original and amended Forms 10-Q fo r the third quarter of 2002, as in previous +filings, Whitemark represented that it valued purchase options based on the excess of their fair +market value over their respective option prices. In light of its new method for allocating the NFC +purchase price, this statement was incorrect. + + 17. Gordon, in consultation with White and others, performed the reallocation of the +NFC purchase price. Although White and Gordon were responsible for the accuracy of +Whitemark’s periodic filings, neither of these officers took the steps necessary to assure that +Whitemark’s reallocation of the NFC purchase price conformed with GAAP, that Whitemark made +appropriate financial statement adjustments for discontinued development projects, or that +Whitemark made appropriate disclosures about the reallocation and its effect. White and Gordon +signed filings with the Commission in which Whitemark materially misstated its financial results +and valuation methodology, and omitted to disclose information associated with the reallocation of +the NFC purchase price. + + 5 +Books, Records, and Internal Controls + + 18. As described above, Whitemark improper ly recorded its inventory and expenses for +the year ended December 31, 2001, and for each of the first three quarters of 2002. Therefore, its +books, records and accounts did not, in reasonable detail, accurately and fairly reflect its +transactions and dispositions of assets. White, Early, and Gordon were responsible for +Whitemark’s books, records, and accounts but failed to take the steps necessary to assure their +accuracy. + + 19. Whitemark failed to implement inte rnal accounting controls relating to its +inventory, expenses, and net income which were sufficient to provide reasonable assurances that its +accounts were accurately stated in conformity with GAAP. White, Early, and Gordon were +responsible for Whitemark’s internal accounting controls but failed to take the steps necessary to +assure their sufficiency. + +Violations + + 20. As a result of the conduct described above , Whitemark violated Section 13(a) of the +Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder, which require an issuer to +file annual, current, and quarterly reports that are accurate and that 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. Due to acts or omissions they knew or should have +known would contribute to such violations during their respective tenures at Whitemark, White +was a cause of Whitemark’s violations of each of these provisions; Early was a cause of +Whitemark’s violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-11 +thereunder; and Gordon was a cause of Whitemark’s violations of Section 13(a) of the Exchange +Act and Rules 12b-20, 13a-11, and 13a-13 thereunder. + + 21. As a result of the conduct described a bove, Whitemark violated Section 13(b)(2)(A) +of the Exchange Act and Rule 13b2-1 thereunder, which 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 prohibit persons from directly or indirectly +falsifying or causing to be falsified any book, record, or account. White and Gordon each were a +cause of Whitemark’s violations of Section 13(b)(2)(A) of the Exchange Act and Rule 13b2-1 +thereunder, and Early was a cause of Whitemark’s violations of Section 13(b)(2)(A) of the +Exchange Act, due to acts or omissions they knew or should have known would contribute to such +violations. + + 22. As a result of the conduct described a bove, Whitemark 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 conformity with GAAP. +White, Early, and Gordon each were a cause of Whitemark’s violations of Section 13(b)(2)(B) of +the Exchange Act due to acts or omissions they knew or should have known would contribute to +such violations. + 6 +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 that: + + A. Respondent Whitemark c ease 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, 13a-13, and 13b2-1 thereunder. + + B. Respondent White cease and desist 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, 13a-11, and 13a-13 thereunder, and cease and desist from committing or causing any +violations and any future violations of Rule 13b2-1 under the Exchange Act. + + C. Respondent Early cease and desist fr om 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-11 thereunder. + + D. Respondent Gordon cease and desist 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-11, and 13a-13 thereunder, and cease and desist from committing or causing any violations and +any future violations of Rule 13b2-1 under the Exchange Act. + + E. IT IS FURTHERED ORDERED that Responde nt White shall, within thirty days of +the entry of this Order, pay disgorgement in the amount of $31,180 and prejudgment interest in the +amount of $5,374 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, Alexandria, Stop 0-3, VA 22312; and (D) submitted under cover letter that identifies +Kenneth L. White 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 Laura M. Metcalfe, Assistant +Regional Director, Securities and Exchange Commission, 1801 California St., Ste. 1500, Denver, +Colorado 80202. + + 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-2530.txt b/raw/aaer/2006/AAER-2530.txt new file mode 100644 index 0000000000000000000000000000000000000000..433faf757e44a0456029abb8ab36cecb4939b5c7 --- /dev/null +++ b/raw/aaer/2006/AAER-2530.txt @@ -0,0 +1,239 @@ + + + + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 55031 / December 29, 2006 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2530 / December 29, 2006 + +ADMINISTRATIVE PROCEEDING +File No. 3-12522 + + + +In the Matter of + +PAUL HEIDBRINK, 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 Paul Heidbrink, CPA +(“Respondent” or “Heidbrink”) 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 +purposes of these proceedings and any other proceedings brought by or on behalf of the + +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. + + + 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, 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 Res pondent’s Offer, the Commission finds2 that: + +A. SUMMARY + + These proceedings arise from Paul Heidbrink’s audit and three quarterly reviews of the +financial statements of Whitemark Homes, Inc. (“Whitemark”). Whitemark misstated its inventory +and other accounts in filings with the Commission relating to the year ended December 31, 2001, +and the quarters ended March 31, 2002, June 30, 2002, and September 30, 2002. Heidbrink +conducted audits or quarterly reviews of the financial statements Whitemark included in each of +these filings, but failed to perform procedures in accordance with Generally Accepted Auditing +Standards (“GAAS”). + +B. RESPONDENT AND RELEVANT ENTITY + + 1. Respondent Paul Heidbri nk, age 55, is a certified public accountant licensed in the +State of Florida since 1974. Heidbrink is a partner in Beemer, Pricher, Kuehnhackl, and +Heidbrink, PA (“Beemer”), an accounting firm located in Winter Park, Florida. + + 2. Whitemark, a Colorado corporation based in Oveido, Florida, develops and builds +residential communities. Whitemark stock is registered under Section 12(g) of the Exchange Act, +and has been traded on the Over the Counter Bulletin Board since April 2001. + +C. FACTS + + 1. During the relevant period, Heidbrin k served as the engagement partner for +Beemer’s annual audit and quarterly reviews of Whitemark’s financial statements. As the +engagement partner, Heidbrink planned and supervised the services Beemer provided to +Whitemark. + + 2. Whitemark’s 2001 Form 10-K cont ained an unqualified audit report representing +that Beemer had conducted an audit in accordance with GAAS and that Whitemark’s financial +statements were presented in conformity with generally accepted accounting principles (“GAAP”). +In fact, however, Heidbrink did not conduct Beemer’s audit of Whitemark’s financial statements +for the year ended December 31, 2001, in accordance with GAAS, and Whitemark’s financial +statements were not presented in conformity with GAAP. Heidbrink also failed to conduct + +2 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 +Beemer’s reviews of Whitemark’s financial statements for the first three quarters of 2002 in +accordance with GAAS. + + 3. The objective of an audit of financial statements by an independent auditor is the +expression of an opinion on the fairness of their presentation in conformity with GAAP. GAAS +requires that auditors exercise due professional care in performing an audit and in preparing the +audit report. Due professional care requires that the auditor exercise professional skepticism, +which includes an objective evaluation of audit evidence.3 GAAS also requires an auditor to +obtain and evaluate sufficient competent evidential matter.4 + + 4. In an audit, the auditor should perform procedures to determine whether disclosure +of events occurring subsequent to the period of the financial statements is required to assure a fair +presentation of the financial statements.5 Such procedures include making inquiries of +management. In addition, an auditor should make additional inquiries or perform additional +procedures as appropriate to dispose of questions that arise during the subsequent events review.6 + + 5. In a quarterly review, the accountant’s procedures should include reading the +financial information to consider whether, on the basis of information coming to the accountant’s +attention, the information to be reported is presented in conformity with GAAP. +7 An accountant +should consider the consistency of management’s statements in light of the results of other +inquiries.8 Additionally, the procedures for a review may be modified to take the results of +previous audit procedures into consideration.9 An accountant conducting a quarterly review +should also inquire about the manner in which changes in accounting practices and their effects are +to be reported in the quarterly financial statements.10 + +CONSOLIDATION WITHOUT CONTROL + + 6. For each of the relevant periods, Whit emark overstated its inventory account as a +result of its consolidation of the financial statements of entities it did not control. In the audit of +Whitemark’s financial statements for the year ended December 31, 2001, Heidbrink did not obtain +sufficient competent evidential matter with respect to Whitemark’s consolidation of these entities. +Heidbrink was aware that Whitemark held only options to purchase the consolidated entities. + +3 Codification of Statements on Auditing Standards (AU), §§230.07-.08. +4 AU §326.25. +5 AU §560.12. +6 Id. +7 AU §722.13. +8 Id. +9 AU §722.19. +10 AU §722.16. + 4 + +EXPIRED OPTIONS + + 7. For each of the relevant periods, Whitemark also included in its inventory account +the value of certain options its subsidiary held to purchase development properties or to purchase +entities that owned development properties. Pursuant to the contracts with the property owners, +five of these purchase options were set to expire in the first quarter of 2002. Although Whitemark +filed its Form 10-K for the year ended December 31, 2001 after the expiration of these options, it +did not disclose that these options had expired by their express terms. Whitemark also did not +make appropriate adjustments to its financial statements when these options expired by their +express terms in the first quarter of 2002, and continued to carry values associated with these +purchase options in its inventory account through the second and third quarters of 2002. As a +result, Whitemark overstated its inventory, understated its associated expenses, and understated its +net losses in its Forms 10-Q for the first three quarters of 2002. + + 8. Heidbrink’s audit workpapers cont ained documents showing that many of +Whitemark’s options expired by their express terms in January 2002. In March 2002, Whitemark’s +management represented to Heidbrink that it continued to hold rights to exercise all options. +Heidbrink issued Beemer’s audit report after the express expiration of these options. In the audit of +Whitemark’s financial statements for the year ended December 31, 2001, Heidbrink did not +perform appropriate additional procedures to assure that Whitemark still held these options or had +appropriately disclosed their expiration as a subsequent event. + + 9. Whitemark’s management informed He idbrink that Whitemark had appropriately +recorded its assets in its financial statements for each of the first three quarters of 2002. In the +quarterly reviews of these financial statements, Heidbrink did not appropriately consider +management’s representations in conjunction with knowledge he previously obtained during the +annual audit showing that many of Whitemark’s purchase options were set to expire by their terms +in January 2002. Heidbrink did not modify his review procedures to resolve inconsistencies about +the dates on which these options expired. + +IMPROPER REALLOCATION OF PURCHASE PRICE + + 10. In its financial statements for the th ird quarter of 2002, Whitemark improperly +changed its method for allocating the purchase price of a previously-acquired subsidiary and +improperly considered post-acquisition events to reallocate the purchase price among the assets +acquired. Had Whitemark not changed its allocation method, it would have reported a +substantially greater net loss for the quarter. Whitemark’s financial statements also failed to +disclose Whitemark’s change in accounting method and its effect, and did not accurately state +Whitemark’s method of valuing those assets. + + 11. In his quarterly review of Whitemark’s financial statements for the quarter ended +September 30, 2002, Heidbrink reviewed Whitemark’s reallocation of the purchase price for the +prior acquisition. Heidbrink did not appropriately consider whether Whitemark’s change in +method and consideration of post-acquisition events when performing the reallocation conformed + 5 +with GAAP. Heidbrink also did not inquire about Whitemark’s lack of disclosure regarding its +change in accounting practice and the effect this change had on Whitemark’s financial statements. +Heidbrink further did not identify Whitemark’s incorrect disclosure of its valuation method in the +notes to its financial statements. + +FINDING + + 12. Based on the foregoing, the Commission finds that Heidbrink 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 Heidbrink’s Offer. + + Accordingly, it is hereby ORDERED, effective immediately, that: + +1. Heidbrink is denied the privilege of appearing or practicing before the Commission as an +accountant for six months from the date of this Order. + +2. As long as he practices be fore the Commission as 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, Heidbrink’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; and/or + +3. As long as he appears or practices before the Commission as an independent accountant: + +(a) Heidbrink, or the public accounting firm with which he is associated, is and will +remain registered with the Public Company Accounting Oversight Board (“Board”) in accordance +with the Sarbanes-Oxley Act of 2002; and + + 6 + (b) Heidbrink will comply with all requi rements of the Commission and the Board, +including, but not limited to, all requirements relating to registration, inspections, concurring +partner reviews and quality control standards. + + + 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