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raw/aaer/2014/AAER-3526.txt

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+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES ACT OF 1933 
+Release No. 9508 / January 9, 2014 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 71264 / January 9, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3526 / January 9, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15674 
+ 
+ 
+In the Matter of 
+ 
+MICHAEL MENDES, 
+ 
+Respondent. 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTION 8A OF THE SECURITIES ACT 
+OF 1933 AND SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934, 
+MAKING FINDINGS, AND IMPOSING A 
+CEASE-AND-DESIST ORDER 
+  
+I. 
+ 
+ The 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 Michael Mendes (“Mendes” or “Respondent”).   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings Pursuant to Section 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.   
+ 
+ 2 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds1 that:  
+ 
+Summary 
+1. These proceedings involve the role of Michael Mendes in Diamond Foods, Inc.’s 
+(“Diamond”) inaccurate accounting of costs related to its walnut business in 2010 and 2011.  In 
+publicly-disclosed financial statements for fiscal years ending July 31, 2010 and 2011, Diamond 
+understated the costs associated with acquiring walnuts from growers, resulting in overstated 
+earnings.  Diamond restated its annual and periodic financial statements beginning with the 
+quarter ended January 31, 2010 and continued through the year-ended July 31, 2011.  When 
+Diamond restated its financial results from those periods, the company’s reported earnings 
+decreased by $10.5 million for its 2010 fiscal year, and $23.6 million for its 2011 fiscal year. 
+2. As Diamond’s CEO during the relevant time, Mendes had an important role in 
+ensuring the accuracy of the financial reporting of the company, including certifying the 
+financial statements contained in Form 10-K annual reports filed with the Commission, 
+reviewing and approving other periodic reports and earnings releases, and signing representation 
+letters relied on by the company’s independent auditors. 
+3. During the relevant time period, Mendes was involved in the determination of the 
+walnut prices that Diamond would pay walnut growers, and he was aware of reports of prices 
+paid by other walnut purchasers to growers for their 2009 and 2010 crops which were 
+significantly higher than prices paid by Diamond.  At the same time, Mendes was involved in the 
+decision to make two special payments to growers, paid around the same time that Diamond paid 
+the final installment for the walnut crops delivered by its growers.   These payments are 
+described further below as the “continuity” and “momentum” payments.  Mendes was also aware 
+that these special payments were not recognized as costs associated with walnuts acquired during 
+fiscal years 2010 and 2011, respectively.   
+4. Mendes acted unreasonably under the circumstances in certifying the accuracy of 
+financial statements that Diamond included in public filings, including several filings related to 
+offers of Diamond stock.  Mendes’ conduct in connection with the two special payments made to 
+Diamond growers also caused Diamond to violate various provisions requiring accurate books 
+and records and controls designed to ensure accurate financial reporting. 
+Respondent 
+5. Michael Mendes, age 50, is a resident of San Francisco, California.  Mendes 
+joined Diamond’s International Sales and Marketing Division in 1991, and was appointed chief 
+executive officer in 1997.  Mendes joined the Diamond Board of Directors in 2005 and became 
+its Chairman in 2010.  Mendes served as Diamond’s CEO and Chairman until February 2012.   
+                                                 
+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 
+Other Relevant Entity 
+6. Diamond is a Delaware corporation headquartered in San Francisco, California 
+that markets and sells various snack foods and nuts.  Diamond was founded in 1912 as a 
+cooperative by California walnut growers, and became a public company after an initial public 
+offering (“IPO”) in 2005.  Since its IPO, Diamond has expanded into snack foods through 
+acquisitions while maintaining its original walnut business.  Diamond’s common stock is 
+registered with the Commission pursuant to Section 12(b) of the Exchange Act and is listed on 
+NASDAQ under the ticker “DMND.”   
+Facts 
+A. Diamond Foods and its Walnut Business 
+7. Diamond’s stock has been publicly traded since its initial public offering in 2005.  
+At that time, Diamond’s principal business was buying walnuts from California-based growers 
+and reselling the walnuts through various distribution channels to the retail market.  Since its 
+2005 IPO, Diamond has expanded into other snack food businesses and by 2010 it was a fast-
+growing snack food conglomerate.  While no longer the sole focus of Diamond’s business, 
+walnuts still represented Diamond’s largest commodity cost as of fiscal year 2010. 
+8. During the relevant time period, 2009 through 2011, Diamond acquired its 
+walnuts through long-term supply contracts with walnut growers. These contracts generally 
+obligated the growers to sell, and Diamond to buy, the grower’s entire crop each year, and 
+Diamond was obligated to pay a price determined by Diamond “in good faith.”   
+9. Diamond’s business model focused on selling the walnuts to established retailers 
+under annual sales contracts.  These sales contracts were often negotiated in advance of the fall 
+harvest and delivery of the walnuts to Diamond.  Diamond’s growers would deliver the walnut 
+crops each fall and Diamond would pay the growers for those walnuts in a series of payments 
+starting with a “delivery payment” at the time of the fall harvest and culminating in a “final 
+payment” in August of the following year. 
+B. Determining and Accounting for the Walnut Cost 
+10. Because Diamond would begin selling delivered walnuts before the final payment 
+was made to growers, in its quarterly financial statements Diamond accounted for the costs of 
+walnuts sold using an estimate of the total price Diamond would pay to growers for a particular 
+crop.  Once the final payment was made, in August of the year following delivery, Diamond 
+would use the total payments made to growers for the crop as the basis for recording the cost of 
+the walnuts sold during the fiscal year.   
+11. The actual prices Diamond paid growers varied by walnut variety, size of a 
+grower’s crop, quality of the crop, and other factors, but the accounting department and 
+management referred to an average price paid for a given crop across all growers, varieties, and 
+qualities.  For example, for fiscal year ended July 31, 2009, Diamond reported a blended total 
+walnut cost of 71 cents per pound, though individual growers might have received more or less 
+than that amount. 
+ 4 
+12. Diamond’s contracts with its growers stated:  “The Final Price will be determined 
+in good faith, taking into account market conditions, quality, variety, and other relevant factors.”  
+Diamond also disclosed how it determined walnut prices in the “Critical Accounting Policies” 
+section of its Forms 10-K for 2010 and 2011:  “This purchase price will be a price determined by 
+us in good faith, taking into account market conditions, crop size, quality, and nut varieties, 
+among other relevant factors.” 
+13. Generally accepted accounting principles (“GAAP”) required Diamond to record 
+inventory at acquisition cost in the period that the walnuts were purchased, and to record cost of 
+sales in the period in which the inventory was sold.      
+14. Each quarter, Diamond’s finance department would prepare a memorandum 
+justifying the walnut price used to value walnut inventory and the cost of the walnuts sold during 
+the quarter.  This memorandum was provided to the company’s independent auditors, and the 
+auditors relied on the memorandum as a representation that the walnut price had been determined 
+in accordance with the accounting policy disclosed in the company’s Forms 10-K.   
+C. The Q2 2010 Walnut Cost Estimate  
+15. In the first quarter of the 2010 fiscal year, Diamond recorded an estimated cost for 
+the 2009 walnut crop of 82 cents per pound.  At the end of the second quarter, ending January 
+31, 2010, Diamond recorded an estimated walnut cost of 72 cents per pound.  The recorded 
+estimated walnut cost was adjusted by 10 cents per pound although Diamond management was 
+aware of reports that some other walnut purchasers were paying some growers prices higher than 
+the second quarter estimate.   
+16. Diamond filed a Form 10-Q with the Commission on February 25, 2010, and 
+included financial statements that accounted for walnut costs at the adjusted estimate of 72 cents 
+per pound.  On March 1, 2010, Diamond filed a prospectus related to a proposed stock sale to 
+pay a portion of the acquisition costs associated with Diamond’s acquisition of a snack food 
+company, and the prospectus incorporated the Form 10-Q. 
+D. 2010 Final Payment Includes a Special “Continuity” Payment 
+17. In the spring and summer of 2010, Diamond management, including Mendes, 
+began discussing a special payment to walnut growers they termed a “continuity” payment.  
+Some of Diamond’s growers had been voicing increasing dissatisfaction with the estimated final 
+walnut price of 71 cents per pound that had been communicated in the spring of 2010.  In July 
+2010, with the final payment to growers for the 2009 crop just a month away, Mendes and three 
+other senior Diamond employees visited several large growers.  During these meetings, Diamond 
+management told the growers that they would receive a competitive price for the 2009 crop they 
+had delivered to Diamond.   
+18. The next month, in August 2010, Diamond made its final 2009 crop payment to 
+its growers and included in that final payment an additional amount that Diamond described in a 
+letter to growers as a “continuity” payment.  The additional payment amount, above the average 
+71 cents per pound “final price” already communicated, was an additional payment of 
+approximately 10 cents per pound.  The letter to growers did not clearly explain the purpose of 
+ 5 
+the payment or inform growers that the payment was an advance payment for the 2010 crop.  
+Mendes reviewed and approved the letter before it was sent to growers.   
+19. Instead, the letter stated that the August check “represents both the final payment 
+on the 2009 crop and a continuity payment reflecting the value of the multi-year supply 
+arrangement with our Diamond walnut growers.”  The additional payment, if considered in 
+conjunction with the previous installments and final payment amounts, would have brought 
+Diamond closer to the walnut prices paid by some other walnut purchasers for the 2009 crop.  
+Some growers believed that the continuity payment was an additional payment for the already-
+delivered 2009 crop.   
+20. The total amount of the “continuity” payment included in payments to Diamond’s 
+growers was about $20 million.  Diamond’s finance department did not record the impact of the 
+continuity payment to inventory, payables to growers, or costs of goods sold for the walnuts 
+acquired and sold during fiscal year 2010.  Diamond’s financial statements prepared for the 
+fiscal year ending July 31, 2010, as disclosed in an earnings release attached to a Form 8-K and 
+in Diamond’s Form 10-K, failed to recognize the continuity payment in that fiscal year.   
+21. Diamond’s independent auditors inquired about the additional payment included 
+with the final payment to growers, and employees in Diamond’s finance department told the 
+auditors that the payment was an advance for the next year’s crop.  The auditors required the 
+issue be addressed in the management representation letter prepared by Diamond’s finance 
+department and signed by Mendes and other senior management, and the letter specifically stated 
+that the continuity payment was for the upcoming crop and did not represent a payment for the 
+2009 crop.   
+22. In a Form S-4 registration statement filed on June 20, 2011, Diamond offered 
+securities to be issued in connection with Diamond’s proposed acquisition of a snack food 
+division of a large consumer products company.  The registration statement incorporated the 
+financial statements included in the Form 10-K for the fiscal year ended July 31, 2010.   
+23. On November 11, 2012, Diamond issued restated financial statements for the year 
+ended July 31, 2010.  The restated financial statements recognized the impact of the continuity 
+payment and increased the reported value of inventory, payables to growers, and cost of goods 
+sold during the fiscal year.  Diamond’s 2010 restated earnings were 40 percent lower than had 
+been originally reported. 
+E. 2011 Walnut Payment Is Followed By a Special “Momentum” Payment 
+24. In the fall of 2010, growers delivered the 2010 crop to Diamond.  Based on the 
+amount Diamond paid its growers in the initial installment of the delivery payments, some 
+growers once again expressed concern that Diamond was paying significantly below what some 
+other walnut purchasers were paying growers.  The quarterly estimate of the walnut price was 
+recorded as 74 cents per pound at the end of the quarter ending April 30, 2011.  Diamond’s 
+grower relations department learned of some of these grower concerns regarding Diamond’s 
+walnut payments being significantly below prices that some other walnut purchasers were paying 
+some growers.   
+ 6 
+25. In the spring and summer of 2011, Diamond management began discussing a 
+special additional payment to walnut growers they termed the “momentum payment.”  The 
+growers were paid a final payment for the 2010 crop on August 31, 2011, and then two days later 
+Diamond paid these same growers an additional amount averaging about 30 cents per pound.  
+The additional special payments totaled about $60 million for Diamond.   
+26. An August 31, 2011 letter to growers told the growers that they would be 
+receiving two payments, a final payment and a “momentum payment.”  The letter did not clearly 
+identify the momentum payment as an advance on the next year’s crop.  The letter stated that 
+“Enclosed you will find your 2010 crop value statement summary and payment. . . .  
+Additionally, on September 2nd we will mail a momentum payment designed to reflect the 
+projected market environment prior to your delivery of the 2011 crop.  …The momentum 
+payment is independent of and incremental to your upcoming delivery payment.”  Some growers 
+were unclear about whether the momentum payment was an additional payment that should be 
+associated with the delivered crop or as an advance on the next year’s undelivered crop. 
+27. Diamond’s finance department did not record the momentum payment to 
+inventory, payables to growers, or costs of goods sold for the walnuts acquired and sold during 
+fiscal year 2011.  As such, Diamond’s annual financial statements prepared for the fiscal year 
+ending July 31, 2011, as disclosed in an earnings release attached to a Form 8-K and in 
+Diamond’s Form 10-K, failed to recognize the momentum payment in fiscal year 2011.   
+28. On September 16, 2011, Diamond filed an amendment to the Form S-4 
+registration statement offering securities in connection with the proposed acquisition of a snack 
+food division of a large consumer products company, and incorporated by reference the Form 
+10-K filed for the year ended July 31, 2011. 
+29. On November 11, 2012, Diamond issued restated financial statements for the year 
+ended July 31, 2011.  The restated financial statements recognized the impact of the momentum 
+payment as an increase to acquiring inventory, payables to growers, and cost of goods 
+sold.  Diamond’s 2011 restated earnings were 47 percent lower than had been originally 
+reported. 
+F. Mendes’ Role in Diamond’s Inaccurate Financial Statements 
+30. As CEO, Mendes was responsible for certifying the accuracy of Diamond’s 
+financial statements and other disclosures in Diamond’s periodic reports. Mendes supervised the 
+company’s chief financial officer, who in turn supervised the finance department and grower 
+relations department. The grower relations department was responsible for communicating with 
+and making payments to growers.  Mendes received reports of prices that some other walnut 
+purchasers were paying growers for walnuts in 2010 and 2011, and in some instances Mendes 
+met directly with Diamond growers.  Mendes was also involved in determining quarterly walnut 
+cost estimates and approved the amount of the total payment made to growers for each crop.   
+31. Mendes signed and certified the Form 10-K for the year ended July 31, 2010, 
+which included financial statements that did not account for the “continuity payment” as a cost 
+of the walnuts acquired during the fiscal year.  Likewise, Mendes signed and certified the Form 
+ 7 
+10-K for the year ended July 31, 2011, which included financial statements that did not account 
+for the “momentum payment” as a cost of the walnuts acquired during that fiscal year.  Mendes 
+also signed and certified the Forms 10-Q for the second and third quarters of 2010, and the first, 
+second, and third quarters of 2011. All of those financial statements were subsequently restated.  
+Mendes also signed and certified the January 1, 2010, June 20, 2011, and September 16, 2011 
+registration statements which incorporated the financial statements which were later restated.  
+32. Mendes reasonably should have known that Diamond’s Form 10-Ks for fiscal 
+year 2010 and 2011, earnings releases for those years attached to Forms 8-K, and Diamond’s 10-
+Qs for the second and third quarters of 2010, and the first, second, and third quarters of 2011, all 
+of which were subsequently restated, were inaccurate.  Among other things, Mendes received 
+reports that some walnut purchasers were paying higher walnut prices for the 2009 and 2010 
+crops compared with Diamond, participated in discussions regarding the continuity payment and 
+momentum payment, and reviewed grower correspondence regarding the payments which did 
+not clearly identify the continuity and momentum payments as advance payments.  Mendes thus 
+did not act reasonably in certifying the accuracy of Diamond’s financial statements in the fiscal 
+years that were restated, and his conduct caused Diamond to violate various provisions requiring 
+accurate books and records and controls designed to ensure accurate financial reporting. 
+33. Although he was not directly involved in discussions with Diamond’s auditors 
+regarding the accounting treatment for the continuity payment or momentum payment, Mendes 
+was aware of representations made to the auditors and signed a representation letter sent to the 
+independent auditors in connection with the audit of the 2010 financial statements.  That letter 
+stated that the continuity payment was unrelated to the 2009 crop delivery, but omitted facts that 
+Mendes knew or should have known, including that growers had expressed confusion about the 
+purpose of the continuity payment, that some growers considered the continuity payment as a 
+part of the final payment for the 2009 crop, and that Diamond’s recorded 2009 crop payment was 
+significantly below the price paid by some other walnut purchasers.  Because of these omissions, 
+Mendes reasonably should have known that the statement to the auditors was incomplete.   
+34. Mendes received $2.7 million in bonuses related to Diamond’s fiscal year 2010 
+and fiscal year 2011 results.  Of this amount, approximately $1.6 million of the bonus amounts 
+were directly tied to earnings per share (EPS) goals, while the remaining $1.1 million of the 
+bonus amounts related to other management objectives.  Mendes has voluntarily repaid these 
+bonus amounts to Diamond. Mendes also forfeited claims to an additional $1.8 million in 
+employment benefits.   
+Violations 
+35. Section 17(a)(2) of the Securities Act makes it unlawful “in the offer or sale of 
+any securities . . . 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.”  Section 17(a)(3) of the 
+Securities Act makes it unlawful “in the offer or sale of any securities . . . to engage in any 
+transaction, practice, or course of business which operates or would operate as a fraud or deceit 
+upon the purchaser.”  No finding of scienter is required to establish a violation of Sections 
+17(a)(2) and 17(a)(3); negligent conduct is sufficient.  Aaron v. SEC, 446 U.S. 680, 696-97 
+ 8 
+(1980).  Negligence is a failure by an actor to conform conduct to the standard of “a reasonable 
+[person] under like circumstances.”  See Restatement (Second) of Torts §§ 282 and 283.   As a 
+result of the conduct described above, Mendes violated Sections 17(a)(2) and (a)(3) of the 
+Securities Act. 
+36. Rule 13a-14 of the Exchange Act requires every principal executive of an issuer 
+to certify reports required pursuant to Section 13(a) at the time of the filing of the report. As a 
+result of the conduct described above, Mendes violated Exchange Act Rule 13a-14. 
+37. Rule 13b2-1 of the Exchange Act prohibits any person from falsifying or causing 
+to be falsified any book, record, or account subject to Section 13(b)(2)(A) of the Exchange Act.  
+As a result of the conduct described above, Mendes violated Exchange Act Rule 13b2-1.  
+38. Rule 13b2-2 of the Exchange Act prohibits any officer from either (1) making or 
+causing to be made a materially false or misleading statement to an accountant, or (2) omitting to 
+state, or causing 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 an issuer subject to the reporting requirements of Section 13(a). As a 
+result of the conduct described above, Mendes violated Rule 13b2-2 of the Exchange Act. 
+39. Section 13(a) of the Exchange Act and Exchange Act Rules 13a-1, 13a-11, and 
+13a-13 require issuers of securities registered pursuant to Section 12 of the Exchange Act to file 
+with the Commission accurate periodic reports, including annual reports on Form 10-K, current 
+reports Form 8-K, and quarterly reports on Form 10-Q.  Rule 12b-20 further requires that the 
+required reports must contain any material information necessary to make the required 
+statements made in the reports not misleading.  As a result of the conduct described above, 
+Mendes caused violation of these provisions by Diamond Foods. 
+40. Section 13(b)(2)(A) of the Exchange Act 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.  As a result of the conduct described above, 
+Mendes caused violation of Section 13(b)(2)(A) of the Exchange Act by Diamond Foods. 
+41. Section 13(b)(2)(B) requires issuers of securities registered pursuant to Section 12 
+of the Exchange Act to devise and maintain a system of internal accounting controls sufficient to 
+provide reasonable assurances that transactions are recorded as necessary to permit preparation 
+of financial statements in accordance with GAAP.  As a result of the conduct described above, 
+Mendes caused violation of Section 13(b)(2)(B) of the Exchange Act by Diamond Foods. 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent’s Offer. 
+ 
+ 9 
+ Accordingly, it is hereby ORDERED that: 
+ 
+A. Pursuant to Section 8A of the Securities Act, Respondent cease and desist from 
+committing or causing any violations and any future violations of Sections 17(a)(2) and (a)(3) of the 
+Securities Act. 
+B. Pursuant to Section 21C of the Exchange Act, Respondent cease and desist from 
+committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), and 
+13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, 13a-13, 13a-14, 13b2-1, and 
+13b2-2 thereunder.   
+C. Respondent shall, within 30 days of the entry of this Order, pay a civil money 
+penalty in the amount of $125,000 to the Securities and Exchange Commission.  If timely payment 
+is not made, additional interest shall accrue pursuant to 31 U.S.C. § 3717.  Payment must be made 
+in one of the following ways:   
+ 
+(1) Respondent may make direct payment from a bank account via Pay.gov through the 
+SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+(2) Respondent may pay by certified check, bank cashier’s check, or United States postal 
+money order, made payable to the Securities and Exchange Commission and hand-
+delivered or mailed to:  
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+Payments by check or money order must be accompanied by a cover letter identifying 
+Michael Mendes as a Respondent in these proceedings, and the file number of these proceedings; a 
+copy of the cover letter and check or money order must be sent to Michael S. Dicke, Division of 
+Enforcement, Securities and Exchange Commission, 44 Montgomery Street, Suite 2800, San 
+Francisco, California 94104.   
+ 
+ D. Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended, a Fair 
+Fund is created for the penalty referenced in paragraph C above.  Regardless of whether any such 
+Fair Fund distribution is made, amounts ordered to be paid as civil money penalties pursuant to this 
+Order shall be treated as penalties paid to the government for all purposes, including all tax 
+purposes.  To preserve the deterrent effect of the civil penalty, Respondent agrees that in any 
+Related Investor Action, he shall not argue that he is entitled to, nor shall he benefit by, offset or 
+reduction of any award of compensatory damages by the amount of any part of Respondent’s 
+payment of a civil penalty in this action (“Penalty Offset”).  If the court in any Related Investor 
+Action grants such a Penalty Offset, Respondent agrees that he shall, within 30 days after entry of 
+a final order granting the Penalty Offset, notify the Commission’s counsel in this action and pay 
+the amount of the Penalty Offset to the United States Treasury or to a Fair Fund, as the 
+Commission directs.  Such a payment shall not be deemed an additional civil penalty and shall not 
+be deemed to change the amount of the civil penalty imposed in this proceeding.  For purposes of 
+ 10 
+this paragraph, a “Related Investor Action” means a private damages action brought against 
+Respondent by or on behalf of one or more investors based on substantially the same facts as 
+alleged in the Order instituted by the Commission in this proceeding. 
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Elizabeth M. Murphy 
+       Secretary 

raw/aaer/2014/AAER-3534.txt

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+ 
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 71523 / February 11, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3534 / February 11, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15747
+       
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+ DAVID M. MARTIN CPA,   : 102(e)(3) 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 David 
+M. Martin (“Respondent” or “Martin”) 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 Respondent’s Offer, the Commission finds that: 
+ 
+ 1. David M. Martin, age 55, is and has been a certified public accountant 
+licensed to practice in the State of Texas.  He served as Chief Financial Officer of Life Partners 
+Holdings, Inc. (“LHPI”) between February 2008 and July 2012. 
+ 
+ 2. LPHI was, at all relevant times, a Texas corporation with its principal place 
+of business in Waco, Texas.  LPHI is engaged in facilitating the purchase and sale of fractional 
+interests of life insurance policies in the secondary market known as “life settlements.”  At all 
+relevant times, LPHI’s common stock was registered with the Commission pursuant to Section 
+12(b) of the Securities Exchange Act of 1934 (“Exchange Act”), and traded on the NASDAQ 
+National Market. 
+ 
+ 3. On January 9, 2014, a final judgment was entered against Respondent, 
+permanently enjoining him from future violations of Section 13(b)(5) of the Exchange Act and 
+Rules 13b2-1 and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a), 
+13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, 
+in the civil action entitled Securities and Exchange Commission v. Life Partners Holdings, Inc., et 
+al., Civil Action Number 1:12-CV-33-JRN in the United States District Court for the Western 
+District of Texas.  Respondent was ordered to pay a civil penalty of $34,961. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Martin’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+A. Martin is suspended from appearing or practicing before the Commission as an 
+accountant.  After three years from the date of this order, Respondent may request that the 
+ 3 
+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/she is 
+associated, is registered with the Public Company Accounting Oversight Board (“Board”) in 
+accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; 
+ 
+   (b) Respondent, or the registered public accounting firm with which 
+he/she is associated, has been inspected by the Board and that inspection did not identify any 
+criticisms of or potential defects in the respondent’s or the firm’s quality control system that 
+would indicate that the respondent will not receive appropriate supervision; 
+   (c) Respondent has resolved all disciplinary issues with the Board, and 
+has complied with all terms and conditions of any sanctions imposed by the Board (other than 
+reinstatement by the Commission); and 
+ 
+   (d) Respondent acknowledges his/her responsibility, as long as 
+Respondent appears or practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the Board, including, but not limited to, all 
+requirements relating to registration, inspections, concurring partner reviews and quality control 
+standards.   
+      
+B. 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. 
+ 
+ 
+       Elizabeth M. Murphy 
+       Secretary 

raw/aaer/2014/AAER-3540.txt

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+     SEC.gov | China MediaExpress Holdings, Inc. and Zheng Cheng 
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+              China MediaExpress Holdings, Inc. and Zheng Cheng
+           
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+ 
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+   
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+     
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+      
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+             
+        China MediaExpress Holdings, Inc. and Zheng Cheng
+       
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+        
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+                        
+                U.S. SECURITIES AND EXCHANGE COMMISSION 
+     Litigation Release No. 22932 / February 24, 2014 
+     Accounting and Auditing Enforcement Release No. 3540 / February 14, 2014 
+      Securities and Exchange Commission v. China MediaExpress Holdings, Inc. and Zheng Cheng , Civil Action No. 1:13-cv-00927 (D.D.C.) 
+
+     Court Enters Final Judgment by Default Against SEC Defendant Zheng Cheng 
+     
+
+     The Securities and Exchange Commission ("Commission" or "SEC") has announced that on February 19, 2014, the Honorable Ellen S. Huvelle, United States District Court Judge for the District of Columbia, issued a final judgment by default against Defendant Zheng Cheng ("Cheng"), the Chairman and CEO of China MediaExpress Holdings, Inc. ("China Media"), a China-based media and advertising company, whose stock was previously publicly traded in the United States. The final judgment permanently enjoins Cheng from future violations of various provisions of the federal securities laws, including Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and Exchange Act Rules 13a-14, and 13b2-2. The final judgment further permanently bars Cheng 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, and also holds him liable for total combined disgorgement and prejudgment interest of $17,718,359.07, and a civil monetary penalty in the amount of $1,500,000. 
+
+ 
+On June 20, 2013, the SEC filed a complaint against China Media and Zheng (collectively, the "Defendants") alleging that from at least October 2009, the Defendants engaged in a scheme to mislead and defraud investors by, among other things, grossly overstating China Media's cash balances. The complaint alleged that after China Media materially misrepresented its financial condition and business operations, its stock price tripled to more than $20 per share, making the company attractive to the investing public and allowing it to raise more than $53 million from stock sales to investors. The complaint further alleged that, among other things, Cheng knowingly signed public filings with the Commission in which China Media materially misrepresented its cash balances and business operations, and that he improperly sought to influence the result of an independent investigation of the authenticity of bank records and other documents China Media provided its external auditor by attempting to bribe a member of the investigative team.  
+
+ 
+In a previous order issued on October 9, 2013, Judge Huvelle also entered final judgment by default against China Media, permanently enjoining the company from future violations of various provisions of the federal securities laws and also holding the company liable for total combined disgorgement and prejudgment interest of $41,894,082.05, and a civil monetary penalty in the amount of $7,250,000. 
+For further information, please see Litigation Release Number  22731 (June 20, 2013) [SEC Charges China-Based Company and CEO in Latest Cross Border Working Group Case].
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raw/aaer/2014/AAER-3544.txt

@@ -0,0 +1,115 @@
+   
+  
+UNITED STATES OF AMERICA  
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 71770 / March 21, 2014 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No.  3544 / March 21, 2014 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-12105  
+ 
+In the Matter of  
+Brendon P. McDonald, 
+CPA  
+ 
+: 
+: 
+: 
+: 
+: 
+: 
+ORDER GRANTING APPLICATION FOR 
+REINSTATEMENT TO APPEAR AND PRACTICE 
+BEFORE THE COMMISSION AS AN ACCOUNTANT 
+RESPONSIBLE FOR THE PREPARATION OR 
+REVIEW OF FINANCIAL STATEMENTS REQUIRED 
+TO BE FILED WITH THE COMMISSION 
+ 
+On November 18, 2005, Brendon P. McDonald, CPA (“McDonald”) was suspended from 
+appearing or practicing before the Commission as an accountant as a result of settled public 
+administrative proceedings instituted by the Commission against McDonald pursuant to Rule 
+102(e)(3)(i) of the Commission's Rules of Practice.
+1  This order is issued in response to 
+McDonald’s application for reinstatement to appear and practice before the Commission as an 
+accountant responsible for the preparation or review of financial statements required to be filed 
+with the Commission. 
+ In a civil action entitled Securities and Exchange Commission v. Fred Gold, et al., a final 
+judgment was entered against McDonald permanently enjoining him from future violations of 
+Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 
+thereunder, and from aiding and abetting violations of Section 15(d) of the Exchange Act and 
+Rules 12b-20 and 15d-1 thereunder.  The Commission’s complaint alleged that American Tissue, 
+Inc. (“American Tissue”) materially overstated its assets, shareholders’ equity, revenue and net 
+income in periodic reports filed with the Commission during 2000 and 2001 by capitalizing 
+previously recorded expenses as inventory and overvaluing finished goods inventory.  The 
+complaint further alleged that Arthur Andersen LLP (“Andersen”) issued an unqualified audit 
+report on American Tissue’s financial statements for its fiscal year ended September 30, 2000 
+                                                 
+1 See Accounting and Auditing Enforcement Release No. 2346 dated November 18, 2005.  McDonald 
+was permitted, pursuant to the order, to apply for reinstatement after five years upon making certain 
+showings. 
+ 
+ 2 
+though its audit was not conducted in accordance with generally accepted auditing standards and 
+American Tissue’s financial statements were not fairly presented in conformity with generally 
+accepted accounting principles.  According to the complaint, McDonald, an experienced senior 
+at Andersen, was one of the auditors responsible for the audit failure.  In addition, the Complaint 
+alleged that, subsequent to the completion of the audit, McDonald altered audit workpapers in 
+preparation for a peer review by another audit firm and he instructed members of the audit 
+engagement team to gather all American Tissue related documents for shredding, other than the 
+“official” work paper file.   
+ 
+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, McDonald 
+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.  McDonald is not, at this time, seeking to 
+appear or practice before the Commission as an independent accountant.  If he should wish to 
+appear and practice before the Commission as an independent accountant, he will be required to 
+submit an application to the Commission showing that he has complied and will comply with the 
+terms of the original suspension order in this regard.  Therefore, McDonald’s suspension from 
+practice before the Commission as an independent accountant continues in effect until the 
+Commission determines that a sufficient showing has been made in this regard in accordance 
+with the terms of the original suspension order. 
+ 
+Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for 
+reinstatement and provides that the Commission may reinstate the privilege to appear and 
+practice before the Commission “for good cause shown.”
+2  This “good cause” determination is 
+necessarily highly fact specific. 
+ 
+On the basis of information supplied, representations made, and undertakings agreed to 
+by McDonald, it appears that he has complied with the terms of the November 18, 2005 order 
+suspending him from appearing or practicing before the Commission as an accountant, that no 
+information has come to the attention of the Commission relating to his character, integrity, 
+professional conduct or qualifications to practice before the Commission that would be a basis 
+for adverse action against him pursuant to Rule 102(e) of the Commission's Rules of Practice, 
+and that McDonald, by undertaking to have his work reviewed by the independent audit 
+committee of any company for which he works, or in some other manner acceptable to the 
+Commission, in his practice before the Commission as a preparer or reviewer of financial 
+statements required to be filed with the Commission, has shown good cause for reinstatement.  
+Therefore, it is accordingly, 
+                                                 
+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). 
+ 
+ 
+ 3 
+ 
+ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that 
+Brendon P. McDonald, CPA is hereby reinstated to appear and practice before the Commission 
+as an accountant responsible for the preparation or review of financial statements required to be 
+filed with the Commission. 
+ 
+By the Commission. 
+ 
+ 
+Jill M. Peterson 
+Assistant Secretary  

raw/aaer/2014/AAER-3555.txt

@@ -0,0 +1,653 @@
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 72199 / May 20, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3555 / May 20, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-15877 
+ 
+ 
+ 
+In the Matter of 
+ 
+BRYCE WALKER, CA and 
+SPENCE WALKER, CA, CPA 
+ 
+Respondents. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE- 
+ AND-DESIST PROCEEDINGS PURSUANT 
+TO SECTIONS 4C AND 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+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 
+Bryce Walker and Spence Walker, CPA (collectively “Respondents”) pursuant to Sections 4C
+1 
+and 21C of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) of the 
+Commission’s Rules of Practice.
+2 
+                                                 
+1 Section 4C provides, in relevant part, that:  
+ 
+The Commission may censure any person, or deny, temporarily or permanently, to any person the privilege 
+of appearing or practicing before the Commission in any way, if that person is found . . . (1) not to possess the 
+requisite qualifications to represent others . . . (2) to be lacking in character or integrity, or to have engaged in 
+unethical or improper professional conduct; or (3) to have willfully violated, or willfully aided and abetted the 
+violation of, any provision of the securities laws or the rules and regulations thereunder. 
+ 
+2 Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+ 2 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondents have submitted Offers 
+of Settlement (the “Offers”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the 
+findings herein, except as to the Commission’s jurisdiction over them and the subject matter of 
+these proceedings, which are admitted, Respondents consent to the entry of this Order Instituting 
+Public Administrative and Cease-and-Desist Proceedings Pursuant to Sections 4C and 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 Respondents’ Offers, the Commission finds3 that: 
+ 
+A. SUMMARY 
+ 
+1. From 2007 until December 2010, DNTW Chartered Accountants, LLP 
+(“DNTW”), an accounting firm based in Canada, and Bryce Walker and Spence Walker, two of 
+its partners, served as the independent auditors of Subaye, Inc. (“Subaye”), a company whose 
+stock is registered with the Commission and trades in the U.S.  These proceedings arise out 
+of the Respondents’ failure to comply with Public Company Accounting Oversight Board 
+(“PCAOB”) Auditing Standards (“PCAOB Standards”) in their 2010 audit of Subaye.  Among 
+other failures, Bryce Walker failed to: (a) properly supervise assistants; (b) obtain sufficient 
+competent evidence; (c) properly perform the confirmation process; and (d) act with due 
+professional care.  In his role as filing quality review partner, Spence Walker failed to act with due 
+professional care because he should have been aware of audit deficiencies but did not address those 
+deficiencies.  Had Respondents properly conducted the audit, they might have uncovered that 
+Subaye was a fraudulent company that lacked credible books and records. 
+ 
+B. RESPONDENTS 
+ 
+2. Bryce Walker
+, age 36, is a Chartered Accountant (“CA”) licensed through the 
+Institute of Chartered Accountants of Ontario (“ICAO”).  Bryce Walker served as the 
+engagement partner on the 2010 audit of Subaye.  He was a partner of DNTW Chartered 
+Accountants operating out of the Markham office.  He is a resident of Markham, Ontario and a 
+Canadian citizen.  
+                                                                                                                                                             
+ 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.  
+ 
+3  The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other 
+person or entity in this or any other proceeding. 
+ 
+ 3 
+  
+3. Spence Walker, age 38, is a CA licensed through the ICAO and a CPA licensed to 
+practice in Illinois.  Spence Walker served as the engagement partner on DNTW’s audits and 
+reviews of Subaye from 2007 through the third quarter of 2010 and the file quality review 
+partner for DNTW’s 2010 audit of Subaye.  He was a partner of DNTW Chartered Accountants 
+operating out of the Markham office.  He is a resident of Markham, Ontario and a Canadian 
+citizen. 
+  
+C. RELEVANT ENTITIES4 
+ 
+4. Subaye, Inc., is a Delaware incorporated company that purported to have primary 
+operations in the People’s Republic of China.  Subaye claimed to be a leading online services 
+provider for small-to-medium sized businesses in China.  Its stock was registered with the 
+Commission, and DNTW served as its independent auditor between 2007 and 2010.  Subaye’s 
+fiscal year ends on September 30. 
+ 
+5. DNTW Chartered Accountants, LLP
+ (alternatively, “DNTW”) was a Canadian 
+partnership of Chartered Accounting firm that was registered with the PCAOB and operated in 
+seven major Canadian cities, including Markham, Ontario.  From 2008 until February 28, 2013, 
+the Markham office of DNTW performed public company audits and was registered with the 
+PCAOB.5  DNTW served as the independent auditor for Subaye from 2007 through December 
+31, 2010.  On February 28, 2013, the DNTW partnership was dissolved. 
+ 
+D. FACTS 
+ 
+ 
+Background 
+ 
+6. During at least 2010, Subaye promoted itself as “a leading online business 
+services provider in China.”  These online services were initially said to include video 
+advertising and entertainment media services, and subsequently a cloud computing business.  
+Customers purportedly paid monthly for the service.  Sales agents supposedly interacted with the 
+customers and collected the monthly fees in cash. 
+ 
+7. In its public filings for fiscal year 2010 ending September 30, 2010, Subaye 
+claimed approximately $39 million in revenues and over 1,500 employees.  In addition, the 
+company claimed that, as of the end of calendar year 2010, it had more than 14,600 customers. 
+ 
+                                                 
+4 On May 8, 2013, the Commission filed a civil injunctive action against Subaye and its former Chief Financial 
+Officer, James T. Crane (“Crane”) alleging that Subaye and Crane violated the antifraud, books and records, internal 
+controls and reporting provisions of the Exchange Act, and that Crane violated Section 105(c)(7)(B) of the 
+Sarbanes-Oxley Act of 2002 (“SOX”). 
+ 
+5 A public company audit is defined as an engagement to audit the financial statements of an “issuer” as that term is 
+defined in Section 3(a)(8) of the Securities Exchange Act of 1934. 
+ 
+ 4 
+8. On December 23, 2010, the same day Subaye filed its 2010 Form 10-K, Subaye 
+dismissed DNTW as its independent auditor and hired PricewaterhouseCoopers Hong Kong 
+(“PwC HK”) as Subaye’s new independent auditor.  This set in motion a chain of events that, by 
+mid-2011 had exposed Subaye to be a fraud, without the infrastructure to support its claimed 
+cloud computing and other online business, few paying customers, few, if any, employees, no 
+real revenues and no cash in bank accounts. 
+ 
+Accounting for Subaye’s Fraud 
+ 
+9. In its Form 10-K and corresponding earnings press release for the period ended 
+September 30, 2010, Subaye reported that $22.1 million of revenues collected by its sales agents 
+had been reinvested into “growth orientated marketing expenses to help us penetrate attractive 
+new markets.”  In reality, Subaye had almost no paying customers for its online membership 
+business and claimed to have reinvested in marketing expenses so as to conceal the fact that the 
+money did not exist.  During the fourth quarter of 2010, Subaye had recorded an $18.8 million 
+asset called “Cash Held in Trust” on its balance sheet.  In discussions with Respondents, Subaye’s 
+management claimed that the cash was being held by Subaye’s third-party sales agents to be used 
+for marketing and promotional expenses, as directed by the company.  During the 2010 audit, 
+Subaye provided DNTW with general ledger and journal entries showing funds recorded as 
+“development” in various provinces, with an offset to accounts receivable from third party sales 
+agents.  But when DNTW asked for documents to support the existence of this cash, said to be held 
+by sales agents for development, Subaye’s management could not produce any bank account 
+statements, receipts, or other direct proof.  In reality, Subaye’s offset of the accounts receivable 
+balances purportedly in exchange for marketing by its sales agents was a device used to hide the 
+fact that those receivables would never be converted to cash, because the sales had never 
+occurred. 
+ 
+10. Similarly, Subaye’s financial statements reported “Deposits for Purchases of 
+Inventoriable Assets” as an asset on its balance sheet beginning in 2009.  In its Form 10-K for 
+the period ended September 30, 2009, Subaye reported $8.1 million in Deposits for Purchases of 
+Inventoriable Assets.  Subaye’s management told the Respondents that the deposits were related 
+to Subaye’s future launch of its online 3D mall.  Like the reinvestment in “marketing 
+promotions” scheme, the general ledger and journal entries provided to DNTW during the 2009 
+audit showed amounts being recorded as “deposits” for various types of purchases with an offset 
+to accounts receivable due from third-party sales agents. 
+ 
+11. By the fourth quarter of fiscal year 2010, the $8.1 million in deposits had been 
+reduced to $2.8 million on Subaye’s books after a series of write-offs and a purported refund.  At 
+the insistence of DNTW, Subaye expensed the remaining $2.8 million in the 2010 Form 10-K for 
+the period ended September 30, 2010.  This write-off was another device used by Subaye to 
+cover the fact that it had collected no cash for its outstanding receivables. 
+ 
+12. In its 2010 financial statements, Subaye should not have recognized over $21 
+million in revenues or the corresponding expenses related to the reinvestment of those revenues 
+into “marketing” or “deposits” because the company never had cash or a claim to cash for the 
+ 5 
+purported revenues.  In fact, Subaye had almost no customers and its representations of earning 
+more than $39 million in revenues for fiscal year 2010 were false and misleading. 
+ 
+13. Subaye made numerous false and misleading statements in its Form 10-K for 
+fiscal year 2010.  Among other things, the Form 10-K overstated Subaye’s revenues, falsified 
+marketing expenses, overstated the number of employees, and failed to disclose material related 
+party transactions.  For fiscal year 2010, Subaye’s income statement was overstated by at least 
+$21.6 million for the period ended September 30, 2010.  In addition, Subaye’s 2009 balance 
+sheet, as reported in the Form 10-K for the period ended September 30, 2010, overstated the 
+Deposits for Purchases of Inventoriable Assets by $8.1 million.  The effects of Subaye’s false and 
+misleading statements were material to Subaye’s reported results. 
+ 
+Respondents Failed to Conduct the 2010 Audit in Accordance with PCAOB Standards 
+ 
+14. Respondents performed the fiscal year 2010 audit of Subaye’s financial 
+statements and issued an unqualified audit report.  The Respondents failed to ensure that the 
+fiscal year 2010 Subaye audit was conducted in accordance with PCAOB standards.  As set forth 
+below, Bryce Walker failed to: (a) properly supervise assistants; (b) obtain sufficient competent 
+evidence; (c) properly perform the confirmation process; and (d) act with due professional care.  
+Further, in his role as file quality review partner, Spence Walker failed to act with due professional 
+care because he should have been aware of audit deficiencies but did not address those 
+deficiencies. 
+ 
+a. Failure to properly supervise assistants 
+ 
+15. Supervision involves directing the efforts of assistants who are involved in 
+accomplishing the objectives of the audit and determining whether those objectives were 
+accomplished. [AU§311, Planning and Supervision, at .11]
+6  DNTW, under Bryce Walker’s 
+direction, failed to appropriately supervise China-based assistants engaged to perform the audit 
+fieldwork for the 2010 audit of Subaye. 
+ 
+16. No employee of DNTW ever traveled to Subaye’s offices in China.  Instead, 
+DNTW contracted with a China-based firm to employ assistants to conduct the audit fieldwork.  
+During the 2010 audit, Bryce Walker did not know the scope of the procedures being performed 
+by the China-based assistants.  Furthermore, DNTW’s work papers are unclear as to chain of 
+custody of the accounts receivable confirmations or what, if any, role the China-based assistants 
+had in the process.  By failing to understand what procedures the China-based assistants 
+performed during the audit, and how they performed them, Bryce Walker failed to properly 
+supervise assistants as required under PCAOB Standards. 
+ 
+b. Failure to obtain sufficient competent evidence 
+ 
+17. Under PCAOB Standards, auditors are required to obtain sufficient competent 
+evidential matter by performing audit procedures to afford a reasonable basis for an opinion 
+                                                 
+6 References in this Order are to the PCAOB standards in effect at the time of the relevant conduct. 
+ 6 
+regarding the financial statements under audit. [AU§326, Evidential Matter, at .01]  DNTW 
+failed to obtain sufficient competent evidence regarding Subaye’s claims about cash, marketing 
+expenses, and deposits for purchases of Inventoriable Assets. 
+ 
+i. Cash 
+ 
+18. Despite the materiality of the cash balance, DNTW, under Bryce Walker’s 
+direction, failed to gather sufficient competent evidence of its existence by relying solely on bank 
+statements obtained from Subaye’s management.  As of September 30, 2010, Subaye’s financial 
+statements showed a balance of $7.1 million.  Beginning with the 2009 audit, DNTW stopped 
+testing cash through confirmations to banks because in prior year audits there had not been any 
+exceptions with bank confirmations. 
+ 
+19. Instead, DNTW relied solely on bank statements provided to DNTW’s China-
+based audit assistants by Subaye’s management.  Under PCAOB Standards, audit evidence is 
+more reliable when it is obtained from independent sources outside the entity than from solely 
+within the entity.  [AU§326, Evidential Matter, at .21]  During the 2010 audit, DNTW, under 
+Bryce Walker’s direction, failed to obtain sufficient competent evidence in its testing of Subaye’s 
+cash balances because it relied solely on information provided by Subaye’s management despite 
+the materiality of the balance and the lack of evidence gathered from an independent source. 
+ 
+ii. Marketing expenses 
+ 
+20. DNTW failed to obtain sufficient competent evidence regarding the purported 
+marketing and promotional expenses Subaye reported in its 2010 financial statements.   
+ 
+21. During the fourth quarter of fiscal year 2010 Subaye had recorded an $18.8 
+million asset called “Cash Held in Trust” on its balance sheet.  Subaye’s management informed 
+both Bryce and Spence Walker that the cash was held by Subaye’s various third-party sales 
+agents to be used at the company’s direction for development costs related to marketing and 
+promotional expenses.  When DNTW requested documentation to support the existence of the 
+cash and marketing expenses, Subaye’s management was unable to produce any reliable 
+evidence.  Instead, Subaye’s management suggested the amount remain an asset but instead be 
+labeled, “advances to third party agents for business development.”   
+ 
+22. Bryce Walker and Spence Walker ultimately determined that there was not 
+sufficient evidence to account for the $18.8 million as an asset and insisted that it instead be 
+booked as a marketing expense.  However, DNTW did not obtain sufficient competent evidence 
+to verify that the cash had ever existed or that the purported cash provided to sales agents for 
+marketing was, or would be, used for marketing expenses. 
+ 
+iii. Deposits for purchase of Inventoriable Assets 
+ 
+23. DNTW failed to obtain sufficient competent evidence regarding the purported 
+deposits for Inventoriable Assets. As stated in DNTW’s own work papers, no “third party 
+ 7 
+evidence of the existence of this cash, either by examining bank accounts or similar documents” 
+was provided to the auditors.  DNTW failed to obtain sufficient competent evidence that the cash 
+purportedly provided to vendors for future inventory had ever existed.  In 2010, Subaye wrote 
+off the remaining $2.8 million balance for Deposits for Purchase of Inventoriable Assets despite 
+Subaye’s inability to produce sufficient competent evidence to support the amounts recorded.    
+ 
+24. In addition, DNTW failed to recognize that, if sufficient competent evidence was 
+not available in 2010 to support the deposits, then sufficient competent evidence of the 2009 
+balance of $8.1 million in deposits may not have been obtained in the prior year.  PCAOB 
+Standards require an auditor who subsequently becomes aware of facts that may have existed as of 
+the date of a previously issued audit report to, among other things, take action to determine the 
+effect of the information on previously issued audit reports. [AU§561, Subsequent Discovery of 
+Facts Existing at the Date of the Auditor’s Report]  After learning that there was not sufficient 
+competent evidence to support the Deposits for Purchases of Inventoriable Assets, DNTW failed to 
+take any action to determine the effect of that information on Subaye’s 2009 financial statements 
+and DNTW’s corresponding audit report. 
+ 
+c. Failure to properly perform the confirmation process 
+ 
+25. During the performance of confirmation procedures for items like accounts 
+receivable, the auditor should maintain control over the confirmation requests and responses.  
+Maintaining control means that the auditor establishes direct communications between the 
+intended recipient and the auditor so as to minimize the possibility that the results will be biased 
+because of interception and alteration of the confirmation requests or responses. [AU§330, The 
+Confirmation Process, at .28]  There is no evidence that DNTW established direct contact with 
+the independent parties.  Therefore, DNTW failed to maintain control over the accounts 
+receivable confirmation process. 
+ 
+26. DNTW’s work papers contain copies of the returned accounts receivable 
+confirmations.  However, there is insufficient documentation or evidence of how those 
+confirmations were sent and received by the auditors.  Bryce Walker and his junior associate on 
+the engagement testified that DNTW’s China-based audit assistants had handled the sending and 
+receipt of the confirmations.  However, an employee of the China-based audit assistants said that 
+they had no role in the accounts receivable confirmation process.  In addition, one of the returned 
+confirmations in DNTW’s work papers includes a handwritten note at the top that indicates four 
+of the confirmations were faxed from Subaye’s bookkeeper to the DNTW offices.  By allowing 
+Subaye to gain control over the confirmations, DNTW failed to maintain control of the process 
+and increased the likelihood that the results were biased based on interception and alteration. 
+ 
+d. Failure to act with due professional care 
+ 
+27. The auditor must exercise due professional care in the performance of the audit 
+and the preparation of the audit report. [AU§230, Due Professional Care in the Performance of 
+Work, at .01]  Due professional care requires the auditor to exercise professional skepticism. 
+Professional skepticism is an attitude that includes a questioning mind and a critical assessment 
+ 8 
+of audit evidence.  [AU§230, Due Professional Care in the Performance of Work, at .07]  It also 
+requires that the auditor not be satisfied with less than persuasive evidence because of a belief 
+that management is honest. [AU§230, Due Professional Care in the Performance of Work, at 
+.09] During the 2010 audit of Subaye, there were multiple instances where DNTW failed to 
+exercise professional skepticism.   
+ 
+28. Respondents did not probe Subaye’s management about the company’s inability 
+to produce any evidence to support the over $18 million in purported cash that was later 
+reclassified as a marketing expense.  Additionally, a Subaye officer emailed both Bryce and 
+Spence Walker regarding the marketing expenses - “There is no control over the bank accounts.  
+That was something I suggested they [Subaye] do but confirmed yesterday that it was not agreed 
+to by the agents.”  Despite receiving an email from the Subaye officer stating that there were no 
+controls over the cash, Respondents made no further inquiries and conducted no additional 
+procedures. 
+ 
+29. In another example, Subaye’s initial position had been that the deposit contracts 
+for “inventoriable assets” were fully refundable, and yet by the end of fiscal 2010, two of the 
+contracts had been canceled and Subaye reported that it had only been refunded for $1.9 million 
+of the $5.9 million in outstanding deposits.  Despite being aware of this disparity, Respondents 
+failed to probe the inconsistencies in a Subaye officer’s representations that the deposits were 
+fully refundable.  Respondents should have been attentive to evidence about the Subaye officer’s 
+credibility because he was their sole point of contact at Subaye.  As such, any questions about 
+the Subaye officer’s credibility required Respondents to exercise professional skepticism and to 
+seek additional evidence. 
+ 
+30. Additionally, even though bank statements were the only evidence obtained to 
+verify Subaye’s cash balances, Respondents failed to question suspicious transfers on those 
+statements.  For example, $6.7 million of Subaye’s $7.1 million cash balance as of September 
+30, 2010 resulted from deposits into Subaye’s accounts during the last seven days of September.  
+Despite this suspicious timing, Respondents performed no testing to ascertain the basis for the 
+cash infusion during the final week of fiscal year 2010 
+ 
+31. In addition to Respondents’ failing to maintain control over the accounts 
+receivable confirmation process, they also failed to address questions raised by the return of 
+those confirmations to the audit team.  DNTW’s work papers indicate that 10 confirmations for 
+accounts receivable were purportedly sent out to independent parties on November 19, 2010 and 
+all were returned without exception by November 30, 2010.  Despite the fact that DNTW 
+personnel, including Bryce Walker, recognized that it was very unusual for all audit 
+confirmations to be returned so quickly, Respondents never performed additional procedures to 
+address the unusual timing, once again failing to exercise the adequate level of professional 
+skepticism that was required based on the circumstances. 
+ 
+32. Finally, in accordance with DNTW’s audit quality control process, Spence Walker 
+was designated as the file quality review partner who had responsibility for reviewing the audit 
+work of DNTW for the 2010 year-end audit of Subaye.  Spence Walker failed in this role because 
+ 9 
+he should have been aware of the shortcomings of the audit in obtaining sufficient competent 
+evidence regarding cash, the marketing expenses, and deposits for Inventoriable Assets, yet did not 
+assure that these deficiencies were appropriately addressed before completion of the audit.  He also 
+failed to exercise due professional care in evaluating numerous significant risks during the 2010 
+audit, including that Subaye was unable to produce sufficient competent evidence to support a 
+purported $21 million asset during the 2010 audit. 
+ 
+E. VIOLATIONS 
+ 
+Improper Professional Conduct Under Rule 102(e)(1)(ii) 
+ 
+33. Rule 102(e)(1)(ii) of the Commission’s Rules of Practice provides that the 
+Commission may deny to any person the privilege of practicing before it, if that person is found 
+to have engaged in improper professional conduct.  Section 4C(a)(2) of the Exchange Act 
+provides for the same authority.  Improper professional conduct may be intentional or reckless; it 
+can also be one of two types of negligent conduct:  a single instance of highly unreasonable 
+conduct in circumstances for which heightened scrutiny is warranted; or repeated instances of 
+unreasonable conduct that indicate a lack of competence. 
+ 
+34. Bryce Walker, the engagement partner, was responsible for ensuring that 
+DNTW’s audit of Subaye’s 2010 financial statements met applicable professional standards.  He 
+failed in this regard, as DNTW’s audit of Subaye was not conducted in accordance with PCAOB 
+Standards.  DNTW’s audit failures demonstrate that Bryce Walker’s conduct was unreasonable 
+and support an action against him under Rule 102(e)(1)(ii). 
+ 
+35. Spence Walker, in his role as file quality review partner, took on certain 
+responsibilities to ensure DNTW’s audits were conducted in accordance with PCAOB Standards.  
+As discussed herein, upon assuming this responsibility, Spence Walker should have become aware 
+of audit deficiencies in multiple areas but did not address those deficiencies.  These failures 
+demonstrate that Spence Walker’s conduct was unreasonable and support an action against him 
+under Rule 102(e)(1)(ii). 
+ 
+Respondents Caused Subaye’s Violation of Exchange Act Section 13(a) and Rule 13a-1 
+Thereunder 
+ 
+36. Section 13(a) of the Exchange Act and Rule 13a-1 thereunder, require that every 
+issuer of a security registered pursuant to Section 12 of the Exchange Act file with the 
+Commission annual reports as the Commission may require, and mandate that periodic reports 
+contain such further material information as may be necessary to make the required statements 
+not misleading. The obligation to file such reports embodies the requirement that they be true 
+and correct. 
+ 
+37. Included in Subaye’s annual report for the fiscal year ended 2010 was an audit 
+report from DNTW that stated DNTW’s audit was conducted “in accordance with the standards 
+of the Public Company Accounting Oversight Board (United States).”  The statement in 
+ 10 
+DNTW’s audit report was false, because Respondents failed to conduct their audit of Subaye in 
+accordance with PCAOB Standards.  Accordingly, Respondents were a cause of Subaye’s 
+violations of Section 13(a) of the Exchange Act and Rule 13a-1 thereunder. 
+ 
+Spence Walker and Bryce Walker caused DNTW’s direct violation of Rule 2-02 of 
+Regulation S-X 
+ 
+38. Rule 2-02(b)(1) of Regulation S-X requires an accountant’s report to state 
+“whether the audit was made in accordance with generally accepted auditing standards.” 
+“[R]eferences in Commission rules and staff guidance and in the federal securities laws to GAAS 
+(“Generally Accepted Auditing Standards”) or to specific standards under GAAS, as they relate 
+to issuers, should be understood to mean the standards of the PCAOB plus any applicable rules 
+of the Commission.” (See SEC Release No. 34-49708 (May 14, 2004)).  Thus, an auditor 
+violates Regulation S-X Rule 2-02(b)(1) if it issues a report stating that it had conducted its audit 
+in accordance with PCAOB Standards when it had not.  See In re Andrew Sims, CPA
+, Rel. 
+No.34-59584, AAER No. 2950 (Mar. 17, 2009). 
+ 
+39. DNTW issued an audit report on Subaye’s 2010 financial statements stating that it 
+had conducted its audit in accordance with PCAOB Standards.  DNTW’s audit, however, was not 
+conducted in accordance with PCAOB Standards.  As such, DNTW directly violated Rule 2-
+02(b)(1) of Regulation S-X.  Bryce Walker, as engagement partner, and Spence Walker, as file 
+quality review partner, should have known that DNTW had not conducted its audit in accordance 
+with PCAOB Standards.  Accordingly, Bryce Walker and Spence Walker caused DNTW’s 
+violation of Rule 2-02(b)(1). 
+ 
+F.  FINDINGS 
+ 
+ Based on the foregoing, the Commission finds that the Respondents engaged in improper 
+professional conduct pursuant to Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of 
+the Commission’s Rules of Practice. 
+ 
+ Based on the foregoing, the Commission finds that Respondents caused Subaye’s 
+violations of Section 13(a) of the Exchange Act and Rule 13a-1 thereunder.  Additionally, the 
+Commission finds that DNTW directly violated Regulation S-X Rule 2-02(b)(1) and that Spence 
+Walker and Bryce Walker caused DNTW’s violation of Regulation S-X Rule 2-02(b)(1). 
+  
+G. UNDERTAKINGS 
+ 
+ Respondents Bryce Walker and Spence Walker undertake the following: 
+ 
+ 
+Cooperation  
+ 
+A.  Respondents Bryce Walker and Spence Walker agree that each shall cooperate 
+fully with the Commission with respect to any matter relating to the Commission's investigation 
+of Subaye or its current or former officers, directors or employees, including but not limited to 
+ 11 
+any litigation or other proceeding related to or resulting from that investigation, including 
+litigation in SEC v. Subaye, Inc. and James T. Crane, Civil Action No. 13 CIV 3114 (S.D.N.Y.).   
+ 
+a. Producing any document, record, or other tangible evidence reasonably 
+requested by Commission staff in connection with the Commission's 
+investigation, litigation or other proceedings; 
+ 
+b. Providing all information reasonably requested by Commission staff in 
+connection with the Commission's investigation; and  
+ 
+c. Attending and providing truthful statements or testimony at any meeting, 
+interview, testimony, deposition, trial, or other legal proceeding reasonably 
+requested by the Commission staff. 
+  
+In determining whether to accept the Offer, the Commission has considered these undertakings. 
+ 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ Offers. 
+ 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+A. Respondents Bryce Walker and Spence Walker shall cease and desist from 
+committing or causing any violations and any future violations of Section 13(a) of the Exchange 
+Act and Rule 13a-1 promulgated thereunder and Regulation S-X Rule 2-02(b)(1). 
+ 
+B. Respondent Bryce Walker is denied the privilege of appearing or practicing 
+before the Commission as an accountant. 
+ 
+C. After three (3) years from the date of this order, Respondent Bryce Walker 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 Bryce Walker’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: 
+ 
+ 12 
+(a) Respondent Bryce Walker, 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 Bryce Walker, or the registered public accounting firm 
+    with which he is associated, has been inspected by the Board and  
+    that inspection did not identify any criticisms of or potential  
+    defects in Respondent Bryce Walker’s or the firm’s quality control  
+    system that would indicate that Respondent Bryce Walker will not  
+    receive appropriate supervision; 
+ 
+(c) Respondent Bryce Walker 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 Bryce Walker acknowledges his responsibility, as long 
+    as Bryce Walker appears or practices before the Commission as an  
+    independent accountant, to comply with all requirements of the  
+    Commission and the Board, including, but not limited to, all  
+    requirements relating to registration, inspections, concurring  
+    partner reviews and quality control standards. 
+ 
+D. The Commission will consider an application by Respondent Bryce Walker 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 Bryce Walker’s character, integrity, professional conduct, or qualifications to 
+appear or practice before the Commission. 
+ 
+E. Respondent Spence Walker is denied the privilege of appearing or practicing 
+before the Commission as an accountant. 
+ 
+F. After one (1) year from the date of this order, Respondent Spence Walker 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 Spence Walker’s work in his practice before the Commission  
+ 13 
+   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 Spence Walker, 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 Spence Walker, 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 Spence Walker’s or the firm’s quality control system  
+    that would indicate that Spence Walker will not receive   
+    appropriate supervision; 
+ 
+(c) Respondent Spence Walker 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 Spence Walker acknowledges his responsibility, as  
+    long as Respondent Spence Walker 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. 
+ 
+G. The Commission will consider an application by Respondent Spence Walker 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 Spence Walker’s character, integrity, professional conduct, or qualifications to 
+appear or practice before the Commission. 
+ 
+H. Respondents Bryce Walker and Spence Walker, jointly and severally, shall, 
+within ten (10) days of the entry of this Order, pay disgorgement of $128,000 and prejudgment 
+interest of $10,954 to the Securities and Exchange Commission.  Payment shall be made in the 
+following installments: $38,954 to be paid with the entry of this Order and $100,000 to be paid 
+ 14 
+within one-year from the date of the Order.  If timely payment is not made, additional interest 
+shall accrue pursuant to SEC Rule of Practice 600.  Payment must be made in one of the 
+following ways: 
+ 
+ (1)  Respondent may transmit payment electronically to the Commission, which 
+will provide detailed ACH transfer/Fedwire instructions upon request;  
+ 
+ (2)  Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or 
+ 
+ (3)  Respondent may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange 
+Commission and hand-delivered or mailed to:  
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+ Payments by check or money order must be accompanied by a cover letter identifying 
+Spence Walker or Bryce Walker as a Respondent in these proceedings, and the file number of 
+these proceedings; a copy of the cover letter and check or money order must be sent to John T. 
+Dugan, Division of Enforcement, Securities and Exchange Commission, 33 Arch Street, 23
+rd 
+Floor, Boston, MA 02110. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Jill M. Peterson 
+       Assistant Secretary 

raw/aaer/2014/AAER-3558.txt

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+1 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 72427 / June 18, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3558 / June 18, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-15938
+       
+      :  
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+  I. JOHN BENSON, CPA, : 102(e) OF THE COMMISSION’S RULES OF 
+      : PRACTICE, MAKING FINDINGS, AND 
+  Respondent.   : IMPOSING REMEDIAL SANCTIONS 
+____________________________________ :   
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted against I. John 
+Benson (“Respondent” or “Benson”) 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 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. Benson, age 67, held a Texas CPA license until voluntarily surrendering it in 
+2008.  He served as Chief Financial Officer of DGSE Companies Inc. (“DGSE”) from 1992 until 
+2011. 
+ 
+ 2. DGSE was, at all relevant times, a Nevada corporation headquartered in 
+Dallas, Texas that buys and sells jewelry and bullion products for individual consumers, dealers, 
+and institutions.  Its common stock is registered with the Commission under Section 12(b) of the 
+Securities Exchange Act of 1934 (“Exchange Act”) and is traded on the NYSE MKT under the 
+symbol “DGSE.” 
+ 
+ 3. On June 2, 2014, a final judgment was entered against Benson, permanently 
+enjoining him 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 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, in the civil action entitled 
+Securities and Exchange Commission v. DGSE Companies Inc. and I. John Benson
+, Civil Action 
+Number 3:14-cv-01909-B, in the United States District Court for the Northern District of Texas.  
+Benson was also ordered to pay a $75,000 civil money penalty. 
+ 
+   4. The Commission’s complaint alleged, among other things, that Benson 
+engaged in a fraudulent scheme which resulted in DGSE filing materially false and misleading 
+financial statements in the company’s annual report on DGSE’s Forms 10-K for the Fiscal Years 
+Ended December 31, 2009 and December 31, 2010, as well as quarterly filings for the same 
+period.  Benson also allegedly signed false management certifications, which were attached to 
+these filings.  In addition, the complaint alleged that while Benson was DGSE’s CFO, DGSE 
+failed to maintain sufficient accounting controls, and that Benson circumvented the controls 
+that DGSE did have.  Finally, the complaint alleged that Benson made false statements to 
+DGSE’s external 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 Benson’s Offer. 
+ 
+ 3 
+ Accordingly, it is hereby ORDERED, effective immediately, that Benson is suspended 
+from appearing or practicing before the Commission as an accountant. 
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Jill M. Peterson 
+       Assistant Secretary 
+ 

raw/aaer/2014/AAER-3566.txt

@@ -0,0 +1,269 @@
+ 
+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 72602 / July 14, 2014 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3566 / July 14, 2014 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15970 
+ 
+ 
+In the Matter of 
+ 
+ERNST & YOUNG LLP, 
+ 
+Respondent. 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE-AND- 
+DESIST PROCEEDINGS PURSUANT TO 
+SECTIONS 4C AND 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE COMMISSION’S 
+RULES OF PRACTICE, MAKING FINDINGS, 
+AND IMPOSING REMEDIAL SANCTIONS 
+AND A CEASE-AND-DESIST ORDER 
+ 
+ 
+I. 
+The Securities and Exchange Commission (“Commission” or “SEC”) deems it appropriate 
+that public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant 
+to Sections 4C(a)(2)1 and 21C of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 
+102(e)(1)(ii)2 of the Commission’s Rules of Practice against Ernst & Young LLP (“Respondent” 
+or “EY”). 
+                                                 
+1  Section 4C(a)(2) provides, in relevant part, that: 
+The Commission may censure any person, or deny, temporarily or permanently, to any person the privilege 
+of appearing or practicing before the Commission in any way, if that person is found . . . to be lacking in 
+character or integrity, or to have engaged in unethical or improper professional conduct. 
+2  Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+The Commission may censure a person or deny, temporarily or permanently, the privilege of appearing or 
+practicing before it . . . to any person who is found . . . to be lacking in character or integrity or to have 
+engaged in unethical or 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 it and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Public 
+Administrative and Cease-and-Desist Proceedings Pursuant to Sections 4C and 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 Respondent’s Offer, the Commission finds that: 
+A. SUMMARY 
+These proceedings arise out of certain legislative advisory services provided by 
+Washington Council EY (“WCEY”), which has been part of EY since 2000.
+3  Prior to 2009, 
+certain conduct related to WCEY’s provision of legislative advisory services violated the 
+independence rules with respect to two of EY’s SEC-registrant audit clients.  For example, WCEY 
+sent letters urging passage of bills to congressional staff on behalf of one of its clients (hereinafter, 
+“Client A”).  These bills were important to Client A’s business interests.  In another instance, 
+WCEY asked congressional staff to insert into a bill a provision favorable to Client A.  For another 
+audit client (hereinafter, “Client B”), WCEY attempted to persuade congressional offices to 
+withdraw their support for legislation detrimental to that client’s business interests.  In addition, 
+WCEY worked closely with congressional staff in drafting an alternative bill more favorable to 
+Client B.  WCEY also marked up a draft of the alternative bill, inserting specific language written 
+by Client B, and sent the mark-up to congressional staff. 
+Despite providing the services described herein, EY repeatedly represented that it was 
+“independent” in audit reports issued on Client A’s and Client B’s financial statements, which 
+were included or incorporated by reference in public filings with the Commission.  By doing so, 
+EY violated Rule 2-02(b)(1) of Regulation S-X and caused Client A and Client B to violate 
+Section 13(a) of the Exchange Act and Rule 13a-1 thereunder.  EY’s conduct also constituted 
+improper professional conduct pursuant to Section 4C(a)(2) of the Exchange Act and Rule 
+102(e)(1)(ii) of the Commission’s Rules of Practice. 
+B. RESPONDENT 
+EY is a professional services limited liability partnership, headquartered in New York 
+City, with offices located throughout the United States.  It is a member firm of Ernst &Young 
+                                                 
+3  In May 2000, Washington Counsel, P.C. merged into EY.  The firm now operates as Washington Council 
+EY. 
+ 
+3 
+ 
+Global Limited and provides auditing, consulting, and tax services to a variety of companies, 
+including companies whose securities are registered with the Commission and trade in the U.S. 
+markets. 
+C. RELEVANT ISSUERS 
+At all relevant times, Client A and Client B had shares registered with the Commission 
+pursuant to Exchange Act Section 12(b) and filed annual Reports on Form 10-K with the 
+Commission. 
+D. FACTS 
+WCEY 
+1. WCEY’s legislative advisory services include meeting with congressional staff and 
+attempting to influence pending legislation on behalf of its clients.  At the time of the conduct 
+discussed herein, some of WCEY’s clients were also SEC-registrant audit clients of EY. 
+2. EY issued a written independence policy intended to provide guidance on the 
+provision of legislative advisory services to audit clients.  While EY provided some guidance on 
+the policy, it did not provide WCEY with formal, in-person training specifically tailored to the 
+policy. 
+Legislative Advisory Work for Client A 
+3. On at least three occasions prior to 2009, WCEY’s provision of legislative advisory 
+services for Client A placed WCEY, and therefore EY, in the position of being an advocate for an 
+audit client in violation of the independence rules.
+4  Each instance involved legislation important 
+to Client A. 
+4. On the first occasion, WCEY learned about an upcoming vote in the U.S. House of 
+Representatives.  WCEY informed Client A about the vote and obtained a letter from a top 
+executive at Client A addressed to the House leadership and supporting passage of the bill.  Just a 
+few hours before the scheduled vote, WCEY e-mailed the letter to staff in various congressional 
+offices.  In the e-mail, WCEY congratulated the congressional staff on bringing the bill to the floor 
+and noted that the attached letter encouraged immediate passage of the bill.  After the vote, WCEY 
+e-mailed Client A to inform it that the letters made it to the House prior to the vote. 
+5. On the second occasion, WCEY sent a letter signed by Client A to the leadership in 
+the U.S. Senate and House of Representatives.  The letter urged Congress to pass certain 
+legislation of strategic importance to Client A.  The letter also listed specific items to be included 
+in the legislation. 
+                                                 
+4  The services described herein, with respect to both Client A and Client B, occurred over a several-year 
+period in the mid-2000s, ceasing in 2008. 
+ 
+4 
+ 
+6. On the third occasion, Client A was interested in inserting a specific provision into 
+a pending bill.  Client A asked WCEY to raise the issue with a U.S. Senate staffer.  WCEY 
+reported back to Client A, stating that the firm had asked the Senate staffer about the provision.  
+The Senate staffer indicated that it would be difficult to get the provision included in the bill, but 
+WCEY said it could make a case for it.  Several months later, WCEY again contacted the Senate 
+staffer about the chance of having the specific provision included in the legislative package. 
+Legislative Advisory Work for Client B 
+7. On at least two occasions prior to 2009, WCEY’s provision of legislative advisory 
+services for Client B placed WCEY, and therefore EY, in the position of being an advocate for an 
+audit client in violation of the independence rules.  This instance involved legislation important to 
+Client B. 
+8. Client B retained WCEY in an effort to defeat a legislative proposal that Client B 
+believed would be detrimental to its business interests. 
+9. WCEY met with staff representing U.S. Senators who were in favor of the 
+proposal.  The purpose of these meetings was for WCEY to persuade the Senate staff to withdraw 
+their support for the proposal. 
+10. After these meetings, Client B sought an amendment related to the proposal.  
+WCEY identified third parties and urged them to approach a U.S. Senator and ask for an 
+amendment.  WCEY provided the third parties with two alternative draft amendments to be 
+presented to the Senator. 
+11. WCEY also developed a strategy to push for an alternative bill more favorable to 
+Client B than the original proposed legislation.  Specifically, WCEY and Client B worked closely 
+with a staffer for a U.S. House of Representatives member who planned to introduce the 
+alternative bill.  WCEY exchanged drafts of the alternative bill with the staffer.  In an e-mail to 
+WCEY, the staffer acknowledged that the current draft incorporated a number of suggestions from 
+WCEY. 
+12. Subsequently, WCEY and Client B met again with the House staffer and provided 
+additional suggestions for the alternative bill.  The House staffer provided WCEY with a draft of 
+the alternative bill and requested additional feedback.  WCEY then shared the draft with Client B.  
+When a Client B employee saw the draft, he said he was highly encouraged because his language 
+was included.  
+13. WCEY conferred further with Client B and then conveyed to the House staffer 
+additional suggestions for the alternative bill.  For example, WCEY told the staffer about concerns 
+that Client B had about some specific language in the alternative bill.  WCEY provided the staffer 
+with new language that had been written by Client B. 
+14. WCEY pointed to its influence in a memorandum to Client B’s president.  WCEY 
+wrote that it “helped to tamp down activity” on legislation that would have harmed Client B’s 
+business.  WCEY described how it worked with congressional staff prior to the introduction of the 
+bill to minimize any impact on Client B’s business. 
+ 
+5 
+ 
+E. LEGAL ANALYSIS 
+ 
+Basic Principles 
+ 
+15. “Public faith in the reliability of a corporation’s financial statements depends upon 
+the public perception of the outside auditor as an independent professional.”  SEC v. Arthur 
+Young, 465 U.S. 805, 819 n.15 (1984).  In fact, “[i]f investors were to view the auditor as an 
+advocate for the corporate client, the value of the audit function itself might well be lost.”  Id. 
+16. The Commission has stated that it 
+will not recognize an accountant as independent, with respect to an audit 
+client, if the accountant is not, or a reasonable investor with knowledge of 
+all relevant facts and circumstances would conclude that the accountant is 
+not, capable of exercising objective and impartial judgment on all issues 
+encompassed within the accountant’s engagement.  In determining whether 
+an accountant is independent, the Commission will consider all relevant 
+circumstances, including all relationships between the accountant and the 
+audit client, and not just those relating to reports filed with the Commission. 
+Rule 2-01(b) of Regulation S-X (emphasis added). 
+17. “In considering this standard, the Commission looks in the first instance to whether 
+a relationship or the provision of a service . . . places the accountant in a position of being an 
+advocate for the audit client.”  Preliminary Note to Rule 2-01 of Regulation S-X, ¶ 2; see 
+“Revision of the Commission’s Auditor Independence Requirements,” Exchange Act Rel. 42994, 
+45 Fed. Reg. 43148, 43149 (July 12, 2000) (Proposing Release) (“an accountant is not independent 
+whenever, during the audit and professional engagement period, the accountant . . . acts as an 
+advocate for the audit client”). 
+Violations 
+18. As a result of the conduct described above, EY violated Rule 2-02(b)(1) of 
+Regulation S-X, which requires that each accountant’s report state whether the audit was made in 
+accordance with generally accepted auditing standards.  Exchange Act Release No. 49708 
+provides that, for financial statements dated after May 24, 2004, the Rule’s reference to “generally 
+accepted auditing standards” means the standards of the PCAOB and the applicable Commission 
+regulations, both of which require an auditor to be independent of its client.  See, e.g., PCAOB 
+Auditing Standards, Independence, AU § 220.03.  A violation occurred each time that EY issued 
+an audit report for one of the two audit clients (or issued a consent for the filing of an audit report in 
+later filings) that incorrectly stated that the audits were performed in accordance with the standards 
+of the PCAOB, where either the period covered by the audit, or the period of the audit work, or 
+both, overlapped with prohibited conduct.  
+19. As a result of the conduct described above, EY caused Client A and Client B to 
+violate Section 13(a) of the Exchange Act and Rule 13a-1 thereunder, which require that financial 
+statements included in annual reports filed with the Commission be audited by an independent 
+ 
+6 
+ 
+accountant.  EY knew, or should have known, that its conduct would cause the audit clients to 
+violate these provisions. 
+20. As a result of the conduct described above, EY also engaged in improper 
+professional conduct, within the meaning of Exchange Act Section 4C(a)(2) and Rule 102(e)(1)(ii) 
+of the Commission’s Rules of Practice. 
+EY’s Remedial Efforts 
+21. In determining to accept the Offer, the Commission considered remedial acts 
+undertaken by Respondent and cooperation afforded the Commission staff.  For example, in June 
+2012, EY voluntarily issued new guidance restricting such legislative advisory services.  EY 
+issued similar final guidance in May 2013. 
+F. FINDINGS 
+Based on the foregoing, the Commission finds that Respondent EY:  (a) committed 
+violations of Rule 2-02(b)(1) of Regulation S-X; (b) caused violations of Exchange Act Section 
+13(a) and Exchange Act Rule 13a-1 by Client A and Client B; and (c) engaged in improper 
+professional conduct pursuant to Exchange Act Section 4C(a)(2) and Rule 102(e)(1)(ii) of the 
+Commission’s Rules of Practice. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+A. Respondent EY shall cease and desist from committing or causing any violations 
+and any future violations of Rule 2-02(b)(1) of Regulation S-X, Section 13(a) of the Exchange Act, 
+and Rule 13a-1 promulgated thereunder. 
+B. Respondent EY is hereby censured. 
+C. Respondent EY shall, within ten (10) days of the issuance of this Order, pay 
+disgorgement of $1,240,000, together with prejudgment interest thereon of $351,925.98, and a 
+civil money penalty of $2,480,000, for a total of $4,071,925.98, to the United States Treasury.  If 
+timely payment is not made, additional interest shall accrue pursuant to SEC Rule of Practice 600.  
+Payment must be made in one of the following ways: 
+(1) Respondent may transmit payment electronically to the Commission, which 
+will provide detailed ACH transfer/Fedwire instructions upon request; 
+(2) Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or 
+ 
+7 
+ 
+(3) Respondent may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange 
+Commission and hand-delivered or mailed to: 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+Payments by check or money order must be accompanied by a cover letter identifying EY 
+as a Respondent in these proceedings, and the file number of these proceedings.  A copy of the 
+cover letter and check or money order must be simultaneously sent to Scott W. Friestad, Associate 
+Director, Division of Enforcement, Securities and Exchange Commission, 100 F St., N.E., 
+Washington, DC 20549. 
+By the Commission. 
+ 
+Jill M. Peterson 
+Assistant Secretary 
+ 
+ 

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+UNITED STATES OF AMERICA 
+before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 72753 / August 4, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3574 / August 4, 2014 
+ 
+Admin. Proc. File Nos. 3-14872, 3-15116 
+ 
+ 
+ 
+In the Matter of 
+ 
+BDO CHINA DAHUA CPA CO., LTD., 
+ERNST & YOUNG HUA MING LLP, KPMG 
+HUAZHEN (SPECIAL GENERAL 
+PARTNERSHIP), DELOITTE TOUCHE 
+TOHMATSU CERTIFIED PUBLIC 
+ACCOUNTANTS LTD., and 
+PRICEWATERHOUSECOOPERS ZHONG 
+TIAN CPAS LIMITED  
+ 
+ 
+ORDER GRANTING LEAVE TO 
+THE ZLCA TO FILE AN AMICUS 
+BRIEF 
+ 
+ 
+On May 28, 2014, the Zhongguancun Listed Companies Association ("ZLCA") filed a 
+motion for leave to file an amicus brief.  The Division of Enforcement opposes the motion and 
+ZLCA, in turn, has filed a reply.  We have determined to grant the motion as set forth herein. 
+By way of background, these proceedings concern respondents' alleged willful refusal to 
+provide the Commission with audit work papers in violation of their obligations under Section 
+106 of the Sarbanes-Oxley Act as amended by Section 929J of the Dodd-Frank Wall Street 
+Reform and Consumer Protection Act.1  The initial decision denied, for a period of six months, 
+the privilege of practicing or appearing before the Commission to four of the five respondents 
+and censured the remaining one.  The Commission granted review and the opening brief of the 
+appealing respondents is due September 19, 2014. 
+In support of its request to file an amicus brief, ZLCA states that the initial decision, 
+unless modified or reversed by the Commission, will have a "significant adverse impact" on 
+ZLCA's members who are U.S. listed and who are audited by a China-based accounting firm.  
+More specifically, ZLCA asserts that respondents have issued audit opinions for certain of its 
+members and that these companies will "face the possibility of having their shares delisted" if 
+they cannot obtain audited financial statements.  It desires to file an amicus brief discussing the 
+"broad based policy interests" that, in its view, are implicated by the initial decision.  In its reply 
+                                                 
+1  15 U.S.C. § 7216(b)(1). 
+2 
+ 
+brief, ZLCA additionally represents that it "did not speak to or collaborate with any party" in 
+connection with seeking to file an amicus brief in this proceeding.2 
+Rule of Practice 210(d) governs amicus participation in the Commission's administrative 
+proceedings.  In relevant part, it provides that:  "An amicus brief may be filed conditionally with 
+the motion for leave.  The motion for leave shall identify the interest of the movant and shall 
+state the reasons why a brief of an amicus curiae is desirable."3  The Division contends that the 
+Commission should deny the motion for four reasons.  None of them is persuasive. 
+ 
+The Division leads off with the argument that the Rules of Practice categorically forbid 
+the filing of amicus briefs in disciplinary proceedings.  It relies on Rule 210(a)(1), which states 
+that "[n]o person shall be granted leave to become a party or a non-party participant on a limited 
+basis in an enforcement or disciplinary proceeding," subject to an exception inapplicable here, 
+and that the instant proceeding is a "disciplinary proceeding" within the meaning of that rule.4  
+This reliance is misplaced, as the structure of Rule 210 demonstrates.  Rule 210 envisions four 
+categories of potential participation in Commission proceedings:  Persons can participate or 
+intervene as a party (paragraph (b)), participate as a non-party on a limited basis (paragraph (c)), 
+participate as an amicus (paragraph (d)), or participate by filing a statement of views (paragraph 
+(e)).  Thus, even though party participation pursuant to paragraph (b) and limited, non-party 
+                                                 
+2  We note that ZLCA's reply is technically untimely because the Division served its 
+opposition on June 9 and the reply was filed on June 18.  Rule of Practice 154(b) provides that 
+"[r]eply briefs [in support of motions] shall be filed within three days after service of the 
+opposition."  17 C.F.R. § 201.154(b).   Under Rule 160(a), intermediate weekends and legal 
+holidays are "excluded from the computation when," as here, "the period of time prescribed or 
+allowed is seven days or less."  Id. § 201.160(a).  Here, there were no intermediate weekends and 
+legal holidays, which makes June 12 the end of the three-day response period.  Because service 
+of the Division's opposition was by mail, three additional days are "added to the prescribed 
+period for response" under Rule 160(b).  June 15 falls on a Sunday, so the due date for the reply 
+was the next day, or June 16.  In short, Rule 160(a) and Rule 160(b) work together as follows: 
+(1) the underlying period is computed, excluding intermediate weekends and holidays if the 
+period is seven days or less; (2) if service is by mail, then three additional calendar days are 
+appended to that period; and (3) finally, if the resulting day itself falls on a weekend or holiday, 
+the period runs until the next day that is not a weekend or holiday.  E.g., Nat'l Sav. Bank of 
+Albany v. Jefferson Bank, 127 F.R.D. 218, 221-222 & nn.6-7 (S.D. Fla. 1989) (interpreting 
+analogous provisions of former Fed. R. Civ. P. 6(a) and 6(e)); 4A Wright & Miller, Federal 
+Practice and Procedure § 1171 (2d ed. 1987).  Because the Commission has not previously 
+clarified the interaction of these rules and no prejudice would result from accepting ZLCA's two-
+day-late filing, we will consider its reply. 
+3  17 C.F.R. § 201.210(d)(2).  Rule 210(d)(2) also provides that, "[e]xcept as all parties 
+otherwise consent, any amicus curiae shall file its brief within the time allowed the party whose 
+position the amicus will support."  It is uncontested that ZLCA's motion is timely. 
+4  17 C.F.R. § 201.210(a)(1). 
+3 
+ 
+participation pursuant to paragraph (c) are generally forbidden in disciplinary proceedings, Rule 
+210 nonetheless allows a "person . . . [to] seek to participate in such proceedings as an amicus, 
+pursuant to paragraph (d)."5  The Commission has previously allowed amicus participation in 
+disciplinary proceedings.6 
+ 
+Next the Division contends that ZLCA's motion for leave is deficient because it does not 
+attach the amicus brief that ZLCA proposes to file.  Although the Division is correct to note that 
+Rule 210(d) is "based on Rule 29" of the Federal Rules of Appellate Procedure, and that Rule 29 
+does direct that the "motion . . . be accompanied by the proposed brief," Rule 210(d) itself 
+contains no such requirement.7  To the contrary, the Commission's Rules of Practice state that 
+that an "amicus brief may"—not must—"be filed conditionally with the motion for leave."8 
+ 
+The Division's third argument is that ZLCA's motion failed "even to identify its 
+members" whose financial statements are audited by respondents, and so did not adequately set 
+forth ZLCA's interest in the proceeding.  It relies, again, on Federal Rule of Appellate Procedure 
+29, which requires amicus briefs filed in the federal courts of appeals to include, among other 
+things, a corporate disclosure statement and "a concise statement of the identity of the amicus 
+curiae."
+9  Rule 210 imposes no comparable requirements, however.  At any rate, it appears clear 
+what ZLCA's asserted interest is:  The motion represents that some of ZLCA's members are 
+audited by respondents and face a risk of being delisted if the initial decision is upheld and they 
+cannot find a replacement auditor.
+10  Although it remains to be determined how well-founded 
+this fear is, Rule 210(d) does not require that an amicus prove with certainty that its interests will 
+be harmed by an adverse result in the proceeding. 
+  
+Finally, the Division argues that the ZLCA's intended brief will not assist with the 
+Commission's decisionmaking, and so is not "desirable" within the meaning of Rule 210.  It 
+                                                 
+5  Adopting Release: Rules of Practice, Exchange Act Release No. 35833, 1995 WL 
+368865, 60 Fed. Reg. 32738, 32759 (June 9, 1995). 
+6  E.g., David J. Checkosky, Exchange Act Release No. 31094, 1992 WL 211479 (Aug. 26, 
+1992).  The Division cites a law judge's order denying leave to file an amicus brief, but the 
+Commission is "not bound by a law judge's initial decision and decline[s] to apply the law 
+judge's reasoning here."  Absolute Potential, Inc., Exchange Act Release No. 71866, 2014 WL 
+1338256, at *8 n.48 (Apr. 4, 2014). 
+7  Adopting Release, 60 Fed. Reg. at 32759; Fed. R. App. P. 29(b). 
+8  17 C.F.R. § 201.210(d)(2) (emphasis added). 
+9  Fed. R. App. P. 29(c)(1), (4). 
+10  See generally Securities Industry and Financial Markets Association, Exchange Act 
+Release No. 72182, 2014 WL 1998525, at *7 (May 16, 2014) (explaining that associational 
+standing standard employed by the federal courts allows an association to raise claims that do 
+"not turn on the identity of the particular member" advancing them). 
+4 
+ 
+asserts that ZLCA lacks any special expertise regarding the issues and that its brief likely would 
+repeat many of the same arguments raised by respondents themselves—e.g., ZLCA's argument 
+that imposing practice restrictions on respondents would have adverse collateral consequences 
+on issuers and investors.  ZLCA replies that its amicus brief will offer the "perspective of issuers 
+and their shareholders" and "policy insights" that otherwise will not be presented by the parties. 
+ 
+In part, the Division's point is well taken.  The purpose of an amicus brief is to set forth a 
+position on the "legal or policy issues in the proceeding" in a way that "add[s] something 
+distinctive to the presentation of the issues, rather than serving as a mere conduit for the views of 
+one of the parties."
+11  An amicus brief that "merely duplicate[s] the arguments of the parties . . . 
+waste[s] the court's time."12  But some amount of overlap is inevitable—especially since an 
+amicus may not inject new "issues that have not been presented by the parties"13 or enlarge the 
+record with new evidence bearing on adjudicative facts14—so an amicus need not show that the 
+parties are inadequately or incompletely briefing the case.15  Furthermore, because the decision 
+whether to grant leave to file typically is made at an early stage of review proceedings, and 
+because the Commission's rules do not require that the proposed amicus brief be tendered along 
+                                                 
+11  Adopting Release, 60 Fed. Reg. at 32759; 16AA Wright, Miller & Cooper, Federal 
+Practice and Procedure: Jurisdiction § 3975.1 (4th ed. 2014). 
+12  Neonatology Assocs., P.A. v. C.I.R., 293 F.3d 128, 133 (3d Cir. 2002) (Alito, J., in 
+chambers); Nat'l Org. for Women, Inc. v. Scheidler, 223 F.3d 615, 617 (7th Cir. 2000). 
+13  Eldred v. Reno, 239 F.3d 372, 378 (D.C. Cir. 2001); see also Federal Practice and 
+Procedure: Jurisdiction § 3975.1 & n.4 (collecting cases). 
+14  See, e.g., Weinstock v. Columbia University, 224 F.3d 33, 46 (2d Cir. 2000); Eagle-
+Picher Industries, Inc. v. Liberty Mut. Ins. Co., 682 F.2d 12, 22 n.8 (1st Cir. 1982); Smith v. 
+United States, 343 F.2d 539, 541 (5th Cir. 1965). 
+15  Neonatology Assocs., 293 F.3d at 131.  The Division asserts that the Commission applied 
+a different standard in KMPG Peat Marwick LLP, Exchange Act Release 44050, 2001 WL 
+223378 (Mar. 8, 2001).  There, the Commission issued an opinion finding that the respondent, an 
+accounting firm, had violated Rule 2-02(b) of Regulation S-X.  Almost a month after the 
+respondent filed a motion for reconsideration, a professional association sought leave to file an 
+amicus brief.  Id. at *7 n.18.  In denying the motion for leave to file an amicus brief, the 
+Commission relied upon the untimeliness of that motion, the association's failure to provide any 
+explanation for the delay, and the fact that the Rules of Practice explicitly forbid unsolicited 
+responses to motions for reconsideration.  Thus, in the context of "amicus filings on 
+reconsideration," the Commission held that "only under extraordinary circumstances" would 
+leave to file an amicus brief be granted.  Id.; cf. also D.C. Cir. R. 35(f) ("No amicus curiae brief 
+in response to or in support of a petition for rehearing en banc will be received by the clerk 
+except by invitation of the court.").  The professional association's proposed brief, which "merely 
+reiterate[d]" the respondent's arguments urging reconsideration, did not satisfy that standard.  
+Amicus participation in other contexts—e.g., before the Commission issues a final order—is not 
+governed by KMPG Peat Marwick LLP's "extraordinary circumstances" test.  
+5 
+ 
+with the motion seeking leave, it would be difficult, as a practical matter, to determine in 
+advance that amicus participation could not possibly contribute to the briefs of the parties. 
+ 
+Considering these circumstances, we find that ZLCA has sufficiently described how its 
+intended brief might be "desirable" within the meaning of Rule 210(d)(2) and, accordingly, have 
+determined to allow ZLCA to file an amicus brief.  If that brief merely repackages respondents' 
+arguments, it is unlikely to make a contribution to the Commission's resolution of this 
+proceeding.  After the amicus brief has been filed, the Division may seek leave for a modest 
+expansion of the length limitation for its combined principal and response brief if it demonstrates 
+that additional space is essential to answering the amicus.  
+ 
+Accordingly, it is ORDERED that ZLCA's motion for leave to file an amicus brief is 
+GRANTED.  ZLCA shall file its amicus brief, not to exceed 5,000 words in length, within the 
+time allowed for the appealing respondents to file their consolidated opening brief.   
+ 
+For the Commission, by the Office of General Counsel, pursuant to delegated authority. 
+ 
+ 
+      Lynn M. Powalski 
+      Deputy Secretary 
+ 
+ 

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@@ -0,0 +1,193 @@
+ 
+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 73294 / October 3, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3589 / October 3, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16186 
+ 
+ 
+ 
+In the Matter of 
+ 
+ PETER A. JENSON, Chartered 
+Accountant 
+ 
+Respondent. 
+ 
+ 
+ 
+  
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+PURSUANT TO SECTION 4C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS 
+ 
+ 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that 
+public administrative proceedings be, and hereby are, instituted against Peter A. Jenson, 
+Chartered Accountant (“Respondent” or “Jenson”) pursuant to Section 4C1 of the Securities 
+Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(iii) of the Commission’s Rules of 
+Practice.2 
+                                                 
+1  Section 4C provides, in relevant part, that: 
+The Commission may censure any person, or deny, temporarily or permanently, to 
+any person the privilege of appearing or practicing before the Commission in any 
+way, if that person is found . . . (3) to have willfully violated, or willfully aided and 
+abetted the violation of, any provision of the securities laws or the rules and 
+regulations thereunder. 
+2  Rule 102(e)(1)(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 
+ 
+  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. Respondent admits 
+the facts set forth in Annex A attached hereto, acknowledges that his conduct violated federal 
+securities laws, admits the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, and consents to the entry of this Order Instituting Public Administrative 
+Proceedings Pursuant to Section 4C of the Securities Exchange Act of 1934 and Rule 102(e) of 
+the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions 
+(“Order”), as set forth below. 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds3 that: 
+A. RESPONDENT 
+Peter A. Jenson, age 48, was a Managing Director and the Chief Operating Officer of 
+Harbinger Capital Partners LLC (“Harbinger”) from April 2009 through July 2011. Jenson is an 
+Australian citizen and resides in Winnetka, Illinois. Jenson was at one time licensed as a certified 
+public accountant in Maryland, but his license expired in 2007. Jenson has active designation as 
+a Chartered Accountant.  Jenson previously was a Member of the Financial Services Institute of 
+Australia and previously held a Series 27 license. 
+B. FACTS 
+1.  On August 13, 2013, Philip A. Falcone (“Falcone”) and Harbinger entered into a Final 
+Consent Judgment to resolve the claims asserted against them in the civil action 12-CV-5028 
+(PAC) (the “Action”) pending in the United States District Court for the Southern District of 
+New York.  As part of the Consent Judgment, Falcone and Harbinger admitted, among other 
+things, that on October 14, 2009, without seeking or obtaining investor consent, in connection 
+with the purchase, offer or sale of a security, Falcone improperly borrowed $113.2 million from 
+the Harbinger Capital Partners Special Situations Fund, L.P. (“SSF”) to pay his state and federal 
+taxes.  
+2.  Jenson, Harbinger’s Chief Operating Officer, among other things, executed the loan 
+agreement and other transaction documents on behalf of the SSF in connection with the loan. 
+3.  The loan agreement provided that “[t]he Lender’s counsel shall have provided advice to 
+the Lender to the effect that the making of the Loan … would not be inconsistent with the 
+                                                                                                                                                             
+violated, or willfully aided and abetted the violation of any provision of the Federal 
+securities laws or the rules and regulations thereunder. 
+3  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not 
+binding on any other person or entity in this or any other proceeding. 
+ 
+  3 
+Borrower’s fiduciary obligation to the Lender.”  Jenson, however, did not ensure that SSF as 
+lender had separate counsel, and did not ensure that the loan was consistent with the Borrower’s 
+fiduciary obligation to the Lender. 
+4.  Jenson also failed to ensure that Falcone paid an “above market” interest rate on the loan, 
+failed to timely disclose the loan to investors, and failed to take actions to cause the SSF to 
+accelerate Falcone’s payment on the loan once investors in the SSF were permitted to begin 
+redeeming their investments. 
+5.  Jenson, with knowledge of Falcone’s and Harbinger’s violations in connection with the 
+loan, substantially assisted these violations. 
+6.  On October 1, 2014, the U.S. District Court for the Southern District of New York 
+entered a final consent judgment against Jenson enjoining him from acting or being an associated 
+person of any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, 
+transfer agent, or nationally recognized statistical rating organization, as those terms are defined 
+in Section 3 of the Exchange Act and Section 202 of the Investment Advisers Act of 1940 
+(“Advisers Act”).  Jenson was further ordered to pay a civil penalty in the amount of $200,000 to 
+the Commission.    
+IV. 
+In view of the foregoing, the Commission finds that Jenson willfully aided and abetted 
+violations of Section 206 of the Advisers Act and further the Commission deems it appropriate 
+pursuant to Rule 102(e)(1)(iii) of the Commission’s Rules of Practice to impose the sanctions 
+agreed to in Jenson’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+A. Jenson is denied the privilege of appearing or practicing before the Commission 
+as an accountant. 
+B. After two years from the date of this order, Respondent may request that the 
+Commission consider his reinstatement by submitting an application (attention: Office of the 
+Chief Accountant) to resume appearing or practicing before the Commission as: 
+1. a preparer or reviewer, or a person responsible for the preparation or 
+review, of any public company’s financial statements that are filed with 
+the Commission. Such an application must satisfy the Commission that 
+Respondent’s work in his practice before the Commission will be 
+reviewed either by the independent audit committee of the public company 
+for which he works or in some other acceptable manner, as long as he 
+practices before the Commission in this capacity; and/or 
+2. an independent accountant. Such an application must satisfy the 
+Commission that: 
+ 
+  4 
+(a) Respondent, or the public accounting firm with which he is 
+associated, is registered with the Public Company Accounting 
+Oversight Board (“Board”) in accordance with the Sarbanes-Oxley 
+Act of 2002, and such registration continues to be effective; 
+(b) Respondent, or the registered public accounting firm with which he 
+is associated, has been inspected by the Board and that inspection 
+did not identify any criticisms of or potential defects in the 
+respondent’s or the firm’s quality control system that would 
+indicate that the respondent will not receive appropriate 
+supervision; 
+(c) Respondent has resolved all disciplinary issues with the Board, and 
+has complied with all terms and conditions of any sanctions 
+imposed by the Board (other than reinstatement by the 
+Commission); and 
+(d) Respondent acknowledges his responsibility, as long as 
+Respondent appears or practices before the Commission as an 
+independent accountant, to comply with all requirements of the 
+Commission and the Board, including, but not limited to, all 
+requirements relating to registration, inspections, concurring 
+partner reviews and quality control standards. 
+C. The Commission will consider an application by Respondent to resume appearing 
+or practicing before the Commission provided that he obtains a state CPA license 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. 
+ 
+Brent J. Fields 
+Secretary 
+  
+ 
+  5 
+ANNEX A 
+Peter A. Jenson (“Jenson”) admits to the facts set forth below and acknowledges that his 
+conduct violated the federal securities laws: 
+1. On August 13, 2013, Philip A. Falcone (“Falcone”) and Harbinger Capital 
+Partners LLC (“Harbinger”) entered into a Final Consent Judgment to resolve the claims asserted 
+against them in the civil action 12-CV-5028 (PAC) (the “Action”) pending in the United States 
+District Court for the Southern District of New York. As part of the Consent Judgment, Falcone 
+and Harbinger admitted, among other things, that on October 14, 2009, without seeking or 
+obtaining investor consent, in connection with the purchase, offer or sale of a security, Falcone 
+improperly borrowed $113.2 million from the Harbinger Capital Partners Special Situations 
+Fund, L.P. (“SSF”) to pay his state and federal taxes. 
+2. Jenson, Harbinger’s Chief Operating Officer, among other things, executed the 
+loan agreement and other transaction documents on behalf of the SSF in connection with the 
+loan. 
+3. The loan agreement provided that “[t]he Lender’s counsel shall have provided 
+advice to the Lender to the effect that the making of the Loan … would not be inconsistent with 
+the Borrower’s fiduciary obligation to the Lender.” Jenson, however, did not ensure that SSF as 
+lender had separate counsel, and did not ensure that the loan was consistent with the Borrower’s 
+fiduciary obligation to the Lender. 
+4. Jenson also failed to ensure that Falcone paid an “above market” interest rate on 
+the loan, failed to timely disclose the loan to investors, and failed to take actions to cause the SSF 
+to accelerate Falcone’s payment on the loan once investors in the SSF were permitted to begin 
+redeeming their investments. 
+5. Jenson, with knowledge of Falcone’s and Harbinger’s violations in connection 
+with the loan, substantially assisted these violations. 
+ 

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+ 
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 73862 / December 17, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3615 / December 17, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16324 
+ 
+ 
+In the Matter of 
+ 
+BAKER TILLY HONG 
+KONG LIMITED, ANDREW 
+DAVID ROSS, CPA, and 
+KWOK LAIHA HELENA, 
+CPA, 
+ 
+Respondents. 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE- 
+ AND-DESIST PROCEEDINGS 
+PURSUANT TO SECTIONS 4C AND 21C 
+OF THE SECURITIES EXCHANGE ACT 
+OF 1934 AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+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 Baker Tilly 
+Hong Kong Limited (“Baker Tilly”), Andrew David Ross (“Ross”), and Kwok Laiha Helena 
+(“Kwok”) (collectively, the “Respondents”), pursuant to Sections 4C1 and 21C of the Securities 
+                                                 
+1  Section 4C provides, in relevant part, that:  
+ 
+The Commission may censure any person, or deny, temporarily or permanently, to any person the privilege 
+of appearing or practicing before the Commission in any way, if that person is found . . . (1) not to possess the 
+requisite qualifications to represent others . . . (2) to be lacking in character or integrity, or to have engaged in 
+unethical or improper professional conduct; or (3) to have willfully violated, or willfully aided and abetted the 
+violation of, any provision of the securities laws or the rules and regulations thereunder. 
+ 
+2 
+ 
+Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) of the Commission’s Rules of 
+Practice.2 
+ 
+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 is admitted, and except as provided herein in Section V, Respondents consent 
+to the entry of this Order Instituting Public Administrative and Cease-and-Desist Proceedings 
+Pursuant to Sections 4C and 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the 
+Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions and a 
+Cease-and-Desist Order (the “Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondents’ Offers, the Commission finds3 that:  
+ 
+A. SUMMARY 
+ 
+ Baker Tilly, a PCAOB-registered audit firm located in Hong Kong, was retained to audit the 
+December 31, 2009, financial statements of China North East Petroleum Holdings Limited 
+(“CNEP”), a Nevada corporation with operations exclusively in the People’s Republic of China 
+(“China”).  During that audit, from January 2010 until at least September 2010, Baker Tilly and 
+two of its directors (the equivalent of a partner at a U.S. firm), Ross and Kwok, engaged in 
+improper professional conduct, including violations of PCAOB auditing standards, with regard to 
+material related-party transactions among CNEP, its Chief Executive Officer (“CEO”), Wang 
+Hongjun (“Wang”), the CEO’s mother, Ju Guizhi (“Ju”), and others.4  Respondents also violated 
+Section 10A(a)(2) of the Exchange Act, dealing with audit procedures to identify related-party 
+transactions.  
+                                                 
+2  Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+  
+The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before 
+it . . . to any person who is found . . . to have engaged in unethical or improper professional conduct. 
+ 
+3   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.  
+  
+4  On November 29, 2012, the Commission filed a lawsuit in the U.S. District Court for the Southern District 
+of New York against CNEP, its Chief Executive Officer (Wang Hongjun), the CEO’s mother (Ju Guizhi), and a 
+CNEP vice president (Chao Jiang), alleging fraud and related charges.  The complaint also named two relief 
+defendants, Wang’s wife and Chao’s father, to whom large sums had been transferred from company funds.  See 
+SEC v. China North East Petroleum Holdings Limited et al., Case No. 12-cv-8696 (S.D.N.Y.).     
+3 
+ 
+ 
+ During the course of the CNEP audit, Respondents were advised that CNEP had engaged 
+in 176 related-party transactions totaling over $59 million in 2009.  Respondents also encountered 
+numerous “red flags” suggesting that these related-party transactions involved a high risk of fraud, 
+e.g., the chairman of CNEP’s Audit Committee resigned due to concerns relating to these 
+transactions, and Baker Tilly itself determined that CNEP’s internal controls relating to such 
+transactions were seriously deficient.  Respondents, however, failed to plan and implement an 
+appropriate audit response to these related-party transactions in compliance with PCAOB 
+standards.  Further, contrary to generally accepted accounting principles in the United States of 
+America (“U.S. GAAP”), CNEP’s December 31, 2009 financial statements did not disclose the 
+related-party transactions other than as a single entry showing a small, net balance due to the CEO.  
+Nonetheless, Baker Tilly issued an audit report containing an unqualified opinion regarding 
+CNEP’s 2009 financial statements.  That report, which Respondents knew would be filed with the 
+company’s 2009 Form 10-K, inaccurately stated that the audit had been conducted in accordance 
+with PCAOB standards and that CNEP’s financial statements fairly presented the company’s 
+position and results in conformity with U.S. GAAP. 
+ 
+B. RESPONDENTS 
+ 
+1. Baker Tilly Hong Kong Limited (“Baker Tilly”) is a PCAOB-registered audit 
+firm based in Hong Kong. 
+ 
+2. Andrew D. Ross (“Ross”), age 60, is a subject of the United Kingdom and resides 
+in Hong Kong.  Ross is a member of the Hong Kong Institute of Certified Public Accountants 
+(“HKICPA”) and the Institute of Chartered Accountants of Scotland.  Ross is the managing 
+director of Baker Tilly and is the Chairman of its executive committee.  Ross was the lead 
+engagement director on the December 31, 2009 CNEP audit and authorized the issuance of Baker 
+Tilly’s audit report.  As lead engagement director with primary responsibility for the audit, Ross 
+was ultimately responsible for being satisfied that:  (1) the direction, supervision, performance, and 
+review of the audit engagement was in compliance with professional standards, applicable legal 
+and regulatory requirements, and the firm’s policies and procedures; (2) the auditor’s report was 
+appropriate in the circumstances of the audit engagement; (3) sufficient competent evidential 
+matter had been obtained to support the conclusions reached and the auditor’s report to be issued; 
+and (4) the audit team had engaged in appropriate consultation on significant matters. 
+ 
+3. Kwok Laiha Helena a/k/a Helena Kwok (“Kwok”), age 47, is a Hong Kong 
+citizen and resides in Hong Kong.  Kwok is a member of the HKICPA and is a fellow member of 
+the Association of Chartered Certified Accountants and an international affiliate of the American 
+Institute of Certified Public Accountants.  Kwok was a shareholder and director at Baker Tilly and 
+functioned as the director in charge of the 2009 year-end audit of CNEP.  Kwok was responsible 
+for the day-to-day supervision of the 2009 audit, but did not have authority to sign the audit report.  
+In particular, following the merger of CNEP’s prior auditor with Baker Tilly, Kwok became 
+directly responsible for:  (1) planning and designing the audit, (2) supervising the Baker Tilly staff 
+in performing the audit steps, (3) reviewing their work and the workpapers and signing off on those 
+4 
+ 
+steps, (4) considering the competence and capabilities of individual engagement team members, 
+(5) addressing significant findings or issues arising during the audit engagement and, if necessary, 
+making appropriate modifications to the planned audit approach, and (6) identifying matters for 
+consultation or consideration by qualified engagement team members during the audit engagement. 
+Kwok essentially had delegated responsibility for overall engagement performance.  
+ 
+C. OTHER RELEVANT ENTITY 
+ 
+4. China North East Petroleum Holdings Limited (“CNEP”) is a Nevada 
+corporation engaged in oil exploration, production and drilling in the People’s Republic of China 
+(“China”).  CNEP became a U.S. issuer in April 2004 through a reverse merger with a British 
+Virgin Islands shell corporation.  CNEP’s common stock was registered with the Commission 
+pursuant to Section 12(b) of the Exchange Act and was listed on the NYSE MKT, LLC (“NYSE”).  
+On July 6, 2012, NYSE filed a Form 25 delisting the common stock effective on July 16, 2012, 
+and deregistering the common stock from Section 12(b) effective on October 4, 2012.  Upon 
+deregistration from Section 12(b), the common stock reverted to its previous registration pursuant 
+to Section 12(g) of the Exchange Act.  On April 5, 2013, the Commission entered an order 
+pursuant to Section 12(j) of the Exchange Act revoking the registration of each class of CNEP’s 
+securities registered pursuant to Section 12 of the Exchange Act. 
+ 
+D. FACTS 
+ 
+CNEP’s December 31, 2009 Financial Statements Filed on Form 10-K  
+Failed To Disclose Material Related-Party Transactions 
+ 
+5. CNEP conducts business through four subsidiaries in China:  Song Yuan North 
+East Petroleum Technical Services Co., Ltd.; Song Yuan Yu Qiao Oil & Gas Development Co., 
+Ltd.; Song Yuan Tiancheng Drilling Engineering Co., Ltd.; and Changling Longde Oil and Gas 
+Exploration Co., Ltd. 
+ 
+6. From 2004 through 2008, CNEP’s annual financial statements were not audited by 
+Baker Tilly, but by another firm also located in Hong Kong (the “Former Auditor”).  In late 2009, 
+the Former Auditor and Baker Tilly began discussions regarding a potential merger of the Former 
+Auditor’s U.S. audit practice into Baker Tilly.  That merger became effective on January 29, 2010, 
+at which time the Former Auditor resigned as CNEP’s auditor and CNEP engaged Baker Tilly as 
+the auditor for its 2009 year-end financial statements.  At the time of the merger, a majority of the 
+audit field work had been completed by the staff of the Former Auditor, several of whom joined 
+Baker Tilly following the merger. 
+ 
+7. On April 14, 2010, the chairman of CNEP’s audit committee raised questions 
+concerning a line item in the draft financial statements indicating that $3.89 million was due to 
+CNEP from a shareholder.  The company’s chief financial officer (“CFO”) indicated that this 
+reflected monies due to the company from another CNEP director, Ju, the mother of CNEP’s CEO.  
+Thereafter, the CFO acknowledged to the audit committee that Wang and Ju regularly transferred 
+5 
+ 
+cash to and from the company and their personal bank accounts. 
+ 
+8. This information regarding related-party transactions prompted the audit committee 
+to retain a forensic accounting firm to review the $3.89 million balance and evaluate the 
+company’s internal controls over such transactions.  After receiving a preliminary report from the 
+forensic accounting firm, the Board of Directors placed CEO Wang on leave and accepted his 
+resignation as Chairman of the Board on May 23, 2010.  The same day, the Board also accepted his 
+mother’s resignation as a director. 
+ 
+9. On July 10, 2010, the forensic accounting firm submitted its final report, which 
+identified 176 related-party transactions totaling approximately $59 million during 2009, and found 
+that there were “critical deficiencies in [CNEP’s] internal control procedures” (the “July 2010 
+Forensic Report”).  The $59 million in related-party transactions included approximately $28 
+million paid from CNEP to Wang and Ju.5  It also included approximately $11 million that Wang 
+and Ju allegedly loaned to CNEP, as well as expenses paid by Wang and Ju on behalf of CNEP.  
+The report also noted that the approximately $20 million that would have remained due from 
+Wang and Ju at the end of 2009 was reduced to zero through year-end consolidation and post-year-
+end closing adjustments that lacked supporting documentation or were otherwise questionable. 
+ 
+10. The forensic accounting firm stated in its report that “[o]ur review has found no 
+evidence to suggest that funds transferred to either Ms. Ju or Mr. Wang were withdrawn for her/his 
+personal use, but has identified that funds transferred to the personal accounts of Ms. Ju and Mr. 
+Wang have been recorded . . . and applied to make payments related to the operations of” 
+CNEP.  The forensic accounting firm also stated in its report that “[w]hilst our review has involved 
+an analysis of financial information and accounting records, it does not constitute an audit or an 
+assurance assignment in accordance with Hong Kong or International Standards on Auditing, on 
+Review Engagements or on Assurance Engagements and accordingly, no such assurance is 
+provided in this report.”  Moreover, notwithstanding what the forensic accounting firm wrote in its 
+report, there is substantial evidence that company funds were transferred to company insiders and 
+their family members for personal use. 
+ 
+11. The July 2010 Forensic Report identified numerous additional red flags and internal 
+control deficiencies and failures, including:   
+ 
+ The ability of management to override internal controls and access CNEP’s bank 
+accounts. 
+ 
+ Unauthorized related-party transactions, including cash withdrawals, payments to 
+vendors, and investments made by insiders on behalf of CNEP without 
+authorization were possible, in part, because of insufficient verification of 
+payments. 
+                                                 
+5  The approximately $28 million that went from CNEP to Wang and Ju was approximately 41% of CNEP’s 
+2009 reported annual revenues of approximately $68 million. 
+6 
+ 
+ Inadequate segregation of duties among employees in accounts payable and cash 
+management areas that could result in the misappropriation of company funds. 
+ Failure to implement and comply with Chinese Interim Cash Control Regulations 
+and Internal Policy concerning cash disbursements, including the lack of a policy 
+related to amounts that could be advanced to company personnel to make purchases 
+on behalf of the company. 
+ Incomplete audit trail for the related-party transactions.  
+ Convoluted and inappropriate account offsets of amounts owed to CNEP by 
+insiders, including Wang and Ju, based on agreements that were largely unsigned 
+and contained contradictory statements or amounts.   
+ Insufficient internal controls to require written approval for the period-end 
+adjustments could result in intentional or unintentional errors in financial 
+statements. 
+ Varied explanations and numerous other anomalies were noted in documentation of 
+the transactions related to fixed assets prepayments to suppliers purportedly paid 
+through the Ju’s personal account.  
+ 
+12. The July 2010 Forensic Report stated that it was not an audit of the related-party 
+transactions or any other part of the CNEP financial statements.  Nevertheless, after receiving the 
+July 2010 Forensic Report on or about July 12, 2010, Ross, Kwok and the engagement team failed 
+to (i) adequately review the report, (ii) adequately revise the firm’s audit planning regarding fraud 
+risks, or (iii) audit the material related-party transactions in accordance with PCAOB standards. 
+ 
+13. On May 27, 2010, CNEP announced that its CFO had resigned.  The new (acting) 
+CFO was unwilling to sign the management representation letter because he was unfamiliar with 
+CNEP’s historical financial information.  Ross, Kwok, and the engagement team ultimately 
+accepted a management representation letter signed only by the acting CEO, who had only three 
+weeks earlier been assigned principal financial officer responsibilities.  On August 8, 2010, the 
+chairman of CNEP’s audit committee resigned, indicating that he believed the company had not 
+adequately addressed the findings of the July 2010 Forensic Report.    
+ 
+14. On September 3, 2010, CNEP’s financial statements were filed with the 
+Commission as part of CNEP’s 2009 Form 10-K.  The material related-party transactions were 
+not disclosed in detail in the notes to the financial statements.  CNEP disclosed only that as of 
+December 31, 2009, the company owed a stockholder $89,269.  CNEP did not disclose that the 
+stockholder was CEO Wang or that the $89,269 was the net result of 176 separate transactions 
+between the company and Wang or his mother or that they totaled approximately $59 million.  
+Thus, the financial statements and notes thereto provided no information regarding the description 
+of the transactions, the nature of the relationships involved, the amounts involved, the terms and 
+manner of settlement of the transactions, and such other information as may be deemed necessary 
+7 
+ 
+to understand the effects of the significant and unusual transactions on the financial statements as 
+required by U.S. GAAP.  Nor did the financial statements indicate that many of the transactions 
+involved the CEO’s family members. 
+ 
+15. Nonetheless, Baker Tilly issued an audit report containing an unqualified opinion 
+that was filed with CNEP’s financial statements in the Form 10-K.  In that report, Baker Tilly 
+inaccurately stated that the audit had been conducted in accordance with PCAOB standards and 
+that CNEP’s financial statements fairly presented the company’s position and results in conformity 
+with U.S. GAAP.   
+ 
+Baker Tilly, Ross, and Kwok Failed to Conduct 
+the CNEP Audit in Accordance with PCAOB Standards 
+ 
+  Failed to exercise due professional care and lacked professional skepticism  
+  (AU §§ 230 and 334) 
+ 
+16. PCAOB standards require auditors to exercise due professional care in the planning 
+and performance of the audit and the preparation of the report. (AU § 230.01)  Auditors should be 
+assigned and supervised commensurate with their level of knowledge, skill, and ability, so that 
+they can evaluate the audit evidence they are examining.  The auditor with final responsibility for 
+the engagement should know, at a minimum, the relevant accounting and auditing standards and 
+should be knowledgeable about the client. (AU § 230.06)  Auditors must maintain an attitude of 
+professional skepticism, which includes “a questioning mind and a critical assessment of audit 
+evidence.” (AU § 230.07)  In addition, the auditor should “consider the competency and 
+sufficiency of the evidence.  Since evidence is gathered and evaluated throughout the audit, 
+professional skepticism should be exercised throughout the audit process.” (AU § 230.08)  
+Additionally, PCAOB standards dealing directly with related-party transactions require that “an 
+auditor should view related-party transactions within the framework of existing [accounting] 
+pronouncements, placing primary emphasis on the adequacy of disclosure.” (AU § 334.02) 
+ 
+17. Ross, Kwok, and other Baker Tilly personnel exhibited a lack of understanding of 
+applicable U.S. professional accounting and auditing standards regarding:  (i) disclosure of related-
+party transactions and (ii) audit procedures and documentation.  Generally, Ross, Kwok, and the 
+Baker Tilly staff involved in this audit lacked adequate professional training in U.S. GAAP.  Ross 
+and Kwok indicated that they received approximately two days of training in U.S. GAAP each 
+year.  Kwok had never previously been involved in the audit of a U.S. issuer. 
+ 
+18. Respondents failed to exercise the requisite level of care or perform a critical 
+assessment of the audit evidence.  Well before the audit report was issued, they were aware that 
+CNEP was engaged in material related-party transactions, including loans to and from insiders, 
+convoluted offsetting agreements, payments to vendors on behalf of CNEP, investments by 
+insiders on behalf of CNEP, and reimbursements to insiders.  Nevertheless, Baker Tilly issued an 
+audit report containing an unqualified opinion even though CNEP failed to properly disclose the 
+8 
+ 
+material related-party transactions in its financial statements as required by U.S. GAAP.6 
+ 
+19. Respondents also failed to exercise an appropriate level of skepticism about the 
+significant and unusual related-party transactions and the explanations and documentation 
+provided by CNEP.  They failed to:  (i) obtain an adequate understanding of their nature, purpose 
+and extent; (ii) determine whether such transactions were approved at appropriate levels within the 
+organization; (iii) adequately consider the implications of significant deficiencies in the system of 
+internal controls surrounding related-party transactions; (iv) address the risks associated with 
+routine transfers of significant CNEP funds into the personal bank accounts of insiders; (v) obtain 
+sufficient evidence to substantiate the related-party transactions, including significant post-year-
+end adjustments; and (vi) resolve inconsistencies in the evidence presented and explanations 
+obtained.  There is insufficient evidence in Respondents’ workpapers that they questioned these 
+transactions or instructed the audit team that specific testing must be designed to address the risks 
+associated with these unusual transactions. 
+ 
+  Failed to adequately plan the audit (AU §§ 311 and 316) 
+ 
+20. Ross, Kwok, and the Baker Tilly engagement team failed to adhere to the PCAOB 
+standards relating to audit planning because they did not obtain adequate knowledge of CNEP’s 
+business or properly consider the risks of material misstatement due to fraud at CNEP. 
+ 
+21. An auditor must adequately plan the audit and properly supervise assistants.  (AU 
+§ 311.01)  In planning the audit, the auditor should obtain a level of knowledge of the entity’s 
+business that will enable him to plan and perform his audit in accordance with PCAOB Standards.  
+As the audit progresses, changed conditions may make it necessary to modify planned audit 
+procedures. (AU § 311.05.)  The auditor should obtain an understanding the events, transactions, 
+and practices that, in his judgment, may have a significant effect on the financial statements.  
+Knowledge of the entity’s business helps the auditor to, among other things, identify areas that 
+may need special consideration, assess conditions under which accounting data are produced, 
+processed, reviewed and accumulated within the organization, and evaluate the reasonableness of 
+management representations.  (AU § 311.06.)  In planning the audit, the auditor should also 
+consider, among other matters, the entity’s accounting policies and procedures, and planned 
+assessed level of control risk.  (AU § 311.03.) 
+ 
+22. The auditor must plan and perform the audit to obtain reasonable assurance about 
+whether the financial statements are free of material misstatement, whether caused by error or 
+fraud. (AU § 316.01)  The audit engagement team, including the auditor with final responsibility 
+                                                 
+6  In particular, Financial Accounting Standards Board Accounting Standards Codification Topic 850 (“ASC 
+850”), formerly known as Statement of Financial Accounting Standards No. 57, provides that financial statements 
+shall include disclosures of material related-party transactions, including a description of the transactions, the nature 
+of the relationships involved, the dollar amount of the transactions, the terms and manner of settlement of amounts 
+due from or to related parties (if not otherwise apparent), and such other information deemed necessary to an 
+understanding of the effects of the transactions on the financial statements. 
+9 
+ 
+for the audit, is required to discuss the risk of material misstatement due to fraud and obtain 
+information needed to identify such risk.  This includes the obligation to make inquiries of 
+management, those charged with governance, and others within the company regarding such risk.  
+(AU § 316, at .14-.27.) 
+ 
+23. Respondents failed to obtain an adequate understanding of CNEP’s business and 
+business environment, including its accounting policies and procedures, internal controls, and the 
+risk of material error or fraud from related-party transactions.  Kwok did not meet any CNEP 
+personnel in person until 2011.  Ross never visited CNEP’s offices or any of its field operations, 
+and never spoke to Baker Tilly’s main contact, the CFO, prior to finalizing the 2009 audit opinion 
+and therefore was not knowledgeable about the client or its business. 
+ 
+24. Respondents failed to adequately plan the audit.  There is no indication in the 
+workpapers that Ross reviewed the audit planning documents.  As the audit progressed, new 
+information and changed conditions should have caused Respondents to re-evaluate and modify 
+the procedures in accordance with AU 311.05.  However, the audit plan was not revised after the 
+Respondents received the July 2010 Forensic Report, which noted that the 176 related-party 
+transactions occurred during 2009. 
+ 
+25. Ross and Kwok failed to consider numerous indications of possible fraud risk in the 
+overall risk analysis and audit planning.  Correspondingly, Respondents failed to develop audit 
+procedures tailored to the true risks presented by the related-party transactions.  In particular, 
+related-party transactions were not identified as a risk area. 
+ 
+Failed to design procedures tailored to the risk of misstatement and failed to 
+properly document audit risk (AU §§ 311 and 312) 
+ 
+26. The auditor is required to perform risk assessment procedures when planning and 
+performing an audit of financial statements in accordance with PCAOB Standards. (AU § 312.01)  
+Ordinarily, higher risk requires more experienced personnel or more extensive supervision, during 
+both the planning and the conduct of the engagement.  Additionally, higher risk may cause the 
+auditor to expand the procedures applied or modify the procedures to obtain more persuasive 
+evidence. (AU § 312.17)   
+ 
+27. Further, the auditor should consider conditions that may require extension or 
+modification of audit tests, such as the existence of related-party transactions. (AU § 311.03g)  An 
+audit of financial statements is a cumulative process and the audit evidence obtained may cause the 
+auditor to modify the planned procedures. (AU § 312.33) 
+ 
+28. In view of the information in the July 2010 Forensic Report, including the 
+significant deficiencies in internal controls surrounding the related-party transactions and the 
+ability of management to override internal controls to access CNEP’s bank accounts, Respondents 
+should have considered identifying additional risk areas and requiring corresponding additional 
+testing. 
+10 
+ 
+Failed to obtain sufficient competent evidential matter and properly audit related-
+party transactions (AU §§ 326, 330, and 334) 
+ 
+29. An auditor must obtain sufficient competent evidential matter to provide a 
+reasonable basis for an audit opinion. (AU § 326.01)  In selecting particular substantive tests to 
+achieve the audit objectives, an auditor considers, among other things, the risk of material 
+misstatements. (AU § 326.11)  Evidential matter from independent sources outside the issuer 
+provides greater assurance of reliability than information obtained solely from within the entity.  
+(AU § 326.21)  With respect to related-party transactions, after an auditor identifies related-party 
+transactions, he or she should apply the procedures considered necessary to obtain satisfaction 
+concerning the purpose, nature, and extent of those transactions and their effect on the financial 
+statements.  This may include taking the steps necessary to obtain “an understanding of the 
+business purpose of the transaction” and examining supporting documentation, such as invoices 
+and copies of contracts. (AU § 334.09)  Where disclosure of a transaction is required, the auditor 
+must satisfy himself that the transaction is adequately disclosed in the financial statements.  (AU 
+§ 334.11)  The higher the auditor’s assessment of risk regarding related-party transactions, the 
+more extensive or effective the audit tests should be. (AU § 9334.19) 
+ 
+30. If an entity has entered into an unusual or complex transaction and the combined 
+assessed level of inherent and control risk is high, the auditor should consider confirming the terms 
+of the transaction with the other parties. (AU § 330.08)  The auditor should assess whether the 
+evidence provided by confirmations reduces audit risk for the related assertions to an acceptably 
+low level.  In making that assessment, the auditor should consider the materiality of the account 
+balance and the control risk assessment.  If the evidence provided by confirmations is not 
+sufficient, additional procedures should be performed. (AU § 330.09)   
+ 
+31. Respondents failed to obtain sufficient evidence regarding CNEP’s related-party 
+transactions to support an unqualified audit opinion.  Respondents failed to identify related parties, 
+failed to identify all related-party transactions, and failed to perform adequate procedures to gain 
+an understanding of the business purposes, nature and impact of the material related-party 
+transactions that were identified.  Respondents also failed to obtain audit evidence that would 
+justify CNEP’s failure to adequately disclose the material related-party transactions.  
+ 
+32. CNEP engaged in approximately $59 million in related-party transactions in 2009.  
+However, the scope of the Hong Kong accounting firm’s engagement and its July 2010 Forensic 
+Report focused on the $3.89 million balance identified by the audit committee chairman.  Baker 
+Tilly’s workpapers do not reflect that Ross Kwok, or anyone on the engagement team made 
+meaningful inquiry as to the nature or business purpose of the other material related-party 
+transactions, or that they performed sufficient substantive procedures to verify those transactions.  
+ 
+33. Post year-end closing adjustments significantly reduced the amounts that Wang and 
+Ju owed CNEP; however, Respondent’s testing in this area was limited.  According to the July 
+2010 Forensic Report, the post year-end adjustments included transactions to record $5.0 million in 
+“balance transfers” due from CNEP to Wang and Ju and $6.7 million related to the “amount paid 
+11 
+ 
+by Ms. Ju for acquiring Tian Cheng.”  Nothing in Respondents’ workpapers indicates that they 
+applied sufficient procedures to substantiate these post year-end adjustments. 
+ 
+34. Another of the 176 related-party transaction involved Wang’s purported capital 
+infusion of $4.6 million into CNEP’s subsidiary Song Yuan Technical on September 23, 2009.  
+However, according to the bank statement for the account in which CNEP’s 2009 offering 
+proceeds were deposited, the $4.6 million was transferred from CNEP, not Wang.  Baker Tilly’s 
+workpapers contain conflicting accounts of the source of the $4.6 million.  Respondents failed to 
+determine and document the true source of the $4.6 million before issuing the audit report 
+containing an unqualified opinion.  
+ 
+35. To test whether Wang was owed substantial sums by CNEP, Respondents sent the 
+confirmation papers to Wang himself.  Wang was not a third-party and, given the risk, this 
+“confirmation process” was not sufficient to determine the completeness, existence or accuracy of 
+the purported debt to Wang.  As such, additional evidence should have been obtained but was not. 
+ 
+ Failed to prepare and retain adequate audit documentation (AS 3) 
+ 
+36. PCAOB Auditing Standard (“AS”) No. 3 requires that audit documentation contain 
+sufficient information to enable an experienced auditor, having no previous connection with the 
+engagement, to understand: the procedures performed; the results and evidence obtained; the 
+conclusions reached; who performed and reviewed the work; and the dates such work was 
+completed and reviewed. (AS 3.06)  Respondents failed to comply with these requirements. 
+ 
+37. The audit documentation maintained by Ross, Kwok, and the Baker Tilly 
+engagement team is not sufficient to enable an experienced auditor to understand the “nature, 
+timing, extent and results of audit procedures performed” in a variety of areas.  The work papers 
+frequently do not reflect the name of the preparer, the date the work was done, the date the papers 
+were prepared, or the date the papers were reviewed.   
+ 
+38. The audit documentation does not adequately reflect Respondents’ findings and 
+conclusions regarding the related-party transactions, including post year-end adjustments.  Nor do 
+the workpapers address the fundamental questions of whether CNEP was required by U.S. GAAP 
+to disclose the material related-party transactions in its financial statements. 
+ 
+39. Respondents’ workpapers do not contain sufficient evidence with respect to the 
+accounts payable and related payments by Ju purportedly paid to reduce amounts she owed to 
+CNEP.  The main focus of the July 2010 Forensic Report was the $3.89 million of vendor 
+payments purportedly made by Ju to eight suppliers on behalf of the company. 
+ 
+ 
+12 
+ 
+E. VIOLATIONS 
+ 
+Rule 102(e) and Section 4C of the Exchange Act 
+ 
+40. As a result of the conduct described above, Respondents engaged in improper 
+professional conduct within the meaning of Section 4C of the Exchange Act and Rule 102(e)(1)(ii) 
+of the Commission’s Rules of Practice.  These provisions provide, in pertinent part, that the 
+Commission may censure or deny, temporarily or permanently, the privilege of appearing or 
+practicing before the Commission to any person who is found by the Commission to have engaged 
+in improper professional conduct.  
+ 
+41. Section 4C(b) and Rule 102(e)(1)(iv) define improper professional conduct with 
+respect to persons licensed to practice as accountants.  Pursuant to these provisions, “improper 
+professional conduct” includes two types of negligent conduct: (1) a single instance of highly 
+unreasonable conduct that results in a violation of professional standards in circumstances in 
+which heightened scrutiny is warranted; or (2) repeated instances of unreasonable conduct, each 
+resulting in violations of professional standards, that indicate a lack of competence. 
+ 
+42. Ross’s and Kwok’s failures to abide by PCAOB standards in the audit of CNEP’s 
+year-end financial statements for 2009 constitute repeated instances of unreasonable conduct, 
+and also satisfy the highly unreasonable conduct standard.   
+ 
+43. Baker Tilly’s failures to abide by PCAOB standards in the audit of CNEP’s year-
+end financial statements for 2009 satisfy the one instance of highly unreasonable conduct 
+standard. 
+ 
+Respondents Violated Section 10A(a)(2) of the Exchange Act 
+ 
+44. Section 10A(a)(2) of the Exchange Act requires each audit conducted of an issuer 
+by a registered public accounting firm to include “procedures designed to identify related-party 
+transactions that are material to the financial statements or otherwise require disclosure therein.” 
+No showing of scienter is necessary to establish a violation of Section 10A.  See SEC v. Solucorp 
+Indus., Ltd., 197 F. Supp. 2d. 4, 10-11 (S.D.N.Y. 2002). 
+ 
+45. In connection with the 2009 CNEP audit, Respondents violated Section 10A(a)(2) 
+of the Exchange Act by failing to plan, design, and carry out audit procedures to identify CNEP’s 
+material related-party transactions that required disclosure in the financial statements.  
+ 
+13 
+ 
+F. FINDINGS 
+ 
+46. Based on the forgoing, the Commission finds that Baker Tilly, Ross, and Kwok 
+engaged in improper professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission’s 
+Rules of Practice and Section 4C of the Exchange Act. 
+ 
+47. Additionally, the Commission finds that Baker Tilly, Ross, and Kwok violated 
+Section 10A(a)(2) of the Exchange Act. 
+ 
+G. UNDERTAKINGS 
+ 
+Baker Tilly Shall Retain an Independent Consultant  
+47. Baker Tilly has undertaken to retain, within thirty days after the entry of this 
+Order, an independent consultant (“Independent Consultant”), not unacceptable to the 
+Commission staff.  The Independent Consultant will review and evaluate the audit and interim 
+review policies and procedures of Baker Tilly regarding: (i) identifying and disclosing related-
+party transactions; (ii) training in client fraud detection; (iii) exercising due professional care and 
+professional skepticism; (iv) audit planning; (v) performing proper risk assessment; (vi) 
+designing procedures tailored to the risk of misstatement; (vii) obtaining sufficient appropriate 
+audit evidence; (viii) document retention; (ix) third-party confirmations; (x) work paper sign-off 
+and dating; and (xi) adequate audit documentation.  The Independent Consultant’s review and 
+evaluation will assess the forgoing areas to determine whether Baker Tilly’s policies and 
+procedures are adequate and sufficient to ensure compliance with Commission regulations and 
+with PCAOB standards and rules.  Baker Tilly will cooperate fully with the Independent 
+Consultant and will provide reasonable access to firm personnel, information, and records as the 
+Independent Consultant may reasonably request for the Independent Consultant’s reviews and 
+evaluations.  Baker Tilly will provide to the Commission staff a copy of the engagement letter 
+detailing the scope of the Independent Consultant’s responsibilities.  
+48. Within sixty days of being retained, the Independent Consultant will issue a 
+written report (“Report”) to Baker Tilly: (a) summarizing the Independent Consultant’s review 
+and evaluation; and (b) making recommendations, where appropriate, reasonably designed to 
+ensure that audits conducted by Baker Tilly comply with Commission regulations and with 
+PCAOB standards and rules.  The Independent Consultant will provide a copy of the Report to 
+the Commission staff and the PCAOB staff when the Report is issued.  
+49. Baker Tilly will adopt, as soon as practicable, all recommendations of the 
+Independent Consultant in the Report.  Provided, however, that within thirty days of issuance of 
+the Report, Baker Tilly may advise the Independent Consultant in writing of any 
+recommendation that it considers to be unnecessary, unduly burdensome, or impractical.  Baker 
+Tilly need not adopt any such recommendation at that time, but instead may propose in writing 
+to the Independent Consultant and the Commission Staff an alternative policy or procedure 
+designed to achieve the same objective or purpose.  Baker Tilly and the Independent Consultant 
+will engage in good-faith negotiations in an effort to reach agreement on any recommendations 
+objected to by Baker Tilly.  
+14 
+ 
+50. In the event that the Independent Consultant and Baker Tilly are unable to agree 
+on an alternative proposal within thirty days, Baker Tilly will abide by the determinations of the 
+Independent Consultant.  
+51. Within sixty days of issuance of the Report, but not sooner than thirty days after a 
+copy of the Report is provided to the Commission staff, Baker Tilly will certify to the Staff in 
+writing that it has adopted and has implemented or will implement all recommendations of the 
+Independent Consultant (“Certification of Compliance”).  Baker Tilly will provide a copy of the 
+Certification of Compliance to the PCAOB staff.  
+52. Baker Tilly will require the Independent 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 Independent Consultant shall not enter into any employment, consultant, 
+attorney-client, auditing or other professional relationship with Baker Tilly, 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 
+Independent Consultant in performance of his/her duties under this Order shall not, without prior 
+written consent of the Division of Enforcement, enter into any employment, consultant, attorney-
+client, auditing or other professional relationship with Baker Tilly, 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.  
+53. Baker Tilly shall certify, in writing, compliance with the undertakings set forth 
+above.  The certification shall identify the undertakings, provide written evidence of compliance 
+in the form of a narrative, and be supported by exhibits sufficient to demonstrate compliance. 
+The Commission staff may make reasonable requests for further evidence of compliance, and 
+Baker Tilly agrees to provide such evidence.  The certification and supporting material shall be 
+submitted to Antonia Chion, Associate Director, Division of Enforcement, Securities and 
+Exchange Commission, 100 F St., N.E., Washington, D.C. 20549-5720B SP2, with a copy to the 
+Office of Chief Counsel of the Enforcement Division, no later than sixty (60) days from the date 
+of the completion of the undertakings. 
+Baker Tilly Shall Not Accept New Audit Clients 
+54. Baker Tilly will not accept any new U.S. issuer audit clients between the date of 
+this Order and the issuance of the Certification of Compliance by the Independent Consultant.  
+ 
+Baker Tilly Shall Provide Notice to its Current Audit Clients 
+55. Within 15 days of the entry of this order, Baker Tilly will provide notice of this 
+settlement to its current U.S. audit clients. 
+Respondents Shall Cooperate with the 
+Commission’s Investigation and Related Litigation  
+56. Baker Tilly, Ross, and Kwok hereby undertake that they shall cooperate fully with 
+the Commission in any and all investigations, litigations, administrative or other proceedings 
+15 
+ 
+commenced by the Commission or to which the Commission is a party relating to or arising from 
+the matters described in this Order.  In connection with such investigations, litigation, administrative 
+or other proceedings, the Respondents agree to the following:  (i) to produce, without service of a 
+notice or subpoena, any and all documents and other materials and information as requested by the 
+Commission; (ii) to appear and testify without service of a notice or subpoena in such 
+investigations, interviews, depositions, hearings and trials, at such times and places as reasonably 
+requested by the Commission; and (iii) to respond promptly to all inquiries from the Commission.  
+In determining whether to accept the Offers, the Commission has considered these undertakings. 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ Offers. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Baker Tilly, Ross, and Kwok shall cease and desist from committing or causing any 
+violations and any future violations of Section 10A(a)(2) of the Exchange Act. 
+ 
+ B. Baker Tilly is censured. 
+ 
+ C. Ross and Kwok are denied the privilege of appearing or practicing before the 
+Commission as accountants.   
+ 
+ D. After three years from the date of this order, Ross and/or Kwok 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 
+their 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) Ross or Kwok, or the public accounting firm with which he or she 
+is associated, is registered with the Public Company Accounting 
+Oversight Board (“PCAOB”) in accordance with the Sarbanes-
+Oxley Act of 2002, and such registration continues to be effective; 
+ 
+16 
+ 
+   (b) Ross or Kwok, or the registered public accounting firm with which 
+he or she is associated, has been inspected by the PCAOB and that 
+inspection did not identify any criticisms of or potential defects in  
+the quality control system relating to the work of Ross or Kwok 
+that would indicate that Ross or Kwok will not receive appropriate 
+supervision; 
+   (c) Ross and/or Kwok have resolved all disciplinary issues with the 
+PCAOB, and has complied with all terms and conditions of any 
+sanctions imposed by the PCAOB (other than reinstatement by the 
+Commission); and 
+ 
+   (d) Ross and/or Kwok acknowledges his or her responsibility, as long 
+as they appear or practice before the Commission as an 
+independent accountant, to comply with all requirements of the 
+Commission and the PCAOB, including, but not limited to, all 
+requirements relating to registration, inspections, engagement 
+quality reviews, and quality control standards.   
+ 
+E. The Commission will consider an application by Ross and/or Kwok to resume 
+appearing or practicing before the Commission provided that his or her CPA license is current 
+and he or she has resolved all other disciplinary issues with the applicable boards of 
+accountancy.  However, if CPA 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 Ross’s or Kwok’s character, integrity, professional conduct, or qualifications to appear or 
+practice before the Commission. 
+ 
+ F. Baker Tilly shall, within 30 days of the entry of this Order, pay disgorgement of 
+$75,000, which represents profits gained as a result of the conduct described herein, and 
+prejudgment interest of $9,101 to the Securities and Exchange Commission.  If timely payment is 
+not made, additional interest shall accrue pursuant to SEC Rule of Practice 600.   
+ 
+G. Ross and Kwok shall, within 30 days of the entry of this Order, pay civil money 
+penalties in the amounts of $20,000 and $10,000, respectively, to the Securities and Exchange 
+Commission.  If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. 
+3717. 
+ 
+H. Payments ordered in paragraphs F and G above must be made in one of the 
+following ways:   
+ 
+ (1)  Respondent may transmit payment electronically to the Commission, which 
+will provide detailed ACH transfer/Fedwire instructions upon request;  
+ 
+17 
+ 
+ (2)  Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or 
+ 
+ (3)  Respondent may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange 
+Commission and hand-delivered or mailed to:  
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+Payments by check or money order must be accompanied by a cover letter identifying 
+Baker Tilly, Ross, or Kwok as a Respondent in these proceedings, and the file number of these 
+proceedings; a copy of the cover letter and check or money order must be sent to Antonia Chion, 
+Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, Washington, DC 
+20549. 
+ 
+V. 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
+523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are admitted by 
+Respondents, and further, any debt for disgorgement, prejudgment interest, civil penalty or other 
+amounts due by Respondent under this Order or any other judgment, order, consent order, decree 
+or settlement agreement entered in connection with this proceeding, is a debt for the violation by 
+Respondent of the federal securities laws or any regulation or order issued under such laws, as set 
+forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 

raw/aaer/2014/AAER-3618.txt

@@ -0,0 +1,43 @@
+ 
+ UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 73931 / December 23, 2014  
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3618 / December 23, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15659 
+ 
+      : 
+In the Matter of                             : 
+       : 
+   THOMAS D. MELVIN, CPA,   : 
+      : EXTENSION ORDER 
+Respondent.                                 :  
+                                                      :     
+ 
+ 
+ On December 23, 2014, Thomas D. Melvin, CPA (“Respondent”) requested an 
+extension to file a brief in support of the petition for review.  Respondent represents that 
+the Division consents to this request.  The briefing schedule in this matter ordered 
+Respondent to file his brief in support of the petition for review by December 26, 2014, 
+with a brief in opposition due January 26, 2015, and the reply brief, if any, by February 9, 
+2015.    
+ Extensions of time are disfavored.  It appears appropriate, however, to 
+grant an extension.   
+ 
+Therefore, it is ORDERED that the time for filing Respondent’s brief is extended 
+to January 16, 2015.  A brief in opposition shall be filed by February 17, 2015, and any 
+reply brief shall be filed by March 3, 2015.  
+  
+ For the Commission, by its Secretary, pursuant to delegated authority. 
+ 
+ 
+ 
+       Brent J. Fields 
+Secretary 

raw/aaer/2018/AAER-3917.txt

@@ -0,0 +1,168 @@
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 82554 / January 19, 2018 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3917 / January 19, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-18344 
+ 
+In the Matter of 
+ 
+JUSTIN SAMUEL CARY, 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 Justin 
+Samuel Cary (“Respondent” or “Cary”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules 
+of Practice.1   
+ 
+II. 
+ 
+                                                 
+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 
+ 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(2) below, which are admitted, Respondent 
+consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) 
+of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions 
+(“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that:  
+ 
+1. Cary, age 35, is and has been a certified public accountant licensed to practice in the 
+State of California since April 2009.  In his accounting career, Cary has worked in several positions 
+as an outside auditor and as an in-house accountant.  From September 2013 until fall 2017, Cary 
+had been a consultant for NOW CFO, LLC (“NOW CFO”), an accounting outsourcing firm.  In 
+addition, from July 2015 until fall 2017, Cary has been the chief financial officer, chief operating 
+officer, and a member of the board of directors for Praxsyn Corp., whose common stock is publicly-
+traded and registered with the Commission. 
+ 
+2. On January 5, 2018, a final judgment was entered against Cary, permanently 
+enjoining him from future violations of Sections 10(b) of the Exchange Act and Rule 10b-5 
+thereunder, in the civil action entitled Securities and Exchange Commission v. Justin Samuel Cary, 
+Civil Action Number 8:17-cv-01649-DOC-JCG, in the United States District Court for the Central 
+District of California.  Cary was also ordered to pay $8,140.25 in disgorgement of ill-gotten gains 
+from his sales of stock while participating in the fraud, and $514.78 in prejudgment interest, and an 
+$8,140.25 civil money penalty. 
+ 
+  3. The Commission’s complaint alleged, among other things, that Cary engaged in 
+insider trading in the stock of Adaptive Medias, Inc. (“Adaptive Medias”), in advance of the 
+company’s February 1, 2016 announcement of an offer from a rival advertising technology firm 
+to acquire it in a cash-for-stock transaction at a steep premium to Adaptive Medias’ prevailing 
+market price.  The complaint also alleged that in 2016, Cary was working at Adaptive Medias as 
+a consultant responsible for the company’s accounting.  The complaint further alleged that on 
+January 28, 2016, Cary received an internal email from Adaptive Medias’ controller about a 
+soon-to-be-issued press release announcing that the company had received an acquisition offer at 
+a price nearly ten times its current trading price.  According to the Commission’s complaint, just 
+six minutes later, Cary logged on to his personal online brokerage account and bought shares of 
+Adaptive Medias on the basis of that material non-public information.  The complaint alleged 
+that after Adaptive Medias issued its press release announcing the acquisition offer, the 
+company’s share price increased 428%.  Last, the complaint alleged that Cary quickly sold his 
+stock and netted a profit of $8,140.25 on his original $2,880.00 investment.   
+ 
+ 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 Doe’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Justin Samuel Cary is suspended from appearing or practicing before the 
+Commission as an accountant.   
+ 
+ B. After five years from the date of this order, Justin Samuel Cary 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 (other 
+than as a member of an audit committee, as that term is defined in Section 3(a)(58) of the 
+Securities Exchange Act of 1934).  Such an application must satisfy the Commission that Cary’s 
+work in his practice before the Commission as an accountant 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.    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 as a 
+member of an audit committee, as that term is defined in Section 3(a)(58) of the Securities Act 
+of 1934.  Such an application will be considered on a facts and circumstances basis with 
+respect to such membership, and the applicant’s burden of demonstrating good cause for 
+reinstatement will be particularly high given the role of the audit committee in financial and 
+accounting matters; and/or  
+ 
+3. an independent accountant.   
+ 
+Such an application must satisfy the Commission that: 
+      
+           (a) Justin Samuel Cary, 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) Justin Samuel Cary, 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 Cary’s or the firm’s quality control system that would 
+indicate that the respondent will not receive appropriate supervision; 
+ 4 
+   (c) Justin Samuel Cary 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) Justin Samuel Cary acknowledges his/her responsibility, as long as 
+he appears or practices before the Commission as an independent accountant, to comply with all 
+requirements of the Commission and the Board, including, but not limited to, all requirements 
+relating to registration, inspections, concurring partner reviews and quality control standards.   
+      
+C. The Commission will consider an application by Justin Samuel Cary 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 Justin Samuel Cary’s character, integrity, professional 
+conduct, or qualifications to appear or practice before the Commission as an accountant.  
+Whether an application demonstrates good cause will be considered on a facts and 
+circumstances basis with due regard for protecting the integrity of the Commission’s 
+processes.  
+ 
+ By the Commission. 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 

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+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 82556 / January 22, 2018 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3918 / January 22, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-18346 
+ 
+ 
+In the Matter of 
+ 
+CYNTHIA HOLDER, CPA, 
+JEFFREY WADA, CPA, 
+DAVID MIDDENDORF, CPA, 
+THOMAS WHITTLE, CPA, and 
+DAVID BRITT, CPA 
+ 
+Respondents. 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTIONS 4C AND 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE COMMISSION’S 
+RULES OF PRACTICE, AND NOTICE OF 
+HEARING 
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative and cease-and-desist proceedings be, and hereby are, instituted against Cynthia 
+Holder, CPA; Jeffrey Wada, CPA; David Middendorf, CPA; Thomas Whittle, CPA; and David 
+Britt, CPA (collectively, “Respondents”), pursuant to Sections 4C1 and 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) and (iii) of the Commission’s 
+Rules of Practice.2 
+                                                 
+1  Section 4C provides, in relevant part, that:  
+ 
+ The Commission may censure any person, or deny, temporarily or permanently, to any person the 
+privilege of appearing or practicing before the Commission in any way, if that person is found . . . 
+(1) not to possess the requisite qualifications to represent others; (2) to be lacking in character or 
+integrity, or to have engaged in unethical or improper professional conduct; or (3) to have willfull y 
+violated, or willfully aided and abetted the violation of, any provision of the securities laws or the 
+rules and regulations issued thereunder. 
+ 
+2  Rule 102(e)(1)(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 be lacking in character or integrity or to have 
+engaged in unethical or improper professional conduct. 
+ 
+ 2 
+II. 
+ 
+After an investigation, the Division of Enforcement and the Office of the Chief Accountant 
+allege that: 
+ 
+SUMMARY 
+ 
+1. This case involves the unauthorized disclosures of confidential information from 
+the Public Company Accounting Oversight Board (“PCAOB” or “Board”) relating to its 
+Inspections program, and a concerted effort by the proposed respondents to use that information to 
+benefit KPMG LLP and, consequently, themselves. 
+2. On his last day at the PCAOB in 2015, Brian Sweet took sensitive inspections-
+related documents from the PCAOB to use as a resource in his new job in KPMG’s Department of 
+Professional Practice.  Shortly after he joined KPMG, Sweet asked Cynthia Holder, then a PCAOB 
+employee, to send him confidential PCAOB materials.  She did as he requested, then sent him 
+additional confidential information relating to a planned inspection of a KPMG client.  Holder 
+made these unauthorized disclosures while she was seeking employment at KPMG.  In 2016 and 
+2017, a third PCAOB employee, Jeffrey Wada, leaked confidential information relating to the 
+PCAOB’s planned inspections of KPMG to Holder after she had left the PCAOB and joined 
+KPMG.  Wada’s leaks to Holder in 2017 similarly occurred while he was seeking employment 
+with KPMG. 
+3. Most of the information Sweet, Holder, and Wada disclosed without authorization 
+related to the PCAOB’s inspections of KPMG audits, including the audit engagements the PCAOB 
+planned to inspect, the criteria the PCAOB used to select engagements for inspection, and the 
+focus areas of the inspections.  This was valuable information to KPMG, which had experienced a 
+high rate of audit deficiency findings and had made a priority of improving its PCAOB inspection 
+results. 
+4. Sweet told his supervisors in KPMG’s National Office, David Middendorf and 
+Thomas Whittle, along with another partner in that office, David Britt, that he had taken 
+confidential materials from the PCAOB and received, from time to time, additional confidential 
+information from PCAOB employees.  Middendorf and Whittle encouraged Sweet to share the 
+PCAOB’s confidential information with them, with other KPMG colleagues, and with an outside 
+contractor.  After Wada sent Holder the list of the PCAOB’s planned inspections for 2016, 
+Middendorf, Whittle, Britt, Sweet, and Holder undertook an effort to analyze and review audit 
+                                                                                                                                                             
+ 
+ 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. 
+ 
+ 3 
+workpapers and to suggest revisions to them to avoid possible findings of deficiencies by the 
+PCAOB.   
+5. Middendorf, Whittle, Britt, Sweet, and Holder also received from Wada 
+confidential information relating to the PCAOB’s upcoming 2017 inspections.  However, their 
+misconduct came to light early in the year and did not affect any PCAOB inspections of the firm. 
+ 
+RESPONDENTS 
+ 
+6. Cynthia Holder, 51, of Houston, Texas was an Executive Director in KPMG’s 
+Department of Professional Practice group from August 2015 until April 2017.  Prior to joining 
+KPMG, Holder was an Inspections Leader at the PCAOB from December 2011 until August 2015.  
+Holder is licensed as a CPA in Texas. 
+7. Jeffrey Wada, 42, of Tustin, California was an Inspections Leader at the PCAOB 
+from February 2012 until February 2017.  Wada is licensed as a CPA in California.   
+8. David Middendorf, 53, of Marietta, Georgia, was KPMG’s National Managing 
+Partner for Audit Quality and Professional Practice until April 2017.  Middendorf is licensed as a 
+CPA in Georgia, New York, and Ohio and was previously licensed in Texas. 
+9. Thomas Whittle, 54, of Gladstone, New Jersey, was KPMG’s National Partner-In-
+Charge for Inspections until April 2017.  Whittle is licensed as a CPA in New York and New 
+Jersey and was previously licensed in Pennsylvania and Connecticut. 
+10. David Britt, 54, of New Canaan, Connecticut, was KPMG’s Banking and Capital 
+Markets Group Co-Leader until February 2017.  Britt is licensed as a CPA in New York and 
+California and was previously licensed in the District of Columbia. 
+ 
+OTHER RELEVANT PERSON AND ENTITY 
+ 
+11. Brian Sweet, 40, of Fresno, California, was a Partner in KPMG’s Department of 
+Professional Practice group until March 2017.  Prior to joining KPMG, Sweet was an Associate 
+Director in the PCAOB’s inspections group from March 2014 until April 2015.  Sweet is licensed 
+as a CPA in New York and Illinois and was previously licensed in California.  The Commission 
+has charged Sweet for his role in the misconduct described in this Order. 
+12. KPMG LLP is a Delaware limited liability partnership and PCAOB-registered 
+accounting firm.  Headquartered in New York, New York, KPMG is the U.S. member firm of 
+KPMG International Cooperative, a Swiss entity. 
+FACTS 
+ 
+The PCAOB’s Inspections Process 
+ 
+13. The PCAOB was created as part of the Sarbanes-Oxley Act of 2002 to oversee the 
+audits of public companies that are subject to the securities laws in order to protect the interests of 
+ 4 
+investors and further the public interest in the preparation of informative, accurate, and 
+independent audit reports. 
+14. One of the critical ways in which the PCAOB fulfills this mission is by inspecting 
+audits of public companies conducted by registered public accounting firms.  Through these 
+inspections, the PCAOB assesses the audit firms’ compliance with the statutes, regulations, and 
+professional standards governing the accounting profession.  The PCAOB typically selects the 
+audit engagements it will inspect based on confidential internal analysis and thereafter notifies 
+firms which audits it will inspect.  The PCAOB typically issues inspection reports, only parts of 
+which are made public, after all the inspections for a firm are complete.   
+15. To ensure the integrity of the inspection process, the PCAOB closely guards the 
+confidentiality of both its inspection targets prior to firm notification and its methodology for 
+selecting those targets.  All PCAOB employees must certify that they are complying with PCAOB 
+Ethics Rules that prohibit employees from using confidential PCAOB information for private gain 
+(or even merely creating the appearance that they are) and that bar them from making unauthorized 
+disclosures of confidential information obtained during their employment.  The PCAOB’s Ethics 
+Rules and the employees’ ethics certifications state these prohibitions continue to apply even after 
+their employment with the Board ends. 
+KPMG’s Pursuit of Sweet 
+ 
+16. In September 2014, the PCAOB issued a report regarding its 2013 inspections of 
+KPMG audits.  The report found that out of 50 audits the PCAOB inspected, 23 were deficient.  
+This 46 percent deficiency rate, which placed KPMG third among the “big four” accounting firms, 
+reflected a significant decline from KPMG’s 34 percent deficiency rate the previous year.  As a 
+result, KPMG leadership exerted meaningful pressure within the firm to improve the results.  One 
+of the steps KPMG took to improve its results was to hire Sweet, an Associate Director at the 
+PCAOB who worked on the team inspecting KPMG audits, to join the firm.  KPMG’s Vice Chair 
+of Audit characterized Sweet’s recruitment as a “top priority.”  
+17. KPMG hired Sweet as a partner in the Department of Professional Practice (“DPP”) 
+group in the firm’s National Office.3  Among other things, Sweet was responsible for conducting 
+internal inspections of KPMG audits.   
+Sweet Divulges Confidential PCAOB Information to KPMG 
+ 
+18. In April 2015, shortly before leaving the Board, Sweet copied from an internal 
+PCAOB database to his office computer various confidential inspection-related materials he 
+believed might help him at KPMG.  On his last day at the Board, Sweet transferred these 
+documents and the other files on his PCAOB computer to a personal hard drive that he took with 
+him.  Sweet also took from the PCAOB hard copy documents and retained confidential PCAOB 
+documents he had previously brought home.   
+                                                 
+3  KPMG’s National Office is responsible for technical accounting and auditing leadership, risk management, 
+and quality control for the firm. 
+ 
+ 5 
+19. These documents included PCAOB inspection planning information, inspection 
+guides and manuals, and drafts of confidential inspection comment forms.  The planning materials 
+included the confidential list of KPMG audit engagements the PCAOB intended to inspect in 2015, 
+the focus areas for each inspection, and a list of all the quantitative and qualitative criteria the 
+Board used in deciding which KPMG audit engagements to inspect.   
+20. Upon joining KPMG in May 2015, Sweet transferred the PCAOB documents from 
+his personal hard drive to his computer at the firm.    
+A. Sweet Divulges Confidential PCAOB Information Regarding 2015 Inspections to 
+Middendorf, Whittle, and Britt 
+ 
+21. At KPMG, Sweet reported to Thomas Whittle, who was responsible for overseeing 
+both the PCAOB’s and KPMG’s internal inspections.  Whittle, in turn, reported to David 
+Middendorf, who oversaw the National Office’s audit quality and professional practice work. 
+22. On his first day at the firm in May 2015, Sweet had lunch with Middendorf and 
+other KPMG National Office colleagues, including David Britt, another National Office partner 
+who was co-leader of KPMG’s Banking and Capital Markets Group.  During the lunch, Sweet’s 
+new colleagues asked him various questions about the PCAOB’s inspections of KPMG.  One of 
+the questions Middendorf asked Sweet was whether the PCAOB intended to inspect a specific 
+KPMG banking client that year.  Without answering directly, Sweet indicated the PCAOB planned 
+to do so.   
+23. Several days later, Whittle asked Sweet to provide him the list of the PCAOB’s 
+planned inspections for 2015.4  Sweet showed Whittle a hard copy of a PCAOB inspection 
+planning document that identified 46 KPMG audits the PCAOB intended to inspect that year and 
+included the PCAOB’s confidential areas of focus for those inspections. 
+24. The next day, Whittle emailed Sweet, asking him to have an assistant “scan and 
+send me the banking selection list” (i.e. KPMG’s bank holding company clients the PCAOB had 
+selected for inspection).  Sweet complied by sending Whittle the complete list of planned 
+inspections and asked Whittle to exercise discretion given the nature of the information.  Whittle 
+replied, “got it and understand the sensitivity.”  Whittle forwarded this information to Middendorf 
+the same day, writing, “The complete list.  Obviously, very sensitive.  We will not be broadcasting 
+this.”5   
+25. In June 2015, Sweet identified for Britt a number of KPMG banking clients the 
+PCAOB planned to inspect in 2015.  The next day, Britt emailed Sweet, “I thin[k] when we were 
+                                                 
+4 By that time, the PCAOB had informed KPMG of less than half of the audit engagements it intended to 
+inspect in 2015.   
+ 
+5 Though Whittle immediately assigned Sweet to review the workpapers of one of the inspection targets, it 
+does not appear that any workpapers were changed in response to Sweet providing the 2015 inspection list.  At the 
+time Sweet provided this information to Middendorf and Whittle, KPMG had, pursuant to its policy, locked the 
+audit workpapers for all but two of the engagements from editing absent special circumstances.   
+ 
+ 6 
+going through the list of Bank selections, you couldn’t recall the last 3 Bank names without your 
+notes, would you be able to get me the last three for 2015.”  Sweet gave Britt the information later 
+that day, asking him to “please note there is some sensitivity with these, and some of the teams 
+have not yet been officially notified by the PCAOB, so please use your discretion with this info.” 
+26. Sweet shared the information he had taken from the PCAOB with his new 
+colleagues to benefit himself and the firm.  He believed, based on comments Middendorf and 
+Whittle had made to him, that his position as a partner at KPMG was not secure.  Sweet believed it 
+would help him in his position at KPMG if he were perceived as a team player working to help the 
+firm. 
+B. Middendorf and Whittle Direct Sweet to Divulge Confidential PCAOB Information to 
+An Outside Consultant 
+ 
+27. In April 2015, KPMG engaged an outside consultant to help it predict which audit 
+engagements the PCAOB would inspect in 2016.  In June 2015, Middendorf and Whittle both 
+approached Sweet in his office and directed him to share everything he knew with the outside 
+consultant.  Sweet understood this to be an instruction to give the consultant all of the information 
+he took from the PCAOB. 
+28. Sweet complied with Middendorf and Whittle’s directive by providing information 
+about the Board’s selection criteria to a KPMG colleague, who then gave that information to the 
+consultant.  In September 2015, Sweet spoke directly with the consultant and gave them additional 
+confidential information regarding the inspections selection process.6  At the end of September, 
+Sweet reported to Middendorf and Whittle that he had “spent quite a bit of time with [the outside 
+consultant] trying to guide their modeling efforts.” 
+C. Sweet Divulges Confidential PCAOB Information to Others 
+ 
+29. Sweet also used the confidential information he had taken from the PCAOB in 
+other ways.  In August 2015, Sweet informed a KPMG National Office colleague that the PCAOB 
+was unlikely to inspect certain engagements in 2016.  Sweet wrote, “I checked my old planning 
+notes and can confirm that [four KPMG audit clients] are NOT on the PCAOB’s planning radar. 
+They don’t have any of them included in the issuer count, so it is fairly safe to say those have a 
+very remote chance of ever being evaluated for inspection!” 
+30. In April 2016, Sweet provided confidential PCAOAB information to an audit 
+partner preparing a client pitch for a Spanish bank’s audit business.7  Sweet sent the partner 
+confidential PCAOB comment forms related to the Board’s inspection of another Spanish bank, 
+                                                 
+6 Among other things, Sweet explained how the PCAOB’s Inspections group used confidential information 
+received from the Board and the SEC.  
+ 
+7 The Spanish bank’s auditor was rotating off pursuant to the European Union’s mandatory audit firm 
+rotation rules.  Securing this audit business was a global priority for KPMG (which marketed its banking expertise) 
+as a result of recent failures to win the audit business of several other large multinational banks.  
+ 
+ 7 
+writing that he had attached “some examples of the types of issues that have been raised in the 
+past.  I hope this helps!”  The comment forms discuss specific ways in which that bank’s auditor 
+had failed to adequately test the valuation of its allowance for loan loss.   
+Holder Divulges Confidential PCAOB Information to KPMG 
+ 
+31. After KPMG offered Sweet a position at the firm, Whittle asked Sweet for a list of 
+PCAOB employees whom KPMG should consider recruiting.  Before he left the PCAOB, Sweet 
+had discussed with Cynthia Holder, a friend who was then a PCAOB Inspections Leader, the 
+prospect of her joining him at KPMG.  On Sweet’s first day at KPMG (May 4, 2015), he informed 
+Holder that he would be meeting with Whittle to push for the firm to hire her.  On May 11, 2015, 
+Sweet told Holder he was going to hand-deliver her resume to Whittle and “make a sell again” in 
+person. 
+32. On May 12, 2015, Sweet asked Holder to send him a confidential PCAOB 
+document reflecting comments he had written about KPMG’s audits while he was at the Board.  At 
+that time, KPMG personnel were preparing for a meeting with the PCAOB to discuss the firm’s 
+performance on its audits, during which KPMG would make a presentation on the root causes of 
+the firm’s audit failures.  Sweet asked Holder for a document he had written while he was at the 
+PCAOB so he could review it before helping his KPMG colleagues prepare that presentation.  That 
+day, Holder sent Sweet the document he requested from her personal email account.    
+33. About two weeks later, Holder notified the PCAOB’s ethics group that she had 
+recused herself from any work related to KPMG in order to pursue employment at the firm.   
+34. On June 17, 2015, Holder again shared confidential PCAOB information with 
+Sweet, telling him that the Board had decided to cancel its planned inspection of a KPMG audit 
+client for 2015, and that the Board did not intend to replace it with another selection.  Sweet 
+immediately relayed this information to Whittle.   
+35. KPMG sent Holder an employment offer in July 2015.  She joined the firm the 
+following month as an Executive Director in DPP performing internal inspections and advising 
+banking engagement teams on their audits. 
+Wada Divulges Confidential PCAOB Information to KPMG in 2016 
+ 
+36. In early March 2016, Wada, an Inspections Leader at the PCAOB who had 
+previously performed work on KPMG inspections but was then assigned to inspect another audit 
+firm, learned that he had not been selected for a promotion.  Wada reacted angrily, telling a 
+colleague the PCAOB had “screwed” him by passing him over.   
+37. After learning he had not been selected for promotion, Wada accessed the 
+PCAOB’s confidential list of KPMG engagements the Board had selected for inspection in 2016 
+ 8 
+from an internal database of KPMG-related documents.8  Because Wada was no longer working on 
+KPMG matters, he had no legitimate reason to access this information.   
+38. On March 28, 2016, Wada, who remained friends with Holder after she left the 
+PCAOB, called her and read to her the names of twelve KPMG clients the Board planned to 
+inspect.9  Holder provided this information to Sweet, who then immediately relayed the list to 
+Whittle, Middendorf, and Britt, informing them that it had come from a former colleague at the 
+PCAOB. 
+Use of Confidential PCAOB Information to Change KPMG Audit Workpapers 
+ 
+39. Wada gave KPMG the list of the PCAOB’s planned inspections at a critical time in 
+two respects. 
+40. First, in early February 2016, Middendorf and other members of KPMG’s 
+leadership team had met with staff from the SEC’s Office of the Chief Accountant (“OCA”).  
+During that meeting, OCA personnel expressed significant concerns about the firm’s audit quality 
+and questioned whether KPMG was adequately addressing these issues.  On the same day they 
+received the list of inspection targets from Wada, Middendorf, Whittle, Sweet, and Britt discussed 
+how to use the information.  Middendorf told the group his highest priority was to protect one of 
+the efforts KPMG’s National Office had instituted to improve audit quality from criticism.  As the 
+PCAOB found an increasing number of audit deficiencies by KPMG beginning in 2013, KPMG 
+created “monitoring programs” run by DPP that reviewed workpapers to ensure compliance with 
+professional standards.10  One of these programs focused on the audits of certain banking clients’ 
+Allowances for Loan and Lease Losses (“ALLL”).  KPMG created the ALLL monitoring program 
+in 2015 in response to numerous deficiencies the PCAOB had identified in this area.  The success 
+of the ALLL monitoring program was especially important to KPMG because the firm had 
+promoted it as proof of the seriousness with which it was working to improve its audit quality.   
+41. Second, Wada alerted KPMG to the PCAOB’s planned inspections at a time when 
+KPMG personnel were able to access and change audit workpapers.  Though KPMG had already 
+issued audit reports for each of these engagements, KPMG was within the 45-day period in which 
+KPMG’s policy allowed audit teams to complete the administrative process of assembling the final 
+audit file.  In general, KPMG could only perform certain clerical work during this period.  At the 
+end of this 45-day period, KPMG locked audit workpapers from editing absent special 
+circumstances. 
+                                                 
+8 When accessing the internal database, users are warned that they are accessing a restricted site that contains 
+privileged information and that misuse of the information can lead to civil or criminal penalties.  
+ 
+9 Of the 12 clients, 10 were bank holding companies and 2 were other issuers that Wada appears to have 
+thought were also bank holding companies.  It appears that Wada identified these engagements for Holder because 
+her responsibilities at KPMG included advising banking engagement teams.  
+ 
+10  KPMG’s monitoring programs included both “in flight” reviews (reviews conducted prior to the issuance 
+of the audit opinion) and post-issuance programs that were intended to assess the engagement team’s performance 
+after its audit work was complete.   
+ 
+ 9 
+42. Recognizing that the workpapers had not yet been locked per KPMG’s policy, 
+Middendorf, Whittle, and Britt agreed to have Sweet and others conduct an additional examination 
+of the audit workpapers for the seven banks on the list Wada had provided that were part of 
+KPMG’s ALLL monitoring program to determine whether anything could be done to minimize the 
+risk that the PCAOB would find deficiencies in those audits.   
+43. Middendorf and Whittle instructed that no one in the briefing should disclose that 
+they had obtained confidential PCAOB information.   
+44. To provide cover for their project, Britt told others at KPMG that they were 
+performing work in the ordinary course of business on all 35 banking engagements in the firm’s 
+ALLL monitoring program.  On March 28, 2016, Britt sent the engagement partners for these 
+audits an email stating that, as part of the “wrap up and reporting of the results” of the ALLL 
+program, DPP needed to gather “some additional information” from their audit workpapers.11 
+45. Over the next few weeks, Sweet, Holder, and various partners and managing 
+directors in DPP engaged in a review of the audit workpapers of the seven banks in the monitoring 
+program that were on the list Wada provided.  The DPP professionals suggested edits and proposed 
+changes to the engagement teams, which then decided what changes to incorporate into the final 
+audit workpapers.12 
+Wada Divulges Confidential PCAOB Information to KPMG in 2017 
+ 
+46. In early January 2017, Wada provided Holder a “preliminary” list of PCAOB 
+inspection targets for 2017.  On January 9, Holder relayed the names of the clients on the list to 
+Sweet, and together, they briefed Whittle.  That night, Sweet, Whittle, and Britt discussed this 
+information.  After that meeting, Sweet, as instructed by Whittle, contacted the engagement 
+partners for two of the audits on the January 2017 list to warn them about the potential inspections.   
+47. On January 10, Wada sent Holder his resume and a narrative of his work 
+experience, writing, “I am now trying to sell myself to KPMG.” 
+48. On February 2, Wada sent Holder two text messages in quick succession:  first, 
+“Okay, I have the grocery list,” then “All the things you’ll need for the year.”  The next day, he 
+called Holder and read her a list of 47 ticker symbols that Holder understood to be the final list of 
+2017 inspections.  Wada also provided Holder the inspection focus areas for the banks on the list 
+(as well as for another KPMG engagement), and the PCAOB’s list of KPMG engagement partners 
+with “poor performance evaluations.”   
+                                                 
+11  Britt also asked a subordinate in the National Office to conduct his own secret review of one KPMG 
+client’s audit workpapers. 
+ 
+12  Middendorf, Whittle, Sweet, and Britt had agreed that Sweet would lead a team of DPP professionals to 
+review the workpapers of the banks in the monitoring program, and that Middendorf, Whit tle, and Britt would 
+handle the other five issuers on the list they received from Wada.   
+ 
+ 10 
+49. Holder relayed the information to Sweet, who then shared it with Middendorf, 
+Whittle, and Britt.  Whittle instructed Sweet to warn certain engagement partners about the 
+impending inspections.  Though Whittle had warned Sweet to be circumspect in how he 
+communicated this to KPMG colleagues, Sweet’s notice to one KPMG engagement partner caused 
+her to suspect that the firm may have received confidential PCAOB information.  KPMG began to 
+investigate these issues after its Office of General Counsel learned of her concerns. 
+50. During the initial stage of KPMG’s investigation, Sweet and Holder agreed to 
+conceal how they learned of the PCAOB’s 2017 inspection targets.13  They agreed to tell 
+investigators that Holder had received a list of ticker symbols by mail with no return address or 
+other identifying information.  Sweet then created a document consisting solely of the ticker 
+symbols, which he provided to KPMG attorneys after they interviewed him. 
+51. Holder destroyed evidence during KPMG’s investigation.  KPMG attorneys asked 
+Holder to provide them her phone so they could analyze whether there were relevant documents.  
+Before providing her phone to the firm, Holder deleted her texts with Wada. 
+VIOLATIONS 
+ 
+52. As a result of the conduct described above, Holder and Wada willfully violated 
+PCAOB Ethics Code Section EC3, which prohibits PCAOB staff from acting in a manner which 
+might reasonably result in or reasonably create the appearance that the employee is using 
+confidential information obtained through service for the Board for the private gain of any person. 
+53. As a result of the conduct described above, Holder and Wada willfully violated 
+PCAOB Ethics Code Section EC9, which prohibits PCAOB staff from disseminating or otherwise 
+disclosing any information obtained in the course and scope of his or her employment, and which 
+has not been released, announced, or otherwise made available publicly. 
+54. As a result of the conduct above, Holder willfully violated PCAOB Rule 3500T, 
+which requires members to maintain integrity when performing any professional service in 
+connection with the preparation or issuance of any audit report. 
+55. As a result of the conduct described above, Middendorf, Whittle, and Britt willfully 
+violated PCAOB Rule 3500T, and willfully aided and abetted and caused Sweet’s violations of 
+Sections EC3 and EC9. 
+56. As a result of the conduct above, Holder, Wada, Middendorf, Whittle, and Britt are 
+lacking in integrity and/or engaged in improper professional conduct within the meaning of Section 
+4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.  
+ 
+ 
+                                                 
+13  Holder told Sweet that she had sworn to Wada she would never identify him as the source.  
+ 11 
+III. 
+ 
+In view of the allegations made by the Division of Enforcement and the Office of the Chief 
+Accountant, the Commission deems it necessary and appropriate in the public interest that public 
+administrative and cease-and-desist proceedings be instituted to determine: 
+ 
+A.  Whether the allegations set forth in Section II hereof are true and, in connection 
+therewith, to afford Respondents an opportunity to establish any defenses to such allegations;  
+ 
+B. Whether pursuant to Section 21C of the Exchange Act, Respondent Holder should 
+be ordered to cease and desist from committing or causing violations of, and any future violations 
+of, PCAOB Ethics Code Sections EC3, EC9, and PCAOB Rule 3500T; 
+ 
+C. Whether pursuant to Section 21C of the Exchange Act, Respondent Wada should be 
+ordered to cease and desist from committing or causing violations of, and any future violations of, 
+PCAOB Ethics Code Sections EC3 and EC9; 
+ 
+D. Whether pursuant to Section 21C of the Exchange Act, Respondents Middendorf, 
+Whittle, and Britt should be ordered to cease and desist from committing or causing violations of, 
+and any future violations of, PCAOB Rule 3500T and PCAOB Ethics Code Sections EC3 and 
+EC9; 
+ 
+E. Whether pursuant to Sections 21(B)(e) and 21C(e) of the Exchange Act, 
+Respondents Holder, Wada, Middendorf, Whittle, and Britt should be ordered to pay 
+disgorgement; 
+ 
+F. Whether pursuant to Section 21(B)(a)(2) of the Exchange Act, Respondents Holder, 
+Wada, Middendorf, Whittle, and Britt should be ordered to pay a civil penalty; and 
+ 
+G. Whether pursuant to Section 4C of the Exchange Act and Section 102(e) of the 
+Commission’s Rules of Practice, Respondents Holder, Wada, Middendorf, Whittle, and Britt 
+should be censured or denied, temporarily or permanently, the privilege of appearing or practicing 
+before the Commission as an accountant. 
+ 
+IV. 
+ 
+IT IS ORDERED that a public hearing for purposes of taking evidence on the questions set 
+forth in Section III hereof shall be convened not earlier than 30 days and not later than 60 days from 
+service of this Order at a time and place to be fixed and before an Administrative Law Judge to be 
+designated by further order as provided by Rule 110 of the Commission’s Rules of Practice, 17 
+C.F.R. § 201.110. 
+ 
+IT IS FURTHER ORDERED that Respondent shall file an Answer to the allegations 
+contained in this Order within twenty (20) days after service of this Order, as provided by Rule 220 
+of the Commission's Rules of Practice, 17 C.F.R. § 201.220. 
+ 
+ 12 
+If Respondent fails to file the directed answer, or fails to appear at a hearing after being duly 
+notified, the Respondent may be deemed in default and the proceedings may be determined against 
+him upon consideration of this Order, the allegations of which may be deemed to be true as 
+provided by Rules 155(a), 220(f), 221(f) and 310 of the Commission's Rules of Practice, 17 C.F.R.  
+§§ 201.155(a), 201.220(f), 201.221(f) and 201.310. 
+ 
+This Order shall be served forthwith upon Respondents as provided for in the 
+Commission’s Rules of Practice.   
+ 
+IT IS FURTHER ORDERED that, pursuant to Rule 360(a)(2) of the Commission’s Rules 
+of Practice, 17 C.F.R. § 201.360(a)(2), the Administrative Law Judge shall issue an initial 
+decision no later than 120 days from the occurrence of one of the following events:  (A) The 
+completion of post-hearing briefing in a proceeding where the hearing has been completed; (B) 
+Where the hearing officer has determined that no hearing is necessary, upon completion of 
+briefing on a motion pursuant to Rule 250 of the Commission’s Rules of Practice, 17 C.F.R. § 
+201.250; or (C) The determination by the hearing officer that a party is deemed to be in default 
+under Rule 155 of the Commission’s Rules of Practice, 17 C.F.R. § 201.155 and no hearing is 
+necessary. 
+ 
+In the absence of an appropriate waiver, no officer or employee of the Commission engaged 
+in the performance of investigative or prosecuting functions in this or any factually related 
+proceeding will be permitted to participate or advise in the decision of this matter, except as witness 
+or counsel in proceedings held pursuant to notice.  Since this proceeding is not “rule making” within 
+the meaning of Section 551 of the Administrative Procedure Act, it is not deemed subject to the 
+provisions of Section 553 delaying the effective date of any final Commission action. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+        Brent J. Fields 
+        Secretary 

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+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 82557 / January 22, 2018 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  3919 / January 22, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-18347 
+ 
+ 
+ 
+In the Matter of 
+ 
+BRIAN SWEET, CPA,  
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE- 
+ AND- DESIST PROCEEDINGS PURSUANT TO 
+SECTIONS 4C AND 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS AND A CEASE-
+AND-DESIST ORDER, AND NOTICE OF 
+HEARING 
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative and cease-and-desist proceedings be, and hereby are, instituted against Brian Sweet, 
+CPA (“Respondent” or “Sweet”) pursuant to Sections 4C1 and 21C of the Securities Exchange Act 
+of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) and 102(e)(1)(iii) of the Commission’s Rules of 
+Practice.2 
+                                                 
+1  Section 4C provides, in relevant part, that:  
+ 
+ The Commission may censure any person, or deny, temporarily or permanently, to any person the 
+privilege of appearing or practicing before the Commission in any way, if that person is found . . . 
+(1) not to possess the requisite qualifications to represent others; (2) to be lacking in character or 
+integrity, or to have engaged in unethical or improper professional conduct; or (3) to have willfully 
+violated, or willfully aided and abetted the violation of, any provision of the securities laws or the 
+rules and regulations issued thereunder. 
+ 
+2  Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+ 
+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, Respondent admits the Commission’s 
+jurisdiction over him and the subject matter of these proceedings, and consents to the entry of this 
+(“Order”), as set forth below. 
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds3 that: 
+ 
+SUMMARY 
+ 
+1. This case involves the  unauthorized disclosures of confidential information from 
+the Public Company Accounting Oversight Board (“PCAOB” or “Board”) relating to its 
+Inspections program, and a concerted effort to use that information to benefit KPMG LLP and, 
+consequently, Brian Sweet. 
+2. On his last day at the PCAOB in 2015, Sweet took sensitive inspections-related 
+documents from the PCAOB to use as a resource in his new job in KPMG’s Department of 
+Professional Practice.  Shortly after he joined KPMG, Sweet asked Cynthia Holder, then a PCAOB 
+employee, to send him confidential PCAOB materials.  She did as he requested, then sent him 
+additional confidential information relating to a planned inspection of a KPMG client.  Holder 
+made these unauthorized disclosures while she was seeking employment at KPMG.  In 2016 and 
+2017, a third PCAOB employee, Jeffrey Wada, leaked confidential information relating to the 
+PCAOB’s planned inspections of KPMG to Holder after she had left the PCAOB and joined 
+KPMG.  Wada’s leaks to Holder in 2017 similarly occurred while he was seeking employment 
+with KPMG. 
+3. Most of the information Sweet, Holder, and Wada disclosed without authorization 
+related to the PCAOB’s inspections of KPMG audits, including the audit engagements the PCAOB 
+                                                                                                                                                             
+ The Commission may . . . deny, temporarily or permanently, the privilege of appearing or 
+practicing before it . . . to any person who is found to be lacking in character or integrity or to have 
+engaged in unethical or improper professional conduct. 
+ 
+ Rule 102(e)(1)(iii) provides, in pertinent part, that: 
+ 
+ The Commission may . . . deny, temporarily or permanently, the privilege of appearing or 
+practicing before it . . . to any person who is found…to have willfully violated, or willfully aided 
+and abetted the violation of any provision of the Federal securities laws or the rules and 
+regulations thereunder. 
+ 
+3   The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any 
+other person or entity in this or any other proceeding.   
+3 
+planned to inspect, the criteria the PCAOB used to select engagements for inspection, and the 
+focus areas of the inspections.  This was valuable information to KPMG, which had experienced a 
+high rate of audit deficiency findings and had made a priority of improving its PCAOB inspection 
+results. 
+4. Sweet told his supervisors in KPMG’s National Office, David Middendorf and 
+Thomas Whittle, along with another partner in that office, David Britt, that he had taken 
+confidential materials from the PCAOB and received, from time to time, additional confidential 
+information from PCAOB employees.  Middendorf and Whittle encouraged Sweet to share the 
+PCAOB’s confidential information with them, with other KPMG colleagues, and with an outside 
+contractor.  After Wada sent Holder the list of the PCAOB’s planned inspections for 2016, 
+Middendorf, Whittle, Britt, Sweet, and Holder undertook an effort to analyze and review audit 
+workpapers and to suggest revisions to them to avoid possible findings of deficiencies by the 
+PCAOB.   
+5. Middendorf, Whittle, Britt, Sweet, and Holder also received from Wada 
+confidential information relating to the PCAOB’s upcoming 2017 inspections.  However, their 
+misconduct came to light early in the year and did not affect any PCAOB inspections of the firm. 
+RESPONDENT 
+ 
+6. Brian Sweet, 40, of Fresno, California, was a Partner in KPMG’s Department of 
+Professional Practice group until March 2017.  Prior to joining KPMG, Sweet was an Associate 
+Director in the PCAOB’s inspections group from March 2014 until April 2015.  Sweet is licensed 
+as a CPA in New York and Illinois and was previously licensed in California. 
+OTHER RELEVANT PERSONS AND ENTITY 
+ 
+7. Cynthia Holder, 51, of Houston, Texas was an Executive Director in KPMG’s 
+Department of Professional Practice group from August 2015 until April 2017.  Prior to joining 
+KPMG, Holder was an Inspections Leader at the PCAOB from December 2011 until August 2015.  
+Holder is licensed as a CPA in Texas.  The Commission has charged Holder for her role in the 
+misconduct described in this Order. 
+8. Jeffrey Wada, 42, of Tustin, California was an Inspections Leader at the PCAOB 
+from February 2012 until February 2017.  Wada is licensed as a CPA in California.  The 
+Commission has charged Wada for his role in the misconduct described in this Order. 
+9. David Middendorf, 53, of Marietta, Georgia, was KPMG’s National Managing 
+Partner for Audit Quality and Professional Practice until April 2017.  Middendorf is licensed as a 
+CPA in Georgia, New York, and Ohio and was previously licensed in Texas.  The Commission has 
+charged Middendorf for his role in the misconduct described in this Order. 
+10. Thomas Whittle, 54, of Gladstone, New Jersey, was KPMG’s National Partner-In-
+Charge for Inspections until April 2017.  Whittle is licensed as a CPA in New York and New 
+4 
+Jersey and was previously licensed in Pennsylvania and Connecticut.  The Commission has 
+charged Whittle for his role in the misconduct described in this Order. 
+11. David Britt, 54, of New Canaan, Connecticut, was KPMG’s Banking and Capital 
+Markets Group Co-Leader until February 2017.  Britt is licensed as a CPA in New York and 
+California and was previously licensed in the District of Columbia.  The Commission has charged 
+Britt for his role in the misconduct described in this Order. 
+ 
+12. KPMG LLP is a Delaware limited liability partnership and PCAOB-registered 
+accounting firm.  Headquartered in New York, New York, KPMG is the U.S. member firm of 
+KPMG International Cooperative, a Swiss entity. 
+FACTS 
+ 
+The PCAOB’s Inspections Process 
+ 
+13. The PCAOB was created as part of the Sarbanes-Oxley Act of 2002 to oversee the 
+audits of public companies that are subject to the securities laws in order to protect the interests of 
+investors and further the public interest in the preparation of informative, accurate, and 
+independent audit reports. 
+14. One of the critical ways in which the PCAOB fulfills this mission is by inspecting 
+audits of public companies conducted by registered public accounting firms.  Through these 
+inspections, the PCAOB assesses the audit firms’ compliance with the statutes, regulations, and 
+professional standards governing the accounting profession.  The PCAOB typically selects the 
+audit engagements it will inspect based on confidential internal analysis and thereafter notifies 
+firms which audits it will inspect.  The PCAOB typically issues inspection reports, only parts of 
+which are made public, after all the inspections for a firm are complete.   
+15. To ensure the integrity of the inspection process, the PCAOB closely guards the 
+confidentiality of both its inspection targets prior to firm notification and its methodology for 
+selecting those targets.  All PCAOB employees must certify that they are complying with PCAOB 
+Ethics Rules that prohibit employees from using confidential PCAOB information for private gain 
+(or even merely creating the appearance that they are) and that bar them from making unauthorized 
+disclosures of confidential information obtained during their employment.  The PCAOB’s Ethics 
+Rules and the employees’ ethics certifications state these prohibitions continue to apply even after 
+their employment with the Board ends. 
+KPMG’s Pursuit of Sweet 
+ 
+16. In September 2014, the PCAOB issued a report regarding its 2013 inspections of 
+KPMG audits.  The report found that out of 50 audits the PCAOB inspected, 23 were deficient.  
+This 46 percent deficiency rate, which placed KPMG third among the “big four” accounting firms, 
+reflected a significant decline from KPMG’s 34 percent deficiency rate the previous year.  As a 
+result, KPMG leadership exerted meaningful pressure within the firm to improve the results.  One 
+of the steps KPMG took to improve its results was to hire Sweet, an Associate Director at the 
+5 
+PCAOB who worked on the team inspecting KPMG audits, to join the firm.  KPMG’s Vice Chair 
+of Audit characterized Sweet’s recruitment as a “top priority.”  
+17. KPMG hired Sweet as a partner in the Department of Professional Practice (“DPP”) 
+group in the firm’s National Office.4  Among other things, Sweet was responsible for conducting 
+internal inspections of KPMG audits.   
+Sweet Divulges Confidential PCAOB Information to KPMG 
+ 
+18. In April 2015, shortly before leaving the Board, Sweet copied from an internal 
+PCAOB database to his office computer various confidential inspection-related materials he 
+believed might help him at KPMG.  On his last day at the Board, Sweet transferred these 
+documents and the other files on his PCAOB computer to a personal hard drive that he took with 
+him.  Sweet also took from the PCAOB hard copy documents and retained confidential PCAOB 
+documents he had previously brought home.   
+19. These documents included PCAOB inspection planning information, inspection 
+guides and manuals, and drafts of confidential inspection comment forms.  The planning materials 
+included the confidential list of KPMG audit engagements the PCAOB intended to inspect in 2015, 
+the focus areas for each inspection, and a list of all the quantitative and qualitative criteria the 
+Board used in deciding which KPMG audit engagements to inspect.   
+20. Upon joining KPMG in May 2015, Sweet transferred the PCAOB documents from 
+his personal hard drive to his computer at the firm.    
+A. Sweet Divulges Confidential PCAOB Information Regarding 2015 Inspections to 
+Middendorf, Whittle, and Britt 
+ 
+21. At KPMG, Sweet reported to Thomas Whittle, who was responsible for overseeing 
+both the PCAOB’s and KPMG’s internal inspections.  Whittle, in turn, reported to David 
+Middendorf, who oversaw the National Office’s audit quality and professional practice work. 
+22. On his first day at the firm in May 2015, Sweet had lunch with Middendorf and 
+other KPMG National Office colleagues, including David Britt, another National Office partner 
+who was co-leader of KPMG’s Banking and Capital Markets Group.  During the lunch, Sweet’s 
+new colleagues asked him various questions about the PCAOB’s inspections of KPMG.  One of 
+the questions Middendorf asked Sweet was whether the PCAOB intended to inspect a specific 
+KPMG banking client that year.  Without answering directly, Sweet indicated the PCAOB planned 
+to do so.   
+23. Several days later, Whittle asked Sweet to provide him the list of the PCAOB’s 
+planned inspections for 2015.5  Sweet showed Whittle a hard copy of a PCAOB inspection 
+                                                 
+4  KPMG’s National Office is responsible for technical accounting and auditing leadership, risk management, 
+and quality control for the firm. 
+ 
+6 
+planning document that identified 46 KPMG audits the PCAOB intended to inspect that year and 
+included the PCAOB’s confidential areas of focus for those inspections. 
+24. The next day, Whittle emailed Sweet, asking him to have an assistant “scan and 
+send me the banking selection list” (i.e. KPMG’s bank holding company clients the PCAOB had 
+selected for inspection).  Sweet complied by sending Whittle the complete list of planned 
+inspections and asked Whittle to exercise discretion given the nature of the information.  Whittle 
+forwarded this information to Middendorf the same day, writing, “The complete list.  Obviously, 
+very sensitive.  We will not be broadcasting this.”6   
+25. In June 2015, Sweet identified for Britt a number of KPMG banking clients the 
+PCAOB planned to inspect in 2015.  The next day, Britt emailed Sweet to ask Sweet to review his 
+notes and provide the “last 3 Bank names.”  Sweet gave Britt the information later that day, asking 
+him to  note its sensitivity and “use your discretion with this info.” 
+26. Sweet shared the information he had taken from the PCAOB with his new 
+colleagues to benefit himself and the firm.  He believed, based on comments Middendorf and 
+Whittle had made to him, that his position as a partner at KPMG was not secure.  Sweet believed it 
+would help him in his position at KPMG if he were perceived as a team player working to help the 
+firm. 
+B. Middendorf and Whittle Direct Sweet to Divulge Confidential PCAOB Information to An 
+Outside Consultant 
+ 
+27. In April 2015, KPMG engaged an outside consultant to help it predict which audit 
+engagements the PCAOB would inspect in 2016.  In June 2015, Middendorf and Whittle both 
+approached Sweet in his office and directed him to share everything he knew with the outside 
+consultant.  Sweet understood this to be an instruction to give the consultant all of the information 
+he took from the PCAOB. 
+28. Sweet complied with Middendorf and Whittle’s directive by providing information 
+about the Board’s selection criteria to a KPMG colleague, who then gave that information to the 
+consultant.  In September 2015, Sweet spoke directly with the consultant and gave them additional 
+confidential information regarding the inspections selection process.7  At the end of September, 
+                                                                                                                                                             
+5 By that time, the PCAOB had informed KPMG of less than half of the audit engagements it intended to 
+inspect in 2015.   
+ 
+6 Though Whittle immediately assigned Sweet to review the workpapers of one of the inspection targets, it 
+does not appear that any workpapers were changed in response to Sweet providing the 2015 inspection list.  At the 
+time Sweet provided this information to Middendorf and Whittle, KPMG had, pursuant to its policy, locked the 
+audit workpapers for all but two of the engagements from editing absent special circumstances.   
+ 
+7 Among other things, Sweet explained how the PCAOB’s Inspections group used confidenti al information 
+received from the Board and the SEC.  
+ 
+7 
+Sweet reported to Middendorf and Whittle that he had “spent quite a bit of time with [the outside 
+consultant] trying to guide their modeling efforts.” 
+C. Sweet Divulges Confidential PCAOB Information to Others 
+ 
+29. Sweet also used the confidential information he had taken from the PCAOB in 
+other ways.  In August 2015, Sweet informed a KPMG National Office colleague that the PCAOB 
+was unlikely to inspect certain engagements in 2016.  Sweet wrote, “I checked my old planning 
+notes and can confirm that [four KPMG audit clients] are NOT on the PCAOB’s planning radar. 
+They don’t have any of them included in the issuer count, so it is fairly safe to say those have a 
+very remote chance of ever being evaluated for inspection!” 
+30. In April 2016, Sweet provided confidential PCAOAB information to an audit 
+partner preparing a client pitch for a Spanish bank’s audit business.8  Sweet sent the partner 
+confidential PCAOB comment forms related to the Board’s inspection of another Spanish bank, 
+writing that he had attached “some examples of the types of issues that have been raised in the 
+past.  I hope this helps!”  The comment forms discuss specific ways in which that bank’s auditor 
+had failed to adequately test the valuation of its allowance for loan loss.   
+Holder Divulges Confidential PCAOB Information to KPMG 
+ 
+31. After KPMG offered Sweet a position at the firm, Whittle asked Sweet for a list of 
+PCAOB employees whom KPMG should consider recruiting.  Before he left the PCAOB, Sweet 
+had discussed with Cynthia Holder, a friend who was then a PCAOB Inspections Leader, the 
+prospect of her joining him at KPMG.  On Sweet’s first day at KPMG (May 4, 2015), he informed 
+Holder that he would be meeting with Whittle to push for the firm to hire her.  On May 11, 2015, 
+Sweet told Holder he was going to hand-deliver her resume to Whittle and “make a sell again” in 
+person. 
+32. On May 12, 2015, Sweet asked Holder to send him a confidential PCAOB 
+document reflecting comments he had written about KPMG’s audits while he was at the Board.  At 
+that time, KPMG personnel were preparing for a meeting with the PCAOB to discuss the firm’s 
+performance on its audits, during which KPMG would make a presentation on the root causes of 
+the firm’s audit failures.  Sweet asked Holder for a document he had written while he was at the 
+PCAOB so he could review it before helping his KPMG colleagues prepare that presentation.  That 
+day, Holder sent Sweet the document he requested.   
+33. About two weeks later, Holder notified the PCAOB’s ethics group that she had 
+recused herself from any work related to KPMG in order to pursue employment at the firm.   
+                                                 
+8 The Spanish bank’s auditor was rotating off pursuant to the European Union’s mandatory audit firm 
+rotation rules.  Securing this audit business was a global priority for KPMG (which marketed its banki ng expertise) 
+as a result of recent failures to win the audit business of several other large multinational banks.  
+ 
+8 
+34. On June 17, 2015, Holder again shared confidential PCAOB information with 
+Sweet, telling him that the Board had decided to cancel its planned inspection of a KPMG audit 
+client for 2015, and that the Board did not intend to replace it with another selection.  Sweet 
+immediately relayed this information to Whittle.   
+35. KPMG sent Holder an employment offer in July 2015.  She joined the firm the 
+following month as an Executive Director in DPP performing internal inspections and advising 
+banking engagement teams on their audits. 
+Wada Divulges Confidential PCAOB Information to KPMG in 2016 
+ 
+36. In early March 2016, Wada, an Inspections Leader at the PCAOB who had 
+previously performed work on KPMG inspections but was then assigned to inspect another audit 
+firm, learned that he had not been selected for a promotion.  Wada reacted angrily, telling a 
+colleague the PCAOB had “screwed” him by passing him over.   
+37. After learning he had not been selected for promotion, Wada accessed the 
+PCAOB’s confidential list of KPMG engagements the Board had selected for inspection in 2016 
+from an internal database of KPMG-related documents.  Because Wada was no longer working on 
+KPMG matters, he had no legitimate reason to access this information.   
+38. On March 28, 2016, Wada, who remained friends with Holder after she left the 
+PCAOB, called her and read to her the names of twelve KPMG clients the Board planned to 
+inspect.9  Holder provided this information to Sweet, who then immediately relayed the list to 
+Whittle, Middendorf, and Britt, informing them that it had come from a former colleague at the 
+PCAOB. 
+Use of Confidential PCAOB Information to Change KPMG Audit Workpapers 
+ 
+39. Wada gave KPMG the list of the PCAOB’s planned inspections at a critical time in 
+two respects. 
+40. First, in early February 2016, Middendorf and other members of KPMG’s 
+leadership team had met with staff from the SEC’s Office of the Chief Accountant (“OCA”).  
+During that meeting, OCA personnel expressed significant concerns about the firm’s audit quality 
+and questioned whether KPMG was adequately addressing these issues.  On the same day they 
+received the list of inspection targets from Wada, Middendorf, Whittle, Sweet, and Britt discussed 
+how to use the information.  Middendorf told the group his highest priority was to protect one of 
+the efforts KPMG’s National Office had instituted to improve audit quality from criticism.  As the 
+PCAOB found an increasing number of audit deficiencies by KPMG beginning in 2013, KPMG 
+created “monitoring programs” run by DPP that reviewed workpapers to ensure compliance with 
+                                                 
+9 Of the 12 clients, 10 were bank holding companies and 2 were other issuers that Wada appears to have 
+thought were also bank holding companies.  It appears that Wada identified these engagements for Holder because 
+her responsibilities at KPMG included advising banking engagement teams.  
+ 
+9 
+professional standards.10  One of these programs focused on the audits of certain banking clients’ 
+Allowances for Loan and Lease Losses (“ALLL”).  KPMG created the ALLL monitoring program 
+in 2015 in response to numerous deficiencies the PCAOB had identified in this area.  The success 
+of the ALLL monitoring program was especially important to KPMG because the firm had 
+promoted it as proof of the seriousness with which it was working to improve its audit quality. 
+41. Second, Wada alerted KPMG to the PCAOB’s planned inspections at a time when 
+KPMG personnel were able to access and change audit workpapers.  Though KPMG had already 
+issued audit reports for each of these engagements, KPMG was within the 45-day period in which 
+KPMG’s policy allowed audit teams to complete the administrative process of assembling the final 
+audit file.  In general, KPMG could only perform certain clerical work during this period.  At the 
+end of this 45-day period, KPMG locked audit workpapers from editing absent special 
+circumstances. 
+42. Recognizing that the workpapers had not yet been locked per KPMG’s policy, 
+Middendorf, Whittle, and Britt agreed to have Sweet and others conduct an additional examination 
+of the audit workpapers for the seven banks on the list Wada had provided that were part of 
+KPMG’s ALLL monitoring program to determine whether anything could be done to minimize the 
+risk that the PCAOB would find deficiencies in those audits.   
+43. Middendorf and Whittle instructed that no one in the briefing should disclose that 
+they had obtained confidential PCAOB information.   
+44. To provide cover for their project, Britt told others at KPMG that they were 
+performing work in the ordinary course of business on all 35 banking engagements in the firm’s 
+ALLL monitoring program.  On March 28, 2016, Britt sent the engagement partners for these 
+audits an email stating that, as part of the “wrap up and reporting of the results” of the ALLL 
+program, DPP needed to gather “some additional information” from their audit workpapers.11 
+45. Over the next few weeks, Sweet, Holder, and various partners and managing 
+directors in DPP engaged in a review of the audit workpapers of the seven banks in the monitoring 
+program that were on the list Wada provided.  The DPP professionals suggested edits and proposed 
+changes to the engagement teams, which then decided what changes to incorporate into the final 
+audit workpapers.12 
+                                                 
+10  KPMG’s monitoring programs included both “in flight” reviews (reviews conducted prior to the issuance 
+of the audit opinion) and post-issuance programs that were intended to assess the engagement team’s performance 
+after its audit work was complete.   
+ 
+11  Britt also asked a subordinate in the National Office to conduct his own secret review of one KPMG 
+client’s audit workpapers. 
+ 
+12  Middendorf, Whittle, Sweet, and Britt had agreed that Sweet would lead a team of DPP professionals to 
+review the workpapers of the banks in the monitoring program, and that Middendorf, Whittle, and Britt would 
+handle the other five issuers on the list they received from Wada.   
+ 
+10 
+Wada Divulges Confidential PCAOB Information to KPMG in 2017 
+ 
+46. In early January 2017, Wada provided Holder a “preliminary” list of PCAOB 
+inspection targets for 2017.  On January 9, Holder relayed the names of the clients on the list to 
+Sweet, and together, they briefed Whittle.  That night, Sweet, Whittle, and Britt discussed this 
+information.  After that meeting, Sweet, as instructed by Whittle, contacted the engagement 
+partners for two of the audits on the January 2017 list to warn them about the potential inspections.   
+47. On January 10, Wada sent Holder his resume and a narrative of his work 
+experience, writing, “I am now trying to sell myself to KPMG.” 
+48. On February 2, Wada sent Holder two text messages in quick succession:  first, 
+“Okay, I have the grocery list,” then “All the things you’ll need for the year.”  The next day, he 
+called Holder and read her a list of 47 ticker symbols that Holder understood to be the final list of 
+2017 inspections.  Wada also provided Holder the inspection focus areas for the banks on the list 
+(as well as for another KPMG engagement), and the PCAOB’s list of KPMG engagement partners 
+with “poor performance evaluations.”   
+49. Holder relayed the information to Sweet, who then shared it with Middendorf, 
+Whittle, and Britt.  Whittle instructed Sweet to warn certain engagement partners about the 
+impending inspections.  Though Whittle had warned Sweet to be circumspect in how he 
+communicated this to KPMG colleagues, Sweet’s notice to one KPMG engagement partner caused 
+her to suspect that the firm may have received confidential PCAOB information.  KPMG began to 
+investigate these issues after its Office of General Counsel learned of her concerns. 
+50. During the initial stage of KPMG’s investigation, Sweet and Holder agreed to 
+conceal how they learned of the PCAOB’s 2017 inspection targets.13  They agreed to tell 
+investigators that Holder had received a list of ticker symbols by mail with no return address or 
+other identifying information.  Sweet then created a document consisting solely of the ticker 
+symbols, which he provided to KPMG attorneys after they interviewed him.   
+VIOLATIONS 
+ 
+51. As a result of the conduct described above, Respondent willfully violated PCAOB 
+Ethics Code Section EC3, which prohibits PCAOB staff from acting in a manner which might 
+reasonably result in or reasonably create the appearance that the employee is using confidential 
+information obtained through service for the Board for the private gain of any person. 
+52. As a result of the conduct above, Respondent willfully violated PCAOB Ethics 
+Code Section EC9, which prohibits PCAOB staff from disseminating or otherwise disclosing any 
+information obtained in the course and scope of his or her employment, and which has not been 
+released, announced, or otherwise made available publicly. 
+                                                 
+13 Holder told Sweet that she had sworn to Wada she would never identify him as the source.  
+11 
+53. As a result of the conduct above, Respondent willfully violated PCAOB Rule 
+3500T, requires members to maintain integrity when performing any professional service in 
+connection with the preparation or issuance of any audit report. 
+54. As a result of the conduct above, Respondent willfully aided and abetted and 
+caused Holder’s violations of PCAOB Ethics Code Sections EC3 and EC9. 
+FINDINGS 
+ 
+55. Based on the foregoing, the Commission finds that Sweet willfully violated 
+PCAOB Ethics Code Sections EC3, EC9, and PCAOB Rule 3500T, and willfully aided and 
+abetted and caused Holder’s violations of Sections EC3 and EC9. 
+56. Based on the foregoing, the Commission finds that Sweet lacks integrity pursuant to 
+Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of the Commission’s Rules of 
+Practice. 
+57. Based on the foregoing, the Commission finds that Sweet engaged in improper 
+professional conduct pursuant to Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of 
+the Commission’s Rules of Practice. 
+IV. 
+ 
+ Respondent acknowledges that the Commission is not at this time requiring that 
+Respondent disgorge any ill-gotten gains or imposing a civil penalty based on his agreement to 
+cooperate in a related enforcement action.  However, pursuant to this Order, Respondent agrees to 
+additional proceedings in this proceeding to determine what, if any, disgorgement or civil penalties 
+pursuant to Sections 21C(e) and 21B(a) of the Exchange Act against Respondent are in the public 
+interest.  In connection with such additional proceedings:  (a) Respondent agrees that he will be 
+precluded from arguing that he did not violate the PCAOB Ethics Rules as described in this Order; 
+(b) Respondent agrees that he may not challenge the validity of this Order; (c) the findings of this 
+Order shall be accepted as and deemed true by the hearing officer; and (d) the hearing officer may 
+determine the issues raised in the additional proceedings on the basis of testimony and 
+documentary evidence. 
+ 
+V. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Sweet’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+A. Sweet shall cease and desist from committing or causing any violations and any 
+future violations of PCAOB Ethics Code Sections EC3 and EC 9 and PCAOB Rule 3500T. 
+ 
+12 
+B. Sweet is denied the privilege of appearing or practicing before the Commission as 
+an accountant. 
+ 
+C. Pursuant to Rule 100(c) of the Commission’s Rules of Practice, 17 C.F.R. § 
+201.100(c), in the interest of justice and without prejudice to any party, that a public hearing for the 
+purpose of taking evidence on the questions set forth in Section IV hereof shall be convened at a 
+time and place to be fixed, and before an Administrative Law Judge to be designated by further 
+order as provided by Rule 110 of the Commission’s Rules of Practice, 17 C.F.R. § 201.110, 
+following the entry of a final judgment against the last remaining defendant in the Order Instituting 
+Public Administrative and Cease-and-Desist Proceedings Pursuant to Sections 4C and 21C of the 
+Securities Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice, and 
+Notice of Hearing in the Matter of Cynthia Holder, CPA, Jeffrey Wada, CPA,  David Middendorf, 
+CPA, Thomas Whittle, CPA, and David Britt, CPA (the “Related Action”). 
+ 
+  If Respondent fails to appear at a hearing after being duly notified, Respondent may 
+be deemed in default and the proceedings may be determined against his upon consideration of this 
+Order, the allegations of which may be deemed to be true as provided by Rules 155(a), 220(f), 
+221(f), and 310 of the Commission’s Rules of Practice, 17 C.F.R. §§ 201.155(a), 201.220(f), 
+201.221(f), and 201.310.  
+ 
+ This Order shall be served forthwith upon Respondent personally or by certified mail. 
+ 
+ D. IT IS FURTHER ORDERED, pursuant to Rule 100(c) of the Commission’s Rules 
+of Practice, 17 C.F.R. § 201.100(c), in the interest of justice and without prejudice to any party, that 
+the Administrative Law Judge shall issue an initial decision no later than 300 days from the date of 
+the entry of a final judgment in the Related Action. 
+ 
+ In the absence of an appropriate waiver, no officer or employee of the Commission engaged 
+in the performance of investigative or prosecuting functions in this or any factually related 
+proceeding will be permitted to participate or advise in the decision of this matter, except as witness 
+or counsel in proceedings held pursuant to notice.  Since this proceeding is not “rule making” within 
+the meaning of Section 551 of the Administrative Procedure Act, it is not deemed subject to the 
+provisions of Section 553 delaying the effective date of any final Commission action. 
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 

raw/aaer/2018/AAER-3920.txt

@@ -0,0 +1,102 @@
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 82710 / February 14, 2018 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3920 / February 14, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-18372  
+ 
+In the Matter of 
+ 
+ Brian S. Block, 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 Brian S. 
+Block, CPA (“Respondent” or “Block”) 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, Respondent admits the Commission’s 
+jurisdiction over him and the subject matter of these proceedings, and the findings contained in 
+                                                 
+ 
+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 
+Section III.3 and 5 below, and 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. Block, age 45, is and has been a certified public accountant licensed to 
+practice in the State of Pennsylvania.  He served as Chief Financial Officer of American Realty 
+Capital Properties Inc. (“ARCP”) from 2010 until his resignation in October 2014.   
+ 2. ARCP was, at all relevant times, a Maryland corporation with its principal 
+place of business in New York, NY.  At all relevant times, ARCP was in the business of real 
+estate investment.  At all relevant times, ARCP’s common stock was registered with the 
+Commission pursuant to Section 12(b) of the Securities Exchange Act of 1934 (“Exchange 
+Act”), and traded on the NASDAQ Stock Market.  ARCP is now known as VEREIT, Inc., and its 
+common stock trades on the New York Stock Exchange. 
+ 3. On September 8, 2016, the Commission filed a complaint against Block in 
+SEC v. Brian S. Block, et al., No. 16 Civ. 7003 (LGS) (S.D.N.Y.).  On February 8, 2018, the 
+court entered an order permanently enjoining Block, by consent, from future violations of 
+Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. 
+§ 240.10b-5], and Rule 13a-14 [17 C.F.R. 240.13a-14], promulgated under Section 13(a) of the 
+Exchange Act [15 U.S.C. § 78m(a)], and from aiding and abetting violations of Section 13(a) of 
+the Exchange Act [15 U.S.C. § 78m(a)] and Rules 12b-20, 13a-11 and 13a-13 thereunder 
+[17 C.F.R. §§ 240.12b-20, 240.13a-11 and 240.13a-13]. 
+ 4. The Commission’s Complaint alleged, among other things, that Block, 
+together with the former Chief Accounting Officer of ARCP, engaged in a fraudulent scheme to 
+manipulate and falsely report ARCP’s Adjusted Funds From Operations (“AFFO”), a key non-
+GAAP financial metric, in its public reports for the fiscal quarter ended June 30, 2014.  The 
+Complaint alleged that the inflated figures, among other things, made it appear that ARCP had 
+met analysts’ consensus AFFO estimates for the quarter and concealed the fact that ARCP had 
+overstated its AFFO for the previous quarter. 
+ 5. On June 30, 2017, a jury returned a verdict of guilty against Block for 
+related criminal conduct in United States v. Block, No. 16 Cr. 595 (JPO) (S.D.N.Y.).  
+Specifically, Block was convicted of violations of Section 10(b) of the Exchange Act and Rule 
+10b-5 thereunder, Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11, 13a-13, and 13a-
+14 thereunder, as well as violations of 18 U.S.C. § 371 (conspiracy) and 18 U.S.C. § 1350(c)(1) 
+and (c)(2) (false certification).    
+IV. 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Block’s Offer. 
+ 3 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that Block is suspended from 
+appearing or practicing before the Commission as an accountant.  
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 

raw/aaer/2018/AAER-3921.txt

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+ SEC Obtains Final Judgment Against Former CFO of American Realty Capital Properties Inc. 
+
+     Litigation Release No. 24046 / February 14, 2018 
+       
+    Accounting and Auditing Enforcement Release No. 3921 / February 14, 2018 
+
+      Securities and Exchange Commission v. Brian S. Block, et al. , No. 16 Civ. 7003 (LGS) (S.D.N.Y. filed Sept. 8, 2016) 
+
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+     
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+       
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+ 
+ 
+       The Securities and Exchange Commission announced that on February 8, 2018, the United States District Court for the Southern District of New York entered a final judgment against Brian S. Block, the former CFO of American Realty Capital Properties Inc. (ARCP), a publicly traded real estate investment trust (REIT) now known as VEREIT, Inc. 
+ 
+       On September 8, 2016, the SEC charged Block with overstating the financial performance of ARCP by purposely inflating a key metric used by analysts and investors to assess the company. The SEC's complaint alleged that Block and then-chief accounting officer Lisa P. McAlister devised a scheme to manipulate the calculation of ARCP's adjusted funds from operations (AFFO), a non-GAAP measure used when the company provided earnings guidance. After warnings from internal accounting staff that an incorrect method was used to calculate AFFO in ARCP's 2014 first quarter financial results, Block falsified the company's AFFO presentation in the final hours before filing the company's second quarter results.  With McAlister in his office, Block entered fake numbers that concealed the first quarter overstatement of AFFO and made it appear that the company had met second quarter estimates when, in fact, it had fallen short. 
+ 
+       The SEC's complaint charged Block and McAlister with violating or aiding and abetting violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as aiding and abetting violations of Exchange Act Section 13(a) and Rules 12b-20, 13a-11, and 13a-13.  Block also was charged with violating Rule 13a-14 of the Exchange Act. 
+ 
+       On the same day the SEC filed its complaint, the U.S. Attorney's Office for the Southern District of New York announced criminal charges against Block and McAlister based on the same conduct.  A jury later convicted Block of fraud and related charges and he was subsequently sentenced to eighteen months' incarceration and a $100,000 fine.  McAlister pled guilty to securities fraud and related charges, and she later consented to a final judgment in the SEC's case as well as to an SEC order suspending her from appearing or practicing before the Commission as an accountant. 
+ 
+       Block consented to entry of the final judgment in the SEC's action, which imposed full injunctive relief, a $160,000 civil penalty, and a permanent officer and director bar.  Separately, Block also consented to an SEC order suspending him from appearing or practicing before the Commission as an accountant. 
+ 
+       The SEC appreciates the assistance of the U.S. Attorney's Office for the Southern District of New York, the Federal Bureau of Investigation, and the Public Company Accounting Oversight Board. 
+ 
+       For further information, see  Press Release No. 2016-180  (Sept. 8 2016). 
+
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raw/aaer/2018/AAER-3922.txt

@@ -0,0 +1,211 @@
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 82736 / February 16, 2018 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3922 / February 16, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-18374 
+ 
+ 
+ 
+ 
+In the Matter of 
+ 
+SIMCHA BAER, CPA,  
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+PURSUANT TO SECTION 4C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS 
+   
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative proceedings be, and hereby are, instituted against Simcha Baer, CPA (“Respondent” 
+or “Baer”), pursuant to Section 4C1 of the Securities Exchange Act of 1934 (“Exchange Act”) and 
+Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.2 
+                                                 
+1  Section 4C provides, in relevant part, that:  
+ 
+ The Commission may censure any person, or deny, temporarily or permanently, to any person the 
+privilege of appearing or practicing before the Commission in any way, if that person is found . . . 
+to be lacking in character or integrity, or to have engaged in unethical or improper professional 
+conduct . . . . 
+ 
+2  Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+ The Commission may . . . deny, temporarily or permanently, the privilege of appearing or 
+practicing before it . . . to any person who is found . . . to have engaged in unethical or improper 
+professional conduct. 
+ 
+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 Section 4C o f the Securities Exchange Act of 1934 and 
+Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial 
+Sanctions (“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds3 that: 
+ 
+A. SUMMARY 
+ 
+ These proceedings arise out of Respondent’s failure to comply with relevant Public 
+Company Accounting Oversight Board (“PCAOB”) standards with respect to the performance of 
+proper engagement quality reviews (“EQRs”) for the audits and interim reviews of the financial 
+statements of seven issuers.  During the relevant period, Baer also repeatedly failed to comply with 
+relevant documentation requirements while performing EQRs.  Indeed, in many instances years 
+later, Respondent back-dated and falsified audit and review documentation that subsequently was 
+produced to the Commission’s staff.  
+ As a result, Respondent violated auditing standards and engaged in improper professional 
+conduct. 
+B. RESPONDENT 
+ 
+ Simcha Baer, 60, resides in Baltimore, Maryland, and is licensed as a CPA in Maryland.  
+His license currently is inactive.  During the relevant period, he was a partner at, and a 1.5-percent 
+owner of, a public accounting firm that is based in Baltimore, Maryland and registered with the 
+PCAOB (“the Accounting Firm”).  Baer served as the EQR partner for the audits and interim 
+reviews of the financial statements included in filings with the Commission for seven issuers (the 
+“Issuers”) between 2011 and 2016. 
+ 
+ 
+                                                 
+3  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any 
+other person or entity in this or any other proceeding.   
+3 
+ 
+ 
+ 
+C. FACTS 
+ 
+1. Between 2011 and 2016, the Accounting Firm audited and reviewed the Issuers’ 
+financial statements that were included in filings with the Commission on Form S-1, Form 10-K, 
+and Form 10-Q.  Respondent served as the EQR partner for these audits and reviews. 
+Failure to Perform and Document EQRs.   
+2. PCAOB Standards provide that an engagement quality reviewer should, among 
+other things, “evaluate the significant judgments made by the engagement team and the related 
+conclusions reached in forming the overall conclusion on the engagement.”  PCAOB Auditing 
+Standard (“AS”) No. 7.09.4  The EQR should be documented sufficiently and include the 
+information that identifies: (1) the engagement quality reviewer; (2) the documents reviewed by 
+the engagement quality reviewer; and (3) the date that the engagement quality reviewer provided 
+concurring approval of issuance.  In addition, PCAOB Standards provide that the firm may grant 
+permission to the client to use the engagement report in an audit only after the engagement quality 
+reviewer has performed the review and provides concurring approval of issuance.  AS No. 7.12–
+.13 and .19. 
+3. The Accounting Firm’s standard audit program for EQRs included several audit 
+procedures that the EQR partner was required to consider.  In response to subpoenas issued by the 
+Commission’s staff, the Accounting Firm produced numerous EQR audit programs purportedly 
+performed by Respondent from audits or interim reviews of the Issuers’ financial statements.  At 
+least forty of these EQR audit programs were not filled out at all.  The Accounting Firm also did 
+not produce any other documentation demonstrating that the requisite EQR procedures had been 
+performed for those audits and reviews.  
+4. For example, with regard to an audit conducted by the Accounting Firm of one 
+Issuer’s financial statements, the Accounting Firm’s audit program required the reviewer to affirm 
+that he had evaluated the engagement team’s assessment of, and audit responses to, significant 
+risks identified by the engagement team, including fraud risks and other significant risks identified 
+by the engagement quality review.  PCAOB Standards require the reviewer to “[e]valuate the 
+engagement team’s assessment of, and audit responses to . . . [s]ignificant risks identified by the 
+engagement team, including fraud risks.”  AS No. 7.10(b).  The work papers produced by the 
+Accounting Firm in response to the Commission’s subpoenas, however, did not contain any 
+evidence that Respondent had considered this procedure or any other EQR procedures during the 
+Accounting Firm’s audit.   
+                                                 
+4  Citations to “AU” and “AS” refer to PCAOB Standards that were in effect at the time of the relevant 
+conduct. 
+4 
+ 
+ 
+5. With regard to an audit conducted by the Accounting Firm of another Issuer’s 
+financial statements, the Accounting Firm’s audit program required the reviewer to confirm with 
+the engagement partner that there were no significant unresolved matters, including unresolved 
+matters relating to significant unusual transactions.  PCAOB Standards require the reviewer to 
+“[r]eview the engagement completion document and confirm with the engagement partner that 
+there are no significant unresolved matters.”  AS No. 7.10(e).  However, the work papers produced 
+by the Accounting Firm in response to the Commission’s subpoenas did not contain any evidence 
+that Respondent had considered this procedure or any other EQR procedures during the 
+Accounting Firm’s audit. 
+6. Respondent’s failure to perform engagement quality reviews violated AS No. 7. 
+Falsifying and Back-Dating Documents.   
+7. After the Commission’s staff questioned the engagement partner on the audits and 
+interim reviews about the deficient EQR work papers referenced above, the Accounting Firm 
+produced additional purported EQR work papers for certain of the audits and reviews that it had 
+conducted of the Issuers’ financial statements.  At least twenty-one of these additional purported 
+work papers were completed and signed electronically by Respondent and dated with dates 
+consistent with the respective audit or review periods.  The relevant metadata in these purported 
+work papers also were consistent with the dates that the corresponding audits or interim reviews 
+supposedly were completed. 
+8. In fact, however, Respondent had created those purported work papers after the 
+Commission staff had served a subpoena for them.  Respondent also had altered the metadata in 
+those purported work papers so that they reflected the dates of the respective audits or interim 
+reviews of financial statements, rather than the actual dates on which he later had created the 
+documents.  
+9. Respondent failed to prepare or maintain any work paper documentation showing 
+that he had completed the underlying steps of the engagement quality reviews.  Respondent also 
+did not maintain notes or any other documentation demonstrating that the requisite steps of the 
+engagements quality reviews had been performed. 
+10. PCAOB Standards provide that a “complete and final set of audit documentation 
+should be assembled for retention as of a date not more than 45 days after the report release date” 
+(referred to as the “documentation completion date”).  AS No. 3.15.  PCAOB Standards further 
+provide that if documentation is added after the documentation completion date, it “must indicate 
+the date the information was added, the name of the person who prepared the additional 
+documentation, and the reason for adding it.”  AS No. 3.16.  These requirements apply to 
+engagement quality reviews.  AS No. 7.21. 
+11. AS No. 7.4 requires that “an engagement quality reviewer must have competence, 
+independence, integrity, and objectivity.” 
+5 
+ 
+ 
+12. Respondent’s backdating and falsification of audit documentation violate AS Nos. 
+3 and 7.  
+D. VIOLATIONS  
+ 
+ As a result of the conduct described above, Respondent engaged in improper professional 
+conduct as defined by Rule 102(e)(1)(iv).  Respondent committed intentional and knowing or 
+reckless conduct that resulted in violations of applicable professional standards, and committed 
+repeated instances of unreasonable conduct, each resulting in violations of applicable professional 
+standards, that indicate a lack of competence to practice before the Commission. 
+ 
+E. FINDINGS 
+ 
+ Based on the foregoing, the Commission finds that Respondent engaged in improper 
+professional conduct pursuant to Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of 
+the Commission’s Rules of Practice. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Baer’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that Respondent is denied the 
+privilege of appearing or practicing before the Commission as an accountant.   
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 

raw/aaer/2018/AAER-3923.txt

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+
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+
+     SEC Obtains Bars and Suspensions Against Individuals and Accounting Firm in Shell Factory Scheme 
+
+     Litigation Release No. 24051 / Feb. 16, 2018 
+
+     Accounting and Auditing Enforcement Release No. 3923 / Feb. 16, 2018 
+
+      Securities and Exchange Commission v. Sharone Perlstein, et al., No. 1:18-cv-01026 (E.D.N.Y. filed Feb. 16, 2018)  
+
+      Securities and Exchange Commission v. Jonathan Strum, No. 1:18-cv-00361 (D.D.C. filed Feb. 16, 2018)  
+
+      Securities and Exchange Commission v. Alan Weinberg, et al., No. 1:18-cv-00360 (D.D.C. filed Feb. 16, 2018)  
+
+
+     
+
+       
+
+       
+
+       The Securities and Exchange Commission today announced charges against three Israeli residents, a Washington, D.C. attorney, and an Israeli auditor and his Maryland-based accounting firm for their roles in a fraudulent scheme in the creation of numerous public shell companies.  Under the terms of their settlements with the SEC, the three Israeli residents will be subject to penny stock bars and the attorney and auditor will be prohibited from appearing and practicing before the Commission. 
+ 
+       According to a complaint filed by the SEC in federal district court for the Eastern District of New York, Sharone Perlstein, Aric Swartz, and Hadas Yaron created at least 15 shell companies by filing false and misleading registration statements and periodic reports with the SEC, creating phony business plans, and appointing nominal officers and directors, who also acted as straw-man shareholders for the shell companies.  The defendants also conducted putative initial public offerings of certain shell companies.  In reality, the defendants continued to control the companies' shares and the defendants subsequently sold certain shell companies at a profit of more than $1.8 million. 
+ 
+       The SEC also filed complaints in federal district court for the District of Columbia against gatekeepers who provided substantial assistance in the fraudulent scheme.  According to the SEC's complaint against Jonathan Strum, a Washington, D.C.-based attorney, he assisted in drafting false and misleading registration statements and periodic reports and signed fraudulent opinion letters.  In its complaint against Alan Weinberg, CPA, an Israeli resident, and his Baltimore-based accounting firm Weinberg & Baer LLC, the SEC alleges that they issued misleading audit reports for at least seven of the shell companies.  Despite numerous audit failures and red flags, Weinberg and his firm issued audit reports falsely asserting that the audits had been performed in accordance with the auditing standards promulgated by the Public Company Accounting Oversight Board. 
+ 
+       The SEC's complaints charge Perlstein, Swartz, and Yaron with violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5; Strum, Weinberg, and Weinberg & Baer with aiding and abetting these violations; Weinberg and Weinberg & Baer with violating Exchange Act Section 10A(a)(2); and Weinberg & Baer with violating Rule 2-02(b)(1) of Regulation S-X. 
+ 
+       To settle the SEC's charges, the defendants agreed, without admitting or denying the allegations, to the entry of permanent injunctions as well as disgorgement and prejudgment interest totaling $1,656,121.18 for Perlstein; $307,510.15 for Swartz; $106,146.64 for Yaron; $62,899.82 for Weinberg and Weinberg & Baer, jointly and severally; and $33,610.89 for Strum.  Perlstein, Swartz, and Yaron have also agreed to the entry of penny stock bars.  Subject to court approval of the settlements, Weinberg and Weinberg & Baer have also consented to be suspended from appearing and practicing before the SEC as accountants, and Swartz and Strum have consented to the entry of orders suspending them from appearing and practicing before the SEC as attorneys. 
+ 
+       The SEC also instituted settled administrative proceedings against Simcha Baer, a Maryland-based accountant.  According to the SEC's order, Baer failed to properly perform and document various engagement quality reviews for audits and interim reviews, and repeatedly back-dated and falsified documentation subsequently produced to SEC staff.  The SEC's order finds that Baer engaged in improper professional conduct pursuant to Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of the SEC Rules of Practice.  Without admitting or denying the findings of the SEC's order, Baer consented to be permanently barred from appearing and practicing before the SEC as an accountant. 
+ 
+       On Nov. 4, 2016, the  SEC suspended trading in the securities of one of the Perlstein Group's shell companies  based on fraudulent statements contained in the company's public disclosures.  On April 10, 2017, the  SEC suspended the registration statements  of four of the shell companies. 
+ 
+       The investigation was conducted in the SEC's New York Regional Office by Daphne Downes, Joseph Darragh, Peter Pizzani, and Kristine Zaleskas and supervised by Michael D. Paley of the Microcap Fraud Task Force and Sanjay Wadhwa, and in Washington, D.C. by Greg Hillson and Jeffrey Anderson and supervised by Peter Rosario, Yuri B. Zelinsky, and Antonia Chion.  Preethi Krishnamurthy and Daniel Maher provided litigation counsel.  The SEC appreciates the assistance of the Israel Securities Authority, the Financial and Capital Market Commission of the Republic of Latvia, the British Columbia Securities Commission, the Internal Revenue Service Criminal Investigation Division, the Federal Bureau of Investigation, the Office of the United States Attorney for the Eastern District of New York, the Financial Conduct Authority of the United Kingdom, and the Financial Industry Regulatory Authority. 
+
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+         Sharone Perlstein et al.  
+  Jonathan Strum  
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raw/aaer/2018/AAER-3924.txt

@@ -0,0 +1,110 @@
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  82744 / February 21, 2018 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  3924 / February 21, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-18376 
+ 
+In the Matter of 
+ 
+ALAN WEINBERG, CPA 
+AND WEINBERG & BAER 
+LLC,  
+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 and in the 
+public interest that public administrative proceedings be, and hereby are, instituted against Alan 
+Weinberg (“Weinberg”) and Weinberg & Baer LLC (“W&B”) (“Respondents”) pursuant to Rule 
+102(e)(3)(i) 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 
+                                                 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+ 
+ The Commission, with due regard to the public interest and without preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+ 2 
+Commission, or to which the Commission is a party and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over them and the subject matter of these 
+proceedings, and the findings contained in Section III.3 below, which are admitted, Respondents 
+consent to the issuance 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 Respondents’ Offer, the Commission finds that: 
+ 
+1. Alan Weinberg, age 60, resides in Israel and is a certified public accountant licensed 
+in Maryland.  At all relevant times, Weinberg owned approximately 98.5 percent of Weinberg & 
+Baer LLC. 
+2. Weinberg & Baer, LLC is a Maryland limited liability company and public 
+accounting firm based in Baltimore, Maryland.  W&B is registered with the Public Company 
+Accounting Oversight Board (“PCAOB”).  At all relevant times, Weinberg was one of two 
+certified public accountants who worked at W&B.  W&B was formerly known as “Alan 
+Weinberg CPA,” which was registered with the PCAOB in December 2007. 
+3. On February 16, 2018, the Commission filed a complaint against Weinberg and W&B 
+in SEC v. Alan Weinberg, et al. (Civil Action No. 1:18-cv-00360-BAH), in the United States 
+District Court for the District of Columbia.  On February 20, 2018, the court entered an order (a) 
+permanently enjoining Weinberg and W&B, by consent, from future violations of Section 17(a) 
+of the Securities Act of 1933, Sections 10(b) and 10A(a)(2) of the Securities Exchange Act of 
+1934 (the “Exchange Act”) and Rule 10b-5 thereunder, and (b) permanently enjoining W&B, by 
+consent, from future violations of Rule 2-02(b)(l) of Regulation S-X. 
+4. The Commission’s complaint alleges, among other things, that between 2011 and 
+2014, Weinberg and W&B aided and abetted a scheme to prepare seven fraudulent shell 
+companies (the “Issuers”) to issue shares to the public and then to sell the shell companies in 
+reverse mergers or other changes in control. The complaint alleges that Weinberg served as the 
+engagement partner for audits of the Issuers’ financial statements, and that Weinberg knew, or 
+was reckless in not knowing, that certain undisclosed persons, not the Issuers’ purported officers 
+and directors, exercised control over the Issuers.  The complaint further alleges that in violation 
+of professional standards, Weinberg and W&B failed to implement reasonable client-acceptance 
+and continuance procedures and demonstrated virtually no professional skepticism regarding the 
+undisclosed control persons’ relationship with the Issuers, and neither questioned their role with 
+regard to the Issuers, nor took reasonable steps to investigate whether the purported directors and 
+officers actually served in those capacities.  The complaint also alleges that Weinberg and W&B 
+failed to (a) properly audit related-party transactions between the undisclosed control persons 
+and the Issuers, and (b) maintain sufficient work paper documentation of their audits of the 
+Issuers.  The complaint alleges that despite these repeated failures to adhere to PCAOB 
+standards, W&B recklessly and falsely claimed in each of its audit reports for the Issuers that 
+W&B had complied with PCAOB standards.   
+ 3 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondents’ Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that Respondents are 
+suspended from appearing or practicing before the Commission as accountants.   
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 

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+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 82849 / March 9, 2018 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3925 / March 9, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-18397 
+ 
+In the Matter of 
+ 
+ELBIT IMAGING LTD., 
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, MAKING 
+FINDINGS, IMPOSING A CEASE-AND-
+DESIST ORDER, AND IMPOSING A 
+CIVIL MONEY PENALTY 
+  
+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 Elbit Imaging Ltd. (“Elbit” or “Respondent”).   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making 
+Findings, and Imposing a Cease-and-Desist Order, and Imposing a Civil Money Penalty (“Order”), 
+as set forth below.   
+  
+ 2 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds1 that:  
+ 
+Summary 
+ 
+ This case concerns violations of the books and records and internal accounting controls 
+provisions of the Foreign Corrupt Practices Act of 1977 (“FCPA”) involving millions of dollars of 
+payments made by Elbit, and its then majority-owned indirect subsidiary Plaza Centers NV 
+(“Plaza”).  Between 2007 and 2012, Elbit and Plaza, directly and indirectly, paid millions of 
+dollars to third-party offshore consultants and sales agents purportedly for their services related to 
+a real estate development project in Romania and the sale of a large portfolio of real estate assets in 
+the U.S.  However, Elbit and Plaza made these payments even though they had no evidence that 
+the consultants and sales agents had actually provided the contracted for services. Elbit and Plaza 
+failed to properly record those payments in a manner that, in reasonable detail, accurately and 
+fairly reflected the nature of the payments in their books and records.  Elbit and Plaza also failed to 
+devise and maintain internal accounting controls sufficient to provide reasonable assurances that 
+company funds would only be used as authorized for legitimate corporate purposes and that 
+transactions were recorded as necessary to maintain accountability for assets, particularly with 
+regard to the accounts payable process.   
+ 
+Respondent 
+ 
+1. Elbit is an Israeli incorporated company with its headquarters located in Petach 
+Tikva, Israel.  Its ordinary shares are registered with the Commission pursuant to Section 12(b) of 
+the Securities Act of 1933, and trades on the Tel Aviv Stock Exchange and NASDAQ (ticker: 
+EMITF).  Elbit is an international holding company with several direct and indirect subsidiaries 
+focused on, among other industries, real estate investment and development.  Elbit exerts 
+functional control over its indirect subsidiary Plaza, and between 2007 and 2012 Elbit consolidated 
+Plaza’s financial statements into its own financial statements for the purposes of SEC reporting.   
+ 
+Other Relevant Entity and Person 
+ 
+2. Plaza is an indirect subsidiary of Elbit, and is incorporated in the Netherlands.  Its 
+securities are listed on the London Stock Exchange, the Warsaw Stock Exchange, and the Tel Aviv 
+Stock Exchange.  Plaza is a Central and Eastern European developer of shopping and 
+entertainment centers, focusing on developing new Western-style centers and, where there is 
+significant redevelopment potential, redeveloping existing centers. 
+ 
+                                                 
+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 
+3. Executive A, an Israeli citizen, who, prior to February 2014, owned or controlled 
+approximately 50 percent of Elbit’s equity, served as Elbit’s CEO and Plaza’s Executive Director, 
+and had a seat on both companies’ boards of directors.  Executive A passed away in June 2016. 
+ 
+The 2006 and 2011 Casa Radio Project Consultancy Contracts 
+ 
+4. Elbit, through Plaza, has been engaged in the business of real estate development in 
+Central and Eastern Europe, including in Romania.  In 2006, Plaza sought to be included in a large 
+real estate development project located in Bucharest, Romania – the Casa Radio Project.   
+ 
+5. In 2006, Plaza hired an international property consultancy firm to value the Casa 
+Radio Project.  The firm projected that the project would be highly profitable for Plaza, if it 
+obtained the development rights.   
+ 
+6. In August 2006, at the direction of Executive A, Plaza entered into a contract with a 
+third-party offshore entity purportedly for consulting services (“2006 Consultant”) to assist Plaza 
+in (a) procuring an invitation from the Romanian government to participate in the Casa Radio 
+Project, and (b) thereafter acquiring the governmental approvals needed to perform the 
+development work.  There is no evidence to suggest that Plaza conducted any due diligence on the 
+2006 Consultant prior to entering into this agreement.   
+ 
+7. In February 2007, with the Romanian government’s consent, Plaza purchased a 75 
+percent interest in the Casa Radio Project for approximately $40 million in cash and an agreement 
+to develop a Romanian public authority building onsite at Plaza’s expense.  There is no 
+documentation or other evidence showing that the 2006 Consultant provided any services in 
+connection with this transaction.   
+ 
+8. In September 2011, once again at the direction of Executive A, Plaza entered into a 
+second contract with a third-party offshore entity purportedly for consulting services (“2011 
+Consultant”) related to the Casa Radio Project.  The 2011 Consultant was to assist Plaza in (a) once 
+again acquiring all of the governmental approvals needed to perform the development work, and 
+(b) purchasing an additional 15 percent interest in the project from the Romanian government.  
+There is no evidence to suggest that Plaza conducted any due diligence on the 2011 Consultant 
+prior to entering into this agreement.   
+ 
+9. There are no documents or other evidence showing that either of the consultants 
+performed any work related to Plaza acquiring governmental approvals necessary for the Casa 
+Radio Project’s development, or that the 2011 Consultant provided any services in furtherance of 
+Plaza purchasing the Romanian government’s 15 percent interest in the project.  For example, the 
+consultants did not attend any meetings between Romanian officials and Plaza officials and do not 
+appear to have submitted any other materials evidencing any consulting work.   
+ 
+10. Between 2007 and 2012, Plaza, directly and indirectly, paid the consultants 
+approximately $14 million.  Plaza’s top officers authorized making these payments, even though 
+the documentation supporting the payments did not identify the services that the consultants 
+provided pursuant to the contracts.  Plaza characterized the payments to the consultants in its books 
+ 4 
+and records as legitimate business expenses for services rendered, when some or all of the funds 
+may have been used to make corrupt payments to Romanian government officials or were 
+embezzled.   
+ 
+The 2011 Real Estate Portfolio Sale Agency Contract 
+ 
+11. In October 2011, a joint venture of investors (“Joint Venture”), including Elbit and 
+Plaza who together held a 45.4 percent interest in the Joint Venture, sought to sell a portfolio of 47 
+shopping center real estate assets located in the U.S. (the “Portfolio”).   
+ 
+12. On November 15, 2011, at the direction of Executive A, Elbit and Plaza together 
+(not the Joint Venture as a whole) entered into a sales agency contract with a third-party offshore 
+entity (“Sales Agent A”), purportedly to assist in selling the Portfolio (“Sales Agent Contract”).  
+Elbit and Plaza conducted no due diligence on Sales Agent A, and Executive A did not obtain a 
+second signature for the Sales Agent Contract that he executed on behalf of Elbit, as required by 
+Elbit’s signature authorization policy.   
+ 
+13. Pursuant to the Sales Agent Contract, Sales Agent A was to create marketing 
+materials, locate potential buyers, and assist in negotiating a sales contract in exchange for a fee of 
+0.9 percent of the Portfolio’s gross sale price.   
+ 
+14. Unbeknownst to Elbit and Plaza, the day after the execution of the Sales Agent 
+Contract, Sales Agent A entered into a subcontract with another offshore entity (“Sales Agent B”), 
+assigning its rights and obligations under the Sales Agent Contract to Sales Agent B.  Under this 
+agreement, Sales Agent A was to pay Sales Agent B 0.88 percent of the Portfolio sale’s gross 
+price (i.e. approximately 98 percent of the 0.9 percent commission that Sales Agent A was 
+entitled to under the Sales Agent Contract).  At the time, Sales Agent B was indirectly 
+beneficially owned by Executive A.  Executive A did not disclose this subcontract or his interest 
+in Sales Agent B to Elbit or Plaza. 
+ 
+15. Approximately a month and a half prior to the execution of the Sales Agent 
+Contract, the Joint Venture (as a whole) hired another financial institution to serve as its financial 
+advisor for the Portfolio sale (“Financial Advisor”).  The Financial Advisor was retained to provide 
+nearly the same services to the Joint Venture as Sales Agent A had agreed to perform for Elbit and 
+Plaza.   
+ 
+16. While no evidence suggests that Sales Agent A or Sales Agent B provided any 
+known financial advisory services to Elbit and Plaza in connection with the Portfolio sale, the 
+Financial Advisor did fulfill its obligations pursuant to its contract with the Joint Venture. 
+ 
+17. On June 21, 2012, Elbit announced that the Joint Venture obtained a gross sales 
+price of $1.428 billion from the Portfolio sale.  In August 2012, Elbit and Plaza paid Sales Agent A 
+a total of $13 million (i.e. nearly double the $6.75 million that the Joint Venture paid to the 
+Financial Advisor that had actually provided services) for “commissions” and “expenses.”   Elbit 
+and Plaza made these payments despite the fact that the documentation supporting the payments 
+did not identify the services that the consultants provided pursuant to the contracts.  Thereafter, 
+ 5 
+unknown to anyone at Elbit or Plaza besides Executive A, Sales Agent A paid Sales Agent B 
+$12.75 million. 
+ 
+Elbit and Plaza’s Deficient Books and Records and Internal Accounting Controls 
+ 
+18. Elbit and Plaza’s applicable internal accounting controls were deficient.  Elbit’s and 
+Plaza’s internal accounting controls failed to identify the approximately $27 million in payments 
+made to the 2006 Consultant, the 2011 Consultant, and Sales Agent A, despite having no evidence 
+that these counter-parties actually provided any of the contracted for services.   
+ 
+19. Elbit and Plaza did not devise and maintain internal accounting controls sufficient 
+to provide reasonable assurances that transactions were recorded as necessary to maintain 
+accountability for assets, particularly with regard to the accounts payable process Elbit did not 
+make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly 
+reflected its transactions and dispositions of its assets.  Plaza’s legal department had limited 
+involvement with or supervision of contracts entered into between Plaza and third-party 
+consultants or agents.  Elbit and Plaza also did not have policies and procedures in place to detect 
+corruption risks and provided little, if any, anti-corruption compliance training to employees during 
+the relevant time period. 
+ 
+20. Elbit and Plaza mischaracterized the numerous payments made to the 2006 
+Consultant, the 2011 Consultant, and Sales Agent A as legitimate business expenses, even though 
+some or all of the funds may have been used to make corrupt payments to Romanian government 
+officials or were embezzled. 
+ 
+ 
+Elbit’s 2014 Debt Arrangement 
+ 
+21. In February 2014, Elbit completed a debt arrangement (similar to Chapter 11 
+reorganization under U.S. bankruptcy law), pursuant to which its former debt holders became the 
+new majority equity shareholders of the company.  Along with this change in ownership and 
+control, significant changes were made to the composition of Elbit’s board of directors and senior 
+officers.  Similarly, in July 2014, Plaza completed its own debt arrangement.  Although Elbit’s 
+ownership of reorganized Plaza was reduced to approximately 45 percent, Elbit continued to exert 
+functional control over Plaza.   
+ 
+Discovery, Internal Investigation, and Self-Report 
+ 
+22. When Elbit discovered evidence which suggested that certain payments that 
+Plaza, directly or indirectly, made in connection with the Casa Radio Project were improper and 
+may have been recorded incorrectly in Plaza’s books and records, Elbit and Plaza self-reported 
+this information to authorities in both Romania and the U.S., fully cooperated with the 
+Commission staff’s investigation, and implemented extensive remedial measures.    
+ 
+23. Elbit, through a special committee of its board of directors, hired outside counsel 
+(“Counsel”) to conduct an independent investigation to determine the scope of potential issues 
+ 6 
+related to Elbit’s and Plaza’s business in connection with the Casa Radio Project.  During the 
+pendency of this investigation, additional facts were learned concerning the payments Elbit and 
+Plaza made to Sales Agent A and the ownership of Sales Agent B, resulting in the formation of a 
+joint special committee by Elbit and Plaza to investigate the Portfolio sale transaction as well.  
+As the investigations progressed, Elbit shared Counsel’s findings with the Commission staff, was 
+fully responsive to requests for additional information, and provided translations of certain 
+documents.  
+ 
+24. The joint special committee also directed Counsel to examine and recommend 
+revisions to Elbit’s and Plaza’s internal accounting controls and anti-bribery policies and 
+procedures.  Counsel did so, and both Elbit’s and Plaza’s boards accepted all of the 
+recommendations, and directed management to implement them. 
+ 
+Books and Records and Internal Accounting Controls Violations 
+ 
+25. As a result of the conduct described above, Elbit violated Section 13(b)(2)(A) of 
+the Exchange Act which requires companies with a class of securities registered under Section 
+12 of the Securities Act 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.  15 
+U.S.C. § 78m(b)(2)(A). 
+ 
+26. As a result of the conduct described above, Elbit also violated Section 13(b)(2)(B) 
+of the Exchange Act which requires companies with a class of securities registered under Section 
+12 of the Securities Act to devise and maintain a system of internal accounting controls sufficient 
+to provide reasonable assurances that (i) transactions are executed in accordance with 
+management’s general or specific authorization; (ii) transactions are recorded as necessary (I) to 
+permit preparation of financial statements in conformity with generally accepted accounting 
+principles or any other criteria applicable to such statements, and (II) to maintain accountability 
+for assets; (iii) access to assets is permitted only in accordance with management’s general or 
+specific authorization; and (iv) the recorded accountability for assets is compared with the 
+existing assets at reasonable intervals and appropriate action is taken with respect to any 
+differences.  15 U.S.C. §78m(b)(2)(B). 
+ 
+Commission’s Consideration of Elbit’s Remedial Efforts and Business Wind Down 
+ 
+27. In determining to accept the Offer, the Commission considered remedial acts that 
+Respondent promptly undertook, its self-reporting, and its cooperation afforded to the 
+Commission staff, including having conducted a thorough internal investigation, voluntarily 
+providing detailed reports to the staff, fully responding to the staff’s requests for additional 
+information in a timely manner, and providing translations of certain documents. 
+ 
+28. The Commission also considered that Elbit is in the process of selling its principal 
+assets in order to service its debt obligations, and does not develop current or new businesses. 
+ 
+ 
+ 7 
+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: 
+ 
+ A. Pursuant to Section 21C of the Exchange Act, Respondent cease and desist from 
+committing or causing any violations and any future violations of Sections 13(b)(2)(A) and 
+13(b)(2)(B) of the Exchange Act. 
+ 
+ B. Respondent shall, within 14 days of the entry of this Order, pay a civil money 
+penalty in the amount of $500,000 to the Securities and Exchange Commission for transfer to the 
+general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3).  If timely 
+payment is not made, additional interest shall accrue pursuant to 31 U.S.C. §3717. 
+ 
+Payment must be made in one of the following ways: 
+ 
+(1) Respondent may transmit payment electronically to the Commission, 
+which will provide detailed ACH transfer/Fedwire instructions upon 
+request; 
+ 
+(2) Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; 
+or 
+ 
+(3) Respondent may pay by certified check, bank cashier’s check, or 
+United States postal money order, made payable to the Securities and 
+Exchange Commission and hand-delivered or mailed to: 
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-41 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK  73169 
+  
+Payments by check or money order must be accompanied by a cover letter identifying Elbit 
+Imaging Ltd. as the Respondent in these proceedings and the file number of these proceedings.  A 
+copy of the cover letter and check or money order must be sent to Lara Shalov Mehraban, 
+Associate Regional Director, Division of Enforcement, Securities and Exchange Commission, 
+New York Regional Office, 200 Vesey Street, Suite 400, New York, NY  10281. 
+ 
+C. Amounts ordered to be paid as civil money penalties pursuant to this Order shall 
+be treated as penalties paid to the government for all purposes, including all tax purposes.  To 
+preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 
+Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any 
+ 8 
+award of compensatory damages by the amount of any part of Respondent’s payment of a civil 
+penalty in this action (“Penalty Offset”). If the court in any Related Investor Action grants such a 
+Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a final order granting 
+the Penalty Offset, notify the Commission’s counsel in this action and pay the amount of the 
+Penalty Offset to the Securities and Exchange Commission. Such a payment shall not be deemed 
+an additional civil penalty and shall not be deemed to change the amount of the civil penalty 
+imposed in this proceeding. For purposes of this paragraph, a “Related Investor Action” means a 
+private damages action brought against Respondent by or on behalf of one or more investors 
+based on substantially the same facts as alleged in the Order instituted by the Commission in this 
+proceeding. 
+ 
+D. Respondent acknowledges that the Commission is not imposing a civil penalty in 
+excess of $500,000 based upon its cooperation in a Commission investigation and related 
+enforcement action.  If at any time following the entry of the Order, the Division of Enforcement 
+(“Division”) obtains information indicating that Respondent knowingly provided materially false 
+or misleading information or materials to the Commission or in a related proceeding, the Division 
+may, at its sole discretion and with prior notice to the Respondent, petition the Commission to 
+reopen this matter and seek an order directing that the Respondent pay an additional civil penalty. 
+Respondent may contest by way of defense in any resulting administrative proceeding whether it 
+knowingly provided materially false or misleading information, but may not: (1) contest the 
+findings in the Order; or (2) assert any defense to liability or remedy, including, but not limited to, 
+any statute of limitations defense. 
+ 
+By the Commission. 
+ 
+ 
+Brent J. Fields 
+Secretary  
+ 

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+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  82859 / March 13, 2018 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.   3926 / March 13, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-18399 
+ 
+ 
+In the Matter of 
+ 
+BDO CANADA LLP 
+            (f/k/a BDO DUNWOODY LLP) 
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTIONS 4C AND 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934  
+AND RULE 102(e) OF THE COMMISSION’S 
+RULES OF PRACTICE, MAKING 
+FINDINGS, AND IMPOSING A CEASE-AND-
+DESIST ORDER, A CENSURE AND A CIVIL 
+PENALTY   
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission” or “SEC”) deems it appropriate 
+that public administrative and cease-and-desist proceedings be, and hereby are, instituted against 
+BDO Canada LLP (f/k/a BDO Dunwoody LLP) (“Respondent” or “BDO Canada”) pursuant to 
+Sections 4C1 and 21C of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 
+                                              
+1  Section 4C provides, in relevant part, that:  
+ 
+ The Commission may censure any person, or deny, temporarily or permanently, 
+to any person the privilege of appearing or practicing before the Commission in 
+any way, if that person is found . . . (2) to be lacking in character or integrity, or to 
+have engaged in unethical or improper professional conduct . . . . 
+ 
+ 
+ 2 
+102(e)(1)(ii) of the Commission’s Rules of Practice.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 it and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting 
+Administrative and Cease-and-Desist Proceedings Pursuant to Sections 4C and 21C of the 
+Securities Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice, Making 
+Findings, and Imposing A Cease-and-Desist Order, a Censure and a Civil Penalty (“Order”), as set 
+forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that:  
+ 
+A. SUMMARY 
+ 
+ These proceedings arise out of BDO Canada’s improper professional conduct in the course 
+of its audits of Issuer A.  In particular, from at least 2006 until 2012, during its audits of Issuer A, 
+BDO Canada failed to comply with the auditing standards of the Public Company Accounting 
+Oversight Board (“PCAOB”).   
+ 
+B. RESPONDENT 
+ 
+ BDO Canada LLP (“BDO Canada”) is a public accounting firm registered with the 
+PCAOB and located in Toronto, Canada.  BDO Canada is a member firm of BDO International 
+Limited, a private company in the United Kingdom.  Prior to January 2010, BDO Canada was 
+named BDO Dunwoody LLP. 
+ 
+C. OTHER RELEVANT ENTITIES 
+ 
+Issuer A is a company that is incorporated in Canada with its principal executive offices in  
+                                              
+2  Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+ The Commission may . . . deny, temporarily or permanently, the privilege of 
+appearing or practicing before it . . . to any person who is found . . . to have 
+engaged in unethical or improper professional conduct. 
+ 
+ 
+ 3 
+South Africa.  Issuer A’s securities are registered with the Commission pursuant to Section 12(b) 
+of the Securities Exchange Act of 1934 (“Exchange Act”), and were previously registered with the 
+Commission pursuant to Section 12(g) of the Exchange Act.  Issuer A files periodic reports, 
+including Form 20-F, with the Commission pursuant to Section 13(a) of the Exchange Act and 
+related rules thereunder. 
+ 
+Deloitte & Touche Chartered Accountants (“Deloitte Zimbabwe”) is an accounting firm 
+located in Zimbabwe and is a member firm of a global accounting network.  Deloitte Zimbabwe is 
+not registered with the PCAOB. 
+ 
+D. FACTS 
+ 
+ From at least 2006 until 2012, BDO Canada audited the financial statements of Issuer A,  
+a Canadian company with securities registered with the Commission pursuant to Section 12(g) of 
+the Exchange Act.  As such, Issuer A is required to file periodic reports with the Commission and 
+the financial statements contained in those reports are required to be audited pursuant to PCAOB 
+standards.   
+ 
+ In each independent auditor’s report of BDO Canada included with Issuer A’s financial 
+statements filed with the Commission on Form 20-F for fiscal years 2006 through 2012, BDO 
+Canada inaccurately stated that it had conducted its audits in accordance with the standards of the 
+PCAOB.  Specifically, BDO Canada’s use of the work of another independent auditor failed to 
+comply with PCAOB auditing standards.   
+ 
+ Applicable Auditing Standards3 
+ 
+ PCAOB AU Sec. 543, Part of Audit Performed by Other Independent Auditors, establishes 
+requirements that apply when an auditor of an issuer’s financial statements “use[s] the work and 
+reports of other independent auditors who have audited the financial statements of one or more 
+subsidiaries, divisions, branches, components, or investments included in [that issuer’s] financial 
+statements.”  See AU 543.01.   
+ 
+ In circumstances where a significant part of the audit is performed by another auditor, a 
+firm, in considering whether it can serve as principal auditor, must decide whether its own 
+participation in the audit is sufficient and enables it to serve as the principal auditor and to report as 
+such on the financial statements.  See AU 543.02.   
+ 
+ In determining whether its participation is sufficient to serve as a principal auditor, the 
+auditor “should consider, among other things, the materiality of the portion of the financial 
+statements [the firm] audited in comparison with the portion audited by other auditors, the extent of 
+                                              
+3 The references to PCAOB standards and applicable provisions of the U.S. securities laws are to 
+those that were in effect at the time of the relevant conduct. 
+ 
+ 4 
+[the auditor’s] knowledge of the overall financial statements, and the importance of the 
+components [the firm] audited in relation to the enterprise as a whole.”  See AU 543.02. 
+ 
+ As part of deciding whether it can use the work and report of another auditor, the principal 
+auditor “should make inquiries concerning the professional reputation and independence of the 
+other auditor.”  See AU 543.10.  In addition, the principal auditor “should adopt appropriate 
+measures to assure the coordination of his activities with those of the other auditor in order to 
+achieve a proper review of the matters affecting the consolidating or combining of accounts in the 
+financial statements.”  See AU 543.10. 
+ 
+  In addition, PCAOB AU Sec. 230, Due Professional Care in the Performance of Work, 
+requires “[d]ue professional care [ ] to be exercised in the planning and performance of the audit 
+and the preparation of the report.”  See AU 230.01. 
+ 
+ BDO Canada’s Role as Issuer A’s Principal Auditor and its Improper Professional Conduct  
+ 
+ During the relevant period, BDO Canada served as the principal auditor of Issuer A.  In that 
+capacity, BDO Canada signed and issued the audit reports on Issuer A’s financial statements.  
+During this same period, Issuer A’s largest subsidiary, located in Africa, accounted for the majority 
+of Issuer A’s consolidated assets and revenues.  For example, for fiscal year 2011, this specific 
+African subsidiary accounted for approximately 64 and 100 percent of Issuer A’s consolidated total 
+assets and revenues, respectively.  In conducting its audits of Issuer A, BDO Canada used a local 
+audit firm, Deloitte Zimbabwe, to audit the financial statements of this subsidiary.   
+  
+ BDO Canada failed to comply with AU 543 in its use of the work of Deloitte Zimbabwe.  
+At the outset, BDO Canada provided Deloitte Zimbabwe with instructions for performing the audit.  
+Significantly, BDO Canada directed Deloitte Zimbabwe to perform its audits in accordance with 
+International Standards on Auditing (“ISAs”).  Deloitte Zimbabwe’s report of its audit provided to 
+BDO Canada made clear that its audit was conducted in accordance with ISAs and not PCAOB 
+standards.  BDO Canada failed to perform procedures to evaluate the potential impact of Deloitte 
+Zimbabwe having applied ISAs or to determine whether the audit work performed was compliant 
+with PCAOB standards until 2012.   
+ 
+ In addition, BDO Canada failed to perform any analysis under AU 543 to determine 
+whether it could serve as Issuer A’s principal auditor and use the work of Deloitte Zimbabwe.  
+Again, BDO Canada mistook what auditing standards were applicable and considered the issue 
+under Canadian Auditing Standards.  In addition, a factor in deciding to use Deloitte Zimbabwe 
+was the preference of management of Issuer A to have Deloitte Zimbabwe do the audit work, a 
+reason with no basis under AU 543.   
+ 
+ The U.S. securities laws and the PCAOB rules require that accounting firms register with 
+the PCAOB if they “prepare[] or issue[] any audit report with respect to any issuer” or “play[] a 
+substantial role in the preparation or furnishing of an audit report with respect to any issuer.”  See 
+Section 102 of the Sarbanes-Oxley Act of 2002 and PCAOB Rule 2100.  An accounting firm plays 
+ 
+ 5 
+a substantial role and is thus required to register when it:  (1) “perform[s] material services that a 
+public accounting firm uses or relies on in issuing all or part of its audit report;” or (2) “perform[s] 
+the majority of the audit procedures with respect to a subsidiary or component of any issuer the 
+assets or revenues of which constitute 20% or more of the consolidated assets or revenues of such 
+issuer necessary for the principal auditor to issue an audit report.”  See PCAOB Rule 1001(p)(ii).  
+ 
+ Deloitte Zimbabwe played a substantial role in the preparation of the audit reports for 
+Issuer A having audited most of Issuer A’s assets and substantially all of its revenues.  As such, 
+Deloitte Zimbabwe was required to be registered with the PCAOB.  However, Deloitte Zimbabwe 
+failed to register with the PCAOB.  Among BDO Canada’s responsibilities under AU 543 was to 
+inquire concerning the professional reputation and independence of Deloitte Zimbabwe and under 
+AU 230.01 to plan and perform its work with due professional care.  See AU 543.10; AU 230.01.  
+From 2006 to 2012, BDO Canada simply assumed that Deloitte Zimbabwe was registered with the 
+PCAOB.  An adequate inquiry performed with due professional care under AU 543 and AU 230 
+concerning Deloitte Zimbabwe’s professional reputation, based in part, on the significance of the 
+assets and revenues audited by Deloitte Zimbabwe, would have revealed that Deloitte Zimbabwe 
+was not registered with the PCAOB.  As a result, BDO Canada should not have used Deloitte 
+Zimbabwe’s audit work.  However, for a period of six years, BDO used the audit work of Deloitte 
+Zimbabwe and during that period failed to identify the fact that Deloitte Zimbabwe was not 
+registered with the PCAOB.      
+   
+E. BDO CANADA’S REMEDIAL EFFORTS 
+ 
+In determining to accept the Offer, the Commission considered BDO Canada’s cooperation 
+and remedial measures. 
+ 
+F. VIOLATIONS  
+  
+ BDO Canada engaged in improper professional conduct under Section 4C(a)(2) of the  
+Exchange Act and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice by failing (1) to 
+instruct Deloitte Zimbabwe to perform its audit in accordance with PCAOB standards or to 
+perform procedures to evaluate the impact of Deloitte Zimbabwe having applied ISAs including 
+determining whether or not the audit work performed was compliant with PCAOB standards; and 
+(2) to comply with AU 543 and AU 230 in using the audit work of an unregistered auditing firm; 
+and (3) to perform an analysis under AU 543 regarding the sufficiency of its participation to serve 
+as principal auditor. 
+    
+ Rule 2-02(b)(1) of Regulation S-X of the Exchange Act requires an auditor’s report to state 
+whether the audit was made in accordance with generally accepted auditing standards.  By 
+indicating that its audit was conducted in accordance with PCAOB standards, when in fact it had 
+not been, BDO Canada violated Rule 2-02(b)(1) of Regulation S-X.  
+ 
+ Section 13(a) of the Exchange Act and Rule 13a-1 thereunder require every foreign private 
+issuer of a security registered pursuant to Section 12 of the Exchange Act to file with the 
+ 
+ 6 
+Commission such information, documents and reports as the Commission may require.  Implicit in 
+this requirement is that the reports be accurate.  By indicating in its audit report accompanying 
+Issuer A’s financial statements that its audit was conducted in accordance with PCAOB standards, 
+when in fact, it had not been, BDO Canada caused Issuer A to violate Section 13(a) of the 
+Exchange Act and Rule 13a-1.  
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent BDO Canada’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+ A. BDO Canada is censured;   
+  
+ B. BDO Canada shall cease and desist from committing or causing any violations and 
+any future violations of Rule 2-02 of Regulation S-X and causing any violations and any future 
+violations of Section 13(a) of the Exchange Act and Rule 13a-1; and 
+ 
+C.  BDO Canada shall, within 30 days of the entry of this Order, pay a civil money 
+penalty in the amount of $50,000 to the Securities and Exchange Commission for transfer to the 
+general fund of the United States Treasury.  If timely payment is not made, additional interest shall 
+accrue pursuant to 31 U.S.C. 3717.  Payment must be made in one of the following ways:   
+(1) Respondent may transmit payment electronically to the Commission, which will 
+provide detailed ACH transfer/Fedwire instructions upon request;  
+ 
+(2) Respondent may make direct payment from a bank account via Pay.gov through the 
+SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+(3) Respondent may pay by certified check, bank cashier’s check, or United States 
+postal money order, made payable to the Securities and Exchange Commission and 
+hand-delivered or mailed to: 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+ Payments by check or money order must be accompanied by a cover letter identifying 
+BDO Canada as a Respondent in these proceedings, and the file number of these proceedings; a 
+copy of the cover letter and check or money order must be sent to Amy L. Friedman, Division of 
+Enforcement, Securities and Exchange Commission, 100 F St., NE, Washington, DC 20549-5010. 
+ 
+ 7 
+ D.   Amounts ordered to be paid as civil money penalties pursuant to this Order shall  
+be treated as penalties paid to the government for all purposes, including all tax purposes.  To 
+preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 
+Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any 
+award of compensatory damages by the amount of any part of Respondent’s payment of a civil 
+penalty in this action ("Penalty Offset").  If the court in any Related Investor Action grants such 
+a Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a final order 
+granting the Penalty Offset, notify the Commission's counsel in this action and pay the amount of 
+the Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be 
+deemed an additional civil penalty and shall not be deemed to change the amount of the civil 
+penalty imposed in this proceeding.  For purposes of this paragraph, a "Related Investor Action" 
+means a private damages action brought against Respondent by or on behalf of one or more 
+investors based on substantially the same facts as alleged in the Order instituted by the 
+Commission in this proceeding. 
+ 
+ E.  Respondent acknowledges that the Commission is not imposing a civil penalty in 
+excess of $50,000 based upon its cooperation in a Commission investigation.  If at any time 
+following the entry of the Order, the Division of Enforcement (“Division”) obtains information 
+indicating that Respondent knowingly provided materially false or misleading information or 
+materials to the Commission, or in a related proceeding, the Division may, at its sole discretion and 
+with prior notice to the Respondent, petition the Commission to reopen this matter and seek an 
+order directing that the Respondent pay an additional civil penalty.  Respondent may contest by 
+way of defense in any resulting administrative proceeding whether it knowingly provided 
+materially false or misleading information, but may not:  (1) contest the findings in the Order; or 
+(2) assert any defense to liability or remedy, including, but not limited to, any statute of limitations 
+defense. 
+ 
+ 
+ By the Commission. 
+ 
+       Brent J. Fields 
+       Secretary 
+ 

raw/aaer/2018/AAER-3927.txt

@@ -0,0 +1,295 @@
+   
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.   82860 / March 13, 2018 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.   3927 / March 13, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-18400 
+ 
+ 
+In the Matter of 
+ 
+KPMG INC.  
+             
+Respondent. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTIONS 4C AND 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934  
+AND RULE 102(e) OF THE COMMISSION’S 
+RULES OF PRACTICE, MAKING 
+FINDINGS, AND IMPOSING A CEASE-AND-
+DESIST ORDER, A CENSURE AND A CIVIL 
+PENALTY   
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission” or “SEC”) deems it appropriate 
+that public administrative and cease-and-desist proceedings be, and hereby are, instituted against 
+KPMG Inc. (“Respondent” or “KPMG South Africa”) pursuant to Sections 4C1 and 21C of the 
+                                              
+1  Section 4C provides, in relevant part, that:  
+ 
+ The Commission may censure any person, or deny, temporarily or permanently, 
+to any person the privilege of appearing or practicing before the Commission in 
+any way, if that person is found . . . (1) not to possess the requisite qualifications 
+to represent others . . . (2) to be lacking in character or integrity, or to have 
+engaged in unethical or improper professional conduct; or (3) to have willfully 
+violated, or willfully aided and abetted the violation of, any provision of the 
+securities laws or the rules and regulations thereunder. 
+ 
+ 2 
+Securities Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) of the Commission’s 
+Rules of Practice.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 it and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting 
+Administrative and Cease-and-Desist Proceedings Pursuant to Sections 4C and 21C of the 
+Securities Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice, Making 
+Findings, and Imposing A Cease-and-Desist Order, a Censure and a Civil Penalty (“Order”), as set 
+forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that:  
+ 
+A. SUMMARY 
+ 
+ These proceedings arise out of KPMG South Africa’s improper professional conduct in the 
+course of its audits of Issuer A.  In particular, from at least 2013 through 2014 during its audits of 
+Issuer A, KPMG South Africa failed to comply with the auditing standards of the Public Company 
+Accounting Oversight Board (“PCAOB”).   
+ 
+B. RESPONDENT 
+ 
+ KPMG Inc. is a public accounting firm registered with the PCAOB and located in 
+Johannesburg, South Africa.  KPMG Inc. is a member firm of KPMG International Cooperative 
+(“KPMG International”), a Swiss entity.   
+ 
+C. OTHER RELEVANT ENTITIES 
+ 
+Issuer A is a company that is incorporated in Canada with its principal executive offices in  
+South Africa.  Issuer A’s securities are registered with the Commission pursuant to Section 12(b) 
+of the Securities Exchange Act of 1934 (“Exchange Act”), and were previously registered with the 
+                                              
+2  Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+ The Commission may . . . deny, temporarily or permanently, the privilege of 
+appearing or practicing before it . . . to any person who is found . . . to have 
+engaged in unethical or improper professional conduct. 
+ 
+ 3 
+Commission pursuant to Section 12(g) of the Exchange Act.  Issuer A files periodic reports, 
+including Form 20-F, with the Commission pursuant to Section 13(a) of the Exchange Act and 
+related rules thereunder. 
+ 
+ KPMG (“KPMG Zimbabwe”) is an accounting firm located in Zimbabwe and is a member 
+firm of KPMG International   KPMG Zimbabwe is not registered with the PCAOB. 
+ 
+D. FACTS 
+ 
+ From at least 2013 through 2014, KPMG South Africa audited the financial statements of 
+Issuer A, a Canadian company with securities registered with the Commission pursuant to Section 
+12(g) of the Exchange Act.  As such, Issuer A is required to file periodic reports with the 
+Commission and the financial statements contained in those reports are required to be audited 
+pursuant to PCAOB standards.   
+ 
+ In each independent auditor’s report of KPMG South Africa included with Issuer A’s 
+financial statements filed with the Commission on Form 20-F for fiscal years 2013 through 2014, 
+KPMG South Africa stated that it had conducted its audits in accordance with the standards of the 
+PCAOB.  However, those statements were inaccurate because KPMG South Africa had in fact 
+failed to conduct its audits in accordance with certain PCAOB auditing standards identified below.  
+Specifically, KPMG South Africa’s use of the work of another independent auditor failed to 
+comply with PCAOB auditing standards.   
+ 
+ Applicable Auditing Standards3 
+ 
+ PCAOB AU Sec. 543, Part of Audit Performed by Other Independent Auditors, establishes 
+requirements that apply when an auditor of an issuer’s financial statements “use[s] the work and 
+reports of other independent auditors who have audited the financial statements of one or more 
+subsidiaries, divisions, branches, components, or investments included in [that issuer’s] financial 
+statements.”  See AU 543.01.   
+  
+ In circumstances where a significant part of the audit is performed by another auditor, a 
+firm, in considering whether it can serve as principal auditor, must decide whether its own 
+participation in the audit is sufficient and enables it to serve as the principal auditor and to report as 
+such on the financial statements.  See AU 543.02.   
+ 
+ In determining whether its participation is sufficient to serve as a principal auditor, the 
+auditor “should consider, among other things, the materiality of the portion of the financial 
+statements [the firm] audited in comparison with the portion audited by other auditors, the extent of 
+[the auditor’s] knowledge of the overall financial statements, and the importance of the 
+components [the firm] audited in relation to the enterprise as a whole.”  See AU 543.02. 
+ 
+                                              
+3 The references to PCAOB standards are to those that were in effect at the time of the relevant 
+conduct. 
+ 4 
+ As part of deciding whether it can use the work and report of another auditor, the principal 
+auditor “should make inquiries concerning the professional reputation and independence of the 
+other auditor.”  See AU 543.10.  In addition, the principal auditor “should adopt appropriate 
+measures to assure the coordination of his activities with those of the other auditor in order to 
+achieve a proper review of the matters affecting the consolidating or combining of accounts in the 
+financial statements.”  See AU 543.10. 
+ 
+  In addition, PCAOB AU Sec. 230, Due Professional Care in the Performance of Work, 
+requires “[d]ue professional care [ ] to be exercised in the planning and performance of the audit 
+and the preparation of the report.”  See AU 230.01. 
+  
+ KPMG South Africa’s Role as Issuer A’s Principal Auditor and its Improper Professional 
+Conduct  
+ 
+ During the relevant period, KPMG South Africa served as the principal auditor of Issuer A.  
+In that capacity, KPMG South Africa signed and issued the audit reports on Issuer A’s financial 
+statements.  During this same period, Issuer A’s largest subsidiary, located in Africa, accounted for 
+the majority of Issuer A’s consolidated assets and revenues.  For example, for fiscal year 2013, this 
+subsidiary accounted for approximately 70 percent of Issuer A’s consolidated total assets and 100 
+percent of Issuer A’s consolidated revenues, respectively.  In conducting its audits of Issuer A, 
+KPMG South Africa used KPMG Zimbabwe to audit the financial statements of this subsidiary.   
+  
+ KPMG South Africa failed to comply with AU 543 in its use of the work of KPMG 
+Zimbabwe.  For the fiscal year 2013 audit, KPMG South Africa failed to perform any analysis 
+under AU 543 to determine whether it could serve as Issuer A’s principal auditor and use the work 
+of KPMG Zimbabwe.   For the fiscal year 2014 audit, KPMG South Africa failed to perform any 
+analysis under AU 543 to determine whether it could serve as Issuer A’s principal auditor and use 
+the work of KPMG Zimbabwe until after substantially all of its audit work was completed and less 
+than two weeks prior to signing its audit report.    
+ 
+ The U.S. securities laws and the PCAOB rules require that accounting firms register with 
+the PCAOB if they “prepare[] or issue[] any audit report with respect to any issuer” or “play[] a 
+substantial role in the preparation or furnishing of an audit report with respect to any issuer.”  See 
+Section 102 of the Sarbanes-Oxley Act of 2002 and PCAOB Rule 2100.  An accounting firm plays 
+a substantial role and is thus required to register when it:  (1) “perform[s] material services that a 
+public accounting firm uses or relies on in issuing all or part of its audit report;” or (2) “perform[s] 
+the majority of the audit procedures with respect to a subsidiary or component of any issuer the 
+assets or revenues of which constitute 20% or more of the consolidated assets or revenues of such 
+issuer necessary for the principal auditor to issue an audit report.”  See PCAOB Rule 1001(p)(ii). 
+ 
+ KPMG Zimbabwe played a substantial role in the preparation of the 2013 and 2014 audit 
+reports for Issuer A having audited most of Issuer’s A assets and substantially all of its revenues.  
+As such, KPMG Zimbabwe was required to be registered with the PCAOB.  However, KPMG 
+Zimbabwe was not registered with the PCAOB.  Among KPMG South Africa’s responsibilities 
+under AU 543 was to inquire concerning the professional reputation and independence of KPMG 
+ 5 
+Zimbabwe and under AU 230.01 to plan and perform its work with due professional care.  See AU 
+543.10; AU 230.01.  For the year-end 2013 audit, KPMG South Africa inquired as to KPMG 
+Zimbabwe’s professional reputation and independence and was informed by KPMG Zimbabwe 
+that it was not registered with the PCAOB.  However, KPMG South Africa failed to follow up on 
+KPMG Zimbabwe’s response and analyze whether it would prevent KPMG Zimbabwe from 
+playing a substantial role in the audit because it was apparently unaware of the requirement that 
+accounting firms playing a substantial role in the audit of an issuer must be registered with the 
+PCAOB.  For the fiscal year 2014 audit, KPMG South Africa was aware that KPMG Zimbabwe 
+was not registered with the PCAOB but nonetheless failed to perform any analysis as to whether it 
+could use KPMG Zimbabwe’s audit work until after its audit work was completed and just prior to 
+signing its audit report.  An adequate inquiry and analysis performed with due professional care 
+under AU 543 and AU 230 concerning KPMG Zimbabwe’s professional reputation, based in part, 
+on the significance of the assets and revenues audited by KPMG Zimbabwe in 2013 and 2014, 
+should have revealed that because KPMG Zimbabwe was not registered with the PCAOB, KPMG 
+South Africa should not have used its audit work.              
+   
+E. VIOLATIONS  
+  
+ KPMG South Africa engaged in improper professional conduct under Section 4C(a)(2) of 
+the Exchange Act and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice by failing (1) to 
+perform an adequate analysis under AU 543 regarding whether it could serve as Issuer A’s 
+principal auditor and use the work of KPMG Zimbabwe; and (2) to comply with AU 543 and AU 
+230 in using the audit work of an unregistered auditing firm. 
+    
+ Rule 2-02(b)(1) of Regulation S-X of the Exchange Act requires an auditor’s report to state 
+whether the audit was made in accordance with generally accepted auditing standards.  By 
+indicating that its audits were conducted in accordance with PCAOB standards, when in fact they 
+had not been, KPMG Inc. violated Rule 2-02(b)(1) of Regulation S-X.  
+ 
+ Section 13(a) of the Exchange Act and Rule 13a-1 thereunder require every foreign private 
+issuer of a security registered pursuant to Section 12 of the Exchange Act to file with the 
+Commission such information, documents and reports as the Commission may require.  Implicit in 
+this requirement is that the reports be accurate.  By indicating in its audit reports accompanying 
+Issuer A’s financial statements that its audits were conducted in accordance with PCAOB 
+standards, when in fact, they had not been, KPMG Inc. caused Issuer A to violate Section 13(a) of 
+the Exchange Act and Rule 13a-1.  
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent KPMG Inc.’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+ A. KPMG Inc. is censured;   
+ 6 
+  
+ B. KPMG Inc. shall cease and desist from committing or causing any violations and 
+any future violations of Rule 2-02 of Regulation S-X and causing any violations and any future 
+violations of Section 13(a) of the Exchange Act and Rule 13a-1; and 
+ 
+C.  KPMG Inc. shall, within 30 days of the entry of this Order, pay a civil money 
+penalty in the amount of $100,000 to the Securities and Exchange Commission for transfer to the 
+general fund of the United States Treasury.  If timely payment is not made, additional interest shall 
+accrue pursuant to 31 U.S.C. 3717.  Payment must be made in one of the following ways:   
+(1) Respondent may transmit payment electronically to the Commission, which will 
+provide detailed ACH transfer/Fedwire instructions upon request;  
+ 
+(2) Respondent may make direct payment from a bank account via Pay.gov through the 
+SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+(3) Respondent may pay by certified check, bank cashier’s check, or United States 
+postal money order, made payable to the Securities and Exchange Commission and 
+hand-delivered or mailed to: 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+ Payments by check or money order must be accompanied by a cover letter identifying 
+KPMG Inc. as a Respondent in these proceedings, and the file number of these proceedings; a copy 
+of the cover letter and check or money order must be sent to Amy L. Friedman, Division of 
+Enforcement, Securities and Exchange Commission, 100 F St., NE, Washington, DC 20549-5010. 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 7 
+ D.   Amounts ordered to be paid as civil money penalties pursuant to this Order shall  
+be treated as penalties paid to the government for all purposes, including all tax purposes.  To 
+preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 
+Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any 
+award of compensatory damages by the amount of any part of Respondent’s payment of a civil 
+penalty in this action ("Penalty Offset").  If the court in any Related Investor Action grants such 
+a Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a final order 
+granting the Penalty Offset, notify the Commission's counsel in this action and pay the amount of 
+the Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be 
+deemed an additional civil penalty and shall not be deemed to change the amount of the civil 
+penalty imposed in this proceeding.  For purposes of this paragraph, a "Related Investor Action" 
+means a private damages action brought against Respondent by or on behalf of one or more 
+investors based on substantially the same facts as alleged in the Order instituted by the 
+Commission in this proceeding. 
+  
+ 
+ By the Commission. 
+ 
+       Brent J. Fields 
+       Secretary 

raw/aaer/2018/AAER-3928.txt

@@ -0,0 +1,180 @@
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  82861 / March 13, 2018 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  3928 / March 13, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-18401 
+ 
+ 
+In the Matter of 
+ 
+         DELOITTE & TOUCHE        
+         CHARTERED ACCOUNTANTS 
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-DESIST 
+PROCEEDINGS PURSUANT TO SECTION 
+21C OF THE SECURITIES EXCHANGE ACT 
+OF 1934, MAKING FINDINGS, AND 
+IMPOSING A CEASE-AND-DESIST ORDER 
+AND REMEDIAL SANCTIONS 
+  
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission” or “SEC”) 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 Deloitte & Touche Chartered 
+Accountants (“Respondent” or “Deloitte Zimbabwe”).   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”), which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making 
+Findings, and Imposing A Cease-and-Desist Order, and Remedial Sanctions (“Order”), as set forth 
+below.   
+ 
+ 2 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that:  
+ 
+A. SUMMARY 
+ 
+ These proceedings arise out of Deloitte Zimbabwe’s playing a substantial role in the audits 
+of Issuer A from 2006 until 2012 without being registered with the Public Company Accounting 
+Oversight Board (“PCAOB”).   
+ 
+B. RESPONDENT 
+ 
+Deloitte & Touche Chartered Accountants is an accounting firm located in Zimbabwe 
+that is a member firm of Deloitte Touche Tohmatsu Limited, a private company located in the 
+United Kingdom.  Deloitte Zimbabwe has never been registered with the PCAOB.   
+ 
+C. OTHER RELEVANT ENTITIES 
+ 
+Issuer A is a company that is incorporated in Canada with its principal executive offices in 
+South Africa.  Issuer A’s securities are registered with the Commission pursuant to Section 12(b) 
+of the Securities Exchange Act of 1934 (“Exchange Act”), and were previously registered with the 
+Commission pursuant to Section 12(g) of the Exchange Act.  Issuer A files periodic reports, 
+including Form 20-F, with the Commission pursuant to Section 13(a) of the Exchange Act and 
+related rules thereunder. 
+ 
+ BDO Canada LLP (“BDO Canada”) is a public accounting firm registered with the 
+PCAOB and located in Toronto, Canada.  BDO Canada is a member of a global accounting 
+network.  From at least 2006 until 2012, BDO Canada was the principal auditor of Issuer A and 
+signed the audit reports on Issuer A’s financial statements. 
+ 
+D. FACTS 
+ 
+ From at least 2006 until 2012, Issuer A’s financial statements were audited by BDO 
+Canada which, as Issuer’s A principal auditor, signed and issued the independent auditor’s reports 
+on Issuer A’s financial statements.  During this same period, Issuer A’s largest subsidiary, located 
+in Africa, accounted for the majority of Issuer A’s consolidated assets and revenues.  For example, 
+for fiscal year 2011, this specific African subsidiary accounted for approximately 64 and 100 
+percent of Issuer A’s consolidated total assets and revenues, respectively.  Deloitte Zimbabwe 
+performed audit services for Issuer A by auditing the financial statements of this subsidiary.   
+ 
+ The U.S. securities laws and the PCAOB rules1 require that accounting firms register with 
+the PCAOB if they “prepare[] or issue[] any audit report with respect to any issuer” or “play[] a 
+                                                             
+1 The references to PCAOB standards and applicable provisions of the U.S. securities laws are to 
+those that were in effect at the time of the relevant conduct.  
+ 3 
+substantial role in the preparation or furnishing of an audit report with respect to any issuer.”  See 
+Section 102 of the Sarbanes-Oxley Act of 2002 and PCAOB Rule 2100.  An accounting firm plays 
+a substantial role and is thus required to register when it:  (1) “perform[s] material services that a 
+public accounting firm uses or relies on in issuing all or part of its audit report;” or (2) “perform[s] 
+the majority of the audit procedures with respect to a subsidiary or component of any issuer the 
+assets or revenues of which constitute 20% or more of the consolidated assets or revenues of such 
+issuer necessary for the principal auditor to issue an audit report.”  See PCAOB Rule 1001(p)(ii). 
+ 
+ For a period of six years, Deloitte Zimbabwe played a substantial role in the preparation of 
+audit reports for Issuer A having audited most of Issuer A’s assets and substantially all of its 
+revenues.  As such, Deloitte Zimbabwe was required to be registered with the PCAOB.  However, 
+Deloitte Zimbabwe failed to register with the PCAOB.     
+ 
+E. DELOITTE ZIMBABWE’S COOPERATION 
+ 
+In determining to accept the Offer, the Commission considered remedial acts promptly 
+undertaken by Respondent and cooperation afforded the Commission staff. 
+ 
+F. VIOLATIONS  
+  
+ Section 102 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) makes it unlawful for 
+any person that is not a registered public accounting firm to participate in the preparation or 
+issuance of, any audit report with respect to any issuer.   By participating in the preparation of audit 
+reports for Issuer A, Deloitte Zimbabwe violated Sarbanes-Oxley Section 102.   
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanctions agreed to in Respondent Deloitte Zimbabwe’s Offer.  
+ 
+  
+Accordingly, it is hereby ORDERED that: 
+ 
+ 
+A. Deloitte Zimbabwe shall cease and desist from committing or causing any 
+violations and any future violations of Sarbanes-Oxley Section 102; and 
+ 
+B. Deloitte Zimbabwe shall, within 60 days of the entry of this Order, pay  
+disgorgement of  $83,077.84, and prejudgment interest of $15,979.50, for a total of $99,057.34 for 
+transfer to the general fund of the United States Treasury, subject to Exchange Act 21F(g)(3).  If 
+timely payment of disgorgement is not made, additional interest shall accrue pursuant to SEC 
+Rules of Practice 600.  Payment must be made in one of the following ways:   
+ 
+(1) Respondent may transmit payment electronically to the Commission, which will 
+provide detailed ACH transfer/Fedwire instructions upon request;  
+ 4 
+ 
+(2) Respondent may make direct payment from a bank account via Pay.gov through the 
+SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+(3) Respondent may pay by certified check, bank cashier’s check, or United States 
+postal money order, made payable to the Securities and Exchange Commission and 
+hand-delivered or mailed to: 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+ Payments by check or money order must be accompanied by a cover letter identifying 
+Deloitte Zimbabwe as a Respondent in these proceedings, and the file number of these 
+proceedings; a copy of the cover letter and check or money order must be sent to Amy L. 
+Friedman, Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, 
+Washington, DC 20549-5010. 
+ C. Respondent acknowledges that the Commission is not imposing a civil penalty 
+based upon its cooperation in a Commission investigation.  If at any time following the entry of the 
+Order, the Division of Enforcement (“Division”) obtains information indicating that Respondent 
+knowingly provided materially false or misleading information or materials to the Commission, or 
+in a related proceeding, the Division may, at its sole discretion and with prior notice to the 
+Respondent, petition the Commission to reopen this matter and seek an order directing that the 
+Respondent pay a civil money penalty.  Respondent may contest by way of defense in any 
+resulting administrative proceeding whether it knowingly provided materially false or misleading 
+information, but may not:  (1) contest the findings in the Order; or (2) assert any defense to liability 
+or remedy, including, but not limited to, any statute of limitations defense. 
+ 
+ By the Commission. 
+ 
+       Brent J. Fields 
+       Secretary 
+ 
+ 

raw/aaer/2018/AAER-3929.txt

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+   
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  82862 / March 13, 2018 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  3929 / March 13, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-18402 
+ 
+ 
+In the Matter of 
+ 
+         KPMG 
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-DESIST 
+PROCEEDINGS PURSUANT TO SECTION 
+21C OF THE SECURITIES EXCHANGE ACT 
+OF 1934, MAKING FINDINGS, AND 
+IMPOSING A CEASE-AND-DESIST ORDER 
+AND REMEDIAL SANCTIONS 
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission” or “SEC”) 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 KPMG (“Respondent” or “KPMG 
+Zimbabwe”).   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”), which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making 
+Findings, and Imposing A Cease-and-Desist Order, and Remedial Sanctions (“Order”), as set forth 
+below.   
+  
+ 2 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that:  
+ 
+A. SUMMARY 
+ 
+ These proceedings arise out of KPMG Zimbabwe’s playing a substantial role in the audits of 
+Issuer A from at least 2013 through 2014 without being registered with the Public Company 
+Accounting Oversight Board (“PCAOB”).   
+ 
+B. RESPONDENT 
+ 
+KPMG is an accounting firm located in Zimbabwe that is a member firm of KPMG 
+International Cooperative (“KPMG International”), a Swiss entity.  KPMG  Zimbabwe has never 
+been registered with the PCAOB.   
+ 
+C. OTHER RELEVANT ENTITIES 
+ 
+Issuer A is a company that is incorporated in Canada with its principal executive offices in 
+South Africa.  Issuer A’s securities are registered with the Commission pursuant to Section 12(b) 
+of the Securities Exchange Act of 1934 (“Exchange Act”), and were previously registered with the 
+Commission pursuant to Section 12(g) of the Exchange Act.  Issuer A files periodic reports, 
+including Form 20-F, with the Commission pursuant to Section 13(a) of the Exchange Act and 
+related rules thereunder. 
+ 
+ KPMG Inc. (“KPMG South Africa”) is a public accounting firm registered with the 
+PCAOB and located in Johannesburg, South Africa.  KPMG South Africa is a member of KPMG 
+International.  From at least 2013 through 2014, KPMG South Africa was the principal auditor of 
+Issuer A and signed the audit reports on Issuer A’s financial statements. 
+ 
+D. FACTS 
+ 
+ From 2013 through 2014, KPMG South Africa signed and issued the independent auditor’s 
+reports on Issuer A’s financial statements, as the principal auditor.  During this same period, Issuer 
+A’s largest subsidiary, located in Zimbabwe, accounted for the majority of Issuer A’s consolidated 
+assets and revenues.  For example, for fiscal year 2013, this subsidiary accounted for 
+approximately 70 percent of Issuer A’s consolidated total assets and 100 percent of Issuer A’s 
+consolidated total revenues.  KPMG Zimbabwe performed audit services for Issuer A by auditing 
+the financial statements of this subsidiary.   
+ 
+ The U.S. securities laws and the PCAOB rules1 require that accounting firms register with 
+the PCAOB if they “prepare[] or issue[] any audit report with respect to any issuer” or “play[] a 
+                                                             
+1 The references to PCAOB standards and applicable provisions of the U.S. securities laws are to 
+those that were in effect at the time of the relevant conduct. 
+ 3 
+substantial role in the preparation or furnishing of an audit report with respect to any issuer.”  See 
+Section 102 of the Sarbanes-Oxley Act of 2002 and PCAOB Rule 2100.  An accounting firm plays 
+a substantial role and is thus required to register when it:  (1) “perform[s] material services that a 
+public accounting firm uses or relies on in issuing all or part of its audit report;” or (2) “perform[s] 
+the majority of the audit procedures with respect to a subsidiary or component of any issuer the 
+assets or revenues of which constitute 20% or more of the consolidated assets or revenues of such 
+issuer necessary for the principal auditor to issue an audit report.”  See PCAOB Rule 1001(p)(ii). 
+ 
+ From at least 2013 through 2014, KPMG Zimbabwe played a substantial role in the 
+preparation of audit reports for Issuer A, having audited most of Issuer A’s assets and substantially 
+all of its revenues.  As such, KPMG Zimbabwe was required to be registered with the PCAOB.  
+However, KPMG Zimbabwe failed to register with the PCAOB.     
+ 
+E. VIOLATIONS  
+  
+ Section 102 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) makes it unlawful for 
+any person that is not a registered public accounting firm to participate in the preparation or 
+issuance of, any audit report with respect to any issuer.   By participating in the preparation of audit 
+reports for Issuer A, KPMG Zimbabwe violated Sarbanes-Oxley Section 102.   
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanctions agreed to in Respondent KPMG Zimbabwe’s Offer. 
+ 
+  
+Accordingly, it is hereby ORDERED that: 
+ 
+A. KPMG Zimbabwe shall cease and desist from committing or causing any violations 
+and any future violations of Sarbanes-Oxley Section 102; and 
+ 
+B. KPMG Zimbabwe shall, within 120 days of the entry of this Order, pay  
+disgorgement of $30,000 and prejudgment interest of $2,757.71, and within 485 days of the entry of 
+this Order, pay the remaining disgorgement of $99,410 and remaining prejudgment interest of 
+$9,138.12, for a total of $141,305.83, for transfer to the general fund of the United States Treasury, 
+subject to Exchange Act 21F(g)(3).  If timely payment of disgorgement is not made, additional 
+interest shall accrue pursuant to SEC Rules of Practice 600.  Payment must be made in one of the 
+following ways:   
+ 
+(1) Respondent may transmit payment electronically to the Commission, which will 
+provide detailed ACH transfer/Fedwire instructions upon request;  
+ 
+(2) Respondent may make direct payment from a bank account via Pay.gov through the 
+SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+ 4 
+(3) Respondent may pay by certified check, bank cashier’s check, or United States 
+postal money order, made payable to the Securities and Exchange Commission and 
+hand-delivered or mailed to: 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+ Payments by check or money order must be accompanied by a cover letter identifying 
+KPMG Zimbabwe as a Respondent in these proceedings, and the file number of these proceedings; 
+a copy of the cover letter and check or money order must be sent to Amy L. Friedman, Division of 
+Enforcement, Securities and Exchange Commission, 100 F St., NE, Washington, DC 20549-5010. 
+ By the Commission. 
+ 
+       Brent J. Fields 
+       Secretary 
+ 
+ 

raw/aaer/2018/AAER-3930.txt

@@ -0,0 +1,478 @@
+UNITED STATES OF AMERICA 
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 82946 / March 26, 2018 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3930 / March 26, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-18407 
+ 
+In the Matter of 
+KINROSS GOLD CORPORATION, 
+ Respondent. 
+ ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS, PURSUANT 
+TO SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 
+1934, MAKING FINDINGS, AND 
+IMPOSING A CEASE-AND-DESIST 
+ORDER 
+ 
+I.  
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that 
+cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the 
+Securities Exchange Act of 1934 (the “Exchange Act”) against Kinross Gold Corporation 
+(“Kinross” or “Respondent”).  
+II.  
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the 
+findings herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting 
+Cease-and-Desist Proceedings, Pursuant to Section 21C of the Securities Exchange Act of 1934, 
+Making Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below. 
+ 
+III.  
+ On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
+ 
+                                                           
+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 
+ 
+Summary 
+ 
+1. This matter concerns violations of the books and records and internal accounting 
+controls provisions of the Foreign Corrupt Practices Act of 1977 (“FCPA”) by Kinross Gold 
+Corporation, a gold mining company.  From September 2010 through at least 2014, Kinross 
+operated gold mines in Mauritania and Ghana without devising and maintaining a system of 
+internal accounting controls sufficient to provide reasonable assurances that transactions were 
+executed in accordance with management’s specific or general authorization.  As a result, 
+Kinross paid vendors and consultants, often in connection with government interactions, without 
+reasonable assurances that transactions were consistent with their stated purpose or the 
+prohibition against making improper payments to government officials.  For certain of these 
+transactions, the company used petty cash to pay consultants which it then failed to accurately 
+and fairly describe in its books and records.  
+ 
+2. In 2014, Kinross also failed to maintain its internal accounting controls around 
+contracting and awarded a lucrative logistics contract to a company preferred by government 
+officials without following its own bidding and tendering procedures.   Internal documentation 
+provided incomplete information concerning the contract award.  Additionally, Kinross 
+contracted with a politically-well-connected third-party consultant to facilitate contacts with 
+high-level government officials without conducting the heightened due diligence required by the 
+company’s policies and procedures.      
+ 
+Respondent 
+ 
+3. Kinross Gold Corporation (“Kinross”) is a Canadian gold mining company.  
+Founded in 1993, the company conducts development and mining operations in North and South 
+America, West Africa, and Russia.  Kinross is headquartered in Toronto, Canada.  During the 
+relevant time period, its common stock was registered with the Commission pursuant to Section 
+12(b) of the Securities Exchange Act of 1934 and listed on the New York Stock Exchange 
+(NYSE: KGC) and Toronto Stock Exchange (TSX: K).   
+ 
+Other Relevant Entities 
+ 
+4.        Tasiast Mauritanie Limited S.A. (“Tasiast”) is a wholly-owned indirect  
+subsidiary of Kinross.  Tasiast owns and operates the Tasiast mine in the Islamic Republic of 
+Mauritania. Throughout the relevant time period, Tasiast’s financial results were included in the 
+consolidated financial statements that Kinross filed with the Commission. 
+ 
+5.       Chirano Gold Mines Ltd. (Chirano) is a 90 percent-owned indirect subsidiary of 
+Kinross.  Chirano owns and operates the Chirano mine in Ghana. Throughout the relevant time 
+period, Chirano’s financial results were included in the consolidated financial statements that 
+Kinross filed with the Commission. 
+ 
+ 
+ 
+ 
+ 
+3 
+ 
+Facts 
+ 
+Kinross Failed to Timely Implement Sufficient Internal Accounting Controls  
+and Remediate Known Issues 
+ 
+6. On September 17, 2010, Kinross acquired Tasiast and Chirano, and their assets 
+and mining operations in Mauritania and Ghana from Red Back Mining, Inc. (“Red Back”), a 
+Vancouver-based mining company, for approximately $7.1 billion.  Kinross viewed the 
+development of the Tasiast mine, which was much larger than Chirano, as key and critical to the 
+realization of the value of the transaction.  In the few months prior to the purchase of the mines 
+from Red Back, Kinross conducted due diligence on Red Back.  As part of the process, Red Back 
+acknowledged that it lacked an anti-corruption compliance program and associated internal 
+accounting controls.  
+ 
+7. As part of this initial due diligence, and following the acquisition, Kinross failed 
+to timely address the adequacy of the internal accounting controls at Red Back pertaining to the 
+procurement and payment of vendors for goods and services or consider the risks of corruption 
+associated with the high percentage of vendors that were controlled by government officials or 
+their relatives. As a result, Kinross failed to make necessary improvements to Red Back’s 
+inadequate controls in a timely manner.  Kinross continued the same practices from Red Back 
+that allowed low-level employees to contract with vendors and make payments with petty cash 
+without appropriate controls.       
+8. In April 2011 Kinross’ internal audit group concluded that the internal accounting 
+controls surrounding vendor selection and disbursement for goods and services at Tasiast and 
+Chirano were not adequate to meaningfully assess transactions for accuracy or compliance with 
+the FCPA.  The internal audit group faulted the Enterprise Resource Planning (“ERP”) 
+accounting and disbursements system, which did not “include much detail on the nature of 
+disbursements” thus making it “not possible”  to identify suspect payments such as excessive 
+rebates and discounts, advance payments, government commissions and unjustified business 
+expenses.   While internal audit conducted a manual review, this was still not adequate to 
+meaningfully assess transactions for FCPA compliance.  Internal audit also found that the lack of 
+contract administration procedures prevented it from adequately reviewing the contracting and 
+tendering processes.   
+ 
+9. Despite these findings by the internal audit group, company management failed to 
+take immediate action.  Employees in the finance department became increasingly concerned 
+about the poor internal accounting controls associated with disbursements in Africa and the 
+continued risk of corrupt activities.  These employees suggested internal audits of Chirano and 
+Tasiast be repeated so that the internal accounting control issues would be found and then, 
+hopefully, prioritized for solution by regional and international management.  In April 2012, 
+Kinross’ internal audit group issued a nearly-identical memorandum reaching the same 
+conclusions. 
+ 
+10. Internal audit conducted reviews at Chirano in January 2012 and Tasiast in 
+February 2012.  The audits found issues requiring significant improvements at both mines.   
+ 
+ 
+4 
+ 
+A. The mines variously lacked formal site Delegations of Authority by which 
+disbursements were approved; lacked formalized procedures for contract approval 
+and tendering; and lacked a fully functioning ERP system.  As a result, Kinross relied 
+on manual controls to mitigate against any potential control issues, but they did not 
+consistently adhere to the manual controls.   
+ 
+B. At Chirano, specific internal accounting controls in key purchasing and disbursement 
+areas were adhered to only sporadically.  For instance, for 41% of the disbursement 
+sample, the purchase order was dated and created after the invoice was received and, 
+for 75% of the sample, there was no contract at all.  At Tasiast, there was a 
+widespread lack of adherence to basic internal accounting controls.  For each and 
+every of the sampled transactions, there was either no purchase order or the purchase 
+order was created after the invoice was received.   
+ 
+C. At both mines, most disbursements were made without approval by the required level 
+of signatories, or based on signatures that did not provide adequate detail, such as 
+names and positions, to verify whether appropriate approval had been provided.  
+Kinross failed to maintain supporting documentation required for disbursements, 
+including invoices, purchase orders, and/or good receipts.  Internal audit found 
+minimal evidence of a functioning bidding or tendering process. 
+ 
+11. The internal audit reports for the Chirano and Tasiast mines contained 
+recommendations for extensive remediation steps.  While management agreed to swiftly 
+implement the needed remediation, it failed to follow through on its commitments in a timely 
+manner.  As a result, follow-up internal audits indicated that the issues largely remained.  For 
+example, 
+ 
+A. At Tasiast, an October 2012 internal audit found no evidence of required bidding or 
+tendering for any of the sampled transactions for goods or services and no purchase 
+orders or contracts for the vast majority of them.  Fourteen months later, in December 
+2013, internal audit reported that of the transactions it reviewed; only 53% possessed 
+a contact and 57% had any evidence of bidding and tendering.     
+ 
+B. At Chirano, a July 2013 internal audit found that only 56% of the sampled 
+transactions possessed a contract and only 44% showed evidence of being the result 
+of required bidding or tendering.  As noted by the internal auditor, “100% of the 
+contracts reviewed were awarded directly by the functional area or department,” 
+rather than by the procurement department, an indication that the Red Back practice 
+of low-level employees awarding contracts without independent accounting control or 
+oversight continued nearly three years after Kinross assumed control of the mine.      
+ 
+12. As a result of the known control weaknesses, payments were made for a period of 
+years without reasonable assurances that the payments were for their stated purpose or with 
+management’s approval.  For example, 
+ 
+ 
+5 
+ 
+A. Kinross paid a fixed amount to a Ghanaian government customs officer for his 
+expenses in traveling to the mine weekly in order to sign papers necessary for the 
+transfer of the gold’s title and attendant shipping risk from Kinross to the buyer.  
+While the agreement did not provide for it, during 2012 through 2014, personnel at 
+Chirano regularly paid the customs officer for weeks in which he did not travel to the 
+mine and bore no travel expenses.  
+ 
+B. In 2012, the Ghana Environmental Protection Agency (“Ghana EPA”) delayed 
+granting Kinross a mining production permit for a planned mine expansion due to 
+unresolved questions about an Environmental Impact Study that Kinross had 
+previously submitted with the assistance of a third-party consultant.  The consultant 
+organized a public hearing for the community to discuss the planned expansion’s 
+impact on infrastructure and employment opportunities.  During the delay of several 
+months, Kinross received a $12,000 invoice from the third-party consultant with no 
+documentation for services the consultant purportedly provided to Kinross one year 
+earlier.  The consultant represented that the amount was based on an oral contract 
+between the consultant and the company.  Kinross personnel used petty cash to pay 
+the third-party consultant the $12,000 without obtaining any documentation to 
+evidence the services were actually provided.  Kinross’ books and records did not 
+fairly and accurately reflect in reasonable detail the nature or intended recipients of 
+the payment.  About a month after the payment, the Ghana EPA approved the mining 
+production permit. 
+ 
+C. From 2012 through 2015, Kinross paid the Ghanaian government fees in connection 
+with the issuance of visas and work permits for expatriate personnel.  During this 
+same period, Kinross paid a consultant, a former government employee, to expedite 
+the process.  With no evidence of actual services being provided, and with no 
+reasonably detailed description in the books and records, the consultant was paid 
+approximately $1,000 per visa or permit from petty cash.  As a result, the processing 
+time for visas and work permits decreased from ten weeks to three weeks.   
+ 
+After Implementing New Internal Accounting Controls,  
+Kinross Failed to Maintain Them 
+     
+13. In 2013, Kinross took steps to enhance internal accounting controls concerning 
+the procurement and payment of goods and services designed, in part, to provide reasonable 
+assurances that transactions did not violate the FCPA and Kinross’ code of conduct, which 
+prohibits providing improper inducements to government officials.  However, on at least two 
+occasions in 2014, Kinross failed to maintain these internal accounting controls.  
+ 
+14. The first instance arose in April 2014 as Kinross prepared to award an 
+approximately $50 million, three-year logistical support contract to an international shipping 
+company.  Consistent with Kinross’ new supply chain policy, Kinross was prepared to award the 
+contract to the bidder that offered the lowest price and possessed the best ability to fulfill the 
+technical requirements of the contract. Kinross personnel soon learned, however, that a very 
+high-level Mauritanian government official was unhappy with Kinross’ choice because the 
+ 
+6 
+ 
+shipper’s local affiliate was controlled by persons allegedly active with the political opposition.  
+Kinross also learned that the official preferred another international shipping company whose 
+local affiliate recently was acquired by a prominent and influential Mauritanian businessman 
+with ties to the official.  
+ 
+15. In July 2014, Kinross regional management in West Africa made a presentation to 
+Kinross senior management, that showed that Kinross’ original preferred shipper remained by far 
+the best based on cost, technical capabilities, and ability to provide logistical support in both 
+Mauritania and Ghana, but its “political affiliations may pose business risk.”  The presentation 
+further noted that the shipper associated with the prominent Mauritanian businessman was 
+unable to provide support in Ghana, its costs were high and technical capabilities were poor but 
+excelled in “political risk” as it was the “preferred option of Gov[ernment] stakeholders.”  After 
+the presentation, Kinross management decided to award the approximately $50 million three-
+year logistics contract to the shipping company preferred by the high-level government official.     
+ 
+16. In making this decision, Kinross senior management failed to maintain the 
+internal accounting controls, which directed that company personnel primarily focus on the 
+commercial and technical qualifications of bidders when making awards.  The internal 
+accounting controls also required that when multiple bidders met the basic commercial and 
+technical qualifications company personnel were to make an “in-depth evaluation” from a list of 
+elements, which included compliance with health/safety/environmental standards and liability for 
+cost, performance and delay.  The preference of government officials was not among those 
+elements.   
+ 
+17. In September 2014 Kinross internal contract award recommendation documents 
+did not, in reasonable detail, accurately and fairly reflect the transaction.  As drafted, the award 
+documents did not reveal that the primary reason for awarding the contract was to satisfy the 
+preference of a high-level government official.   
+ 
+18. The concerns about awarding this contract to a vendor with low technical 
+capabilities and high costs were borne out.  After one year, due to its poor performance, Kinross 
+refused to grant the shipper associated with the prominent Mauritanian businessman an option to 
+renew.  After a subsequent tendering process, Kinross awarded the business to another company 
+in accordance with company policy.  
+ 
+19. The second instance also arose in 2014 when an individual Kinross understood 
+was well-connected with high-level government officials in Mauritania approached Kinross 
+government-relations department personnel and proposed to work for Kinross in a government-
+relations capacity.  Specifically, the individual offered to establish a continuing, semi-formal 
+liaison relationship between a senior executive at Kinross and a particular government official 
+influential with the same high-level government official who had influenced the award of the 
+logistical support contract.  Initially, Kinross considered hiring the individual as Government 
+Relations Director for Mauritania and conducted the minimal due diligence required for 
+prospective employees – checking for an arrest and criminal record.  But because the amount of 
+money the individual demanded for his services was excessive for a salaried employee, senior 
+ 
+7 
+ 
+executives in Kinross’ government-relations department retained him as an independent 
+consultant.   
+ 
+20. The consulting agreement was treated as a contract for “Corporate, General, and 
+Non-Routine Expenditures,” which required “authorization in accordance with [the] procure-to-
+pay process set out in Kinross’ Supply Chain Policy . . . .”  The Supply Chain Policy required 
+that prospective vendors undergo a due diligence procedure to determine the FCPA risks in using 
+the vendor.   Greater due diligence was required where there were higher potential risk 
+indicators.  As Kinross’ agent in dealing directly with government officials where known risks of 
+corruption existed, Kinross’ internal accounting controls required that the consultant be subjected 
+to the company’s highest level of due diligence, necessitating, among other things, a credit 
+report, a search of government sanctions and watch lists, a reference check of business partners 
+and associates, confidential in-field inquiries about his reputation and an enhanced asset search.  
+However, Kinross did not perform the required due diligence on the consultant and, and between 
+September 2014 and August 2015, paid the consultant approximately $715,000. 
+ 
+21. Relatedly, Kinross also failed to provide adequate training to its senior decision-
+makers, especially in the government relations department, to recognize the corruption risks in 
+hiring a consultant to work as a liaison with government officials.     
+ 
+Kinross’ Remediation Efforts 
+ 
+22. Kinross has taken steps to remediate the above-described internal control and 
+recordkeeping issues, including conducting audits, generating management remediation plans 
+and tracking their progress, implementing a new ERP system to enable finance personnel to 
+more effectively track and manage expenditures, and replacing personnel at Tasiast and Chirano.  
+Kinross also increased compliance personnel, updated relevant policies and procedures, and 
+conducted compliance training.  Kinross terminated the use of the third-party consultant 
+described above to obtain visas and work permits and has instituted more formalized controls 
+over the use, documentation and approval of petty cash.  Kinross continues to improve its 
+internal accounting controls around third-party consultants and vendors, and enhanced FCPA 
+training.  Kinross also recently hired a consulting firm to assist it in evaluating its current 
+controls for additional enhancements.  Also, Kinross has taken steps to improve training of its 
+senior decision-makers, especially in the government-relations department, to recognize the 
+corruption risks in hiring a consultant to work as a liaison.  
+ 
+Books and Records and Internal Accounting Controls Violations 
+ 
+23. As a result of the conduct described above, Kinross violated Sections 13(b)(2)(A) 
+and (B) of the Exchange Act by failing to devise and maintain internal accounting controls 
+sufficient to provide reasonable assurances that transactions at Chirano and Tasiast were 
+executed in accordance with management’s general or specific authorization and by failing to 
+make and keep certain records which, in reasonable detail, fairly reflected the transactions and 
+disposition of assets. 
+ 
+ 
+ 
+8 
+ 
+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: 
+ 
+A. Pursuant to Section 21C of the Exchange Act, Respondent Kinross cease-and-
+desist from committing or causing any violations and any future violations of Sections 
+13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. 
+ 
+B. Respondent shall, within fourteen days of the entry of this Order, pay a civil 
+penalty of $950,000 to the Securities and Exchange Commission for transfer to the general fund 
+of the United States Treasury, subject to Exchange Act Section 21F(g)(3).  If timely payment is 
+not made, additional interest shall accrue pursuant to 31 U.S.C. § 3717.  Payment must be made 
+in one of the following ways: 
+ 
+1)  Respondent may transmit payment electronically to the Commission, 
+which will provide detailed ACH transfer/Fedwire instructions upon request; 
+ 
+2)  Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or 
+ 
+3)  Respondent may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange Commission and 
+hand-delivered or mailed to: 
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+ Payment by check or money order must be accompanied by a cover letter identifying Kinross as 
+a Respondent in these proceedings, and the file number of these proceedings; a copy of the cover 
+letter and check or money order must be sent to Steven A. Susswein, Senior Counsel, Division of 
+Enforcement, United States Securities and Exchange Commission, 100 F Street, Northeast, 
+Washington, District of Columbia, 20549-5631. 
+ 
+C. Amounts ordered to be paid as civil money penalties pursuant to this Order shall 
+be treated as penalties paid to the government for all purposes, including all tax purposes.  To 
+preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 
+Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any 
+award of compensatory damages by the amount of any part of Respondent’s payment of a civil 
+penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants such 
+a Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a final order 
+ 
+9 
+ 
+granting the Penalty Offset, notify the Commission’s counsel in this action and pay the amount 
+of the Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be 
+deemed an additional civil penalty and shall not be deemed to change the amount of the civil 
+penalty imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” 
+means a private damages action brought against Respondent by or on behalf of one or more 
+investors based on substantially the same facts as alleged in the Order instituted by the 
+Commission in this proceeding. 
+ 
+D.        With respect to its operations in Africa, Respondent undertakes to: 
+ 
+1) Report to the Commission staff periodically during a one-year term, the status of 
+its remediation and implementation of compliance measures, particularly as to the 
+areas of due diligence on prospective and existing third-party consultants and 
+vendors, FCPA training and the testing of relevant controls including the 
+collection and analysis of compliance data.  During this period, should 
+Respondent discover credible evidence, not already reported to Commission staff, 
+that questionable or corrupt payments or questionable or corrupt transfers of value 
+may have been offered, promised, paid, or authorized by Respondent, or any 
+entity or person acting on behalf of Respondent, or that related false books and 
+records have been maintained, Respondent shall promptly report such conduct to 
+the Commission staff.  During this one year period, Respondent shall:  (1) 
+conduct an initial review and submit an initial report and (2) conduct and prepare 
+one follow-up review and report, as described below: Respondent shall submit to 
+the Commission staff a written report within 180 calendar days of the entry of this 
+Order setting forth a complete description of its FCPA and anti-corruption related 
+remediation efforts to date, its proposals reasonably designed to improve the 
+policies and procedures of Respondent for ensuring compliance with the FCPA 
+and other applicable anticorruption laws, and the parameters of the subsequent 
+review (the “Initial Report”).  The Initial Report shall be transmitted to Steven A. 
+Susswein, Senior Counsel, United States Securities and Exchange Commission, 
+100 F Street, Northeast, Washington, District of Columbia, 20549-5631.  
+Respondent may extend the time period for issuance of the Initial Report with 
+prior written approval of the Commission staff. 
+ 
+a. Respondent shall undertake a follow-up review, incorporating any comments 
+provided by the Commission staff on the Initial Report, to further monitor and 
+assess whether the policies and procedures of Respondent are reasonably 
+designed to detect and prevent violations of the FCPA and other applicable 
+anti-corruption laws (the “Follow-Up Report”). 
+ 
+b. The Follow-up Report shall be completed by no later than 180 days after the 
+Initial Report.  Respondent may extend the time period for issuance of the 
+Follow-up Report with prior written approval of the Commission staff. 
+ 
+c. The periodic reviews and reports submitted by Respondent will likely include 
+proprietary, financial, confidential, and competitive business information. 
+ 
+10 
+ 
+Public disclosure of the reports could discourage cooperation, impede pending 
+or potential government investigations and thus undermine the objectives of 
+the reporting requirement.  For these reasons, among others, the reports and 
+the contents thereof are intended to remain and shall remain nonpublic, except 
+(a) pursuant to court order, (b) as agreed by the parties in writing, (c) to the 
+extent that the Commission staff determines in its sole discretion that 
+disclosure would be in furtherance of the Commission’s discharge of its duties 
+and responsibilities, or (d) is otherwise required by law.  
+ 
+d. During this one-year period of review, Respondent shall provide its external 
+auditors with its annual internal audit plan and reports of the results of internal 
+audit procedures and its assessment of its FCPA compliance policies and 
+procedures. 
+ 
+e. During the one-year period of review, Respondent shall provide Commission 
+staff with any written reports or recommendations provided by Respondent’s 
+external auditors in response to Respondent’s annual internal audit plan, 
+reports of the results of internal audit procedures, and its assessment of its 
+FCPA compliance policies and procedures. 
+2) Certify, in writing, compliance with the undertaking(s) set forth above.  The 
+certification shall identify the undertaking(s), provide written evidence of 
+compliance in the form of a narrative, and be supported by exhibits sufficient to 
+demonstrate compliance.  The Commission staff may make reasonable requests 
+for further evidence of compliance, and Respondent agrees to provide such 
+evidence.  The certification and supporting material shall be submitted to Steven 
+A. Susswein, Senior Counsel, United States Securities and Exchange 
+Commission, 100 F Street, Northeast, Washington, District of Columbia, 20549-
+5631 no later than sixty (60) days from the date of the completion of the 
+undertakings. 
+   
+ 
+By the Commission. 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 
+ 
+ 
+ 

raw/aaer/2018/AAER-3931.txt

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+     Pharmaceutical Company and its Former CFO and Controller Agree to Settle to Reporting and Accounting Control Violations 
+
+     Litigation Release No. 24082 / March 26, 2018 
+
+     Accounting and Auditing Enforcement Release No. 3931 / March 26, 2018 
+
+      Securities and Exchange Commission v. Akorn, Inc., Timothy Dick, and David Hebeda, Civil Action No. 18-2150 (N.D. Ill., filed March 26, 2018)  
+
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+       The Securities and Exchange Commission today filed a settled civil action in the U.S. District Court for the Northern District of Illinois against Akorn, Inc., a Lake Forest, Illinois pharmaceutical company, its former CFO, Timothy Dick, and its former Controller, David Hebeda, based on financial reporting, books and records, and internal accounting controls violations by Akorn (specifically 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).  Akorn, Dick and Hebeda agreed to settle the charges without admitting or denying the Commission's allegations. 
+ 
+       According to the Commission's complaint, in May 2016, Akorn restated its financial statements for fiscal year 2014 acknowledging material weaknesses in its internal control over financial reporting related, in relevant part, to controls surrounding the company's gross-to-net reserve accounts and estimates.  In its restatement, the company also disclosed that it overstated net revenue for 2014 by approximately 7 percent and income from continuing operations before income taxes for 2014 by approximately 136 percent.  Akorn's material weaknesses persisted over multiple reporting periods and contributed to Akorn's materially inaccurate 2014 financial statements. 
+ 
+       The complaint also alleges that in 2014, Dick, as CFO, and Hebeda, as Controller, had supervisory responsibilities for Akorn's internal accounting controls, gross-to-net revenue accounting and revenue recognition, and exercised control over these company functions.  The Commission's complaint charges Dick and Hebeda with control person liability under Section 20(a) of the Exchange Act for Akorn's violations. 
+ 
+       Akorn consented to the entry of an order permanently enjoining it from violations of the financial reporting, books and records, and internal accounting controls provisions of the Exchange Act.  Dick and Hebeda consented to the entry of orders:  (a) permanently enjoining each of them from controlling any person liable for violations of the financial reporting, books and records, and internal accounting controls provisions of the Exchange Act; and (b) imposing a $20,000 civil penalty against each of them. 
+ 
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raw/aaer/2018/AAER-3932.txt

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+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES ACT OF 1933 
+Release No. 10472/ March 27, 2018 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 82950/ March 27, 2018 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3932/ March 27, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-18408 
+ 
+ 
+In the Matter of 
+ 
+MAXWELL TECHNOLOGIES, 
+INC., VAN M. ANDREWS, DAVID 
+J. SCHRAMM, AND JAMES W. 
+DeWITT, Jr., CPA, 
+ 
+Respondents. 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTION 8A OF THE SECURITIES ACT 
+OF 1933 AND SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS AND A CEASE-
+AND-DESIST ORDER (“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 (“Securities Act”) and Section 21C of the Securities Exchange Act of 1934 (“Exchange 
+Act”) against Maxwell Technologies, Inc. (“Maxwell”) and Van Andrews (“Andrews”) and 
+pursuant to Section 21C of the Exchange Act against David Schramm (“Schramm”) and James 
+DeWitt, CPA (“DeWitt”), (collectively “Respondents”). 
+ 
+II. 
+ 
+In anticipation of the institution of these proceedings, Respondents have submitted Offers 
+of Settlement (the “Offers”) that 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 
+ 2 
+these proceedings, which are admitted, Respondents consent to the entry of this Order, as set 
+forth below. 
+III. 
+ 
+ On the basis of this Order and Respondents’ Offers, the Commission finds1 that:  
+ 
+SUMMARY 
+ 
+1. From December 2011 through January 2013, Maxwell, a California-based company 
+that develops, manufactures, and markets energy storage and power delivery products, engaged in 
+an accounting fraud scheme that improperly recognized over $19 million in revenue from future 
+quarters in violation of U.S. Generally Accepted Accounting Principles (“GAAP”).  Maxwell, an 
+SEC recidivist, issued materially false and misleading statements about its revenue, revenue 
+growth, and gross margins, and inflated its reported financial results to better meet analysts’ 
+expectations.  Maxwell did not have sufficient internal accounting controls to identify and properly 
+account for its revenue throughout the relevant period. 
+ 
+2. Maxwell’s primary source of revenue growth during the relevant period was 
+expected to come from ultracapacitors, essentially small energy storage and power delivery 
+products used in automotive, heavy transportation, renewable energy, backup power, wireless 
+communications and industrial and consumer electronics applications.  Maxwell’s ultracapacitor 
+revenue growth was material to analysts and investors and was highlighted in all press releases and 
+earnings calls.   
+ 
+3. Maxwell, through Andrews, a former Senior Vice President of Sales and Maxwell 
+officer, prematurely recorded ultracapacitor revenue as a result of his conduct and the failures of 
+the company’s finance and accounting department controls.  Maxwell, through Andrews, used 
+several improper tactics to prematurely record revenue, including:  customer side deals with 
+contingent payment terms and full right of return; channel stuffing; extending payment terms; 
+falsifying purchase orders (“POs”) and third-party confirmations; and by instructing certain 
+distributors to order product they neither wanted nor needed at quarter-end.  The fraud created the 
+misperception that Maxwell’s ultracapacitor growth was far more successful than reality. 
+ 
+4. Maxwell’s finance and accounting department, including then-controller DeWitt, 
+repeatedly overrode and ignored automated controls and missed red flags that should have 
+alerted them to material revenue recognition departures.  Although Andrews and his sales 
+department took steps to hide the side deals from Maxwell’s senior financial personnel, the 
+                                                 
+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 
+repeated override of automated controls allowed the sales to continue each quarter.  Then-Chief 
+Executive Officer (“CEO”) Schramm and Maxwell’s senior financial personnel knew that the 
+sales took place the last days of each quarter, that certain sales were beyond approved credit 
+limits and contained extended payment terms for up to 180 days, and that certain prior sales 
+receivables were significantly past due.  Maxwell ultimately recorded the revenue despite the 
+fact that it should have known the sales terms were not fixed and determinable as required by 
+GAAP for revenue recognition.  Schramm also overrode automated credit limit controls to 
+authorize large sales to distributors at quarter-end that he should have known those distributors 
+neither wanted nor needed.   
+ 
+5. On or about January 9, 2013, Maxwell initiated an internal investigation after its 
+audit committee received a detailed internal whistleblower letter describing the revenue 
+recognition fraud.  As a result of that investigation, on March 7, 2013, Maxwell announced that its 
+previously issued financial statements on Form 10-K for 2011 and all quarterly reports on Forms 
+10-Q in 2011 and 2012 could not be relied upon.  Maxwell also disclosed material weaknesses in 
+its internal control over financial reporting due to “errors” it discovered in the “timing of 
+recognition of revenue from sales to certain distributors.”  Maxwell’s stock price declined 11.09%, 
+closing at $8.10 per share on March 8, 2013.  Soon thereafter, on March 18, 2013, Maxwell’s 
+external auditor resigned after concluding it could not rely on representations made by senior 
+financial personnel.  After the external auditor’s resignation, Maxwell’s stock price declined an 
+additional 20.57%, closing at $5.91 per share on the news.       
+ 
+6. On August 1, 2013, Maxwell filed a restatement of the 2011 Form 10-K and Forms 
+10-Q for the first three quarters of 2012 that reduced revenue by 6.4% and 7.5% respectively.  The 
+restatement also turned net income gains into net losses for fiscal year-end 2011 and certain 
+quarters in 2012. 
+ 
+7. As a result of the conduct described herein, Maxwell violated the antifraud 
+provisions of Exchange Act Section 10(b) and Rules 10b-5(a) and 10b-5(c) thereunder, and 
+Securities Act Section 17(a), the reporting provisions of Exchange Act Section 13(a) and Rules 
+12b-20, 13a-1, 13a-11, and 13a-13 thereunder, the books and records provisions of Exchange Act 
+Section 13(b)(2)(A), and the internal accounting control provisions of Section 13(b)(2)(B).  
+ 
+8. As a result of the conduct described herein, Andrews violated the antifraud 
+provisions of Securities Exchange Act Section 10(b) and Rules 10b-5(a) and 10b-5(c) thereunder, 
+and Securities Act Section 17(a) and caused Maxwell to violate Securities Act Section 17(a) and 
+Exchange Act Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Rules 10b-5(a), 10b-5(c), 
+12b-20, 13a-1, 13a-11, and 13a-13 thereunder.  Andrews also violated Exchange Act Section 
+13(b)(5) and Exchange Act Rules 13b2-1 and 13b2-2.   
+ 
+ 4 
+9. As a result of the conduct described herein, Schramm and DeWitt caused Maxwell 
+to violate Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Rules 12b-20, 13a-1, 
+13a-11, and 13a-13 thereunder.   
+ 
+RESPONDENTS 
+ 
+ 10. Maxwell Technologies, Inc. develops, manufactures, and markets energy storage 
+and power delivery products for automotive, heavy transportation, renewable energy, backup 
+power, wireless communications and industrial and consumer electronics applications.  During the 
+relevant period, Maxwell focused on three product lines:  ultracapacitors, high-voltage capacitors, 
+and radiation-mitigated microelectronic products.  Maxwell, which is incorporated in Delaware 
+and headquartered in San Diego, California, had manufacturing facilities in the United States and 
+Switzerland during the relevant period and contract manufacturing relationships in China.  
+Maxwell’s shares are registered with the Commission pursuant to Exchange Act Section 12(b) and 
+are listed on the NASDAQ under the symbol “MXWL.”  Maxwell files periodic reports, including 
+Forms 10-K and 10-Q, with the Commission pursuant to Exchange Act Section 13(a) and related 
+rules thereunder.   
+ 
+11. Maxwell is a recidivist.  In January 2011, it paid approximately $14.3 million to 
+settle Exchange Act Section 13(a) and Foreign Corrupt Practices Act-related charges with the SEC 
+and the United States Department of Justice, and agreed to undertakings. 
+ 
+12. Van M. Andrews, age 66, resides in Indiana.  He joined Maxwell in February 2010 
+as the Vice President of Ultracapacitor Sales and Marketing until December 30, 2010, when he was 
+promoted to Senior Vice President of Sales & Marketing.  Andrews served as a Maxwell officer 
+from July 2012 until his resignation on February 28, 2013.   
+ 
+ 13. David J. Schramm, age 68, resides in California.  He served as Maxwell’s Chief 
+Executive Officer, President, and Director from July 2007 until December 2013.   
+ 
+14. James W. DeWitt, Jr., age 60, resides in Arizona.  He served as Maxwell’s 
+Corporate Controller from April 2005 until October 2015.  DeWitt, who reported to Maxwell’s 
+Chief Financial Officer until approximately February 2014, was responsible for testing, 
+preparing, and reviewing Maxwell’s revenue that was recognized and reported in the company’s 
+financial statements.  DeWitt was licensed as a CPA by the State of Minnesota from 1986 until 
+1989.  
+ 
+ 
+ 
+ 
+ 5 
+FACTS 
+ 
+Background 
+   
+15. During Schramm’s tenure as CEO, Maxwell employed an aggressive strategy to 
+grow revenue and increase profit margins associated with the company’s important ultracapacitor 
+product line.  Schramm repeatedly stressed in analyst calls that ultracapacitors were the growth 
+engine that would provide double-digit revenue growth and drive Maxwell toward profitability.  
+Maxwell’s ultracapacitor sales largely came from three segments:  wind; hybrid bus; and 
+automotive.   
+ 
+16. In February 2010, Schramm hired his close friend Andrews to help Maxwell meet 
+the ultracapacitor revenue growth desired.  At the time, Andrews was working as an ice-cream 
+franchisee and had not been employed in corporate sales for nearly three years.  Prior to that, 
+Andrews served in various senior roles at several technology corporations.  Once hired, Andrews 
+often carpooled with Schramm for three hours each day from their Orange County homes to 
+Maxwell’s San Diego offices.  They socialized with one another, golfed together as members of 
+the same private country club, and shared holidays with one another.   
+ 
+17. Achieving and sustaining revenue growth was very important to Maxwell’s 
+business strategy during the relevant period.  Maxwell’s senior management understood that 
+ultracapacitor revenue growth added significant value and was material to analysts and investors 
+alike.  Wall Street analysts closely followed Maxwell’s ultracapacitor revenue growth and assigned 
+value based on a multiple of revenue. 
+ 
+18. Schramm put pressure on his sales department to meet the revenue growth and 
+earnings targets he provided to analysts each quarter.  During the relevant period, Schramm 
+required Andrews to provide weekly regional status updates that identified any shortfall between 
+actual and forecasted revenue and required a “detailed contingency plan” on how to recover lost 
+revenue before the end of each quarter. 
+ 
+ 19. Maxwell’s pre-restatement Form 10-K filed for year-end 2011 disclosed that sales 
+revenue is primarily derived from the sale of products directly to customers. The policy is 
+characterized as follows: 
+Assumptions and Approach Used. Product revenue is recognized when all of the following 
+criteria are met: (1) persuasive evidence of an arrangement exists (upon contract signing or 
+receipt of an authorized purchase order from a customer); (2) title passes to the customer at 
+either shipment from our facilities or receipt at the customer facility, depending on shipping 
+terms; (3) price is deemed fixed or determinable and free of contingencies or significant 
+ 6 
+uncertainties; and (4) collectability is reasonably assured. Customer purchase orders and/or 
+contracts are generally used to determine the existence of an arrangement. Shipping 
+documents are used to verify product delivery. We assess whether a price is fixed or 
+determinable based upon the payment terms associated with the transaction. We assess the 
+collectability of accounts receivable based primarily upon creditworthiness of the customer 
+as determined by credit checks and analysis, as well as the customer’s payment history.  
+ 
+20. During the relevant period, Maxwell, through Andrews, employed several schemes 
+each quarter to inflate Maxwell’s ultracapacitor sales to better align reported revenue with analysts’ 
+expectations.  Such schemes included:  altering payment terms, extending altered payment terms to 
+certain distributors, shipping product at the end of quarters that was not needed, and offering full 
+rights of return and profit margin protection to customers for products “purchased.”  Maxwell 
+recognized revenue associated with each of these schemes in violation of GAAP and Maxwell’s 
+own accounting policy. 
+ 
+Maxwell Initiated a Revenue Recognition Scheme  
+to Outperform Analyst Expectations 
+ 
+21. Beginning in 2010, Maxwell sold and shipped certain ultracapacitors to a large 
+European-based direct supplier of automotive parts (“Global Automotive Customer”).  These 
+ultracapacitors were manufactured specifically for the Global Automotive Customer’s original 
+equipment manufacturer.  The Global Automotive Customer’s agreement with Maxwell called 
+for it to take Maxwell’s ultracapacitors on Delivery Duty Paid (“DDP”) or Delivery Duty Unpaid 
+(“DDU”) terms. The use of DDP and DDU terms meant that Maxwell recognized revenue when 
+the Global Automotive Customer accepted shipment at its delivery point from Maxwell. 
+ 
+22. From March through September 2011, Maxwell’s deliveries to the Global 
+Automotive Customer caused an oversupply of ultracapacitors in the Global Automotive 
+Customer’s inventory.  In October 2011, the Global Automotive Customer informed Maxwell 
+that it refused to accept delivery of 65,000 Maxwell ultracapacitors.  Maxwell took possession of 
+the rejected ultracapacitors into its own European inventory and issued a credit to the Global 
+Automotive Customer of $829,332.  In early November 2011, the Global Automotive Customer 
+cancelled all remaining shipments from Maxwell through the end of the year, including 125,000 
+additional ultracapacitors that already left Maxwell’s warehouse.  These credits and cancellations 
+left Maxwell facing an approximate $3.7 million revenue shortfall for year-end 2011, which 
+resulted in an 8% revenue gap when measured against the quarterly estimate Maxwell’s senior 
+management previously disclosed to analysts. 
+  
+23.  Maxwell’s senior management, including Schramm and Andrews, met several 
+times in November and early December 2011 to discuss the Global Automotive Customer’s 
+ 7 
+cancellation of Maxwell’s product.  They also discussed alternative solutions to mitigate the 
+resulting negative revenue impact on Maxwell’s financial statements before year-end 2011.  
+Schramm and the finance and accounting department learned Andrews and his sales team 
+arranged to have a small, family-run distributor in Europe (“German Distributor") take possession 
+of the rejected ultracapacitors in late December 2011 totaling over $3 million in sales.  Maxwell 
+instructed the German Distributor to deliver the previously rejected ultracapacitors to the Global 
+Automotive Customer in accordance with a “smoothing plan” previously agreed upon by 
+Maxwell and the Global Automotive Customer over the first two quarters in 2012.   
+ 
+24. On the final days of December 2011, Andrews persuaded the German Distributor 
+to purchase 37,000 additional ultracapacitors totaling $671,180 for eventual delivery to the Global 
+Automotive Customer sometime in 2012.  Maxwell, however, did not inform Global Automotive 
+Customer of these additional purchases until well after December 31, 2011.  This final year-end 
+transaction, when coupled with Maxwell’s earlier arrangement with the German Distributor, 
+enabled Maxwell to cover the entire $3.7 million revenue shortfall caused by the Global 
+Automotive Customer’s fourth quarter cancellations of Maxwell’s product.     
+ 
+25. The German Distributor purchased the ultracapacitors at a 4% discount from 
+Maxwell’s contracted price (for the same item) with the Global Automotive Customer.  This 
+arrangement reduced Maxwell’s gross margin but ensured the German Distributor would profit 
+when it ultimately delivered the ultracapacitors to the Global Automotive Customer.  In addition, 
+the German Distributor made clear to Andrews and his sales staff that it would not pay Maxwell 
+until it first received payment from the Global Automotive Customer.  Maxwell, through 
+Andrews and his sales team, agreed with the German Distributor’s contingency arrangement 
+demand that “payment from [the German Distributor] to Maxwell will be done after receiving 
+payment from [Automotive Customer].”  This contingent term was explicitly written into all four 
+German Distributor POs sent to Maxwell in December 2011 and initially was not hidden from 
+anyone at Maxwell.   
+ 
+ 26. Maxwell should have known the German Distributor could not pay for the goods 
+until it first received payment from the Global Automotive Customer.  Prior to December 2011, 
+the German Distributor’s quarterly sales with Maxwell had never been above $300,000 and their 
+credit limit with Maxwell was only $500,000.  The $3.7 million in December 2011 customer 
+orders was initially blocked by Maxwell’s automated system.  Maxwell’s finance and accounting 
+department, however, increased the German Distributor’s then-existing credit limit from $500,000 
+to $4 million to allow the sales to proceed.2  Maxwell’s finance and accounting department did not 
+                                                 
+2  A credit block was an internal control designed to prevent Maxwell from shipping product to customers 
+that had placed orders over their credit limit.  Maxwell’s credit limits could be established by a variety of third-party 
+sources, including Dun & Bradstreet (“D&B”) reports.  Despite raising the German Distributor’s credit limit in 
+December 2011, Maxwell’s credit file for the German Distributor contained only a 2007 D&B report written in 
+ 8 
+request any documentation of the German Distributor’s credit worthiness nor did it conduct any 
+due diligence before raising the limit.      
+ 
+27. Despite the contingent payment arrangement and the automatic controls designed to 
+minimize the risk of improper revenue recognition, Maxwell improperly recorded $3.7 million in 
+revenue on an Ex Works basis (meaning, at the time the goods left Maxwell’s warehouse) for sales 
+to the German Distributor between December 22 and December 31, 2011.  Maxwell’s explicit 
+contingent payment arrangement with the German Distributor constituted a violation of GAAP as 
+revenue recognition standards include, among other criteria, that revenue may only be recognized 
+when collectability is reasonably assured. 
+ 
+Maxwell Created False Purchase Orders to Conceal 
+the Revenue Recognition Scheme 
+ 
+28. In early January 2012, Maxwell’s senior financial personnel knew external auditors 
+were arriving to perform year-end audit work around January 19, 2012.  Between January 4 and 
+10, 2012, DeWitt conducted internal sales cutoff testing and reviewed the German Distributor POs 
+containing the contingent payment term that should have precluded Maxwell from recognizing the 
+revenue for fiscal year-end 2011.  DeWitt, Maxwell’s then-Chief Financial Officer (“CFO”), and 
+Andrews met on January 10, 2012 to discuss the POs.  At this meeting, Andrews denied the 
+existence of a contingent payment arrangement with the German Distributor and indicated he 
+would obtain corrected POs without the contingent term.   
+ 
+29. On or around January 19, 2012, the external auditors selected at least one of the 
+German Distributor POs for audit testing that contained the contingent payment term.  On January 
+20, 2012, DeWitt emailed Andrews with a cc: to the then-CFO that “[n]ot unexpectedly, the 
+auditors have chosen [the German Distributor] PO . . . that was part of their purchases at the end of 
+the year.  Therefore, we need to get the updated PO copy sent to us as soon as possible.”  Andrews 
+then obtained revised POs for all four transactions from the German Distributor that deleted the 
+contingent payment term.  Without the finance and accounting department’s knowledge, Andrews 
+and one of his direct reports reassured the German Distributor that Maxwell would continue to 
+honor the original terms of their agreement.  Andrews and his direct report then secretly faxed a 
+side agreement letter to the German Distributor from a FedEx store near Maxwell’s corporate 
+office with the contingent payment terms included.  This side agreement was hidden from 
+Maxwell’s finance and accounting department and its external auditors throughout the 2011 fiscal 
+year-end audit. 
+   
+                                                                                                                                                             
+French that noted a credit maximum of 323,340 EUR (approximately $416,000).  Maxwell’s finance and accounting 
+department did not review that credit file until October 2012.  
+ 9 
+30. Maxwell’s finance and accounting department presented these revised POs to the 
+auditors.  Andrews did not inform the finance and accounting department or the external auditors 
+that the revised POs had been falsified.  Maxwell’s senior financial personnel failed to inform the 
+auditors that the POs were modified, or that two of the POs pertained to sales that had been 
+rejected by the Global Automotive Customer and rerouted to the German Distributor.  Maxwell’s 
+finance and accounting department should have known that two sales transactions with the German 
+Distributor prior to December 2011 had DDP shipping terms that did not allow for immediate 
+revenue recognition.  However, these shipping terms in the German Distributor’s revised POs were 
+altered to allow for immediate revenue recognition.  Despite the numerous red flags, Maxwell 
+prematurely recognized revenue for the German Distributor’s sales at year-end 2011. 
+ 
+31. On February 16, 2012, Maxwell released its 2011 Form 10-K and reported pre-
+restatement earnings and revenue that outperformed analyst estimates.  Powered by its fraudulent 
+revenue recognition scheme, Maxwell reported an artificially inflated fourth-quarter 2011 earnings 
+per share (“EPS”) of $0.06, beating analyst estimates of $0.04.  Maxwell also reported full-year 
+2011 EPS of $0.03, beating consensus estimates for full year GAAP EPS of $0.012 and showing a 
+profit for the first time after years of losses.  Similarly, Maxwell’s fourth-quarter 2011 revenues 
+were materially inflated by approximately $5 million for total revenue of $42 million in order to 
+meet consensus estimates of $42-$43 million.  A portion of Schramm’s fiscal year 2011 bonus, 
+which he received on February 2012, was tied directly to Maxwell’s revenue performance for the 
+year. 
+ 
+32. Immediately after Maxwell released its fraudulent 2011 financial statements, the 
+company announced it had entered into an at-the-market equity offering of up to $30 million (the 
+“Offering”).  In February and March 2012, Maxwell issued $10.3 million worth of common stock 
+in connection with the Offering.  
+ 
+Maxwell Perpetuated Its Revenue Recognition Scheme  
+During the First Three Quarters of 2012 
+ 
+ 33. The Maxwell/German Distributor contingent arrangement was originally designed 
+as a one-time event to inflate Maxwell’s financial results for quarter-end and year-end 2011.  
+Maxwell subsequently perpetuated the fraud during the first three quarters of 2012 after it became 
+clear that Maxwell could not meet revenue growth expectations for its ultracapacitor product line 
+because of softening demand in the European automotive market and elsewhere.  During the first 
+three quarters of 2012, Maxwell improperly turned losses into profits and recognized an additional 
+$10.3 million in premature revenue from quarter-end contingent sales to the German Distributor 
+ultimately meant for the Global Automotive Customer and other Maxwell customers.  Maxwell 
+also prematurely recognized an additional $5 million in ultracapacitor revenue obtained from other 
+distributors in arrangements similar to those in place with the German Distributor.   
+ 10 
+ 34. At the end of the first quarter of 2012, Andrews and his sales staff asked the 
+German Distributor and other distributors to submit sales orders subject to the contingent 
+arrangements and other side deals they kept hidden from Maxwell’s finance and accounting 
+department.  As a result, Maxwell’s first quarter 2012 Form 10-Q reported results that improperly 
+inflated recorded revenue by $3.4 million (or 8.7%) and allowed the company to show a small 
+profit when it should have shown a net loss for the quarter.  Despite Maxwell’s fraud, the company 
+still fell short of analyst expectations, which resulted in a material drop in market capitalization 
+after Maxwell released its financial statement results for quarter ended March 31, 2012.   
+ 
+ 35. At the very end of the second quarter of 2012, Maxwell, through Andrews and his 
+sales team, used the German Distributor to recognize sales to additional Maxwell customers in 
+order to prematurely record revenue of at least $5.5 million.  Maxwell’s second quarter 2012 sales 
+to the German Distributor once again far exceeded the established credit limit for that distributor.  
+Maxwell’s automated financial controls initially stopped these sales orders from going forward.  
+As in December 2011, Maxwell overrode the automated credit blocks placed on the German 
+Distributor and permitted the German Distributor’s credit limit to fluctuate up to $8 million 
+without conducting due diligence into the German Distributor’s financial health or 
+creditworthiness.  Maxwell made these sales to the German Distributor in order to allow 
+Maxwell’s revenue growth and gross margin results to better align with analysts’ expectations and 
+Maxwell’s previously-announced projected targets. 
+ 
+ 36. Maxwell’s increased sales to the German Distributor during the entirety of the 
+scheme (Q4 2011 through Q3 2012) are demonstrated in the following chart:  
+  
+ 
+
+ 11 
+Maxwell Ignored Red Flags  
+That the Company Was Prematurely Recording Revenue  
+ 
+ 37. Throughout the first three quarters of 2012, Maxwell witnessed significant growth 
+in the overdue receivable balances to the German Distributor, collection concerns, and multiple 
+extensions of payment terms.  During this period, Maxwell’s senior financial personnel also did not 
+sufficiently follow up on emails, accounts receivable reports, extended payment terms and other 
+documents and information that strongly suggested the German Distributor could not pay for the 
+orders until it received payment from the Global Automotive Customer.  Despite these indicators, 
+Maxwell repeatedly approved more sales to the German Distributor intended for the Global 
+Automotive Customer and others.  In order to gauge when the German Distributor would pay 
+Maxwell, DeWitt started tracking the German Distributor delivery dates to the Global Automotive 
+Customer and the dates the Global Automotive Customer would pay the German Distributor for 
+Maxwell product.  DeWitt, therefore, should have known that the German Distributor was not 
+making payment without first receiving funds from the Global Automotive Customer, i.e., a 
+continent payment arrangement. 
+ 
+38. Maxwell’s senior management and finance and accounting department did not 
+follow up on additional red flags that a contingent payment arrangement existed between Maxwell, 
+the German Distributor and certain other distributors.  For example, Maxwell’s senior management 
+and finance and accounting department were keenly aware that a disproportionately large majority 
+of ultracapacitor sales were taking place during the last few days of the quarter.  While the trend 
+lines associated with Maxwell’s quarter-end sales (i.e., linearity) had reached substandard levels, 
+the quarter-end sales associated with the German Distributor had changed dramatically during the 
+revenue recognition scheme and were far worse.   
+ 
+39. During the period immediately before the fraud, Maxwell’s sales to the German 
+Distributor before the revenue recognition fraud demonstrated that 66% of these sales were made 
+during the first two months of the quarter.  Only 24% of German Distributor sales were made 
+during the final two weeks of the quarter before December 2011.  During the revenue recognition 
+scheme, Maxwell made 97% of its sales to the German Distributor during the final two weeks of 
+the quarter, with 75% made within the final five days:    
+ 
+ 12 
+ 
+ 
+Schramm, Andrews and Maxwell’s senior finance and accounting personnel all were aware of 
+Maxwell’s quarter-end sales to the German Distributor and their impact on the quarterly revenue 
+growth estimates provided to analysts and investors. 
+ 
+40. In addition, Maxwell’s senior management and finance and accounting department 
+closely tracked and monitored days sales outstanding (“DSO”) (i.e., the average number of days it 
+takes the company to collect its accounts receivable).  During the relevant period, Maxwell’s DSO 
+on a company-wide basis trended upward from an average of 70 days at the end of the third quarter 
+in 2011 to 93 days, 108 days and 109 days during the first three quarters of 2012, respectively, and 
+were at historically substandard levels.3   
+ 
+41. Maxwell’s DSO for its sales to the German Distributor, however, were far worse 
+and nearly doubled (from 61 days to 120 days) between the third and fourth quarters of 2011.  
+During the first quarter of 2012, Maxwell’s DSO for its sales to the German Distributor continued 
+to rise from 120 days to 160 days, or over five months on average.  During the second quarter of 
+2012, Maxwell’s senior management and finance and accounting personnel became increasingly 
+concerned with the German Distributor’s overdue accounts receivable balances, which were 
+extending between four to six months (120-180 days) after their invoice dates, and began to track 
+these balances on a weekly basis.  Nevertheless, Maxwell’s finance and accounting department 
+overrode credit blocks that enabled Maxwell to ship and record nearly $5.4 million in sales to the 
+German Distributor notwithstanding significant delays in payments and resulting payment term 
+extensions.  This same pattern continued during the third quarter of 2012.  As a result, senior 
+management knew before Maxwell filed its Form 10-Q for the period ending September 30, 2012 
+                                                 
+3 Maxwell’s DSO of 70 days in the third quarter of 2011 is consistent with Maxwell’s average DSO of 70.5 days for 
+the four years (2008-2011) preceding the revenue recognition fraud. 
+
+ 13 
+that German Distributor receivables for sales for the second and third quarters of 2012 would 
+remain unpaid, on average, for almost six months. 
+ 
+42. Beginning in June 2012, and continuing through January 2013, Andrews directed 
+Maxwell sales personnel to offer the German Distributor extra “commission payments” if it 
+would pay their invoices to Maxwell before the German Distributor received payment from the 
+Global Automotive Customer.  These “payments” were offset against outstanding receivable 
+amounts and then mischaracterized as marketing and/or exhibitor fees and improperly recorded as 
+legitimate marketing expenses to avoid detection by Maxwell’s finance and accounting department 
+and the external auditors.    
+ 
+43. During the third quarter, in late July 2012, Maxwell’s finance and accounting 
+department tried to enforce credit blocks because of significantly overdue accounts receivable from 
+the German Distributor and certain other distributors of Maxwell’s ultracapacitor products.  By 
+mid-September 2012, the credit blocks became unsustainable as it became apparent to senior 
+management that Maxwell’s ultracapacitor revenue threatened to perform significantly lower than 
+the 7-10% revenue growth forecast Schramm provided to analysts during the previous quarterly 
+earnings call if the sales to the German Distributor and others remained blocked.  
+ 
+44. During the last week in September 2012, Maxwell’s board of directors met with 
+Schramm to discuss the anticipated quarterly financial results and expressed concern with 
+Maxwell’s ultracapacitor revenue for the quarter.  Schramm then held an executive meeting and 
+told Andrews and his sales team that Maxwell needed $45 million in revenue for the third quarter 
+to meet the mid-range of analyst revenue growth expectations.  On the same day as Schramm’s 
+executive meeting, Maxwell’s senior financial personnel partially overrode a credit block that 
+permitted Maxwell to ship over $1.6 million in sales to the German Distributor.  On Friday, 
+September 28, 2012, the last business day of the quarter, Schramm overrode the remaining credit 
+block that permitted Maxwell to ship an additional $2.2 million in product to German Distributor.  
+At the time, Schramm was aware that the German Distributor would not ship any of the $2.2 
+million in product until 2013.  Schramm also performed no due diligence before overriding the 
+credit block, even though he was aware of the German Distributor’s extended payment terms, 
+overdue accounts receivable, and payment and credit history.  Those transactions, improperly 
+recorded as revenue by Maxwell’s finance and accounting department, enabled Maxwell to report 
+that revenue increased 7 ½ % to $43.9 million for the quarter, or the lower end of Maxwell’s 
+estimates of 7% -10% revenue growth.   
+ 
+ 45. After the end of the third quarter, on October 12, 2012, Maxwell’s finance and 
+accounting department authorized a credit limit increase from $500,000 to $8.5 million that was 
+not based on, nor supported by, the documented financial condition of the German Distributor.  In 
+particular, Maxwell, through DeWitt, obtained an updated D&B report for the German Distributor 
+ 14 
+in October 2012 in an attempt to bolster the credit files, which at the time consisted of only a 
+2007 D&B report written in French that noted a credit maximum of 323,340 EUR 
+(approximately $416,000).  However, the October 2012 D&B report supported a credit 
+maximum for the German Distributor of only 180,000 EUR, which, if relied upon, would have 
+supported a credit limit decrease from the $500,000 credit limit previously established.  DeWitt 
+also attempted to obtain audited financial statements from the German Distributor.  Instead, the 
+German Distributor provided an unaudited spreadsheet with unproven and incomplete figures 
+that did not support a credit limit increase.  In fact, the German Distributor’s unaudited 
+spreadsheet demonstrated than Maxwell’s approved credit limit of $8.5 million represented more 
+cash (before expenses) that the German Distributor generated in both 2011 and 2012 combined.  
+Rather than seeking additional, reliable quantitative financial data to determine the appropriate 
+credit limit, Maxwell’s senior financial personnel opted to rely upon oral representations from 
+Schramm and Andrews that the German Distributor was a good partner that was creditworthy at 
+$8.5 million.  
+ 
+46. On October 17, 2012, Maxwell’s senior management met with the audit committee 
+to discuss the company’s financial results for the quarter ended September 30, 2012.  At the time, 
+Maxwell’s outstanding accounts receivable balance with the German Distributor exceeded $8.5 
+million, with $4 million long overdue and an additional $4 million representing shipments just 
+made on or after September 28, 2012.  For all of the shipments made on or after September 28, 
+2012, Maxwell had almost immediately extended payment terms from 60 days to roughly 180 days 
+into March 2013.  The discussion also covered two other distributors exhibiting characteristics 
+similar to the German Distributor.  Nevertheless, the discussion at this meeting focused solely on 
+the collectability of the outstanding receivable to the German Distributor, an issue relevant to only 
+one criterion of revenue recognition.  Maxwell did not address the possibility that a contingent 
+payment agreement existed, which was an issue relevant to another criterion of revenue 
+recognition.  As a result, Maxwell recorded all of the revenue associated with the quarter-end 
+shipments that had initially been blocked.  On October 25, 2012, Maxwell filed its Form 10-Q for 
+the period ending September 30, 2012, falsely reporting that Maxwell had achieved the lower end 
+of its revenue growth guidance.   
+ 
+47. Shortly before Maxwell filed its Form 10-Q for the period ending September 30, 
+2012, Maxwell’s external auditors became increasingly concerned about revenue recognition 
+issues associated with the German Distributor.  As a result, the external auditors employed 
+additional review procedures by sending a third-party confirmation letter to the German Distributor 
+and asking it to identify any special arrangements that might impact revenue recognition.  DeWitt 
+furnished that revised confirmation letter to the external auditors, who then sent it to the German 
+Distributor.  On December 12, 2012, at Andrews’ direction, Maxwell’s sales team arranged to have 
+the German Distributor submit a false confirmation to the external auditor that falsely claimed its 
+transactions with Maxwell were free of all contingencies.  In February 2013, Maxwell, through 
+ 15 
+Andrews, arranged for the German Distributor to complete another false confirmation as part of the 
+year-end 2012 audit.   
+ 
+48. Ultimately, all of the German Distributor revenue Maxwell recorded for the period 
+from December 2011 through September 2012 was determined to be recorded prematurely and 
+restated, although substantially all of the revenue was eventually collected and recognized in 
+subsequent periods.  Similar practices were underway with sales involving at least three other 
+distributors, which also required restatement.  Maxwell’s senior financial personnel and Schramm 
+overrode automated controls related to multiple distributors. 
+ 
+Maxwell’s Revenue Recognition Scheme Unravels 
+ 
+49. In early December 2012, Maxwell, through Andrews and his sales team, asked the 
+German Distributor to submit a PO for $1.5 million covering 90,000 parts ultimately meant for the 
+Global Automotive Customer.  The German Distributor submitted a PO, but expressed concern to 
+Maxwell’s sales personnel that it was “running out of space” and “was not willing to let the 
+snowball become bigger” because of all the Maxwell product the German Distributor had not yet 
+shipped to the Global Automotive Customer.  Maxwell ultimately withdrew the request four days 
+before the internal whistleblower informed the chairman of Maxwell’s board of directors of 
+concerns regarding a suspected revenue recognition scheme and the contingency relationship 
+between Maxwell and the German Distributor.      
+ 
+50. Thereafter, Maxwell’s audit committee conducted an internal investigation and 
+concluded that Andrews and certain other Maxwell sales personnel engaged in side agreements 
+with the German Distributor and certain other distributors that they hid from Maxwell’s finance 
+and accounting department. On March 1, 2013, Schramm permitted Andrews to resign but 
+terminated two other sales personnel that reported to Andrews.  That next morning, Schramm 
+and Andrews played a round of golf together at their country club.  Schramm and Andrews 
+remained friends and continued to regularly play golf together until late August of 2013.  
+ 
+51. After the market close on March 7, 2013, Maxwell filed a Form 8-K with the 
+Commission, in which it made public for the first time that it would be restating its financial 
+results for fiscal year 2011 and the first three quarters of 2012 and that those financials should no 
+longer be relied upon because of errors relating to the premature revenue recognition from sales 
+to certain distributors.  The Form 8-K also disclosed material weaknesses in its internal control 
+over financial reporting and a default on the covenants governing its credit agreement.  
+Maxwell’s stock price dropped 11.09% to close at $8.10 per share on the news. 
+ 
+52. While the internal investigation found Schramm and senior financial personnel 
+were not aware of the fraud, on March 18, 2013, Maxwell’s external auditors resigned after 
+ 16 
+concluding it could no longer rely on the representation of its management, particularly those made 
+by senior financial personnel.  After the market close on March 19, 2013, Maxwell filed a Form 
+8-K with the Commission announcing the external auditors’ resignation and stating the company 
+would be unable to file its financial statements for fiscal year 2012 by the required deadline.  
+Maxwell’s stock price dropped 20.57% to $5.91 per share on the news.   
+ 
+53. On August 1, 2013, Maxwell filed a restatement of the 2011 Form 10-K and Forms 
+10-Q for the first three quarters of 2012 that reduced revenue by 6.4% and 7.5% respectively, and 
+turned modest net income gains into net losses for certain periods.  Maxwell’s restatement also 
+reported the company had successfully remediated its material weakness in internal control over 
+financial reporting related to its revenue recognition.  Maxwell’s restatement included the 
+discovery of additional transactions for which Andrews purportedly hid, or otherwise provided 
+false and misleading information to Schramm and Maxwell’s finance and accounting department. 
+ 
+VIOLATIONS 
+ 
+54.  Securities Act Section 17(a)(1), Exchange Act Section 10(b) and Rules 10b-5(a) 
+and 10b-5(c) thereunder prohibit fraudulent conduct in the offer or sale of securities and in 
+connection with the purchase or sale of securities, respectively. 
+ 
+55.  Securities Act Section 17(a)(2) prohibits any person from obtaining money or 
+property in the offer or sale of securities 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. 
+ 
+56.  Securities Act Section 17(a)(3) prohibits any 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. 
+ 
+57. Exchange Act Section 13(a) and Rules 13a-1, 13a-11 and 13a-13 thereunder 
+require that every issuer of a security registered pursuant to Exchange Act Section 12 file with 
+the Commission, among other things, annual, quarterly and other reports as the Commission may 
+require. 
+ 
+58. Rule 12b-20 under the Exchange Act requires that, in addition to the information 
+expressly required to be included in a statement or report filed with the Commission, there shall 
+be added such further material information, if any, as may be necessary to make the required 
+statements, in light of the circumstances under which they are made not misleading. 
+ 
+59. Exchange Act Section 13(b)(2)(A) requires reporting companies to make and 
+ 17 
+keep books, records and accounts which, in reasonable detail, accurately and fairly reflect their 
+transactions and dispositions of their assets. 
+ 
+60.  Exchange Act Section 13(b)(2)(B) requires all reporting companies to devise and 
+maintain a system of internal accounting controls sufficient to provide reasonable assurances that 
+transactions are recorded as necessary to permit preparation of financial statements in accordance 
+with GAAP. 
+ 
+61. Exchange Act Section 13(b)(5) 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 described in Section 13(b)(2). 
+ 
+62. Rule 13b2-1 under the Exchange Act prohibits any person from directly or 
+indirectly, falsifying or causing to be falsified, any book, record, or account subject to Exchange 
+Act Section 13(b)(2)(A).  Rule 13b2-2(a) under the Exchange Act provides that no director or 
+officer of an issuer shall, in connection with financial-statement audits, reviews, or examinations 
+or the preparation or filing of any document or report required to be filed with the Commission, 
+directly or indirectly: (1) make or cause to be made a materially false or misleading statement to 
+an accountant; or (2) 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.  
+ 
+Findings 
+ 
+63. As a result of the conduct described above, Maxwell violated Securities Act 
+Section 17(a) and Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 
+10b-5(a) and 5(c), 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. 
+ 
+64. As a result of the conduct described above, Andrews: (i) violated Securities Act 
+Section 17(a), Exchange Act Sections 10(b) and 13(b)(5) and Rules 10b-5(a) and (c), 13b2-1 and 
+13b2-2 promulgated thereunder; and (ii) caused Maxwell’s violations of Securities Act Section 
+17(a), Exchange Act Sections 10(b), 13(a), 13(b)(2)(A) and (B) and Rules 10b-5(a) and (c), 12b-
+20, 13a-1, 13a-11, and 13a-13 promulgated thereunder. 
+ 
+65. As a result of the conduct described above, Schramm and DeWitt caused 
+Maxwell’s violations of Exchange Act Sections 13(a), 13(b)(2)(A) and (B) and Rules 12b-20, 
+13a-1, 13a-11, and 13a-13 promulgated thereunder. 
+ 
+ 
+ 
+ 18 
+MAXWELL’S REMEDIAL EFFORTS 
+ 
+ In determining to accept Maxwell’s Offer, the Commission considered remedial acts 
+promptly undertaken by Maxwell and cooperation it afforded the Commission staff.   
+ 
+UNDERTAKINGS 
+ 
+ Maxwell shall comply with the following undertakings:  
+ 
+1. Report to the Commission staff during a one-year term, as set forth herein, 
+Maxwell’s compliance with Commission regulations and GAAP regarding  its 
+revenue recognition, financial reporting, and the status of any remediation, 
+implementation, auditing and testing of its internal accounting controls and 
+compliance measures.  During this period, should Maxwell discover credible 
+evidence, not already reported to the Commission staff, that  insufficiencies in the 
+design or operation of its internal accounting controls relating to revenue recognition 
+exist, Maxwell shall report such insufficiencies to the Commission staff and state 
+either all such insufficiencies have been remediated or it cannot certify compliance.  
+During this one-year period, Maxwell  shall:  (1) conduct an initial review and 
+submit an initial report, and (2) conduct and prepare a final follow-up report, as 
+described below: 
+ 
+a. Maxwell shall submit to the Commission staff a written report within 150 
+calendar days of the entry of this Order setting forth a complete description of its 
+internal accounting controls, policies, and procedures relating to revenue 
+recognition (the “Initial Report”).  The Initial Report should also include 
+Maxwell’s remediation efforts to date, including a description of the controls, 
+policies, and procedures in place, and any proposals to make improvements, that 
+are reasonably designed to improve the internal accounting controls, policies and 
+procedures of Maxwell for ensuring compliance with Commission regulations and 
+GAAP, and the parameters of the subsequent reviews.  
+ 
+b. Maxwell shall undertake a follow-up review, incorporating any comments 
+provided by the Commission staff on the Initial Report, to further test, monitor 
+and assess as necessary whether its internal accounting controls, policies and 
+procedures over revenue recognition are reasonably designed to:  (1) provide 
+reasonable assurance of compliance with Commission regulations and GAAP; and 
+(2) detect and prevent insufficiencies in the design or operation of its internal 
+accounting controls, policies, and procedures relating to revenue recognition.  
+Maxwell shall submit to the Commission staff its final follow-up report within 
+ 19 
+365 calendar days of the entry of this Order (the “Final Report”). 
+ 
+c. The Initial and Final Reports shall be transmitted to Tracy Price, FCPA Unit 
+Deputy Chief, Division of Enforcement, Securities and Exchange Commission, 
+100 F Street, NE, Washington, DC 20549-5631.  Maxwell may extend the time 
+period for issuance of the Initial Report with prior written approval of the 
+Commission staff.  Maxwell may extend the time period for issuance of the Initial 
+and Final Reports with prior written approval of the Commission staff.  Maxwell 
+shall provide its external auditors with copies of the Initial and Final Reports and 
+shall provide staff with any written reports or recommendations produced by the 
+external auditors in response to those Reports.   
+ 
+d. The Initial and Final Reports submitted by Maxwell will likely include 
+proprietary, financial, confidential, and competitive business information. Public 
+disclosure of the reports could discourage cooperation, impede pending or 
+potential government investigations and thus undermine the objectives of the 
+reporting requirement. For these reasons, among others, the Initial and Final 
+Reports and the contents thereof are intended to remain and shall remain non-
+public, except (a) pursuant to court order, (b) as agreed by the parties in writing, 
+(c) to the extent that the Commission staff determines in its sole discretion that 
+disclosure would be in furtherance of the Commission's discharge of its duties and 
+responsibilities, or (d) is otherwise required by law. 
+ 
+e. Certify, in writing, compliance with the undertaking(s) set forth above. The 
+certification shall identify the undertaking(s) provide written evidence of 
+compliance in the form of a narrative, and be supported by exhibits sufficient to 
+demonstrate compliance. The Commission staff may make reasonable requests for 
+further evidence of compliance, and Maxwell agrees to provide such evidence. The 
+certification and supporting materials shall be submitted to Tracy Price, FCPA Unit 
+Deputy Chief, Division of Enforcement, with a copy to the Office of the Chief 
+Counsel of the Enforcement Division, no later than 30 days from the date of the 
+completion of the undertakings. 
+ 
+f. Within one-year of the entry of this Order, should Maxwell discover credible 
+evidence, not already reported to the Commission staff, that its internal accounting 
+controls in areas unrelated to revenue recognition are insufficient, Maxwell shall 
+provide a detailed report to the Commission staff.   
+ 
+ 
+ 
+ 20 
+2. Maxwell shall preserve and retain all documentation regarding all certifications and 
+reports for seven (7) years and will make it available to the Commission staff upon 
+request. 
+ 
+3. In determining whether to accept Maxwell’s Offer, the Commission has considered 
+these undertakings.  Maxwell agrees that if the Division of Enforcement believes that 
+Maxwell has not satisfied these undertakings, it may petition the Commission to reopen 
+the matter to determine whether additional sanctions are appropriate.  For good cause 
+shown, the Commission staff may in its sole discretion extend any of the procedural 
+dates relating to the undertakings.  
+ 
+4. Maxwell (including its officers, directors, and employees, and third-party consultants 
+within Maxwell’s control) shall cooperate fully with the Commission with respect to 
+this action and any related judicial or administrative proceeding or investigation 
+commenced by the Commission or to which the Commission is a party and subject to 
+compliance with applicable law.  Maxwell agrees that such cooperation shall include, 
+but is not limited to: 
+ 
+a. Production of Information: at the Commission’s request, upon reasonable notice, 
+and without subpoena, Maxwell (including its officers, directors, and employees, 
+and third-party consultants within Maxwell’s control) shall truthfully and 
+completely disclose all information requested by the Commission staff in 
+connection with the Commission’s investigation, litigation or other related 
+proceedings, except with respect to information related to clients other than 
+Maxwell, which information shall be produced in response to subpoena or other 
+appropriate legal process; 
+ 
+b. Production of Documents: at the Commission’s request, upon reasonable notice, 
+and without subpoena, Maxwell (including its officers, directors, and employees, 
+and third-party consultants within Maxwell’s control) shall provide any document, 
+record or other tangible evidence requested by the Commission staff in connection 
+with the Commission’s investigation, litigation or other related proceedings, except 
+with respect to documents related to clients other than Maxwell, which information 
+shall be produced in response to subpoena or other appropriate legal process; and 
+ 
+c. Production of Cooperative Personnel: at the Commission’s request, upon 
+reasonable notice, and without subpoena, Maxwell (including its officers, directors, 
+and employees, and third-party consultants within Maxwell’s control) shall secure 
+the attendance and truthful statements, deposition, or testimony of any Maxwell 
+officer, director, or employee or third-party consultant within Maxwell’s control, 
+ 21 
+excluding any person who is a party to any related litigated judicial or 
+administrative proceeding, at any meeting, interview, testimony, deposition, trial, or 
+other legal proceeding. 
+The foregoing obligations are subject to Maxwell’s reservation of rights: 
+  
+(i) to claim that documents or information requested is subject to attorney-
+client privilege or attorney-work-product protection; and  
+(ii) to seek entry of a confidentiality order as to: sensitive business documents 
+or information; sensitive personnel documents or information; or 
+confidential information pertaining to parties other than Maxwell. 
+ 
+d. Service and Personal Jurisdiction Consents:  Maxwell further agrees that, with 
+respect to this action and any related judicial or administrative proceeding or 
+investigation commenced by the Commission or to which the Commission is a 
+party, it will: (i) accept service by email, mail or facsimile transmission of notices, 
+requests, or subpoenas issued by the Commission for documents or testimony at 
+depositions, hearings, or trials, or in connection with any related investigation by 
+the Commission staff (“Commission Service”); (ii) appoint Maxwell’s undersigned 
+attorney as agent to receive Commission Service; (iii) with respect to Commission 
+Service, waive the territorial limits upon service contained in Rule 45 for the 
+Federal Rules of Civil Procedure and any applicable local rules, provided that the 
+party requesting the testimony reimburses Maxwell’s travel, lodging, and 
+subsistence expenses at the then-prevailing U.S. Government per diem rates; and 
+(iv) consent to personal jurisdiction over Maxwell in any United States District 
+Court for purposes of enforcing any Commission Service. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ Offers. 
+ 
+ Accordingly, pursuant to Section 8A of the Securities Act and Section 21C of the 
+Exchange Act, it is hereby ORDERED, effective immediately, that: 
+ 
+A. Maxwell cease and desist from committing or causing any violations and any future 
+violations of Securities Act Section 17(a), Exchange Act Sections 10(b), 13(a), 
+13(b)(2)(A) and13(b)(2) (B), and Rules 10b-5(a) and (c), 12b-20, 13a-1, 13a-11, 
+and 13a-13 promulgated thereunder. 
+ 
+ 22 
+B. Andrews cease and desist from committing or causing any violations and any future 
+violations of Securities Act Section 17(a), Exchange Act Sections 10(b), 13(a), 
+13(b)(2)(A), 13(b)(2)(B), and 13(b)(5), and Rules 10b-5(a) and (c), 12b-20, 13a-1, 
+13a-11, 13a-13, 13b2-1, and 13b2-2 promulgated thereunder. 
+ 
+C. Andrews be, and hereby is, prohibited for five (5) years from the date of this Order 
+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. 
+ 
+D. Schramm cease and desist from committing or causing any violations and any future 
+violations of Exchange Act Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and Rules 
+12b-20, 13a-1, 13a-11, and 13a-13 promulgated thereunder. 
+ 
+E. DeWitt cease and desist from committing or causing any violations and any future 
+violations of Exchange Act Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and Rules 
+12b-20, 13a-1, 13a-11, and 13a-13 promulgated thereunder. 
+ 
+F. Maxwell shall, within twenty-one (21) days of the entry of this Order, pay a civil 
+money penalty in the amount of $2.8 million to the Securities and Exchange 
+Commission.  If timely payment is not made, additional interest shall accrue 
+pursuant to 31 U.S.C. Section 3717. 
+ 
+G. Andrews shall, within twenty-one (21) days of the entry of this Order, pay a civil 
+money penalty in the amount of $50,000 to the Securities and Exchange 
+Commission.  Payment shall be made in three installments as follows:  one installment 
+of $25,000 due within 21 days of the date of the entry of this Order; the second 
+installment of $12,500 due within 180 days of this Order; and the third and final 
+installment of $12,500 within 360 days of the entry of this Order.  Payments shall be 
+deemed made on the date they are received by the Commission and shall be applied 
+first to post-judgment interest, which accrues pursuant to 31 U.S.C. Section 3717 on 
+any unpaid amounts due after 21 days of the entry of this Order.  Prior to making the 
+final payment set forth herein, Andrews shall contact the staff of the Commission for 
+the amount due for the final payment.  If timely payment is not made, additional 
+interest shall accrue pursuant to 31 U.S.C. Section 3717. 
+ 
+H. Schramm shall, within twenty-one (21) days of the entry of this Order, pay 
+disgorgement of $33,878, prejudgment interest of $6,113, and a civil money penalty 
+in the amount of $40,000 to the Securities and Exchange Commission.  If timely 
+ 23 
+payment is not made, additional interest shall accrue pursuant to SEC Rule or 
+Practice 600 and 31 U.S.C. Section 3717. 
+ 
+I. DeWitt shall, within twenty-one (21) days of the entry of this Order, pay a civil 
+money penalty in the amount of $20,000 to the Securities and Exchange 
+Commission.  Payment shall be made in three installments as follows:  one installment 
+of $10,000 due within 21 days of the date of the entry of this Order; the second 
+installment of $5,000 due within 180 days of this Order; and the third and final 
+installment of $5,000 within 360 days of the entry of this Order.  Payments shall be 
+deemed made on the date they are received by the Commission and shall be applied 
+first to post-judgment interest, which accrues pursuant to 31 U.S.C. Section 3717 on 
+any unpaid amounts due after 21 days of the entry of this Order.  Prior to making the 
+final payment set forth herein, DeWitt shall contact the staff of the Commission for the 
+amount due for the final payment.  If timely payment is not made, additional interest 
+shall accrue pursuant to 31 U.S.C. Section 3717. 
+ 
+J. Payment must be made in one of the following ways: 
+ 
+(1) Respondents may transmit payment electronically to the Commission, which 
+will provide detailed ACH transfer/Fedwire instructions upon request; 
+ 
+(2) Respondents may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www/sec.gov/about/offices/ofm.htm; or 
+ 
+(3) Respondents may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange 
+Commission and hand-delivered or mailed to: 
+    
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+Payments by check or money order must be accompanied by a cover letter 
+identifying Maxwell Technologies, Inc., Van Andrews, David Schramm, and 
+James DeWitt as a Respondent in these proceedings, and the file number of these 
+proceedings.  A copy of the cover letter and check or money order must be sent to 
+Tracy L. Price, Esq., FCPA Unit Deputy Chief, Division of Enforcement, 
+Securities and Exchange Commission, 100 F St., NE, Washington, DC 20549. 
+ 24 
+K. Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended, a Fair 
+Fund is created for the disgorgement, prejudgment interest and civil money 
+penalties referenced in Paragraphs F through I above.  Amounts ordered to be paid 
+as civil money penalties pursuant to this Order shall be treated as penalties paid to 
+the government for all purposes, including all tax purposes.  To preserve the 
+deterrent effect of the civil penalty, Maxwell, Andrews, Schramm, and DeWitt 
+agree that in any Related Investor Action, they shall not argue that they are entitled 
+to, nor shall they benefit by, offset or reduction of any award of compensatory 
+damages by the amount of any part of Maxwell’s, Andrews’, Schramm’s, and 
+DeWitt’s payment of a civil penalty in this action ("Penalty Offset").  If the court in 
+any Related Investor Action grants such a Penalty Offset, Maxwell, Andrews, 
+Schramm, and DeWitt agree that they shall, within 30 days after entry of a final 
+order granting the Penalty Offset, notify the Commission's counsel in this action 
+and pay the amount of the Penalty Offset to the Securities and Exchange 
+Commission.  Such a payment shall not be deemed an additional civil penalty and 
+shall not be deemed to change the amount of the civil penalty imposed in this 
+proceeding.  For purposes of this paragraph, a "Related Investor Action" means a 
+private damages action brought against Maxwell, Andrews, Schramm, and/or 
+DeWitt by or on behalf of one or more investors based on substantially the same 
+facts as alleged in the Order instituted by the Commission in this proceeding. 
+ 
+L. Respondent Maxwell shall comply with the undertakings enumerated in Section III. 
+above. 
+ 
+V. 
+ 
+ It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
+523 of the Bankruptcy Code, 11 U.S. C. §523, the findings in this Order are true and admitted by 
+Respondents Andrews, Schramm, and DeWitt, and further, any debt for disgorgement, prejudgment 
+interest, civil penalty or other amounts due by Respondents Andrews, Schramm, and DeWitt under 
+the Order or any other judgment, order, consent order, decree or settlement agreement entered in 
+connection with this proceeding, is a debt for the violation by Respondents Andrews, Schramm, and 
+DeWitt of the federal securities laws or any regulation or order issued under such laws, as set forth 
+in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
+ 
+ By the Commission. 
+ 
+ 
+       Brent J Fields 
+       Secretary  

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+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES ACT OF 1933 
+Release No. 10478 / April 9, 2018 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 83017 / April 9, 2018 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3933 / April 9, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-18431 
+ 
+ 
+ 
+In the Matter of 
+ 
+Philip John James, CA and 
+ Kevin Silverwood, CA 
+ 
+Respondents. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE- 
+ AND-DESIST PROCEEDINGS 
+PURSUANT TO SECTION 8A OF THE 
+SECURITIES ACT OF 1933, SECTIONS 
+4C AND 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 Philip John 
+James, CA and Kevin Silverwood, CA (collectively, “Respondents”) pursuant to Section 8A of the 
+Securities Act of 1933 (“Securities Act), Sections 4C1 and 21C of the Securities Exchange Act of 
+1934 (“Exchange Act”), and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice.2 
+                                                 
+1  Section 4C provides, in relevant part, that:  
+ 
+The Commission may censure any person, or deny, temporarily or permanently, to any person the privilege 
+of appearing or practicing before the Commission in any way, if that person is found . . .  to have willfully 
+violated, or willfully aided and abetted the violation of, any provision of the securities laws or the rules and 
+regulations thereunder. 
+ 
+2  Rule 102(e)(1)(iii) provides, in pertinent part, that: 
+ 
+2 
+ 
+II. 
+ 
+In anticipation of the institution of these proceedings, Respondents have submitted Offers 
+of Settlement (“Offer”) that 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, Respondents admit the Commission’s jurisdiction over them and 
+the subject matter of these proceedings, and consent to the entry of this Order Instituting Public 
+Administrative and Cease-And-Desist Proceedings Pursuant to Section 8A of the Securities Act of 
+1933, Sections 4C and 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-
+A-Desist Order (“Order”), as set forth below. 
+ 
+III. 
+ 
+ On the basis of this Order and Respondents’ Offers, the Commission finds3 that:  
+ 
+SUMMARY 
+ 
+1. This matter involves financial reporting fraud conducted by two former employees 
+of Tech Data’s U.K. subsidiary.  In fiscal years 2012 and 2013, Respondents Philip John James, 
+the subsidiary’s Finance Director, and Kevin Silverwood, the subsidiary’s Financial Management 
+Controller, fraudulently overstated Tech Data’s income by concealing uncollectible receivables 
+that should have been written off, reversing previously-recorded expenses and foreign exchange 
+losses, and prematurely recognizing a vendor rebate.  As a result of this fraud, Tech Data 
+overstated its consolidated pretax income by 7% in the third quarters of fiscal years 2012 and 2013 
+and by 5% in the fourth quarter of fiscal year 2013. 
+ 
+RESPONDENTS 
+ 
+2. Philip John James, 47, a citizen and resident of the U.K., was Computer 2000’s 
+Finance Director from January 2007 until he resigned in March 2013.  James is a Chartered 
+Accountant in the U.K. 
+ 
+3. Kevin Silverwood, 40, a citizen and resident of the U.K, was Computer 2000’s 
+Financial Management Controller from August 2011 until he resigned in February 2013.  
+Silverwood is a Chartered Accountant in the U.K. 
+ 
+OTHER RELEVANT ENTITIES AND PERSONS 
+                                                                                                                                                             
+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.  
+ 
+3 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 
+ 
+ 
+4. Tech Data Corp. is a wholesale distributor of technology products.  It is a Florida 
+corporation headquartered in Clearwater, Florida.  Tech Data’s common stock is registered with 
+the Commission pursuant to Exchange Act Section 12(b) and trades on NASDAQ.  During the 
+relevant period, Tech Data sold securities pursuant to registration statements on Forms S-3 and S-8 
+that incorporated by reference periodic filings with the material misrepresentations described in 
+this Order. 
+ 
+5. Computer 2000 Distribution Limited, now doing business under the name Tech 
+Data Limited, was at all relevant times a U.K. corporation wholly-owned by Tech Data.  For public 
+reporting purposes, Computer 2000’s financial results were consolidated in the results of Tech 
+Data. 
+ 
+FACTS 
+ 
+The Accounting Fraud in the U.K. Subsidiary 
+ 
+A. Misconduct in the Company’s Third Quarter of Fiscal Year 2012 
+ 
+6. In Q3FY2012, James and Silverwood learned that Computer 2000 had $5 million in 
+aged receivables that were uncollectible.  GAAP required Computer 2000 to write off this amount 
+by reducing the balance of its receivables account (an asset on its balance sheet) by $5 million and 
+recording a corresponding $5 million expense.4  This would have reduced Computer 2000’s 
+income by $5 million.  To avoid this result, James and Silverwood made journal entries that 
+transferred the $5 million from the receivables account to an unrelated liability account on 
+Computer 2000’s balance sheet, where it remained until Tech Data restated its financials in 
+February 2014. 
+ 
+7. This misconduct overstated Tech Data’s reported income before taxes by 7% in 
+Q3FY2012.   
+ 
+B. Misconduct in the Company’s Third Quarter of Fiscal Year 2013 
+ 
+8. The following year, James and Silverwood again fraudulently overstated Tech 
+Data’s income.  During the process of closing Computer 2000’s Q3FY2013, James and 
+Silverwood learned that the subsidiary’s expenses were higher than expected.  To improve their 
+results, James and Silverwood made journal entries that transferred over $3 million in costs 
+relating to wages, car expenses, unrealized foreign exchange currency losses, and product 
+discounts and rebates – all of which Computer 2000 had previously, and appropriately, recorded as 
+reductions on its income statement – to the same balance sheet liability account they had used to 
+                                                 
+4 GAAP requires that a receivable be recorded as impaired when, based on all available information, it is 
+probable that a loss has been incurred.  See ASC 310-10-35-4. 
+ 
+4 
+ 
+hide the uncollectible receivables in the prior year.  Doing so artificially reduced Tech Data’s 
+expenses, and hence boosted the company’s income, by over $3 million. 
+ 
+9. James and Silverwood overstated Tech Data’s income further in this period by 
+again not recording expenses for uncollectible receivables as GAAP required.  Though they knew 
+about $650,000 in receivables from a vendor were uncollectible, and would hence need to be 
+written off, James and Silverwood avoided the required reduction in Computer 2000’s income by 
+making journal entries that transferred this amount from the receivables account to an unrelated 
+balance sheet liability account.   
+ 
+10. Their fraud in this period overstated Tech Data’s reported income before taxes by 
+7% in Q3FY2013. 
+ 
+C. Misconduct in the Company’s Fourth Quarter of Fiscal Year 2013 
+ 
+11. James and Silverwood overstated Tech Data’s income yet again in the following 
+quarter.   
+ 
+12. First, Silverwood, with James’s knowledge, failed to record about $750,000 in 
+foreign exchange losses as required by GAAP.  At the close of Q4FY2013, Silverwood learned 
+Tech Data had recorded a $1.8 million loss in its income statement due to fluctuations in the value 
+of the euro and certain associated hedging transactions.  Rather than continuing to record the full 
+loss, Silverwood directed subordinates to make journal entries that reversed – under the guise of 
+“deferring” to an unspecified future period – about $750,000 of this loss.  There was no basis in 
+GAAP for this action. 
+ 
+13. Second, James allowed Tech Data to prematurely recognize about $750,000 in 
+rebates.  In November 2012, James learned that a vendor had agreed to issue a $750,000 credit to 
+Computer 2000 if it ordered a certain volume of products from the vendor with delivery dates in 
+February and March 2013.  Because the delivery dates were not until Tech Data’s Q1FY2014, 
+GAAP prohibited Computer 2000 from recognizing the $750,000 credit in Q4FY2013.5  
+Nevertheless, Computer 2000, with James’s knowledge, recorded the entire amount of the credit in 
+Q4FY2013.   
+ 
+14. Third, as they had done the prior quarter, James and Silverwood overstated Tech 
+Data’s income by making journal entries that improperly transferred over $350,000 in costs (wages 
+and car expenses) that had already been recorded in the company’s income statement to a balance 
+sheet liability account. 
+ 
+                                                 
+5 GAAP requires that companies recognize vendor incentives in a systematic fashion that properly allocat es 
+the cash consideration the vendor offers to the particular underlying transaction that results in progress toward 
+earning the incentive.  ASC 605-50-25-10. 
+ 
+5 
+ 
+15. Fourth, as they had also done previously, James and Silverwood failed to write off 
+two uncollectible receivables as required by making journal entries that transferred over $2.2 
+million from the receivables account to unrelated balance sheet liability accounts. 
+ 
+16. In all, the misconduct in this period overstated Tech Data’s reported income before 
+taxes by 5% in Q4FY2013, as reported in its March 4, 2013 earnings release on Form 8-K. 
+ 
+D. James and Silverwood Concealed Certain of Their Activities 
+ 
+17. James and Silverwood tracked their fraudulent activity in one of the balance sheet 
+liability accounts they used to manipulate Computer 2000’s earnings through a reconciliation 
+spreadsheet maintained by one of Silverwood’s subordinates that included a list of the unrelated 
+expenses they had transferred to that account.   
+ 
+18. In Q4FY2013, James and Silverwood falsified the reconciliation by altering the 
+amounts in the spreadsheet to match the balance in Computer 2000’s accounting system for that 
+account.6  Silverwood provided the false reconciliation to Tech Data’s internal audit group.  Both 
+he and James understood the company’s external auditors would have access to the reconciliation.7 
+ 
+VIOLATIONS 
+ 
+19. Securities Act Section 17(a)(1), Exchange Act Section 10(b) and Rule 10b-5 
+thereunder prohibit fraudulent conduct in the offer or sale of securities and in connection with the 
+purchase or sale of securities. 
+ 
+20. Securities Act Section 17(a)(2) prohibits any person from obtaining money or 
+property in the offer or sale of securities 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. 
+ 
+21. Securities Act Section 17(a)(3) prohibits any 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. 
+ 
+22. Exchange Act Rule 10b-5(a) prohibits any person from employing any device, 
+scheme, or artifice to defraud. 
+ 
+                                                 
+6 James and Silverwood altered the reconciliation so that it would match the balance in the acco unting 
+system simply by removing digits from the actual figures.  For example, “£394,439.73” became “£94,439.73” and 
+“£2,417,311.94” became “£17,311.94.” 
+ 
+7 The external auditors did in fact receive and incorporate the false reconciliation in their audit workpapers. 
+6 
+ 
+23. Exchange Act Rule 10b-5(c) prohibits any person from engaging in any act, 
+practice, or course of business which operates or would operate as a fraud or deceit upon any 
+person. 
+ 
+24. Exchange Act Section 13(a) and Rules 13a-11 and 13a-13 thereunder require that 
+every issuer of a security registered pursuant to Exchange Act Section 12 file with the 
+Commission, among other things, current and quarterly reports as the Commission may require. 
+ 
+25. Exchange Act Section 13(b)(2)(A) 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. 
+ 
+26. Exchange Act Section 13(b)(2)(B) requires all reporting companies to devise and 
+maintain a system of internal accounting controls sufficient to provide reasonable assurances that 
+transactions are recorded as necessary to permit preparation of financial statements in accordance 
+with GAAP.  
+ 
+27. Exchange Act Section 13(b)(5) 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 described in Section 13(b)(2). 
+ 
+28. Rule 13b2-1 under the Exchange Act prohibits any person from, directly or 
+indirectly, falsifying or causing to be falsified, any book, record, or account subject to Exchange 
+Act Section 13(b)(2)(A). 
+ 
+29. As a result of the conduct described above, James and Silverwood willfully violated 
+Securities Act Section 17(a), Exchange Act Sections 10(b) and 13(b)(5), and Rules 10b-5(a) and 
+(c) and 13b2-1 thereunder, and willfully aided and abetted and caused Tech Data’s violations of 
+Securities Act Sections 17(a)(2) and (3), and Exchange Act Sections 13(a), 13(b)(2)(A), and 
+13(b)(2)(B) and Rules 13a-11 and 13a-13 thereunder. 
+ 
+FINDINGS 
+ 
+30. Based on the foregoing, the Commission finds that James and Silverwood willfully 
+violated Securities Act Section 17(a), Exchange Act Sections 10(b) and 13(b)(5), and Rules 10b-
+5(a) and (c) and 13b2-1 thereunder, and willfully aided and abetted and caused Tech Data’s 
+violations of Securities Act Sections 17(a)(2) and (3), and Exchange Act Sections 13(a), 
+13(b)(2)(A), and 13(b)(2)(B) and Rules 13a-11 and 13a-13 thereunder. 
+  
+7 
+ 
+REGULATORY SETTLEMENT 
+ 
+31. Respondent James has entered into a settlement agreement with the U.K.’s 
+Financial Reporting Council (FRC) involving conduct relating to the findings in the Order.  
+Pursuant to the settlement, James admitted his misconduct related to Computer 2000, paid a fine of 
+£35,625 (approximately $46,300), and agreed to be excluded as a member of the Association of 
+Chartered Certified Accountants for 10 years. 
+ 
+32. Respondent Silverwood has also entered into a settlement agreement with the FRC.  
+Silverwood took responsibility for his actions, fully admitting to his conduct during the FRC’s 
+investigation.  Pursuant to the settlement, Silverwood admitted his misconduct related to Computer 
+2000, paid a fine of £11,250 (approximately $14,850), and agreed to be excluded as a member of 
+the Institute of Chartered Accountants in England and Wales for 4 years. 
+ 
+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, effective immediately, that: 
+ 
+ A. James and Silverwood shall cease and desist from committing or causing any 
+violations and any future violations Securities Act Section 17(a), Exchange Act Sections 10(b), 
+13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5), and Rules 10b-5(a) and (c), 13a-11, 13a-13, and 
+13b2-1 promulgated thereunder. 
+ 
+ B. James is prohibited 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. 
+ 
+ C. Silverwood is prohibited for five years from the date of this Order 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. 
+ 
+ D. James and Silverwood are denied the privilege of appearing or practicing before the 
+Commission as an accountant. 
+ 
+E. After five years from the date of this Order, Silverwood 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 (other than as a 
+member of an audit committee, as that term is defined in Section 3(a)(58) of the Securities 
+8 
+ 
+Exchange Act of 1934).  Such an application must satisfy the Commission that Silverwood’s work 
+in his practice before the Commission as an accountant 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. 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 as a member of an 
+audit committee, as that term is defined in Section 3(a)(58) of the Securities Exchange Act of 1934.  
+Such an application will be considered on a facts and circumstances basis with respect to such 
+membership, and the applicant’s burden of demonstrating good cause for reinstatement will be 
+particularly high given the role of the audit committee in financial and accounting matters; and/or 
+ 
+3. an independent accountant. 
+ 
+Such an application must satisfy the Commission that:  
+ 
+(a) Silverwood, 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) Silverwood, 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 Silverwood will not receive appropriate supervision; 
+(c) Silverwood 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) Silverwood acknowledges his responsibility, as long as he appears 
+or practices before the Commission as an independent accountant, to comply with all 
+requirements of the Commission and the Board, including, but not limited to, all requirements 
+relating to registration, inspections, concurring partner reviews and quality control standards.   
+ 
+F. The Commission will consider an application by Silverwood to resume appearing 
+or practicing before the Commission provided that his practicing certificate is current, and he has 
+resolved all other disciplinary issues with the Institute of Chartered Accountants in England and 
+Wales.  However, if licensure is dependent on reinstatement by the Commission, the 
+Commission will consider an application on its other merits.  The Commission’s review may 
+include consideration of, in addition to the matters referenced above, any other matters relating 
+to Silverwood’s character, integrity, professional conduct, or qualifications to appear or practice 
+before the Commission as an accountant.  Whether an application demonstrates good cause will 
+be considered on a facts and circumstances basis with due regard for protecting the integrity of 
+the Commission’s processes. 
+9 
+ 
+ G. With respect to James, disgorgement of $22,500 and prejudgment interest of $4,200 
+is deemed satisfied by James’ payment of approximately $46,300 to the U.K. Financial Reporting 
+Council. 
+ 
+ H. With respect to Silverwood, disgorgement of $2,190 and prejudgment interest of 
+$395 is deemed satisfied by Silverwood’s payment of approximately $14,850 to the U.K. Financial 
+Reporting Council. 
+ 
+ I. The Commission will forgo seeking civil penalties against James or 
+Silverwood in light of the fines Respondents paid to the U.K. Financial Regulatory Council 
+in connection with the conduct relating to the findings in this Order. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 

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+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES ACT OF 1933 
+Release No. 10482 / April 12, 2018 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 83036 / April 12, 2018 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3934 / April 12, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-18436 
+ 
+ 
+ 
+In the Matter of 
+ 
+LI AND COMPANY, PC and 
+TONY ZHICONG LI, CPA,  
+ 
+Respondents. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE- 
+ AND-DESIST PROCEEDINGS 
+PURSUANT TO SECTION 8A OF THE 
+SECURITIES ACT OF 1933, SECTION 4C 
+OF THE SECURITIES EXCHANGE ACT 
+OF 1934, AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS AND A 
+CEASE-AND-DESIST ORDER 
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
+instituted against Li and Company, PC (“Li & Co.”) and Tony Zhicong Li, CPA (“Li”) 
+(collectively, the “Respondents”) pursuant to Section 8A of the Securities Act of 1933 (“Securities 
+Act”), Section 4C1 of the Securities Exchange Act of 1934 (“Exchange Act”), and Rule 
+102(e)(1)(ii) of the Commission’s Rules of Practice.2 
+                                                 
+1  Section 4C provides, in relevant part, that:  
+ 
+ The Commission may censure any person, or deny, temporarily or permanently, 
+to any person the privilege of appearing or practicing before the Commission in 
+ 
+ 
+2 
+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 subject matter of these 
+proceedings, which are admitted, and except as provided herein in Section V, Respondents consent 
+to the entry of this Order Instituting Public Administrative and Cease-And-Desist Proceedings 
+Pursuant to Section 8A of the Securities Act of 1933, Section 4C of the Securities Exchange Act of 
+1934, and Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing 
+Remedial Sanctions and a Cease-And-Desist Order (“Order”), as set forth below. 
+III. 
+ 
+ On the basis of this Order and Respondents’ Offer, the Commission finds3 that: 
+ 
+A. SUMMARY 
+ 
+1. These proceedings arise out of improper professional conduct by Li & Co. and Li in 
+connection with the audit and interim reviews of the financial statements of Wellness Center USA, 
+Inc. (“Wellness”).  Li & Co. acted as the independent public accountant with respect to the financial 
+statements included in Wellness’ 2013 Form 10-K (“Wellness Audit”) and each of its 2013 Forms 
+10-Q (“Wellness Reviews”).4  Li was the engagement partner for the Wellness Audit and Wellness 
+Reviews. 
+2. Throughout Wellness’ fiscal year ending September 30, 2013, Wellness’ Chief 
+Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) Andrew Kandalepas made 
+numerous unauthorized withdrawals of corporate funds.  Wellness’ quarterly financial statements 
+                                                                                                                                                             
+any way, if that person is found . . . (1) not to possess the requisite qualifications 
+to represent others . . . (2) to be lacking in character or integrity, or to have 
+engaged in unethical or improper professional conduct; or (3) to have willfully 
+violated, or willfully aided and abetted the violation of, any provision of the 
+securities laws or the rules and regulations thereunder. 
+ 
+2  Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+ The Commission may . . . deny, temporarily or permanently, the privilege of 
+appearing or practicing before it . . . to any person who is found . . . to have 
+engaged in unethical or improper professional conduct. 
+ 
+3   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 
+included in its 2013 Forms 10-Q and 2013 Form 10-K did not properly disclose these withdrawals 
+by Kandalepas. 
+3. Li & Co. and Li engaged in improper professional conduct by failing to comply with 
+the standards of the Public Company Accounting Oversight Board (“PCAOB”) in connection with 
+the audit and interim reviews of Wellness’ 2013 annual and quarterly financial statements.  
+Specifically, Li & Co. and Li: (1) failed to satisfy the standards for reviews of interim financial 
+information with respect to the numerous unauthorized withdrawals of corporate funds by Wellness’ 
+CEO; (2) failed to design and perform audit procedures to address the material weaknesses in 
+Wellness’ internal control over financial reporting; (3) improperly relied on management’s 
+representations concerning the CEO’s unauthorized withdrawals; (4) failed to exercise due 
+professional care and skepticism regarding a $250,000 back-dated promissory note to the CEO; and 
+(5) failed to perform appropriate audit procedures for subsequent events. 
+4. Moreover, Li & Co. and Li caused Wellness’ violations of Section 17(a)(2) of the 
+Securities Act by proposing during the 2013 audit that Kandalepas execute a promissory note and 
+classify his unauthorized withdrawals as a Note Payable in Wellness’ financial statements and then 
+by issuing an unqualified audit opinion on those financial statements despite their inaccurate 
+description of Kandalepas’ withdrawals.  
+B. RESPONDENTS 
+5. Tony Zhicong Li (“Li”), age 54, is a resident of Belle Mead, New Jersey and has 
+been licensed as a certified public accountant with the State of New Jersey since 2000.  Since July 
+2000, Li has been the President, a partner and fifty-percent owner of Li & Co.  Li was the lead 
+engagement partner for Wellness for the fiscal year 2012 through 2015 audits.  On June 14, 2016, 
+the PCAOB censured and barred Li from being an associated person of a registered accounting 
+firm for failure to cooperate with a PCAOB investigation. 
+6. Li and Company, PC (“Li & Co.”) is a public accounting firm headquartered in 
+Skillman, New Jersey founded in 2000.  Li & Co. acted as Wellness’ auditor from 2011 through 
+April 29, 2016.  Li & Co. was registered with the PCAOB from September 2006 until June 14, 
+2016 when its registration was revoked for failure to cooperate with a PCAOB investigation. 
+C. OTHER RELEVANT PARTIES 
+7. Wellness Center USA, Inc. (“Wellness”) is a Nevada corporation formed in June 
+2010 with its principal place of business in Hoffman Estates, Illinois.  Since 2012, Wellness’ 
+common stock has been quoted on the Over-the-Counter Bulletin Board under the symbol WCUI.     
+8. Andrew J. Kandalepas (“Kandalepas”) was at all relevant times the President, 
+Chief Executive Officer, Chief Financial Officer and Chairman of the Board of Directors of 
+Wellness. 
+                                                                                                                                                             
+4  Wellness operates on a September 30 fiscal year. 
+ 
+ 
+4 
+D. FACTS 
+Wellness Background 
+9. Wellness was originally an online vitamin and nutritional supplement distributor, 
+and subsequently through a series of acquisitions became the holding company for four 
+subsidiaries involved in the alternative medicine and healthcare sectors.  Since its inception in 
+2010, Wellness has had less than $500,000 revenue every year, and has had annual net losses 
+between $100,000 and $7 million.  Wellness has primarily funded its operations through sales of 
+stock, having raised approximately $18.6 million since 2011. 
+10. Since Wellness’ inception, Kandalepas has unilaterally controlled all its business 
+functions and operations.  He appointed himself as Wellness’ CEO, CFO, and President.  He also 
+appointed himself to serve as Chairman of Wellness’ Board of Directors.  Kandalepas had sole 
+control over Wellness’ bank accounts and its bookkeeping.  As Wellness’ only officer, Kandalepas 
+was also responsible for the preparation of its periodic reports.   
+11. Li & Co. served as Wellness’ independent accountant from 2011 through April 29, 
+2016 and performed quarterly reviews of interim financial information and annual audits during 
+this period.  Li was the engagement partner on the Wellness audits and reviews during this period.  
+According to Li & Co., from at least 2012 to 2014, Wellness had material weaknesses in its 
+internal control over financial reporting, including the lack of financial expertise, the lack of an 
+independent board, and insufficient segregation of duties.   
+Kandalepas’ Compensation 
+12. From 2010 through fiscal 2012, Kandalepas did not take compensation from 
+Wellness outside of receiving 3.7 million Wellness shares and options for another 1.6 million 
+shares in 2010.  According to Wellness’ bylaws, officer salary and compensation was to be fixed 
+by the Board of Directors (“Board”).  Between 2010 and early 2012, Kandalepas loaned Wellness 
+more than $100,000 to fund its operations, although by the end of fiscal 2012 Kandalepas repaid 
+himself by taking withdrawals from Wellness’ bank account at will and without the Board’s 
+knowledge or involvement.  From 2011 through mid-2013, Wellness reported in periodic filings 
+with the Commission that “Kandalepas has elected not to receive any compensation for his 
+services, until the Company is financially capable to compensate him.” 
+Kandalepas Made Unauthorized Withdrawals From Wellness 
+13. In early fiscal 2013, after repaying himself for his advances to the company, 
+Kandalepas continued to withdraw money from the company without Board knowledge or 
+authorization.  Kandalepas took however much he wanted when he wanted, in varying amounts 
+and on no consistent schedule.  By the end of fiscal 2013, Kandalepas had made unauthorized 
+withdrawals of $457,058, characterizing the withdrawals on Wellness’ financial statements as a 
+combination of salary, prepayments, or loans.  During fiscal 2013, Kandalepas caused Wellness to 
+ 
+ 
+5 
+issue Forms 10-K and 10-Q that misrepresented his compensation and failed to properly disclose 
+his unauthorized withdrawals. 
+14. In February 2013, as part of the closing of Wellness’ books for the first quarter of 
+fiscal year 2013, Wellness’ bookkeeper informed Kandalepas and Li that during the quarter 
+Kandalepas had withdrawn from the company $68,433 beyond what he had lent the company.  In 
+response, Kandalepas unilaterally and retroactively declared, without consulting the Board, that he 
+would receive a $200,000 salary, or $50,000 per quarter, to account for his withdrawals. 
+15. Each quarter, Wellness recorded $50,000 in compensation for Kandalepas in its 
+accounting records.  But Kandalepas took more money.  Throughout 2013, Kandalepas withdrew 
+money from Wellness whenever he pleased, opting for frequent withdrawals of inconsistent 
+amounts rather than a regular salary, and he did not limit himself to his new salary.  Wellness 
+booked any withdrawals exceeding Kandalepas’ $50,000 quarterly salary as “prepaid expenses.”  
+By the end of fiscal 2013, Kandalepas had taken $457,058 from the company. 
+Wellness’ Misleading 2013 Forms 10-Q 
+16. Wellness concealed the payments to Kandalepas in its 2013 Forms 10-Q.  Its first 
+and second quarter Forms 10-Q falsely stated that “Kandalepas has elected not to receive any 
+compensation for his services, until the Company is financially capable to compensate him,” even 
+though Wellness had paid Kandalepas $100,000 in “compensation” over the first two quarters.  In 
+those quarters, Wellness’ consolidated income statements reported “salaries-officers” at the parent 
+company of $50,000 and $100,000 respectively, although they did not attribute this compensation 
+to Kandalepas.  Wellness’ third quarter Form 10-Q omitted the misstatement that Kandalepas was 
+not being compensated, but still did not affirmatively disclose that Kandalepas was receiving a 
+salary or withdrawing funds from the company. 
+17. In each of Wellness’ 2013 Forms 10-Q, Wellness classified Kandalepas’ excess 
+withdrawals in a non-descript balance sheet line item entitled “prepayments and other current 
+assets.”  There was no way to tell from the quarterly reports that this amount represented payments 
+to Kandalepas.  
+Wellness’ Misleading 2013 Form 10-K 
+18.  During the 2013 fiscal year audit, Li discussed the $257,058 of Kandalepas’ excess 
+withdrawals with Kandalepas.  Kandalepas told Li that he was entitled to the excess withdrawals as 
+back pay for previous years’ services for which he was not compensated.  Li responded that 
+Kandalepas could not take back pay since Wellness had not accrued salary for him in prior periods.   
+19. Days before the Form 10-K filing date, Li requested that Kandalepas pay back these 
+“advances” before the company filed its 10-K, but Kandalepas declined.  Li presented him with 
+two other options for dealing with the overpayments: recognize the overpayments as compensation 
+(bringing Kandalepas’ compensation to $457,000 for 2013) or execute a promissory note with the 
+company for $250,000.  Between midnight and 3:00 a.m. on January 14, 2014, the day Wellness 
+ 
+ 
+6 
+filed its Form 10-K, Kandalepas, without Board consultation or authorization, finalized and 
+executed a promissory note to pay Wellness $250,000 plus interest.  Kandalepas sent Li a draft 
+note before executing and asked if it was what Li had in mind.  The promissory note was 
+backdated to September 30, 2013, Wellness’ fiscal year end.  The overpayments were reclassified 
+on Wellness’ balance sheet from prepaid expenses to a note receivable.  Li never communicated 
+with Wellness’ Board about Kandalepas’ withdrawals or this last minute promissory note and 
+never took steps to assess whether the Board had approved such withdrawals or the promissory 
+note. 
+20. Wellness’ 2013 Form 10-K made false representations concerning Kandalepas’ 
+excess withdrawals.  In Item 13 of Form 10-K concerning related-party transactions, Wellness 
+falsely stated that “[o]n September 30, 2013, Mr. Kandalepas borrowed $250,000 from the 
+Company pursuant to a promissory note.”  In fact, Kandalepas did not borrow any money from 
+Wellness on September 30, 2013; he took that sum throughout the previous twelve months.  
+Moreover, the note was executed on January 14, 2014, not “on September 30, 2013.”  In Note 10 
+of the financial statements, Related Party Transactions, the company falsely stated that “[o]n 
+September 30, 2013, Chairman, President, and CEO (“Maker”) hereby promises to pay [$250,000] 
+to the order of Wellness Center.”  However, this promise, i.e., the execution of the note, occurred 
+on January 14, 2014, not on September 30, 2013.  The Form 10-K attached a copy of the falsely 
+dated note as an exhibit.   
+21. In addition to being false, these disclosures were misleading because Kandalepas 
+did not have the financial ability to repay the note.  As of January 2014, Kandalepas was past due 
+on his mortgage, had tens of thousands of dollars in credit card debt, and had minimal liquid assets 
+available to repay the loan.  Kandalepas failed to make even the full first required payment in April 
+2014 and quickly fell far behind on the required payments.   
+22. In its Forms 10-K and 10-Q for fiscal 2014 and 2015, Wellness continued to 
+misrepresent that Kandalepas had issued a promissory note on September 30, 2013 and failed to 
+disclose the circumstances that gave rise to that note.  In early 2016, after Wellness retained a new 
+independent accountant, Wellness wrote off the nearly $200,000 still owed under Kandalepas’ 
+promissory note as compensation. 
+Li & Co. and Li Caused Wellness’ Violations of Section 17(a)(2) 
+23. Li & Co. and Li played a central role in Kandalepas’ concealment of his 
+unauthorized withdrawals.  Li suggested the creation of a promissory note immediately before 
+Wellness’ 2013 Form 10-K was issued.  As described above, Li assisted Wellness in conceiving 
+this promissory note, which served as a method for concealing the true amount of money that 
+Kandalepas had withdrawn from the company throughout 2013.  Li and Li & Co. knew or should 
+have known that the promissory note’s date misrepresented when the note was executed and that 
+the resulting disclosures in Wellness’ Form 10-K misrepresented the circumstances surrounding 
+Kandalepas’ withdrawals.  Li and Li & Co. also knew or should have known that Wellness 
+intended to issue securities through private offerings following the filing of the 2013 Form 10-K.  
+ 
+ 
+7 
+Li & Co., through Li, issued an audit report expressing an unqualified audit opinion that 
+accompanied Wellness’ 2013 Form 10-K.  In light of this conduct, Li & Co. and Li caused 
+Wellness’ material misrepresentations and omissions in its Form 10-K. 
+Li and Co. and Li Failed to Satisfy Applicable Review and Audit Standards 
+24. Wellness’ 2013 Form 10-K included an audit report from Li & Co. that stated its 
+audit of Wellness’ financial statements was conducted “in accordance with the standards of the 
+Public Company Accounting Oversight Board” and that, in Li & Co.’s opinion, Wellness’ financial 
+statements presented fairly, in all material respects, the company’s financial position and results of 
+its operations in accordance with generally accepted accounting principles (“GAAP”).  As 
+described below, Li & Co.’s 2013 audit of Wellness was not conducted in accordance with 
+PCAOB standards.  Moreover, the financial statements included in Wellness’ Form 2013 10-K 
+were materially misstated because they incorrectly represented that Kandalepas had executed a 
+promissory note for $250,000 on September 30, 2013 when in fact that transaction occurred on 
+January 14, 2014.   
+25. Likewise, Li & Co. and Li failed to adhere to the standards for review of Wellness’ 
+interim financial information in Wellness’ Forms 10-Q for fiscal 2013.   
+Li & Co. and Li Failed to Satisfy the Standards for Reviews of 
+Interim Financial Information (AU 722) 
+26. A review of interim financial information consists principally of performing 
+analytical procedures and making inquiries of persons responsible for financial and accounting 
+matters.5  AU 722.07.6  The specific inquiries and analytical procedures to be performed should be 
+tailored by the accountant’s knowledge of the company’s business and its internal control. AU 
+722.15.  The accountant should inquire, among other things, about matters dealt with at meetings 
+of stockholders, directors, and other appropriate committees for which minutes are not available, 
+significant transactions occurring or recognized in the last several days of the interim period, and 
+significant journal entries and other adjustments.  AU 722.18.  Although in a review an accountant 
+ordinarily is not required to corroborate management’s responses with other evidence, the 
+accountant should consider the reasonableness and consistency of management’s responses in light 
+of the results of other review procedures and the accountant’s knowledge of the company’s internal 
+control.  AU 722.17.  When the accountant becomes aware of information that leads him or her to 
+believe that the interim financial information may not be in conformity with GAAP in all material 
+respects, then the accountant should make additional inquiries or perform other procedures that the 
+accountant considers appropriate to provide a basis for communicating whether he or she is aware 
+                                                 
+5  “The objective of a review of interim financial information . . . is to provide the 
+accountant with a basis for communicating whether he or she is aware of any material 
+modifications that should be made to the interim financial information for it to conform with 
+generally accepted accounting principles.” AU 722.07. 
+6  All cites are to the PCAOB standards in effect at the time of the relevant conduct. 
+ 
+ 
+8 
+of any material modifications that should be made to the interim financial information.  AU 
+722.22.  Written representations from management should be obtained for all interim financial 
+information presented, including representations related to unrecorded transactions and amounts 
+receivable from or payable to related parties.  AU 722.24.  Accountants should read other 
+information contained in the Form 10-Q and consider whether such information or the manner of 
+its presentation is materially inconsistent with the interim financial information.  AU 722.18(f).   
+27. Li & Co. and Li failed to satisfy these standards in each interim review for fiscal 
+year 2013 with respect to Kandalepas’ unauthorized withdrawals of corporate funds in those 
+quarters.  Although they were aware that Wellness had material weaknesses with respect to its 
+internal control over financial reporting, Li & Co. and Li did not tailor their inquiries or perform 
+analytical procedures that addressed significant risk areas in accounting and disclosure matters 
+related to the interim financial information to be reported.  
+28. When Li & Co. and Li found out in February 2013 that Kandalepas had withdrawn 
+funds from the company that exceeded what he was owed for loan repayments, they accepted 
+Kandalepas’ decision to unilaterally and retroactively set a salary for himself as a post-hoc 
+justification for most of the amount withdrawn, despite the Wellness bylaws’ requirement that 
+officer compensation be set by the Board.  Li & Co. did not conduct any additional inquiry as to 
+whether this salary was properly authorized, even in light of the suspicious circumstances in which 
+it was set (after Kandalepas had already taken the money).  Li & Co. knew the withdrawals in 
+excess of Kandalepas’ self-proclaimed “salary” were classified as “prepayments” and did not take 
+any steps to consider whether the Wellness’ quarterly financial statements reflected that those 
+payments were advances to Kandalepas.7 
+29. Li & Co. also failed to take action regarding materially inconsistent information 
+contained in the first and second quarter Forms 10-Q concerning Kandalepas’ compensation.  In 
+those Forms 10-Q, Wellness falsely stated that Kandalepas had elected not to receive 
+compensation, which contradicted both Li’s personal knowledge that Kandalepas had declared a 
+salary and the financial statements, which accrued $50,000 of salary each quarter.   
+Li & Co. and Li Failed to Design and Perform Audit Procedures 
+Responsive to Assessed Risks (AS 13, AU 110, 316, and 317) 
+30. PCAOB Auditing Standard No. 13, The Auditor’s Responses to the Risks of 
+Material Misstatement, states “the auditor should design and perform audit procedures in a manner 
+that addresses the assessed risks of material misstatement for each relevant assertion of each 
+significant account and disclosure.”  AS 13 at ¶ 8.  Once an auditor identifies the possibility of a 
+material misstatement, AS 13 requires him to exercise professional skepticism in gathering and 
+                                                 
+7  Rule 4-08(k) of Regulation S-X (“Related party transactions should be identified and the 
+amounts stated on the face of the balance sheet, income statement, or statement of cash flows.”); 
+ASC Topic 850-10-50-2 (requires that amounts receivable from related parties be stated 
+separately). 
+ 
+ 
+9 
+evaluating audit evidence, including gathering evidence to corroborate management’s explanations 
+or representations.8  Id. at ¶ 7.  Thus, PCAOB Auditing Standards required Li & Co. and Li to 
+perform substantive audit procedures specifically designed to be responsive to fraud risk. 
+31. Moreover, PCAOB AU Section 316, Consideration of Fraud in a Financial 
+Statement Audit, provides that an auditor has a responsibility to plan and perform the audit to 
+obtain reasonable assurance about whether the financial statements are free of material 
+misstatement, whether caused by error or fraud. AU 316.01; AU 110.02.  Auditors consider two 
+types of fraud – misstatements arising from fraudulent financial reporting and misstatements 
+arising from misappropriation of assets.  AU 316.06.  Fraudulent financial reporting may be 
+accomplished by falsifying or altering “accounting records or supporting documents from which 
+financial statements are prepared” or by misrepresentation of transactions.  AU 316.06.  
+Misstatements arising from misappropriation of assets involve the theft of an entity’s assets where 
+the effect of the theft causes the financial statements not to be presented, in all material respects, in 
+conformity with GAAP.  Misappropriation of assets can be accomplished in various ways and may 
+be accompanied by false or misleading records or documents, possibly created by circumventing 
+controls.  AU 316.06.  PCAOB AU Section 317, Illegal Acts by Clients, provides that the auditor’s 
+responsibility to detect and report misstatements resulting from illegal acts having a direct and 
+material effect on the determination of financial statement amounts is the same as that for 
+misstatements caused by error or fraud as described in AU 110.  AU 317.05.   
+32. During the planning of the Wellness Audit, Li & Co. concluded that Wellness’ lack 
+of internal control over financial reporting was a material weakness and deemed Wellness’ lack of 
+segregation of duties and its lack of sufficient internal controls as areas of the audit with significant 
+risks.  Li & Co. concluded that Wellness’ internal controls could not be relied upon and therefore 
+more in-depth substantive procedures were required .9  Therefore, to comply with AS 13, Li & Co 
+and Li should have included procedures designed to address the risk of material misstatement due 
+to Kandalepas’ dominance over the company’s operations and financial reporting, especially in 
+light of Kandalepas’ frequent withdrawals of cash from the company.    
+33. The Wellness Audit lacked procedures designed to obtain sufficient audit evidence 
+that payments to Kandalepas were properly authorized and did not constitute fraud or illegal acts 
+that have a direct and material effect on the determination of the financial statement amounts, or 
+                                                 
+8  “For significant risks, the auditor should perform substantive procedures, including tests 
+of details, that are specifically responsive to the assessed risks.”  AS 13 at ¶ 11.  PCAOB 
+Auditing Standard No. 12, Identifying and Assessing Risks of Material Misstatement, states that a 
+fraud risk is a significant risk.  Id. at ¶ 71. 
+9  Under PCAOB AU 325, Communications About Control Deficiencies in an Audit of 
+Financial Statements, a material weakness is a “deficiency, or a combination of deficiencies, in 
+internal control over financial reporting, such that there is a reasonable possibility that a material 
+misstatement of the company’s annual or interim financial statements will not be prevented or 
+detected on a timely basis.”  AU 325.03. 
+ 
+ 
+ 
+10 
+that those payments were being recognized correctly in the company’s accounting records and 
+financial statements.  In fact, Kandalepas explained to Li that the excess withdrawals were in fact 
+“back pay,” which Li knew was not authorized and had not been accrued.  Thus, even when Li 
+faced circumstances requiring heightened scrutiny, and facts strongly suggestive of fraud, he failed 
+to perform any additional auditing steps that were warranted by the situation.  Instead, Li helped 
+craft a solution that misrepresented the true nature of the excess withdrawals, classifying the 
+withdrawals as loans rather than compensation.   
+34. Li & Co. also failed to obtain reasonable assurance that there were no material 
+misstatements arising from the misappropriation of assets.  The promissory note was not treated as 
+a subsequent event and was misrepresented in the annual report as if the company consciously lent 
+Kandalepas money pursuant to an agreement in September 2013. 
+Li & Co. and Li Improperly Relied on Management’s Representations 
+Concerning Kandalepas’ Withdrawals (AU 333, 334) 
+35. PCAOB AU Section 333, Management Representations, states that representations 
+from a company’s 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.  AU 
+333 further states that “[i]f a representation made by management is contradicted by other audit 
+evidence, the auditor should investigate the circumstances and consider the reliability of the 
+representation made.  Based on the circumstances, the auditor should consider whether his or her 
+reliance on management’s representations relating to other aspects of the financial statements is 
+appropriate and justified.”  AU 333.04.  PCAOB AU Section 334, Related Parties, states that the 
+auditor should perform procedures to obtain and evaluate sufficient appropriate evidential matter 
+concerning related party transactions, and that such procedures should extend beyond inquiry of 
+management.  AU 334.09.  Auditors should consider, among other things, obtaining an 
+understanding of the business purpose of the transactions, examining agreements, contracts, and 
+other pertinent documents to the transactions, and determining whether the transactions were 
+approved by the board of directors or other appropriate officials.  AU 334.09. 
+36. Li improperly relied on Kandalepas’ representations concerning his compensation 
+in at least two ways.  First, Li took no steps to independently confirm that Kandalepas had been 
+authorized to receive a salary of $200,000, despite the bylaws’ requirement that the Board set 
+officer compensation.  In the face of other audit evidence showing that Kandalepas had withdrawn 
+more than his annual salary throughout fiscal year 2013, Li should have investigated, in the context 
+of potential fraud, the circumstances and reliability of Kandalepas’ representation that he was to 
+receive a $200,000 salary, or that he was entitled to additional withdrawals beyond his salary.  
+Second, when Kandalepas presented Li with a back-dated promissory note for $250,000 in the 
+early morning hours of January 14, 2014, Li failed to investigate whether the financial arrangement 
+had been properly authorized by the Board of Directors and whether the date of the note was 
+appropriate given the discussions Li had just had with Kandalepas.   
+ 
+ 
+11 
+37. Li failed to determine whether the disclosures in the financial statements 
+concerning Kandalepas’ excess withdrawals properly reflected the nature of the transactions.10  To 
+the contrary, Li assisted in redefining the true nature of the transactions – back pay according to 
+Kandalepas – by proposing that Kandalepas could execute a promissory note and recharacterize the 
+withdrawals as related party loans rather than compensation. 
+Li & Co. and Li Failed to Exercise Due Professional Care (AU 230) 
+38. PCAOB AU Section 230, Due Professional Care in Performance of Work, states 
+that auditors are to exercise due professional care in the planning and performance of the audit and 
+the preparation of the report.  AU 230.01.  Due professional care requires that the auditor exercise 
+professional skepticism throughout the audit process, including when considering the risks of 
+material misstatement due to fraud.  AU 230.07-.08; see also AU 316.13.  Under this standard, 
+“[p]rofessional skepticism is an attitude that includes a questioning mind and a critical assessment 
+of audit evidence” AU 230.07, and auditors “consider the competency and sufficiency of the 
+evidence” AU 230.08 and “neither assume[] that management is dishonest nor assume[] 
+unquestioned honesty.”  AU 230.09. 
+39. When Li had to address the excess $250,000 in payments that Kandalepas had 
+received throughout 2013, Li failed to exercise the requisite professional skepticism to determine 
+whether these payments created a risk of material misstatement due to fraud.  Rather than conduct 
+a critical assessment of whether these payments were evidence of misappropriation by the CEO, Li 
+assumed that the payments were authorized and suggested to Kandalepas a method for legitimizing 
+the payments in the company’s books (the promissory note) that he knew did not reflect the 
+circumstances under which those withdrawals were made (unauthorized back pay).  Thus, Li failed 
+to exercise the requisite level of professional skepticism when considering the risk of material 
+misstatement due to fraud in the payments to Kandalepas. 
+Li & Co. and Li Failed to Perform Appropriate Audit Procedures for 
+Subsequent Events (AU 560) 
+40. PCAOB AU Section 560, Subsequent Events, requires auditors to evaluate events 
+or transactions that occur subsequent to the balance-sheet date but prior to the issuance of the 
+financial statements that have a material effect on the financial statements.  AU 560.01, .12.  
+Transactions to be evaluated include those that did not exist at the date of the balance sheet being 
+reported on but arose subsequent to that date.  AU 560.05.  Accordingly, an auditor should perform 
+auditing procedures for the period after the balance-sheet date to ascertain the occurrence of 
+subsequent events that may require disclosure.  AU 560.12.   
+ 
+41. As described above, Li & Co. and Li were aware that a significant, new related 
+party transaction took place after the balance sheet date of September 30, 2013 (the Kandalepas 
+                                                 
+10  See ASC Topic 850-10-50-1 (disclosure of related party transactions shall include the 
+nature of the relationship involved and a description of the transactions). 
+ 
+ 
+12 
+promissory note).  In fact, Li was involved in the creation of that note in mid-January 2014.  Yet, 
+Li & Co. and Li failed to perform auditing procedures to determine whether this transaction should 
+be disclosed as a subsequent event.  This note had a material effect on the financial statements, and 
+should have been reported as a subsequent event since the transaction took place after September 
+30, 2013.  Thus, Li & Co. and Li failed to perform appropriate audit procedures in connection with 
+the promissory note that Kandalepas executed after the balance-sheet date but prior to the issuance 
+of the financial statements. 
+ 
+Wellness’ Forms 10-Q and 10-K in Subsequent Years 
+ 
+42. Li & Co. and Li also failed to adhere to applicable professional standards in 
+connection with their review of interim financial information included in Wellness’ 2014 and 2015 
+Forms 10-Q and their audits for fiscal years 2014 and 2015.  In each Form 10-Q and 10-K filed 
+during this period, Wellness disclosed in the footnotes to its financial statements that Kandalepas 
+had issued a promissory note to the company on September 30, 2013.  Li & Co. and Li knew that 
+Kandalepas did not issue the promissory note on that date, yet they failed to take steps to consider 
+whether these disclosures were accurate and not misleading.  AU 722.22; AS 13 at ¶ 8. 
+ 
+E. FINDINGS 
+43. Based on the foregoing, the Commission finds that Li & Co. and Li caused 
+Wellness’ violations of Section 17(a)(2) of the Securities Act. 
+ 
+44. Based on the foregoing, the Commission finds that Li & Co. and Li engaged in 
+improper professional conduct pursuant to Section 4C(a)(2) of the Exchange Act and Rule 
+102(e)(1)(ii) of the Commission’s Rules of Practice. 
+ 
+F. UNDERTAKING 
+ 
+45. Cooperation with the Commission’s Investigation and Related Litigation.  
+Respondent Li & Co. (including its partners, principals, officers, agents, and employees) and 
+Respondent Li shall cooperate fully with the Commission in any and all investigations, litigations, 
+administrative and other proceedings commenced by the Commission or to which the Commission 
+is a party relating to or arising from the matters described in this Order.  In connection with such 
+investigation, litigation, administrative or other proceedings, Respondents (i) will accept service by 
+mail, facsimile transmission, or email of notices or subpoenas issued by the Commission for 
+documents or testimony at depositions, hearing, or trials; (ii) appoint counsel Thomas F. 
+Falkenberg, Falkenberg Ives LLP, as their agent to receive service of such notices and subpoenas; 
+(iii) with respect to such notices and subpoenas, waive the territorial limits on service contained in 
+Rule 45 of the Federal Rules of Civil Procedures and any applicable local rules, provided that the 
+party requesting the testimony reimburses Respondents’ travel, lodging, and subsistence expenses 
+at the then-prevailing U.S. Government per diem rates; and (iv) consent to personal jurisdiction 
+over Respondents in any United States District Court for purposes of enforcing any such subpoena. 
+ 
+ 
+ 
+13 
+46. In determining whether to accept the Offer, the Commission has considered this 
+undertaking. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Li & Co. and Li shall cease and desist from committing or causing any violations 
+and any future violations of Section 17(a)(2) of the Securities Act.   
+ 
+ B. Li & Co. is denied the privilege of appearing or practicing before the Commission as 
+an accountant. 
+ 
+ C. Li is denied the privilege of appearing or practicing before the Commission as an 
+accountant.  
+ 
+ D. Respondent Li & Co. shall, within 14 days of the entry of this Order, pay 
+disgorgement of $22,500, prejudgment interest of $2,643 for transfer to the general fund of 
+the United States Treasury, subject to Exchange Act Section 21F(g)(3).  If timely payment is 
+not made, additional interest shall accrue pursuant to SEC Rule of Practice 600. 
+ 
+ E. Respondent Li shall, within 14 days of the entry of this Order, pay, disgorgement of 
+$22,500, prejudgment interest of $2,643 to the Securities and Exchange Commission for transfer to 
+the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3).  If 
+timely payment is not made, additional interest shall accrue pursuant to SEC Rule of Practice 600. 
+ 
+ F. Respondents shall, within 14 days of the entry of this Order, pay, jointly and 
+severally, a civil money penalty of $45,000 to the Securities and Exchange Commission for 
+transfer to the general fund of the United States Treasury, subject to Exchange Act Section 
+21F(g)(3).  If timely payment is not made, additional interest shall accrue pursuant to 31 
+U.S.C. § 3717. 
+ 
+G. Payment pursuant to paragraphs D through F above must be made in one of the 
+following ways:   
+ 
+(1) Respondents may transmit payment electronically to the Commission, 
+which will provide detailed ACH transfer/Fedwire instructions upon 
+request;  
+ 
+ 
+ 
+14 
+(2) Respondents may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+(3) Respondents may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange 
+Commission and hand-delivered or mailed to:  
+ 
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+Payments by check or money order must be accompanied by a cover letter identifying Li & 
+Co. or Li as Respondents in these proceedings, and the file number of these proceedings; a copy of 
+the cover letter and check or money order must be sent to Jeffrey A. Shank, Assistant Regional 
+Director, Division of Enforcement, Securities and Exchange Commission, 175 W. Jackson Blvd., 
+Suite 1450, Chicago, IL 60604. 
+ 
+ H. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 
+treated as penalties paid to the government for all purposes, including all tax purposes.  To 
+preserve the deterrent effect of the civil penalty, Respondents agree that in any Related Investor 
+Action, they shall not argue that they are entitled to, nor shall they benefit by, offset or reduction of 
+any award of compensatory damages by the amount of any part of Respondents’ payment of a civil 
+penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants such a 
+Penalty Offset, Respondents agree that they shall, within 30 days after entry of a final order 
+granting the Penalty Offset, notify the Commission’s counsel in this action and pay the amount of 
+the Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be 
+deemed an additional civil penalty and shall not be deemed to change the amount of the civil 
+penalty imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” 
+means a private damages action brought against either or both Respondents by or on behalf of one 
+or more investors based on substantially the same facts as alleged in the Order instituted by the 
+Commission in this proceeding. 
+ 
+ 
+ 
+15 
+V. 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
+523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and admitted by 
+Respondent Li, and further, any debt for disgorgement, prejudgment interest, civil penalty or other 
+amounts due by Respondent Li under this Order or any other judgment, order, consent order, 
+decree or settlement agreement entered in connection with this proceeding, is a debt for the 
+violation by Respondent Li of the federal securities laws or any regulation or order issued under 
+such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 

raw/aaer/2018/AAER-3935.txt

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+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 83067 / April 19, 2018 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3935 / April 19, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-18442 
+ 
+ 
+In the Matter of 
+ 
+MEDIFIRST SOLUTIONS, 
+INC. 
+AND 
+BRUCE J. SCHOENGOOD 
+ 
+Respondents. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS PURSUANT 
+TO SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 
+1934, MAKING FINDINGS, AND 
+IMPOSING A CEASE-AND-DESIST 
+ORDER  
+  
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), against Medifirst Solutions, Inc. (“Medifirst”) and Bruce 
+J. Schoengood (“Schoengood”)(collectively, “Respondents”).   
+ 
+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 subject matter of these 
+proceedings, which are admitted, and except as provided herein in Section V, Respondents consent 
+to the entry of this Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the 
+Securities and Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order 
+(“Order”), as set forth below.    
+ 
+ 
+ 2 
+ 
+ 
+ 
+III. 
+ 
+ On the basis of this Order and Respondents’ Offer, the Commission finds1 that:  
+ 
+A. RESPONDENTS 
+ 
+1. Medifirst, a Nevada corporation headquartered in Freehold, New Jersey, develops 
+mobile handheld green and infrared laser devices used for anti-aging and skin care.  At all relevant 
+times, its common stock was registered under Section 12(g) of the Exchange Act and is quoted on 
+OTC Link (previously “Pink Sheets”) operated by OTC Markets Group, Inc. under the ticker 
+symbol “MFST.”  
+2. Schoengood, age 59 and a resident of Manalapan, New Jersey, is Medifirst’s 
+founder and sole officer and director.  Between 2011 and 2016, Schoengood signed and certified 
+each of Medifirst’s periodic filings in the capacities of principal executive and principal financial 
+officer. 
+B. OTHER RELEVANT ENTITY AND PERSON 
+3. David A. Aronson, CPA, P.A. (the “Aronson Firm”), an audit firm based in North 
+Miami Beach, Florida, was registered with the Public Company Accounting Oversight Board 
+(“PCAOB”) from March 15, 2005 until its registration was revoked on October 2, 2015.  The 
+Aronson Firm was Medifirst’s auditor from June 1, 2011 until the Aronson Firm was dismissed as 
+the company’s independent auditor on June 22, 2015.     
+4. David A. Aronson, CPA (“Aronson”) was the Aronson Firm’s sole owner and 
+Medifirst’s audit engagement partner until Medifirst dismissed the Aronson Firm.  After the 
+Aronson Firm’s dismissal, Medifirst retained Aronson as an internal accountant. 
+C. BACKGROUND 
+5. On October 2, 2015, the PCAOB filed a settled action against Aronson and the 
+Aronson Firm for multiple deficiencies in audit work performed between 2011 and 2015 on several 
+public company engagements, including Medifirst (the “PCAOB Order”).2  The PCAOB Order, 
+which was and is available on its website, revoked the registration of the Aronson Firm and barred 
+Aronson from being an associated person of a registered public accounting firm.3   
+                                                 
+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   See PCAOB Release No. 105-2015-034, available at 
+https://pcaobus.org/Enforcement/Decisions/Documents/David_A_Aronson.pdf 
+3   On October 19, 2016, the Commission instituted litigated administrative and cease-and-desist proceedings 
+against Aronson to determine whether he violated Section 105(c)(7)(B) of  the Sarbanes-Oxley Act of 2002 by 
+ 3 
+6. As stated in the PCAOB Order, Section 105(c)(7)(B) of the Sarbanes-Oxley Act of 
+2002 states that it is “unlawful for any person that is ... barred from being associated with a 
+registered public accounting firm [...] willfully to become or remain associated with any issuer […] 
+in an accountancy or a financial management capacity [...] without the consent of the [PCAOB] or 
+the Commission.”  Section 105(c)(7)(B) also states that it is unlawful for any “issuer […] that 
+knew, or in the exercise of reasonable care should have known, of such suspension or bar, to 
+permit such an association, without the consent of the Board or the Commission.”   
+7. On October 9, 2015, the Commission’s Division of Corporation Finance sent an 
+email to Medifirst and Schoengood regarding the PCAOB’s deregistration of the Aronson Firm.  
+Among other things, the email included a hyperlink to the PCAOB Order.  Consequently, 
+Medifirst and Schoengood knew or, in the exercise of reasonable care, should have known that 
+Aronson had been barred from associating with a registered public accounting firm and that it was 
+unlawful to permit Aronson to remain associated with Medifirst in an accountancy or a financial 
+management capacity. 
+8. From the time the PCAOB Order was issued until approximately February 2016, 
+Aronson continued to perform in an accountancy or a financial management capacity at Medifirst.  
+In Aronson’s role as internal accountant his services included, but were not limited to, entering 
+financial data into Medifirst’s accounting system, acting as the conduit between Medifirst’s auditor 
+and Medifirst’s management, and preparing Medifirst’s draft financial statements and the notes to 
+the financial statements.  Aronson drafted financial statements for the period ended September 30, 
+2015, Aronson provided those financial statements to Medifirst’s auditor and those financial 
+statements were included in Medifirst’s Form 10-Q filed with the Commission on November 23, 
+2015.  Aronson also did work on Medifirst’s financial statements for the period ended December 
+31, 2015 in preparation for the company’s Form 10-K. 
+9. Neither the PCAOB nor the Commission consented to Aronson’s association with 
+Medifirst in an accountancy or a financial management capacity after the PCAOB Order. 
+10. As a result of the conduct described above, Medifirst violated, and Schoengood 
+caused Medifirst’s violation of, Section 105(c)(7)(B) of Sarbanes-Oxley.  
+IV. 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ Offer. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+ A. Pursuant to Section 21C of the Exchange Act, Respondents Medifirst and 
+Schoengood cease and desist from committing or causing any violations and any future violations of 
+Section 105(c)(7)(B) of Sarbanes-Oxley. 
+ 
+                                                                                                                                                             
+remaining associated with two issuers, including Medifirst, in an accountancy or a financ ial management capacity, 
+in violation of his PCAOB Order.  On January 31, 2017, the Commission accepted Aronson’s offer of settlement.  In 
+the Matter of David A. Aronson, CPA, Exchange Act Rel. No. 79903 (January 31, 2017).   
+ 4 
+B. Respondent Schoengood shall pay a civil money penalty of $22,500.00 to the 
+Securities and Exchange Commission for transfer to the general fund of the United States 
+Treasury, subject to Exchange Act Section 21F(g)(3).   
+Payment shall be made in the following installments: 
+ 
+1) $11,250.00 within 14 days from the entry of this Order; 
+2) $2,250.00 within 42 days from the entry of this Order; 
+3) $2,250.00 within 70 days from the entry of this Order; 
+4) $2,250.00 within 98 days from the entry of this Order;  
+5) $2,250.00 within 126 days from the entry of this Order; and 
+6) $2,250.00 within 154 days from the entry of this Order.  
+ 
+If any payment is not made by the date the payment is required by this Order, the entire 
+outstanding balance of $22,500.00, plus any additional interest accrued pursuant to 31 U.S.C. § 
+3717, shall be due and payable immediately, without further application.   
+ 
+Payment must be made in one of the following ways:   
+ 
+(1) Respondent Schoengood may transmit payment electronically to the 
+Commission, which will provide detailed ACH transfer/Fedwire 
+instructions upon request;  
+ 
+(2) Respondent Schoengood may make direct payment from a bank account via 
+Pay.gov through the SEC website at 
+http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+(3) Respondent Schoengood may pay by certified check, bank cashier’s check, 
+or United States postal money order, made payable to the Securities and 
+Exchange Commission and hand-delivered or mailed to:  
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+Payments by check or money order must be accompanied by a cover letter identifying 
+Bruce J. Schoengood as a Respondent in these proceedings, and the file number of these 
+proceedings; a copy of the cover letter and check or money order must be sent to Glenn S. Gordon, 
+Associate Regional Director, Division of Enforcement, Securities and Exchange Commission, 801 
+Brickell Ave., Suite 1800, Miami, FL 33131.   
+ 
+ C. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 
+treated as penalties paid to the government for all purposes, including all tax purposes.  To 
+preserve the deterrent effect of the civil penalty, Respondent Schoengood agrees that in any 
+Related Investor Action, he shall not argue that he is entitled to, nor shall he benefit by, offset or 
+ 5 
+reduction of any award of compensatory damages by the amount of any part of Respondent 
+Schoengood’s payment of a civil penalty in this action ("Penalty Offset").  If the court in any 
+Related Investor Action grants such a Penalty Offset, Respondent Schoengood agrees that, he 
+shall, within 30 days after entry of a final order granting the Penalty Offset, notify the 
+Commission's counsel in this action and pay the amount of the Penalty Offset to the Securities and 
+Exchange Commission.  Such a payment shall not be deemed an additional civil penalty and shall 
+not be deemed to change the amount of the civil penalty imposed in this proceeding.  For purposes 
+of this paragraph, a "Related Investor Action" means a private damages action brought against 
+Respondent Schoengood by or on behalf of one or more investors based on substantially the same 
+facts as alleged in the Order instituted by the Commission in this proceeding. 
+  
+V. 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
+523 of the Bankruptcy Code, 11 U.S.C. § 523, the findings in this Order are true and admitted by 
+Respondent Schoengood, and further, any debt for disgorgement, prejudgment interest, civil 
+penalty or other amounts due by Respondent Schoengood under this Order or any other judgment, 
+order, consent order, decree or settlement agreement entered in connection with this proceeding, is 
+a debt for the violation by Respondent Schoengood of the federal securities laws or any regulation 
+or order issued under such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 
+U.S.C. § 523(a)(19). 
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 
+ 

raw/aaer/2018/AAER-3936.txt

@@ -0,0 +1,416 @@
+ UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 83088 / April 23, 2018 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3936 / April 23, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-18446 
+ 
+ 
+In the Matter of 
+ 
+THE DUN & BRADSTREET 
+CORPORATION, 
+ 
+Respondent. 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, MAKING 
+FINDINGS, AND IMPOSING A CEASE-
+AND-DESIST ORDER  
+  
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), against The Dun & Bradstreet Corporation (“D&B” or 
+“Respondent”).   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making 
+Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below.   
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
+                                                 
+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 
+ 
+Summary 
+ 
+1. These proceedings arise from violations of the Foreign Corrupt Practices Act of 
+1977 (the “FCPA”) [15 U.S.C. § 78dd] by D&B arising out of conduct at two of its indirect 
+subsidiaries in China, Shanghai Huaxia Dun & Bradstreet Business Information Consulting Co., 
+Limited (“HDBC”) and Shanghai Roadway D&B Marketing Services Co., Ltd. (“Roadway”). 
+ 
+2. During the time period from approximately 2006 through 2012, D&B’s HDBC and 
+Roadway subsidiaries made unlawful payments in order to obtain or retain business. 
+ 
+3. These unlawful payments were not accurately reflected in the books and records of 
+HDBC and Roadway, which were consolidated into D&B’s books and records.  During the 
+relevant period, D&B also failed to devise and maintain sufficient internal accounting controls to 
+detect or prevent the improper payments. 
+ 
+Respondent 
+ 
+4. D&B is a corporation organized under the laws of the state of Delaware.  D&B’s 
+corporate headquarters is in Short Hills, NJ.  D&B has a class of securities registered pursuant to 
+Section 12(b) of the Securities and Exchange Act of 1934, which are traded on the New York 
+Stock Exchange.  During the relevant time period, D&B managed its global operations through the 
+United States and international segments.  International management included regional 
+management in Europe, Canada, Asia Pacific, and Latin America.  D&B’s Asia Pacific interests 
+are managed from an office in Singapore (“D&B International (Singapore)”) and included, among 
+other countries, subsidiaries, joint ventures and strategic partnerships in China, Taiwan, and Hong 
+Kong.  (This group of subsidiaries is referred to collectively herein as “D&B Greater China.”)  
+During the relevant period, D&B Greater China’s management operated from offices located in 
+Shanghai. 
+ 
+Other Relevant Entities 
+ 
+5. HDBC is a Chinese limited liability company that was formed in November 2006 
+as a joint venture between D&B’s Chinese subsidiary, Dun & Bradstreet International Consultant 
+(Shanghai) Co. Ltd. (“D&B China”), and Huaxia International Credit Consulting Co. Limited 
+(“Huaxia”).  D&B China is the fifty-one percent majority shareholder of HDBC and its books, 
+records, and financial accounts are consolidated into D&B’s books and records and reported by 
+D&B on its financial statements. 
+ 
+6. Roadway was, during the relevant time period, a Chinese limited liability 
+company.  In June 2009, D&B (through a wholly-owned subsidiary) acquired ninety percent of 
+Roadway’s shares.  Roadway’s books, records, and financial accounts were, during the relevant 
+time period, consolidated into D&B’s books and records and reported by D&B on its financial 
+statements.  In March 2012, D&B voluntarily suspended, and then in May 2012, voluntarily shut 
+ 3 
+down the operations of Roadway in part as a result of its discovery of the illegal conduct described 
+herein. 
+ 
+Background 
+ 
+7. D&B’s corporate history dates to 1841, when it was formed to provide reliable 
+credit information.  D&B evolved into a global provider of business information.  It currently 
+maintains a global commercial database of over 280 million companies and its products provide 
+commercial data to businesses and other entities through subscriptions and business reports on 
+credit history, business-to-business sales and marketing, counterparty risk exposure, and other 
+business data information products. 
+ 
+8. Access to, and purchase of, business data are core components of D&B’s business 
+model, most importantly with respect to its well-known and established credit reporting business.  
+Businesses utilize D&B’s credit profiles to verify other businesses, make independent decisions on 
+the extension of credit, find new customers, and research new opportunities in specific countries.  
+D&B needs to acquire business data continually to populate and maintain its worldwide databases, 
+which are the heart of its commercial operations.  D&B acquires commercial data through several 
+methods including contacting the commercial entities directly, contacting an entity’s vendors or 
+clients, and collecting information about entities from the government agencies where the business 
+operates or is organized.   
+ 
+9. D&B first entered the China market in the early 1990’s through a joint venture and 
+by the mid-2000’s, began to consider strategic alternatives to grow its China-based business.  
+Ultimately, D&B chose a growth strategy that would be executed through acquisitions, mergers, or 
+joint venture partnerships.  In 2006, D&B promoted a successful European executive to be 
+President of its Asia-Pacific region and tasked him with the mission of finding strategic partners to 
+grow the China business.   
+ 
+HDBC Joint Venture 
+ 
+10. In 2006, the new President of the Asia-Pacific region considered and courted 
+several potential partners for merger or acquisition but ultimately focused on Huaxia as a joint 
+venture partner.  Among other things, Huaxia was considered attractive as a result of its 
+“government connections.”   
+ 
+11. As part of its due diligence, a review of Huaxia’s data and operations was 
+conducted by an executive from D&B’s Greater China management.  The data and operations 
+review focused on, among other things, data acquisition and sources of data at Huaxia.  The report 
+explicitly noted that, unlike D&B’s China operations, Huaxia used its government connections to 
+source financial statement information directly from provincial offices of the Chinese State  
+Administration of Industry and Commerce (“AIC”), Chinese National Bureau of Statistics, 
+lawyers, and other individuals rather than publicly available sources.  D&B’s due diligence 
+procedures failed to address the information in the report, rather, D&B provided a short FCPA 
+ 4 
+training session to Huaxia executives and then requested that they complete an anti-bribery 
+questionnaire and certification. 
+ 
+12. Financial information on private companies in China was crucial to the success of 
+D&B’s products sold in its international market regarding China’s rapidly emerging economy.  
+Financial statement information filed with the AIC office contains the detailed information on a 
+business entity, is updated annually, and is of the type considered most useful for making credit 
+determinations and other business decisions.  D&B promoted that their information products were 
+based upon AIC-sourced data. 
+ 
+13. Access to the business information, including financial statement information, 
+archived in the AIC offices is highly regulated under Chinese law.  Public access to the AIC 
+archived file on a business entity is limited to enterprise registration information (name, domicile, 
+business premises, legal representative, enterprise type, etc.), documents submitted for approval in 
+an application for enterprise registration, items concerning the change of the enterprise (name, 
+domicile, legal representative, subsidiaries), items concerning the deregistration of the enterprise 
+(including insolvency), and items concerning supervision and inspection (including penalties 
+against the entity).  However, access to the complete AIC archived file for an entity, including its 
+financial statement information, is restricted to law enforcement agencies, the judiciary, 
+disciplinary/inspection organizations, and law firms in the limited circumstances related to 
+representation of clients in lawsuits.  Supporting documents for case initiation and the lawyer’s 
+license are required to be produced to the AIC before such access is granted to a lawyer or law 
+firm.  Chinese law further provides that AIC archived files cannot be made public and those who 
+obtain such AIC archived files shall not use such files to engage in commercial services. 
+ 
+14. D&B Greater China’s management and staff who were responsible for data 
+acquisition knew of the commercial use restrictions and were also aware that it was possible to 
+bribe complicit AIC employees to obtain otherwise restricted financial statement data.  Because of 
+the risk associated with such illicit arrangements, HDBC management used third-party agents to 
+unlawfully obtain the financial statement data under the mistaken belief that using third parties 
+would shield the company from any legal liability. 
+ 
+15. D&B’s due diligence efforts indicated that Huaxia was directly acquiring certain 
+non-public AIC business data through unofficial arrangements.  D&B’s Greater China 
+management understood that Huaxia routinely obtained information through agents and the agents 
+obtained information by making improper payments to government officials.  The due diligence 
+package disclosing these arrangements was circulated to the D&B transaction team, including the 
+President of the Asia-Pacific region, who was also a member of D&B’s Global Leadership Team, 
+and a manager at D&B International.   
+ 
+HDBC Continued to Make Improper Payments to Acquire Data 
+ 
+16. The D&B China and Huaxia joint venture was completed in November 2006 and 
+resulted in the formation of HDBC.  For at least two years after the closing of the deal, HDBC did 
+not fully integrate or consolidate the operations and data acquisition practices of the two 
+ 5 
+predecessor entities, allowing them to continue to operate much as they had prior to the joint 
+venture.  Legacy D&B China continued its normal business operations in Shanghai and the legacy 
+Huaxia continued its normal business operations in Beijing.  However, a D&B Greater China 
+manager stopped the practice of Huaxia employees directly making improper payments to AIC 
+officials and implemented the practice of using third-party agents to obtain the data. 
+ 
+17. In the fall of 2008, D&B Greater China management sought to reduce HDBC’s 
+financial data acquisition costs.  At the time, data acquisition costs in China were substantially 
+higher than similar data costs in other countries.  D&B Greater China management considered 
+eliminating the use of agents and authorizing HDBC employees to purchase data directly from AIC 
+officials, as this would significantly reduce costs.  Separately, employees in the data and operations 
+unit at HDBC noted in a report to the executive responsible for data acquisition in China that 
+purchasing data directly from AIC individuals would be at a high cost and require “lots of palm 
+grease (kind of bribe)” to the AIC officials.  While the managers involved were not concerned with 
+making improper payments directly to these government officials, they were concerned that HDBC 
+would be unable to obtain proper fapiao (tax receipt) under this proposal.  As a result, they 
+explored ways to generate fake fapiao for the payments that would be made to local officials. 
+ 
+18. Ultimately, D&B’s President of Asia-Pacific, President of D&B Greater China, and 
+the executive responsible for data acquisition in China decided to maintain the status quo of using 
+third-party agents to acquire data for HDBC.  This practice was in effect at HDBC from the 
+creation of the entity in 2006 until mid-2012, when HDBC eliminated improperly obtained 
+financial statement data from its information products as a remedial measure. 
+  
+Roadway Subsidiary 
+ 
+19. In April 2009, D&B considered a business collaboration with Roadway, which was 
+a leading provider of direct marketing services in China.  Businesses used Roadway’s services to 
+market directly to businesses or consumers through various media, including direct mail, 
+telemarketing, efax, and email.  The transaction closed in June 2009, with D&B acquiring (through 
+a wholly-owned subsidiary) ninety percent of the shares of Roadway.   
+ 
+20. A key risk identified by D&B in its pre-acquisition due diligence of Roadway 
+related to certain February 2009 amendments to Chinese criminal laws concerning citizens’ data 
+privacy.  The amendments provided criminal sanctions for entities and individuals who illegally 
+obtain citizens’ personal information, through theft or other means, from Chinese government 
+entities or organizations in a field such as finance, telecommunications, transportation, education, 
+or health care.  D&B knew that Roadway had obtained a significant amount of its data from 
+independent vendors, thus it needed to ensure that Roadway had legally obtained its pre-existing 
+data and that Roadway would employ legal means of acquiring data post-acquisition.  While steps 
+were taken to try to limit the risk that its use of previously acquired data violated local law, 
+ultimately Roadway violated Chinese law with respect to data that had been acquired post- 
+acquisition. 
+ 
+ 6 
+21. As part of the pre-acquisition due diligence process, Roadway informed D&B that 
+it could not warrant that no “rebates” were paid in connection with data sales because their sales 
+representatives were paid on commission and this might incentivize them to “share” the 
+commission with the “decision-maker” at the client in order to “drum up” business.  D&B did not 
+conduct further due diligence to verify whether sales representatives were in fact making improper 
+kickbacks of a portion of commissions in order to secure business, or determine whether any 
+clients were state-owned or state-controlled entities (“SOEs”).  Subsequent internal audit reviews 
+after the acquisition failed to detect the improper payments.   
+ 
+Roadway Made Payments to Obtain Business  
+ 
+22. After the transaction closed in mid-2009, Roadway continued to acquire consumer 
+data from agents and provide the data to businesses for use in marketing.  While the agents did 
+provide certifications that the consumer data was legally obtained, D&B did not audit or otherwise 
+review the sources from where agents acquired data to verify their certifications.   
+ 
+23. On March 15, 2012, National Consumer Protection Day in China, a television news 
+program featured a Roadway sales executive making statements that Roadway had created a 
+database with information on over 150 million Chinese citizens that included specific financial, 
+employment, and contact information that Roadway sold to companies for marketing purposes.  
+The broadcast stated that Roadway had purchased the personal information from banks, insurance 
+companies, and real estate agents or by cold calling companies.  That same day, the Shanghai 
+police raided the Roadway offices in Shanghai and confiscated computer servers and detained 
+several employees, including senior management and employees responsible for data acquisition at 
+the company. 
+ 
+24. In September 2012, Roadway was charged, along with five then-current or former 
+employees, by the Shanghai District Prosecutor with illegally obtaining private information of 
+Chinese citizens.  Subsequently, in January 2013, Roadway and the five individuals were 
+convicted and Roadway was required to pay an approximately $160,000 criminal fine.  
+ 
+25. In addition to failing to ensure the legality of the Roadway-acquired data, post-
+acquisition, D&B also failed to take steps to determine whether Roadway employees were paying 
+customer “decision-makers” to get business.  From July 2009 through March 2012, Roadway 
+employees continued to make improper payments to customer “decision-makers” to obtain or 
+retain business, including customers that were Chinese government agencies or entities that were 
+SOEs.  These payments were called “Pin Tui,” or promotional expenses, and were inaccurately 
+recorded in Roadway’s books and records as legitimate promotion and advertisement expenses.  
+The Pin Tui payments were made directly by Roadway employees and through third-party agents 
+in connection with over thirty-four percent of the customer transactions at Roadway between July 
+2009 and March 2012.  Of the 1,036 customers whose “decision makers” received payments in this 
+period, 156 were Chinese government agencies or SOEs. 
+ 
+ 
+ 
+ 7 
+Legal Standards and Violations 
+ 
+26. Under Section 21C(a) of the Exchange Act, the Commission may impose a cease-
+and-desist order upon any person who is violating, has violated, or is about to violate any provision 
+of the Exchange Act or any rule or regulation thereunder, and upon any other person that is, was, 
+or would be a cause of the violation, due to an act or omission the person knew or should have 
+known would contribute to such violation. 
+ 
+FCPA Violations 
+ 
+27. Section 13(b)(2)(A) of the Exchange Act requires every issuer with 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 
+disposition of the assets of the issuer.  [15 U.S.C. § 78m(b)(2)(A)]. 
+ 
+28. As described above, D&B violated Section 13(b)(2)(A) of the Exchange Act.  The 
+company’s subsidiary, HDBC, falsely recorded illicit payments to government officials to acquire 
+data incorporated into its business products as legitimate data acquisition expenses.  D&B 
+subsidiary Roadway also acquired data through the use of improper payments and made improper 
+payments to government officials and private businesses to obtain or retain business.  Roadway 
+falsely recorded the payments as legitimate business expenses.  The false entries in HDBC’s and 
+Roadway’s books and records were then consolidated by D&B in its own books and records. 
+ 
+29. Section 13(b)(2)(B) of the Exchange Act requires every issuer with a class of 
+securities registered pursuant to Section 12 of the Exchange Act to devise and maintain a system of 
+internal accounting controls sufficient to provide reasonable assurances that (i) transactions are 
+executed in accordance with management’s general or specific authorization; (ii) transactions are 
+recorded as necessary (I) to permit preparation of financial statements in conformity with generally 
+accepted accounting principles or any other criteria applicable to such statements, and (II) to 
+maintain accountability for assets; (iii) access to assets is permitted only in accordance with 
+management’s general or specific authorization; and (iv) the recorded accountability for assets is 
+compared with the existing assets at reasonable intervals and appropriate action is taken with 
+respect to any differences.  [15 U.S.C. § 78m(b)(2)(B)]. 
+ 
+30. D&B violated Section 13(b)(2)(B) of the Exchange Act for several years by failing 
+to devise and maintain a sufficient system of internal accounting controls in its China subsidiaries 
+to prevent and detect improper payments in connection with data acquisitions and sales. 
+ 
+D&B’s Self-Disclosure, Cooperation, and Remedial Efforts 
+ 
+31. In determining to accept the Offer, the Commission considered Respondent’s self-
+disclosure, cooperation, and remedial efforts.  D&B made an initial self-disclosure to the 
+Commission staff and the DOJ in March 2012, shortly after local police raided its Roadway 
+subsidiary.  D&B’s cooperation included voluntarily producing documents from overseas, 
+summarizing the findings of its internal investigation, translating numerous key documents, 
+ 8 
+providing timely factual summaries of witness interviews done in the course of its internal 
+investigation, making employees available to the Commission staff, and providing for employees 
+or former employees to travel to the United States for interviews.  D&B’s cooperation assisted the 
+Commission in collecting information that may not have been otherwise available to the staff.   
+ 
+32. D&B’s remedial action included ceasing business operations of its Roadway 
+subsidiary; discontinuing illicit practices at HDBC; terminating certain D&B employees who were 
+involved in the misconduct; doubling the size of its audit services and corporate compliance teams; 
+hiring legal and compliance employees in China; re-evaluating and supplementing its anti-
+corruption policies and procedures on a global basis, including its relationship with third-party 
+vendors and suppliers; enhancing its internal accounting controls and compliance functions; 
+developing and implementing FCPA compliance procedures, including the expansion and 
+implementation of new due diligence and contracting requirements for vendors and suppliers; 
+engaging a law firm to review every data vendor and source of data used in China; and conducting 
+regular anti-corruption training throughout the D&B organization.  D&B also implemented a 
+process to re-evaluate and supplement its anticorruption compliance on a global basis. 
+ 
+33. D&B also undertook disciplinary actions against certain employees, including 
+senior executives at D&B Greater China and D&B International.  These individuals included 
+executives who had oversight responsibility for ensuring that adequate FCPA compliance training 
+and controls were in place at the company’s HDBC joint venture and Roadway subsidiary. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent D&B’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+A. Pursuant to Section 21C of the Exchange Act, Respondent D&B cease and desist 
+from committing or causing any violations and any future violations of Sections 13(b)(2)(A) and 
+13(b)(2)(B) of the Exchange Act.   
+ 
+ B. Respondent shall pay, within 10 days of the entry of this Order, disgorgement of  
+$6,077,820, which represents profits gained as a result of the conduct described herein,  
+prejudgment interest of $1,143,664, and a civil money penalty in the amount of $2 million to the 
+Securities and Exchange Commission for transfer to the general fund of the United States 
+Treasury, subject to Exchange Act Section 21F(g)(3).  If timely payment is not made, additional 
+interest shall accrue pursuant to SEC Rule of Practice 600 or pursuant to 31 U.S.C. § 3717.   
+ 
+Payment must be made in one of the following ways:   
+ 
+(1) Respondent may transmit payment electronically to the Commission, which will 
+provide detailed ACH transfer/Fedwire instructions upon request;  
+ 
+ 9 
+(2) Respondent may make direct payment from a bank account via Pay.gov through the 
+SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+(3) Respondent may pay by certified check, bank cashier’s check, or United States 
+postal money order, made payable to the Securities and Exchange Commission and 
+hand-delivered or mailed to:  
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+Payments by check or money order must be accompanied by a cover letter identifying 
+D&B as a Respondent in these proceedings, and the file number of these proceedings; a copy of 
+the cover letter and check or money order must be sent to Charles E. Cain, Chief, FCPA Unit, 
+Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, Washington, DC 
+20549.     
+ 
+C. Amounts ordered to be paid as civil money penalties pursuant to this Order shall 
+be treated as penalties paid to the government for all purposes, including all tax purposes.  To 
+preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 
+Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any 
+award of compensatory damages by the amount of any part of Respondent’s payment of a civil 
+penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants such 
+a Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a final order 
+granting the Penalty Offset, notify the Commission’s counsel in this action and pay the amount 
+of the Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be 
+deemed an additional civil penalty and shall not be deemed to change the amount of the civil 
+penalty imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” 
+means a private damages action brought against Respondent by or on behalf of one or more 
+investors based on substantially the same facts as alleged in the Order instituted by the 
+Commission in this proceeding. 
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 
+ 

raw/aaer/2018/AAER-3937.txt

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+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES ACT OF 1933 
+Release No. 10485 / April 24, 2018 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 83096 / April 24, 2018 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3937 / April 24, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-18448 
+ 
+In the Matter of 
+ 
+ALTABA INC., f/d/b/a 
+YAHOO! INC.,  
+ 
+Respondent. 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTION 8A OF THE SECURITIES ACT 
+OF 1933 AND SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934, 
+MAKING FINDINGS, AND IMPOSING A 
+CEASE-AND-DESIST ORDER  
+  
+I. 
+ 
+ The 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 (“Exchange 
+Act”), against Altaba Inc., f/d/b/a Yahoo! Inc. (“Yahoo” or “Respondent”).   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings Pursuant to Section 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.  
+ 2 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds1 that:  
+ 
+SUMMARY 
+ 
+1. This matter concerns material misstatements and omissions by Yahoo, one of the 
+world’s largest Internet media companies, regarding a 2014 data breach affecting more than 500 
+million of its user accounts.  In late 2014, Yahoo learned of a massive breach of its user database 
+that resulted in the theft, unauthorized access, and acquisition of hundreds of millions of its users’ 
+data, including usernames, birthdates, and telephone numbers.  At that time, the breach was the 
+largest known theft of user data.  
+ 
+2. Despite its knowledge of the 2014 data breach, Yahoo did not disclose the data 
+breach in its public filings for nearly two years.  To the contrary, Yahoo’s risk factor disclosures in 
+its annual and quarterly reports from 2014 through 2016 were materially misleading in that they 
+claimed the company only faced the risk of potential future data breaches that might expose the 
+company to loss of its users’ personal information stored in its information systems, as well as  
+potential future litigation, remediation, increased costs for security measures, loss of revenue, 
+damage to its reputation, and liability, without disclosing that a massive data breach had in fact 
+already occurred.  Yahoo management’s discussion and analysis of financial condition and results 
+of operations (“MD&A”) in those reports was also misleading to the extent it omitted known 
+trends or uncertainties with regard to liquidity or net revenue presented by the 2014 data breach.    
+ 
+3. Yahoo’s disclosure violations continued in connection with a proposed sale of its 
+operating business to Verizon Communications, Inc. (“Verizon”) in July 2016.  Although Yahoo 
+was aware of additional evidence in the first half of 2016 indicating that its user database had been 
+stolen, Yahoo made affirmative representations denying the existence of any significant data 
+breaches in a July 23, 2016 stock purchase agreement with Verizon, by which Verizon was to 
+acquire Yahoo’s operating business for $4.825 billion.  The stock purchase agreement was attached 
+to a Form 8-K filed with the Commission on July 25, 2016. 
+ 
+4. In September 2016, Yahoo disclosed the 2014 data breach in a press release filed as 
+an attachment to a Form 8-K and also disclosed the 2014 data breach to Verizon.  The day after 
+Yahoo publicly disclosed the breach, Yahoo’s market capitalization fell nearly $1.3 billion by 
+virtue of a 3% decrease in its stock price.  After Yahoo disclosed the 2014 data breach, Verizon 
+renegotiated the stock purchase agreement to reduce the price paid for Yahoo’s operating business 
+by $350 million, representing a 7.25% reduction in price. 
+ 
+5. Based on the foregoing conduct, and the conduct described herein below, Yahoo 
+violated Sections 17(a)(2) and 17(a)(3) of the Securities Act and Section 13(a) of the Exchange Act 
+and Rules 12b-20, 13a-1, 13a-11, 13a-13, and 13a-15 thereunder. 
+                                                 
+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. 
+ 3 
+ 
+RESPONDENT 
+ 
+6. At all relevant times, Yahoo was a publicly traded Internet media company 
+incorporated in Delaware with its principal place of business in Sunnyvale, California.  Prior to 
+June 16, 2017, Yahoo’s stock was registered with the Commission pursuant to Section 12(b) of the 
+Exchange Act, and, at all relevant times, Yahoo was required to file reports with the Commission 
+pursuant to Section 13 of the Exchange Act.  Until June 19, 2017, Yahoo traded on the NASDAQ 
+Global Select Market under the ticker “YHOO.”  In connection with the sale of its operating 
+business to Verizon, Yahoo changed its name to “Altaba Inc.” on June 16, 2017 and continued to 
+have its common stock registered under Section 12(b) of the Exchange Act, but as a publicly 
+traded non-diversified, closed-end management investment company incorporated in Delaware 
+with its principal place of business in New York, New York.  As of June 19, 2017, Altaba Inc. has 
+traded on the NASDAQ Global Select Market under the ticker symbol “AABA.”   
+ 
+OTHER RELEVANT ENTITY 
+ 
+7. Verizon is a publicly traded telecommunications company incorporated in 
+Delaware with its principal place of business in New York, New York.  Verizon’s stock is 
+registered with the Commission pursuant to Section 12(b) of the Exchange Act and is traded on the 
+New York Stock Exchange and the NASDAQ Global Select Market under the ticker “VZ.”  
+Verizon acquired Yahoo’s operating business on June 13, 2017 pursuant to a July 23, 2016 stock 
+purchase agreement and reorganization agreement, and February 20, 2017 amendments to those 
+agreements, executed by and between Verizon, Yahoo, and Yahoo Holdings, Inc. (“Yahoo 
+Holdings”), a wholly-owned subsidiary of Yahoo.  
+FACTS 
+Yahoo’s Disclosures Regarding Data Breaches 
+8. At all relevant times, Yahoo was one of the world’s largest Internet media 
+companies, providing over a billion users worldwide with an array of products and services, 
+including Internet searching capabilities, communications services, including Internet-based email, 
+and digital content products, such as Yahoo News and Yahoo Finance.  Yahoo’s products and 
+services involved the storage and transmission of its users’ personal information in its facilities and 
+on its equipment, networks, and corporate systems. 
+9. As an Internet media company, Yahoo made certain risk factor disclosures 
+pertaining to potential data breaches in its annual reports on Form 10-K for the fiscal years ended 
+December 31, 2014 and December 31, 2015, and in its quarterly reports on Form 10-Q for the first 
+three quarters of 2015 and the first two quarters of 2016.2  These disclosures included the 
+                                                 
+2  Item 1A of Part 1 of Form 10-K requires an issuer to set forth, under the caption “Risk 
+Factors,” the risk factors described in Item 503(c) of Regulation S-K [17 C.F.R. § 229.503(c)] 
+which are applicable to the issuer.  Item 1A of Part 2 of Form 10-Q requires an issuer to set forth 
+any material changes from the risk factors as previously disclosed in response to Item 1A to Part 1 
+ 4 
+following header concerning security breaches:  “If our security measures are breached, our 
+products and services may be perceived as not being secure, users and customers may curtail or 
+stop using our products and services, and we may incur significant legal and financial exposure.”  
+The disclosures also stated that Yahoo’s “products and services involve the storage and 
+transmission of Yahoo’s users’ and customers’ personal and proprietary information in our 
+facilities and on our equipment, networks and corporate systems,” and that “[s]ecurity breaches 
+expose us to a risk of loss of this information, litigation, remediation costs, increased costs for 
+security measures, loss of revenue, damage to our reputation, and potential liability.”  The 
+company’s risk factor disclosures were incorporated by reference into registration statements on 
+Form S-8 filed with the Commission on September 9, 2009 and September 11, 2014 that registered 
+Yahoo’s sales of its common stock under its employee stock purchase and option plans,3 pursuant 
+to which Yahoo received approximately $384 million in cash proceeds in 2014, 2015, and 2016. 
+10. In the summer of 2016, Yahoo engaged in negotiations to sell its operating business 
+to Verizon.  In response to queries regarding past data breaches by Verizon during due diligence, 
+Yahoo created a spreadsheet that falsely represented to Verizon that it was only aware of four 
+minor breaches in which its users’ personally identifying information was exposed, but did not 
+disclose the 2014 theft of hundreds of millions of users’ personal data in its response.  During a 
+June 27, 2016 telephone call requested by Verizon to discuss the four breaches disclosed by Yahoo 
+in its due diligence responses, Yahoo further did not disclose the 2014 theft of its users’ personal 
+data.   
+11. Ultimately, on July 23, 2016, Yahoo agreed to transfer the operating business to 
+Yahoo Holdings at close, and entered into a stock purchase agreement with Verizon, by which 
+Yahoo sold all of the outstanding shares of Yahoo Holdings to Verizon for $4,825,800,000 in cash.  
+In the stock purchase agreement, Yahoo again affirmatively represented and warranted the 
+following, in relevant part:  
+To the Knowledge of [Yahoo], there have not been any incidents of, 
+or third party claims alleging, (i) Security Breaches, 4 unauthorized 
+                                                 
+of the issuer’s Form 10-K.  Item 503(c) of Regulation S-K provides, in relevant part, that, where 
+appropriate, an issuer must provide a discussion of the most significant factors that make the 
+offering speculative or risky, must not present risks that could apply to any issuer or any offering, 
+and must explain how the risk affects the issuer or the securities being offered.  Item 503(c) further 
+provides that each risk factor must be set forth under a subcaption that adequately describes the 
+risk.   
+3  Yahoo filed a Form S-8 registering sales under a “Yahoo Stock Plan” and “Yahoo 
+Amended and Restated 1996 Employee Stock Purchase Plan” on September 9, 2009 (333-
+161806), and subsequently filed a new Form S-8 for the “Yahoo Stock Plan” on September 11, 
+2014 (333-198687).  Both Form S-8s incorporated all future filed periodic reports and current 
+reports pursuant to Section 13(a) of the Exchange Act. 
+4  The stock purchase agreement defined “Security Breach[es]” as “any actual (i) loss or 
+misuse (by any means) of Personal Data; (ii) unauthorized or unlawful Processing, sale, or rental of 
+ 5 
+access or unauth orized use of any of [Yahoo’s]  … information  
+technology systems or (ii) loss, theft, unauthorized access or 
+acquisition, modification, disclosure, corruption, or other misuse of 
+any Personal Data in [Yahoo]’s … possession, or other confidential 
+data owned by [Yahoo]…, in each case (i) and (ii) that could 
+reasonably be expected to have a Business Material Adverse Effect.5 
+ 
+These representations were made publicly available when Yahoo attached the stock 
+purchase agreement to a Form 8-K filed with the Commission on July 25, 2016. 
+ 
+Yahoo’s Contemporaneous Knowledge of the 2014 Breach 
+ 
+12. Despite the disclosures set forth above, in late 2014, Yahoo had learned of a 
+massive breach of its user database that resulted in the theft, unauthorized access, or acquisition of 
+hundreds of millions of its users’ personal data.  At this time, Yahoo’s internal information security 
+team became aware that the company’s information technology networks and systems had suffered 
+a severe and widespread intrusion by hackers associated with the Russian Federation.   
+ 
+13. By December 2014, Yahoo’s information security team, including its Chief 
+Information Security Officer, had determined that the hackers had stolen copies of Yahoo’s user 
+database files containing the personal data of at least 108 million users, and likely even Yahoo’s 
+entire user database of billions of users.  The personal data in the stolen files included highly 
+sensitive information that Yahoo’s information security team referred to as Yahoo’s “crown 
+jewels”:  Yahoo usernames, email addresses, telephone numbers, dates of birth, hashed passwords, 
+and security questions and answers.  Yahoo’s information security team, including its Chief 
+Information Security Officer, also concluded that the hackers had successfully gained access to a 
+separate source of data:  the email accounts of 26 Yahoo users specifically targeted by the hackers 
+because of their connections to Russia.  
+ 
+14. Within days after Yahoo’s information security team reached these conclusions, 
+members of Yahoo’s senior management and legal teams received various internal reports from 
+Yahoo’s Chief Information Security Officer stating that the theft of hundreds of millions of Yahoo 
+users’ personal data had occurred.  As Yahoo has stated, the company’s “relevant legal team had 
+sufficient information to warrant substantial further inquiry in 2014, and they did not sufficiently 
+pursue it.”  Yahoo Form 10-K for FY2016 at 47 (filed with the Commission on March 1, 2017).  
+                                                 
+Personal Data; or (iii) other act or omission that compromises the security or confidentiality of 
+Personal Data.” 
+ 
+5  The stock purchase agreement defined a “Business Material Adverse Effect” as “any 
+circumstance, event, development, effect, change or occurrence that, individually or in the 
+aggregate, (a) would, or would reasonably be expected to, prevent, materially delay or materially 
+impede the ability of [Yahoo] to consummate the [reorganization agreement and sale of the 
+outstanding shares of Yahoo Holdings] or (b) has had, or would or would reasonably be expected 
+to have, a material adverse effect on the business, assets, properties, results of operation or 
+financial condition of the Business, taken as a whole”, with certain enumerated exceptions. 
+ 6 
+However, Yahoo senior management and relevant legal staff did not properly assess the scope, 
+business impact, or legal implications of the breach, including how and where the breach should 
+have been disclosed in Yahoo’s public filings or whether the fact of the breach rendered, or would 
+render, any statements made by Yahoo in its public filings misleading.   
+ 
+15. Furthermore, Yahoo’s senior management and legal teams did not share 
+information regarding the breach with Yahoo’s auditors or outside counsel in order to assess the 
+company’s disclosure obligations in its public filings.  Yahoo did not maintain disclosure controls 
+and procedures designed  to ensure that reports from Yahoo’s information security team raising 
+actual incidents of the theft of user data, or the significant risk of theft of user data, were properly 
+and timely assessed to determine how and where data breaches should be disclosed in Yahoo’s 
+public filings, including, but not limited to, in its risk factor disclosures or MD&A.6  To the extent 
+that Yahoo shared information regarding the breach with affected users, they only notified the 26 
+users whose email accounts were accessed during the breach. 
+ 
+16. As a result of these failures, Yahoo did not disclose the theft of Yahoo users’ 
+personal data in its public filings.  Instead, Yahoo’s risk factor disclosures in its annual reports for 
+the years ended December 31, 2014 and December 31, 2015, and in its quarterly reports for the 
+first three quarters of 2015 and the first two quarters of 2016, misleadingly suggested that a 
+significant data breach had not yet occurred, and that therefore the company only faced the risk of 
+data breaches and any negative effects that might flow from future breaches.  In addition, Yahoo’s 
+filings did not address the breach’s potential impact on the company’s business in its risk factors; 
+nor did they address known trends or uncertainties with regard to liquidity or net revenue presented 
+by any current or future expenses and losses related to the 2014 data breach in its MD&A.     
+ 
+17. After the 2014 breach, Yahoo’s information security team determined that the same 
+hackers were continuously targeting Yahoo’s user database throughout 2015 and early 2016, and 
+also received reports raising the possibility of a high volume of compromised Yahoo user 
+credentials for sale on the dark web.  Based on this information, by June 2016, Yahoo’s new Chief 
+                                                 
+6  Item 7 of Part 2 of Form 10-K (“Management’s Discussion and Analysis of Financial 
+Condition and Results of Operations”) requires an issuer to furnish the information required by 
+Item 303(a) of Regulation S-K [17 C.F.R. § 229.303].  Item 303(a) of Regulation S-K provides, 
+in relevant part, that, a registrant shall discuss its financial condition, changes in financial 
+condition and results of operations, including, among other things, identifying “any known 
+trends or any known demands, commitments, events or uncertainties that will result in or that are 
+reasonably likely to result in the registrant’s liquidity increasing or decreasing in any material 
+way” and “any known trends or uncertainties that have had or that the registrant reasonably 
+expects will have a material favorable or unfavorable impact on net sales or revenues or income 
+from continuing operations.”  Item 2 of Part 1 of Form 10-Q (“Management’s Discussion and 
+Analysis of Financial Condition and Results of Operations”) requires an issuer to furnish the 
+information required by Item 303(b) of Regulation S-K, which provides, in relevant part, that a 
+registrant shall discuss any material changes from the end of the preceding fiscal year with 
+respect to its financial condition and results of operations, including a discussion of material 
+changes in those items listed in Item 303(a) (except for the impact of inflation and changing 
+prices on operations).   
+ 
+ 7 
+Information Security Officer (hired in October 2015) concluded that Yahoo’s entire user database, 
+including the personal data of its users, had likely been stolen by nation-state actors through 
+several hacker intrusions (including the 2014 breach), and ultimately could be exposed on the 
+dark web in the immediate future.  The Chief Information Security Officer communicated these 
+conclusions to at least one member of Yahoo’s senior management as Yahoo was negotiating the 
+sale of its operating business to Verizon.  Despite this further evidence indicating the theft of 
+Yahoo’s user database, Yahoo affirmatively represented to Verizon that it was unaware of any 
+security breaches with a “Business Material Adverse Effect” in its stock purchase agreement, 
+which was subsequently filed as an exhibit to a Form 8-K on July 25, 2016.   
+ 
+18. Based on the foregoing, Yahoo acted negligently in filing materially misleading 
+periodic reports with the Commission.  In particular, Yahoo knew, or should have known, that its 
+risk factor disclosures and MD&A in its annual reports on Form 10-K for the fiscal years ended 
+December 31, 2014 and December 31, 2015, and in its quarterly reports on Form 10-Q for the first 
+three quarters of 2015 and the first two quarters of 2016, and its stock purchase agreement with 
+Verizon (which was filed as an exhibit to a current report on Form 8-K), as incorporated into its 
+Form S-8 registration statements, were materially misleading. 
+ 
+Yahoo’s Disclosure of the 2014 Breach 
+ 
+19. On or about September 22, 2016, Yahoo disclosed the 2014 breach and the 
+resulting theft of data involving 500 million of its user accounts in a press release attached to a 
+Form 8-K, and also disclosed the existence of the theft to Verizon.  The day after Yahoo publicly 
+disclosed the breach—and despite its July announcement of the pending sale to Verizon—Yahoo’s 
+market capitalization fell nearly $1.3 billion by virtue of a 3% decrease in its stock price.  After 
+disclosure of the 2014 breach, and after renegotiation of the terms of the sale of Yahoo’s operating 
+business pursuant to the stock purchase and reorganization agreements, Verizon and Yahoo agreed 
+to a reduction in the acquisition price for Yahoo’s operating business of $350 million, representing 
+a 7.25% discount. 
+ 
+20. Yahoo also amended its risk factor disclosures and MD&A to address the 2014 
+breach in its subsequent public filings.  With respect to risk factors, Yahoo acknowledged in its 
+Form 10-Q for the third quarter of 2016 (filed October 9, 2016) that the data breach “risk” had 
+already materialized by virtue of the 2014 data breach (referred to as the “Security Incident”).  
+Specifically, Yahoo stated “Our security measures may be breached, as they were in the Security 
+Incident and user data accessed, which may cause users and customers to curtail or stop using our 
+products and services, and may cause us to incur significant legal and financial exposure” (italics 
+added).  Yahoo also added a risk factor specific to the 2014 data breach indicating that “the full 
+extent of its impact and the impact of related government investigations and civil litigation on our 
+results of operation … could be material.”  With respect to its MD&A, Yahoo disclosed in its Form 
+10-Q for the third quarter of 2016 that the company expected to incur expenses—including 
+investigation, remediation, and legal costs—related to the 2014 breach.   
+ 
+21. Yahoo also corrected prior statements that its disclosure controls and procedures 
+were effective.  In each of its 2014 and 2015 Form 10-Ks and Form 10-Qs for the first three 
+ 8 
+quarters of 2015 and the first two quarters of 2016, Yahoo stated that its principal executive officer 
+and principal financial officer evaluated the effectiveness of its disclosure controls and procedures 
+(as such term is defined in Rules 13a-15(e) under the Exchange Act) and, for each period covered 
+by the foregoing reports, had concluded that Yahoo’s disclosure controls and procedures were 
+effective.  In its 2016 Form 10-K, filed with the Commission on March 1, 2017, Yahoo disclosed 
+that its principal executive officer and principal financial officer had concluded that, “due 
+exclusively to deficiencies in the Company’s existing security incident response protocols related 
+to the 2014 Security Incident, the Company’s disclosure controls and procedures for each of the 
+annual and quarterly periods ended December 31, 2014 through September 30, 2016 were not 
+effective at the end of each such period.” 
+ 
+ 
+VIOLATIONS 
+ 
+22. As a result of the conduct described above, Yahoo violated Sections 17(a)(2) and 
+17(a)(3) of the Securities Act [15 U.S.C. §§ 77q(a)(2) and (3)], which make it unlawful for any 
+person in the offer or sale of any securities by the use of any means or instruments of transportation 
+or communication in interstate commerce or by use of the mails, directly or indirectly, 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; or to engage in any transaction, practice, or course of 
+business which operates or would operate as a fraud or deceit upon the purchaser. 
+ 
+23. As a result of the conduct described above, Yahoo violated Section 13(a) of the 
+Exchange Act [15 U.S.C. § 78m(a)] and Rules 12b-20, 13a-1, 13a-11, 13a-13, and 13a-15 
+thereunder [17 C.F.R. §§ 240.12b-20, 240.13a-1, 240.13a-11, 240.13a-13, and 240.13a-15], which 
+require every issuer of a security registered pursuant to Section 12 of the Exchange Act to file with 
+the Commission, among other things, annual, quarterly, and current reports as the Commission 
+may require, to maintain disclosure controls and procedures designed to ensure that information 
+required to be disclosed by an issuer in reports it files or submits under the Exchange Act is 
+recorded, processed, summarized, and reported within the time periods specified in the 
+Commission’s rules and forms, and mandate that periodic and current reports contain such further 
+material information as may be necessary to make the required statements not misleading. 
+ 
+ 
+ 
+ 
+ 
+UNDERTAKINGS 
+ 
+ Respondent Yahoo has undertaken to: 
+ 
+24. Cooperate fully with the Commission in any and all investigations, litigations or 
+other proceedings relating to or arising from the matters described in the Order.  In connection with 
+such cooperation, Yahoo agrees that cooperation includes the following:    
+ 9 
+  
+a. On an ongoing basis, producing, without service of a notice or subpoena, to the 
+Commission non-privileged documents and other materials, wherever located, in 
+Respondent’s possession, custody, or control, and/or appropriate privilege logs, as 
+requested by the Division’s staff and within 14 days of request.  Respondent 
+agrees that it will preserve and produce documents within its possession, custody, 
+or control at any point, notwithstanding the sale of the operating business to 
+Verizon; 
+ 
+b. Using its best efforts to secure the full, truthful, and continuing cooperation of 
+Respondent’s current and former directors, officers, employees and agents, 
+including making those persons available for interviews and the provision of 
+testimony in any and all investigations, litigations or other proceedings relating to 
+or arising from the matters described in the Order when requested to do so by the 
+Division’s staff, at Respondent’s expense; 
+ 
+c. Using its best efforts to ensure its directors, officers and employees respond to all 
+inquiries related to any and all investigations, litigations or other proceedings 
+relating to or arising from the matters described in the Order and any related 
+proceedings when requested to do so by the Division’s staff; and 
+ 
+d. Using its best efforts to ensure its directors, officers and employees testify at trial 
+and other judicial or administrative proceedings when requested to do so by the 
+Division’s staff. 
+ 
+25. In determining whether to accept the Offer, the Commission has considered these 
+undertakings. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Yahoo’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+ A. Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, 
+Respondent 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, Section 13(a) of the Exchange Act, and Rules 
+12b-20, 13a-1, 13a-11, 13a-13, and 13a-15 thereunder. 
+ 
+B. Respondent shall, within ten (10) days of the entry of this Order, pay a civil money 
+penalty in the amount of $35,000,000.00 to the Securities and Exchange Commission for transfer 
+to the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3). If 
+timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. §3717.   
+ 
+ 10 
+Payment must be made in one of the following ways:   
+ 
+(1) Respondent may transmit payment electronically to the Commission, which 
+will provide detailed ACH transfer/Fedwire instructions upon request;  
+ 
+(2) Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+(3) Respondent may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange 
+Commission and hand-delivered or mailed to:  
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+Payments by check or money order must be accompanied by a cover letter identifying 
+Yahoo as a Respondent in these proceedings, and the file number of these proceedings; a copy of 
+the cover letter and check or money order must be sent to Erin E. Schneider, Division of 
+Enforcement, Securities and Exchange Commission, 44 Montgomery Street, Suite 2800, San 
+Francisco, California, 94104.   
+ 
+ C. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 
+treated as penalties paid to the government for all purposes, including all tax purposes.  To 
+preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 
+Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any 
+award of compensatory damages by the amount of any part of Respondent’s payment of a civil 
+penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants such a 
+Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a final order granting 
+the Penalty Offset, notify the Commission’s counsel in this action and pay the amount of the 
+Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be deemed 
+an additional civil penalty and shall not be deemed to change the amount of the civil penalty 
+imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” means a 
+private damages action brought against Respondent by or on behalf of one or more investors based 
+on substantially the same facts as alleged in the Order instituted by the Commission in this 
+proceeding. 
+  
+ D. Respondent acknowledges that the Commission is not imposing a civil penalty in 
+excess of $35,000,000.00 based upon its undertaking to cooperate fully with the Commission in 
+any and all investigations, litigations, or other proceedings relating to or arising from the matters 
+described in the Order.  If at any time following the entry of the Order, the Division of 
+Enforcement (“Division”) obtains information indicating that Yahoo knowingly provided 
+materially false or misleading information or materials to the Commission, or in a related 
+ 11 
+proceeding, or the Division determines that Yahoo has not complied with its undertaking to 
+cooperate fully in any and all investigations, litigations, or other proceedings relating to or arising 
+from the matters described in the Order, the Division may, at its sole discretion and with prior 
+notice to Yahoo, petition the Commission to reopen this matter and seek an order directing that 
+Yahoo pay an additional civil penalty.  Yahoo may contest by way of defense in any resulting 
+administrative proceeding whether it knowingly provided materially false or misleading 
+information or failed to comply with its undertaking to cooperate fully in any and all 
+investigations, litigations, or other proceedings relating to or arising from the matters described in 
+the Order, but may not:  (1) contest the findings in the Order; or (2) assert any defense to liability 
+or remedy, including, but not limited to, any statute of limitations defense. 
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 

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+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 83128 / April 30, 2018 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3938 / April 30, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-18459 
+ 
+In the Matter of 
+ 
+PANASONIC 
+CORPORATION  
+ 
+Respondent. 
+ 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, MAKING 
+FINDINGS, AND IMPOSING A CEASE-
+AND-DESIST ORDER 
+  
+I. 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), against Panasonic Corporation (“Panasonic” or 
+“Respondent”). 
+II. 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (“Offer”) which the Commission has determined to accept.  Solely for the purpose of 
+these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
+which the Commission is a party, Respondent admits the Commission’s jurisdiction over it and the 
+subject matter of these proceedings, and consents to the entry of this Order Instituting Cease-and-
+Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making 
+Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below.  
+III. 
+ On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
+                                                 
+1   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 
+Summary 
+1. This matter concerns violations of the anti-bribery, anti-fraud, books and records, 
+and internal accounting controls provisions of the federal securities laws by Panasonic, a global 
+electronics corporation headquartered in Osaka, Japan.   
+2. The anti-bribery violation is the result of a 2007 bribery scheme involving senior 
+management of one of Panasonic’s U.S. subsidiaries, Panasonic Avionics Corporation (“PAC”), 
+whereby a lucrative consulting position was provided to a government official (“Government 
+Official”) who assisted PAC in obtaining and retaining business from a state-owned airline 
+(“Government Airline”).  While PAC was negotiating two agreements valued at over $700 million 
+with the Government Airline, PAC offered the Government Official a $200,000 a year post-
+retirement consulting position in order to induce him to assist PAC.  Ultimately, PAC retained the 
+Government Official and paid approximately $875,000 for his purported consulting position, 
+which required little to no work.  The payments to the Government Official were made through a 
+third-party vendor that provided unrelated services to PAC.  In addition, the engagement of the 
+Government Official violated Panasonic’s policies and procedures, and the payments were not 
+accurately reflected in its books and records. 
+3. The anti-fraud violation is a result of Panasonic materially overstating its pre-tax 
+income by at least $38.5 million or 9%, and net income by at least $22.4 million or 16%, for the 
+quarter ending June 30, 2012.  PAC backdated an agreement with the Government Airline and 
+provided misleading information about the agreement to PAC’s auditor in order to include the 
+revenue in that quarter.  Thereafter, Panasonic knowingly and intentionally prematurely recognized 
+this revenue in violation of generally accepted accounting principles. 
+4. In addition, Panasonic lacked appropriate internal accounting controls with respect 
+to the use of consultants and sales agents at PAC.  PAC paid over $1.76 million to purported 
+consultants, including the Government Official, who provided few if any legitimate consulting 
+services.  As with the payments to the Government Official, these payments were made through a 
+third-party vendor and Panasonic’s books and records did not accurately reflect the true nature of 
+the payments.  Additionally, because certain sales agents could not meet PAC’s internal due 
+diligence requirements, PAC devised a scheme to retain those sales agents in the Asia, and China 
+regions by paying them through a separate sales agent. 
+Respondent 
+5. Panasonic Corporation is a multinational corporation, headquartered in Osaka, 
+Japan.  During the relevant period, Panasonic’s global business was organized into eight business 
+segments, including the AVC Networks business segment that included PAC.  Panasonic’s 
+securities were registered with the Commission pursuant to Section 12(b) of the Exchange Act until 
+April 22, 2013, and its American Depositary Shares traded on the New York Stock Exchange under 
+the ticker “PC.”  From May 1, 2015 through June 20, 2016, Panasonic’s securities were registered 
+with the Commission pursuant to Section 12(g) of the Exchange Act.  During the periods when 
+Panasonic securities were registered with the Commission, Panasonic was required to file or furnish 
+periodic reports with the Commission pursuant to Section 15 of the Exchange Act. 
+ 3 
+Other Relevant Entities and Individuals 
+6. Panasonic Avionics Corporation (f/k/a Matsushita Avionics Systems 
+Corporation), is a wholly-owned subsidiary of Panasonic’s North American subsidiary and is a 
+Delaware corporation headquartered in Lake Forest, California.  PAC designs, engineers, 
+manufactures, sells and installs in-flight entertainment systems (“IFE”) and global communication 
+services (“GCS”) to airlines, aircraft leasing companies, and airplane manufacturers worldwide, 
+including to state-owned airlines.  Panasonic managed PAC via its AVC Networks Company 
+business segment, and certain PAC officers also held concurrent titles at Panasonic.  During the 
+relevant period, PAC’s books and records and financial accounts were consolidated into 
+Panasonic’s books and records and reported on Panasonic’s consolidated financial statements, 
+which were filed or furnished with the Commission and reported to investors.   
+FACTS 
+Bribery in the Middle East Region 
+7. In 1986, PAC retained a sales representative (“Sales Representative” or” Sales 
+Rep”) to assist PAC in contract negotiations for the sale of IFE products to several airlines in the 
+Middle East.  Over the years, through agreements between PAC and the company owned by the 
+Sales Rep, his responsibilities grew, and he ultimately served as the exclusive representative for all 
+PAC sales to over fifty airlines in the Middle East, Africa, and Central and South Asia region, 
+many of which were state-owned.  The Sales Rep was engaged with the knowledge of Panasonic 
+executives, although the Sales Rep lacked an education or background in avionics.  Additionally, 
+the company knew that the Sales Rep employed his sons to assist him, even though they had no 
+relevant qualifications to sell IFE and GCS products.  Between 2007 and 2016, PAC paid the Sales 
+Representative more than $184 million in sales commissions through his British Virgin Islands 
+entity. 
+8. Beginning in at least 2004, PAC maintained a separate, regional office in the 
+Middle East.  The office, based in Dubai, was staffed by sales and marketing professionals and had 
+a repair shop, field engineers, and its own finance staff.  Nevertheless, PAC continued to use the 
+Sales Rep despite concerns raised by PAC employees that the Sales Rep lacked the qualifications 
+to negotiate technical contracts related to IFE and GCS products and other red flags regarding his 
+conduct, such as his possession of confidential and proprietary materials of PAC’s competitors and 
+customers.  Significantly, PAC also failed to adequately address allegations from its regional 
+employees that the Sales Rep was paying bribes to win business on PAC’s behalf.  
+9. While PAC engaged the Sales Rep as a sales agent through the entity that he 
+owned, he operated as a PAC employee.  The Sales Representative had:  PAC business cards 
+identifying him as PAC’s General Manager of Sales and Marketing in the Middle East, Africa and 
+South Asia; his own office space in PAC’s Dubai office; a PAC phone number and email address; 
+a PAC title; and numerous electronic devices.  Throughout the relevant period, the Sales Rep 
+reported directly to senior PAC executives, including a senior executive (“PAC Executive One”) to 
+whom the Sales Rep gave cash and luxury items valued at more than $60,000. 
+10. The Government Airline was one of PAC’s most significant customers.  In 2004, 
+PAC and the Government Airline signed a ten-year Master Product Supply Agreement (“MPSA”), 
+which ultimately grossed well over a billion dollars, for PAC to provide IFE products and services 
+for certain planes within the Government Airline’s fleet.  The Sales Rep helped to negotiate the 
+ 4 
+MPSA on behalf of PAC, and the MPSA prohibited PAC from providing any consideration to 
+employees of the Government Airline. 
+11. The Government Airline appointed its own executive, the Government Official, to 
+serve as the primary point of contact for contract negotiations with PAC, including the MPSA.  
+During the relevant period, the Government Official reported directly to the Government Airline’s 
+President.  The Government Official held substantial authority and had influence over the 
+Government Airline’s contracting decisions, including influence over the airline’s decisions to 
+award business to PAC as well as interpretations of specific terms in the MPSA and amendments 
+thereto.  The Government Official negotiated significant terms with PAC, including credits, 
+concessions, and system/component price lists, and was involved in approving payments to PAC.  
+PAC identified the Government Official internally as a key executive at the Government Airline. 
+12. In 2006, the Sales Rep and the Government Official began negotiating an 
+amendment to the MPSA (“Amendment One”) for the purchase of additional IFE products by the 
+Government Airline.  During the course of these negotiations the Government Official sought, and 
+the Sales Rep provided, assistance in obtaining clients for a private consulting firm recently 
+established by the Government Official.  Negotiations for Amendment One, which was worth 
+nearly $360 million in additional business to PAC, continued through at least July 2007. 
+13. Over the course of 2007, PAC and the Government Airline also negotiated and 
+entered into a second amendment to the MPSA (“Amendment Two”) for the purchase of additional 
+IFE products.  Due to the delay in the receipt of new aircraft by Government Airline, certain IFE 
+products that PAC and the Government Airline had contemplated being included in Amendment 
+One were instead included in Amendment Two.  Amendment Two was signed in November 2007, 
+and was worth over $353 million in additional business to PAC. 
+14. During the course of negotiations over Amendments One and Two, the 
+Government Official solicited the Sales Rep for personal benefits.  Beginning in at least April 
+2007, the Government Official sent numerous emails to the Sales Representative about obtaining a 
+position with PAC.  For example, on June 17, 2007, the Government Official informed the Sales 
+Representative what he wanted in a position, including an annual salary of £150,000 and other 
+benefits.  The Sales Rep immediately informed PAC Executive One of the specific request.  The 
+following week, PAC emailed the Government Official asking about the status of the execution of 
+Amendment One. 
+15. Senior PAC executives were aware of the negotiations.  In September 2007, a PAC 
+executive who concurrently served as a director in Panasonic’s Avionics Business Unit told PAC 
+Executive One and other PAC executives that “We should be very sensitive to [Government 
+Official’s] current position . . . . I will get in trouble if we act like a small company.  What we are 
+doing for [the Government Official] is a large risk for a corporation like Panasonic.  I think we still 
+should for good reasons, but we must get this done above the table with complete transparency.”   
+16. However, PAC and the Government Official concealed their negotiations for the 
+consulting position from the Government Airline.  With the knowledge of PAC Executive One, in 
+or around September 2007, the Government Official was offered a position as a PAC consultant 
+for $200,000 per year plus travel expenses, which would be effective after his retirement from the 
+Government Airline.  In addition, PAC Executive One arranged for the Government Official to be 
+retained and paid through an unrelated third-party vendor that prepared product manuals for PAC 
+(“Vendor”). 
+ 5 
+17. During the course of the negotiations of Amendments One and Two, and while 
+seeking these payments from PAC, the Government Official provided valuable information to help 
+PAC gain an improper advantage in obtaining and retaining business from the Government Airline.  
+This included confidential internal information, and advice on negotiating additional business and 
+maintaining the relationship with the Government Airline.  For example, in April 2007, the 
+Government Official advised the Sales Rep how to break up the cost of a particular item into 
+several components, so the true cost would be hidden from the Government Airline and not raise 
+any red flags. 
+18. As a result of the Government Official’s actions, PAC was able to obtain a profit 
+margin on Amendments One and Two that was significantly higher than what it obtained from 
+other customers purchasing comparable products in the same time period.   
+19. Ultimately, between April 2008 and January 2014, the Government Official 
+provided little to no services and PAC paid over $875,000 to the Vendor for the Government 
+Official’s position.  To effectuate the payments, PAC Executive One regularly authorized monthly 
+payments to the Vendor in the amount of $12,500 and the Vendor then transferred $10,000 from 
+each payment to the Government Official while retaining $2,500 as a fee. 
+20. PAC’s internal audit group ultimately identified the payments to the Government 
+Official as high risk, but nevertheless PAC continued to pay him.  In or about December 2010, 
+senior PAC executives received a report from the Internal Audit group, which stated that no 
+services were requested from the Government Official and that no deliverables were provided to 
+PAC by the Government Official, but that invoices continued to be paid through the Vendor.  The 
+report identified such payments as high risk, stating:  “Based on the information provided, 
+[Vendor] consultant payment should be carefully reviewed in light of FCPA regulation due to lack 
+of clarity in deliverables.”  Notwithstanding this report, PAC continued to make payments to the 
+Government Official through the Vendor.     
+21. Similarly, PAC continued to engage and pay the Sales Rep until 2016, despite 
+learning in 2015 that he had destroyed electronic data on devices provided to him by PAC, 
+including devices used for internal PAC communications and negotiations with the Government 
+Airline and the Government Official, after he learned of an investigative subpoena issued by SEC 
+staff. 
+Retention of Consultants Through the Office of the President Budget  
+22. From at least 2007 through at least January 2014, various purported consultants 
+were engaged and paid through an Office of the President budget controlled by PAC Executive 
+One, in circumstances in which little or no legitimate services were provided.  For example, both 
+the Vendor and the Government Official were paid through this budget.   
+23. In October 2007, PAC Executive One used the Vendor as a conduit to pay a former 
+PAC employee (“Consultant One”), who was also working as a consultant for one of PAC’s largest 
+domestic airline customers.  Between October 2007 and December 2013, PAC paid $825,000 for 
+Consultant One from the Office of the President budget via the Vendor.  During that time, 
+Consultant One was not supervised by anyone at PAC or Panasonic, and provided few, if any, 
+legitimate services to PAC or Panasonic.  Instead, Consultant One provided PAC Executive One 
+and others at PAC with non-public information regarding the customer, other airlines, and PAC 
+competitors.  Consultant One frequently forwarded the information through emails that were 
+ 6 
+marked “CONFIDENTIAL” or “DO NOT FORWARD.”  In one instance where Consultant One 
+provided PAC with such information, a PAC employee responded, “You always have info which 
+makes me shake my head.”  Panasonic falsely recorded the payments to Consultant One on its 
+books as legitimate expenses for services provided by the Vendor. 
+24. Between January and December 2009, PAC Executive One used the Office of the 
+President budget and the Vendor to pay $60,000 to another former PAC employee (“Consultant 
+Two”).  Consultant Two performed no work for PAC or Panasonic, and was paid solely to prevent 
+him from working for any of PAC’s competitors.  Nevertheless, the payments to Consultant Two 
+were falsely recorded on Panasonic’s books as legitimate expenses of Vendor. 
+25. The Office of the President budget was set annually by a senior PAC finance 
+executive in consultation with PAC Executive One, based on the prior year’s costs and anticipated 
+changes in expenses.  Apart from PAC Executive One, this budget was never meaningfully 
+reviewed or approved by any Panasonic or PAC personnel and there were no reasonable internal 
+accounting controls in place surrounding its use.   
+26. PAC Executive One authorized nearly all payments made out of this budget, 
+including payments totaling more than $1.76 million to the Government Official and the two other 
+consultants who provided few, if any, legitimate services to PAC.  These payments were falsely 
+recorded in PAC’s general ledger as legitimate consulting payments to the Vendor. 
+27. Panasonic failed to maintain internal accounting controls reasonably designed to 
+ensure that the funds from the budget were used for their intended purposes and that Panasonic’s 
+books and records fairly reflected the transactions and dispositions of Panasonic’s assets. 
+28. As noted above, in 2010, PAC’s Internal Audit Department conducted an audit over 
+PAC’s use of certain third-party service providers, including consultants engaged through the 
+Vendor.  The resulting “Selected Vendor Audit Report” (“Report”) described a number of “critical 
+risk” and “high risk” observations, defined as issues that “could have material financial, internal 
+control or operational consequences” and that required immediate attention from PAC’s senior 
+management.  Specifically, the Report identified critical risks in connection with payments of 
+consultants through the Vendor, whose service agreement with PAC had expired in May 2009.  
+The Report further identified as “high risk” the retention of the Government Official and other 
+consultants, observing that between 2009 and 2010, the Government Official was not requested to 
+provide any services to PAC or Panasonic, and provided no deliverables, but “invoices [were] still 
+paid,” while deliverables from other consultants were not verified before invoices were paid.  
+Additionally, the report flagged as a “critical risk” the monthly payments of $10,000 to Consultant 
+One noting, “there was no information found in the [Vendor] agreement for this consultant.”  
+29. The Report was circulated to PAC senior executives.  The initial version of the 
+Report noted that PAC’s procurement department was “not involved in hiring these consultants” 
+and concluded that the “consultant payment should be carefully reviewed in light of FCPA 
+regulation.”  However, no one from PAC or Panasonic ever conducted any meaningful review or 
+follow-up to address the critical and high risk issues identified in the Report.  Although PAC 
+subsequently requested that the Vendor seek activity reports from the consultants, these activity 
+reports were provided to PAC only sporadically and listed little detail as to the nature of the 
+ 7 
+purported work performed.  The consultants continued to perform almost no work and PAC 
+continued to pay the consultants via the Vendor for several more years.   
+30. The payments to the consultants violated Panasonic’s Code of Conduct, which 
+specifically required all Panasonic employees to abide by “applicable laws and regulations” and 
+stated that Panasonic “[w]ill not engage in bribery of any kind.”  During the period that PAC used 
+the Office of the President budget to pay the aforementioned consultants, PAC had specific 
+policies and procedures concerning the retention and payment of consultants.  These policies set 
+out a number of requirements, including defining the scope of work and limiting a contract’s 
+duration to six months.  After February 2011, PAC recommended, but did not require, third-party 
+due diligence reports concerning the consultants.   
+31. Panasonic lacked sufficient internal accounting controls with respect to these 
+policies and procedures, and it failed to follow its policies and procedures in the retention of the 
+consultants described above. 
+Retention of Sales Agents 
+32. PAC’s practice of using sales agents, who solicited business for PAC from state-
+owned airlines and other customers, varied depending upon the sales region.  For example, in 
+Europe, Oceania, and the United States, PAC did not use sales agents.  By contrast, in its Middle 
+East, Asia, and China sales regions, PAC routinely engaged sales agents to obtain business from 
+state-owned airlines and other customers and typically paid them between six and ten percent of 
+the net contract amount.  Between 2007 and 2017, PAC paid its sales agents in the Middle East, 
+Asia, and China sales regions, including the Sales Rep, over $275 million. 
+33. By 2004, PAC had established regional field offices in the Middle East, Asia, and 
+China.  Moreover, by 2008 PAC’s primary regional office in Asia was staffed with numerous 
+marketing and sales personnel versed and trained in PAC’s products, as well as field engineers.  
+Nonetheless, PAC continued to use sales agents in connection with state-owned airlines and other 
+customers in this region. 
+34. Prospective sales agents would contact PAC sales and marketing employees in the 
+Asia and China regions and offer their services in connection with requests for proposals issued by 
+airlines for IFE products.  Vetting of the sales agents typically consisted of PAC having the agent 
+arrange a phone call or meeting between PAC and high level executives or procurement staff of a 
+potential customer.  In addition, PAC told at least one agent that he was expected to obtain 
+confidential, non-public bids of PAC’s competitors.  This sales agent used sales commissions 
+received from PAC to provide gifts, entertainment, and hospitality to government officials and 
+their families as part of his efforts on behalf of PAC. 
+35. While PAC historically conducted no meaningful due diligence on its sales agents, 
+beginning in at least 1996, PAC started including audit rights in its contracts with sales agents.  
+However, PAC did not exercise its audit rights in order to avoid upsetting relationships with the 
+agents.  In early 2007, PAC began to put in place due diligence procedures for screening sales 
+agents, including those agents with established relationships with PAC.  For sales agents that could 
+not pass the new procedures, PAC made arrangements for the sales agents to enter into sub-
+agreements with a Malaysia-based sales agent.  That agent ultimately served as a stand-in for at 
+ 8 
+least thirteen sales agents, some of which refused or failed the vetting process.  In this way, PAC 
+could continue to use sales agents who did not pass the screening requirements by concealing their 
+use and payment through the Malaysia-based sales agent.  PAC paid a one or two percent fee to the 
+Malaysian representative who acted as the conduit for payments to the other agents, despite the fact 
+that PAC policies explicitly prohibited the use of unapproved sales agents.  PAC falsely recorded 
+the payments to the sub-agents in its books and records as legitimate payments to the Malaysia-
+based sales agent. 
+36. Beginning in February 2009, PAC instituted a formal process to hire sales agents.  
+The new procedure set out a number of different requirements, including determining the need for 
+the agent, internal due diligence documentation, preliminary background checks, interviews, and 
+analysis of any red flags, before requesting that the prospective sales agent undergo a third-party 
+due diligence vetting process.  In addition, PAC regional sales and marketing staff would submit a 
+“Sales Representative Agreement Request” for review by PAC’s Legal Affairs Department.  
+Finally, all requests were to be routed to PAC’s Internal Review Committee (the “IRC”), staffed by 
+PAC executives, including PAC Executive One and another senior executive.   
+37. Notwithstanding the implementation of these procedures, the IRC never rejected a 
+request for use of a sales agent.  Prior to voting to approve sales agent contracts, the IRC typically 
+received a single-page form providing cursory information regarding the agent and contract.  The 
+due diligence information and red flags identified in the third-party reports were not communicated 
+to the IRC, and the IRC never questioned the need for the extensive use of sales agents or 
+requested to review due diligence reports.  Similarly, the IRC did not question the decrease in the 
+number of agents after third-party due diligence requirements were instituted, or the fact that a 
+little-known Malaysian company had the capacity to perform work for approximately fifty 
+programs with nearly twenty airlines.  Between 2008 and 2015, PAC paid over $10 million to the 
+Malaysian sales agent for the benefit of at least thirteen different unapproved sub-agents.  The IRC 
+approved all of the contracts with the Malaysian agent after February 2009. 
+38. Moreover, PAC’s compliance personnel lacked appropriate qualifications and 
+training, and as a result failed to act on numerous red flags in connection with the retention of sales 
+agents.  For example, they raised no questions or concerns about the retention of sales agents that 
+internal forms clearly disclosed were hired after “being recommended by airline.”  Nearly all of the 
+airlines internally described as recommending these sales agents were state-owned airlines in the 
+Asia and China Regions.       
+39. PAC’s compliance personnel failed to act on other red flags, including those that 
+were specifically identified in PAC’s own policies and procedures such as:  (a) payment of large 
+commissions to sales agents in relation to services rendered; (b) payments to bank accounts in 
+countries other than where services were being provided; (c) the retention of sales agents 
+recommended by state-owned airlines; and (d) lack of adequate educational, business, and 
+technical qualifications.  Examples of ignored red flags include payments of approximately $4 
+million to a sales agent whose primary work experience was as a Hong Kong department store 
+clerk, and nearly $10 million to an agent who had served as the head of an Asian equestrian league, 
+but had no relevant avionics experience.    
+ 9 
+40. Similarly, after a third-party vetting service discovered that one sales agent had 
+forged references, and another was flagged as potentially being a “foreign official” under the 
+FCPA, they were nevertheless engaged by PAC and simply paid as sub-agents through the 
+Malaysian agent.   
+41. As a result, Panasonic failed to devise and maintain a sufficient system of internal 
+accounting controls in connection with the retention of sales agents and failed to accurately record 
+the payments to the sales agents on its books and records. 
+Fraudulent Reporting of Revenue 
+42. During the time its securities were registered with the Commission, Panasonic filed 
+or furnished periodic reports with the Commission containing, among other things, Panasonic’s 
+consolidated financial statements.  The consolidated financial statements incorporated financial 
+information (e.g., net sales, pre-tax income, net income) of its numerous subsidiaries, including 
+PAC.  Panasonic reported to shareholders that the company’s consolidated financial statements 
+were prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). 
+43. Under GAAP, Accounting Standards Codification 605-10-25-1, Revenue 
+Recognition, provides that revenue should not be recognized until it is realized or realizable and 
+earned.  PAC’s revenue recognition policy, consistent with GAAP, set forth four requirements that 
+must generally be met before revenue can be realized and earned: 1) persuasive evidence of 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) collectability is reasonably assured. Based on PAC’s 
+revenue recognition policy, and its customary business practice of requiring a written sales 
+agreement from customers such as Government Airline, it could not recognize revenue for a 
+quarter unless, among other requirements, a contract was signed by the customer during the quarter 
+in which the revenue was recognized. Furthermore, PAC was repeatedly advised by its external 
+auditor (“Auditor”) that a signed contract was necessary to recognize revenue from customers such 
+as the Government Airline. 
+44. As early as 2006, PAC backdated certain customer contracts in order to recognize 
+revenue in time periods prior to when those contracts were actually signed. 
+45. For example, in June 2012, PAC and the Government Airline were negotiating 
+Amendment Six to the MPSA, but were unable to reach agreement on all of the terms of the 
+contract.  While the negotiations were ongoing and it appeared that Amendment Six would not be 
+signed by the end of June, PAC sought the advice of its Auditor about options to satisfy the 
+requirement that persuasive evidence of an agreement existed.  Consistent with the Auditor’s prior 
+advice, and PAC’s past practice in accounting for agreements with the Government Airline, the 
+Auditor advised PAC that PAC could recognize revenue from Amendment Six in the quarter 
+ending June 30, 2012 (“First Quarter”) if the agreement was signed prior to the end of June 2012. 
+46. PAC’s senior executives understood that recognizing revenue from Amendment Six 
+in the First Quarter was critical to Panasonic.  For example, on June 23, 2012, a Panasonic 
+executive who also served as a senior PAC executive told PAC Executive One and another senior 
+executive (“PAC Executive Two,” who was seconded from Panasonic) that failing to recognize 
+ 10 
+revenue from Amendment Six “is a big problem for all of us.”  Similarly, on June 25, 2012 a 
+Panasonic accounting employee told PAC Executive Two that “it will be a big problem if this 
+contract fails to be signed.”  
+47. Accordingly, PAC advised the Government Airline that it needed a signed contract 
+before the end of June 2012.  However, the Government Airline was seeking additional discounts 
+and did not execute Amendment Six before June 30, 2012.   
+48. On July 1, 2012, PAC’s contracts manager informed several PAC executives, 
+including PAC Executive Two, that Amendment Six still had not been signed.  Less than an hour 
+later, PAC Executive Two advised accounting staff at Panasonic that the Government Airline had 
+not yet signed Amendment Six.  In response, a Panasonic accounting executive voiced concern 
+regarding whether the Auditor would approve recognition of revenue for Amendment Six without 
+a signed contract. 
+49. On July 2, 2012, the Government Airline advised PAC that it had signed 
+Amendment Six, but refused to provide a copy of the executed contract because the Government 
+Airline wanted additional discounts. 
+50. On July 3, 2012, the Government Airline provided PAC with an executed, but 
+undated, signature page for Amendment Six.  A PAC contracts manager then caused the date June 
+28, 2012 to be added to the Government Airline signature page even though he and other PAC 
+employees and executives knew that it was not signed on that date and that the Government Airline 
+was still seeking additional pricing discounts.   
+51. Thereafter, PAC sought to persuade the Auditor that Amendment Six revenue could 
+be recognized in the First Quarter, despite the fact that no PAC executive had signed the agreement 
+before the end of the quarter.  Several PAC employees falsely represented to the Auditor that 
+Amendment Six had been signed on June 28, 2012.  PAC Executive Two told a Panasonic 
+accounting employee in a Japanese language email that the Auditor had initially determined that 
+PAC should not include the revenue in the First Quarter, but that PAC had convinced the Auditor, 
+using a Japanese phrase subject to differing translations including “tweaks and tricks” and “tricks.” 
+52. In mid-July 2012, PAC provided the Auditor with a Consolidation Package with 
+PAC’s financial statements for the First Quarter.  PAC included over $82 million of improperly 
+recognized revenue from Amendment Six in these financial statements.  PAC Executive Two 
+signed a letter to the Auditor accompanying PAC’s financial statements, representing that the 
+financial information had been presented in conformity with GAAP. 
+53. At that time, PAC Executive Two knew or was reckless in not knowing that:  (1) 
+PAC’s revenue recognition policy, which was consistent with GAAP, required persuasive evidence 
+of an arrangement in order for the company to recognize revenue; (2) PAC’s Auditor had 
+specifically advised that Amendment Six needed to be signed before the end of the quarter in order 
+to serve as persuasive evidence of an arrangement and satisfy its revenue recognition requirements; 
+(3) the Government Airline had not signed Amendment Six before the end of the quarter, and (4) 
+Panasonic’s financial statements  nevertheless prematurely recognized approximately $82 million 
+of revenue for Amendment Six in the First Quarter. 
+ 11 
+54. Panasonic failed to accurately record the revenue from Amendment Six in its books 
+and records, and it failed to devise and maintain internal accounting controls sufficient to provide 
+reasonable assurances that transactions are recorded as necessary to permit preparation of financial 
+statements in conformity with GAAP.  PAC’s financial results for the First Quarter – including 
+approximately $82 million of improperly recognized revenue and associated pre-tax income of 
+$38.5 million and net income of $22.4 million – were incorporated into Panasonic’s consolidated 
+financial statements for the First Quarter.  Panasonic’s financial results and consolidated financial 
+statements for the First Quarter were furnished to the Commission on Forms 6-K filed with the 
+Commission on or about August 2, 2012, and on or about August 21, 2012. 
+55. As a result of its premature recognition of revenue in connection with Amendment 
+Six, Panasonic materially misstated pre-tax income by at least $38.5 million or 9%, and net income 
+by at least $22.4 million or 16% , in its Form 6-K for the First Quarter 2012.  
+LEGAL STANDARDS AND VIOLATIONS 
+56. As a result of the conduct described above, Panasonic violated Section 30A of the 
+Exchange Act, which prohibits any issuer with a class of securities registered pursuant to Section 
+12 of the Exchange Act, or any officer, director, employee, or agent acting on behalf of such 
+issuer, in order to obtain or retain business, from corruptly giving or authorizing the giving of, 
+anything of value to any foreign official for the purposes of influencing the official or inducing 
+the official to act in violation of his or her lawful duties, or to secure any improper advantage, or 
+to induce a foreign official to use his influence with a foreign governmental instrumentality to 
+influence any act or decision of such government or instrumentality.   
+57. As a result of the conduct described above, Panasonic violated Section 
+13(b)(2)(A) of the Exchange Act, which requires issuers that have a class of securities registered 
+pursuant to Section 12 of the Exchange Act and issuers with reporting obligations pursuant to 
+Section 15(d) of the Exchange Act to make and keep books, records, and accounts which, in 
+reasonable detail, accurately and fairly reflect their transactions and disposition of their assets. 
+58. As a result of the conduct described above Panasonic violated Section 13(b)(2)(B) 
+of the Exchange Act, which requires issuers that have a class of securities registered pursuant to 
+Section 12 of the Exchange Act and issuers with reporting obligations pursuant to Section 15(d) 
+of the Exchange Act to devise and maintain a system of internal accounting controls sufficient to 
+provide reasonable assurances that (i) transactions are executed in accordance with 
+management’s general or specific authorization; (ii) transactions are recorded as necessary (I) to 
+permit preparation of financial statements in conformity with generally accepted accounting 
+principles or any other criteria applicable to such statements, and (II) to maintain accountability 
+for assets; (iii) access to assets is permitted only in accordance with management’s general or 
+specific authorization; and (iv) the recorded accountability for assets is compared with the 
+existing assets at reasonable intervals and appropriate action is taken with respect to any 
+differences. 
+59. As a result of the conduct described above, Panasonic violated Section 10(b) of 
+the Exchange Act and Rule 10b-5 thereunder, which prohibit any person from making any untrue 
+statement of a material fact or omitting to state a material fact necessary in order to make the 
+statements made, in the light of the circumstances under which they were made, not misleading, 
+in connection with the purchase and sale of a security.   
+ 12 
+60. As a result of the conduct described above, Panasonic violated Section 13(a) of 
+the Exchange Act and Rules 13a-16 and 12b-20 thereunder.  Section 13(a) requires issuers to file 
+periodic and other reports as the Commission may prescribe and in conformity with such rules as 
+the Commission may promulgate.  Rule 13a-16 of the Exchange Act requires each foreign 
+private issuer to furnish information on Form 6-K as specified in the Rule.  Rule 12b-20 of the 
+Exchange Act requires that the reports contain such further material information, if any, as may 
+be necessary to make the required statements, in light of the circumstances under which they are 
+made not misleading. 
+DEFERRED PROSECUTION AGREEMENT 
+61. Panasonic’s subsidiary PAC has entered into a deferred prosecution agreement 
+with the Department of Justice that specifically acknowledges responsibility for criminal conduct 
+relating to findings in the Order. 
+PANASONIC’S REMEDIAL EFFORTS  
+62. In determining to accept the Offer, the Commission considered remedial efforts 
+undertaken by Respondent and cooperation afforded the Commission staff in the later stages of 
+the staff’s investigation.  Respondent has replaced the senior PAC executives involved in the 
+violations, established an Office of Compliance and Ethics led by a new Chief Compliance 
+Officer, implemented new compliance and accounting procedures, and enhanced internal 
+accounting controls to prevent and detect the type of misconduct described in the Order. 
+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: 
+ A. Pursuant to Section 21C of the Exchange Act, Respondent cease-and-desist from 
+committing or causing any violations and any future violations of Sections 10(b), 13(a), 13(b)(2)(A) 
+13(b)(2)(B), and 30A of the Exchange Act, and Rules 10b-5, 12b-20, and 13a-16 thereunder. 
+ B. Respondent shall, within 10 days of the entry of this Order, pay disgorgement of  
+$126,900,000 and prejudgment interest of $16,299,018.93, for a total payment of $143,199,018.93 
+to the Securities and Exchange Commission for remission to the United States Treasury, subject to 
+Exchange Act Section 21F(g)(3).  If timely payment is not made, additional interest shall accrue 
+pursuant to SEC Rule of Practice 600.  Payment must be made in one of the following ways:   
+(1)  Respondent may transmit payment electronically to the Commission, which will 
+provide detailed ACH transfer/Fedwire instructions upon request;  
+(2)  Respondent may make direct payment from a bank account via Pay.gov through the 
+SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+(3)  Respondent may pay by certified check, bank cashier’s check, or United States 
+postal money order, made payable to the Securities and Exchange Commission and 
+hand-delivered or mailed to:  
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+ 13 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+Payments by check or money order must be accompanied by a cover letter identifying 
+Panasonic as Respondent in these proceedings, and the file number of these proceedings.  A copy 
+of the cover letter and check or money order must be sent to Charles Cain, Chief, FCPA Unit, 
+Division of Enforcement, Securities and Exchange Commission, 100 F Street, N.E., Washington, 
+DC 20549.   
+ By the Commission. 
+ 
+       Brent J. Fields 
+       Secretary 

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+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 83168 / May 4, 2018 
+ 
+INVESTMENT ADVISERS ACT OF 1940 
+Release No. 4906 / May 4, 2018 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3939 / May 4, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-18466 
+ 
+ 
+ 
+ 
+In the Matter of 
+ 
+Winter, Kloman, Moter & 
+ Repp, S.C., 
+ Curtis W. Disrud, CPA, 
+ and Paul R. Sehmer, CPA, 
+ 
+Respondents. 
+ 
+ ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTION 203(k) OF THE INVESTMENT 
+ADVISERS ACT OF 1940, SECTIONS 4C 
+AND 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 
+Winter, Kloman, Moter & Repp, S.C., Curtis W. Disrud, CPA, and Paul R. Sehmer, CPA 
+(collectively “Respondents”) pursuant to Section 203(k) of the Investment Advisers Act of 
+1940 (“Advisers Act”), Sections 4C1 and 21C of the Securities Exchange Act of 1934 
+                                                 
+1 Section 4C provides, in pertinent part, that:    
+The Commission may censure any person, or deny, temporarily or permanently, to any person the 
+privilege of appearing or practicing before the Commission in any way, if that person is found . . . (1) 
+not to possess the requisite qualifications to represent others . . . (2) to be lacking in character or 
+integrity, or to have engaged in unethical or improper professional conduct; or (3) to have willfully 
+violated, or willfully aided and abetted the violation of, any provision of the securities laws or the rules 
+and regulations thereunder. 
+2 
+ 
+(“Exchange Act”) and Rule 102(e)(1)(ii) and 102(e)(1)(iii) of the Commission’s Rules of 
+Practice.2 
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondents have submitted 
+Offers of Settlement (the “Offers”) which the Commission has determined to accept.  Solely 
+for the purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the 
+findings herein, except as to the Commission’s jurisdiction over them and the subject matter of 
+these proceedings, which are admitted, Respondents consent to the entry of this Order 
+Instituting Public Administrative and Cease-And-Desist Proceedings Pursuant to Section 
+203(k) of the Investment Advisers Act of 1940, Sections 4C and 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 Respondents’ Offers, the Commission finds3 that: 
+ 
+SUMMARY 
+  
+1. This matter involves misconduct by Respondents in completing audits pursuant 
+to Section 206(4) of the Advisers Act and Rule 206(4)-2 thereunder (the “Custody Rule”).  For 
+2014 and 2015, Winter, Kloman, Moter & Repp, S.C. (“WKMR”) was engaged by Voit Fund 
+GP, LLC (“Voit Fund GP”), an affiliate of Voit & Company, LLC (“Voit”), an SEC-registered 
+investment adviser, to audit the financial statements in accordance with generally accepted 
+accounting principles (“GAAP”) of six pooled investment vehicles (the “Funds”) that Voit 
+advised.  Voit Fund GP also engaged WKMR to audit the Funds.  Voit and Voit Fund GP took 
+these steps to in an effort to enable Voit to comply with the Custody Rule because Voit had 
+custody of client assets invested in the Funds.  
+                                                 
+2  Rule 102(e)(1)(ii) provides, in pertinent part, that:   
+The Commission may . . . deny, temporarily or permanently, the privilege of appearing or pr acticing 
+before it . . . to any person who is found . . . to have engaged in unethical or improper professional 
+conduct. 
+ 
+   Rule 102(e)(1)(iii) provides, in pertinent part, that:   
+The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing 
+before it . . . to any person who is found…to have willfully violated, or willfully aided and abetted the 
+violation of any provision of the Federal securities laws or the rules and regulations thereunder.  
+ 
+3  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 
+ 
+2. Unbeknownst to Voit, WKMR, and two partners on the engagements, Curtis W. 
+Disrud (“Disrud”) and Paul R. Sehmer, CPA (“Sehmer”), failed to meet the requirements of the 
+Custody Rule in conduct their audits of the Funds.  First, WKMR, Disrud, and Sehmer were 
+not independent accountants because: (1) they prepared the Funds’ 2014 and 2015 Financial 
+Statements which they audited; and (2) WKMR had a direct business relationship with Voit 
+because a WKMR affiliate, WKMR Financial Group, LLC (“WKMR Financial”) referred 
+advisory clients to Voit in return for a fee.  Second, WKMR was not subject to regular 
+inspection by the Public Company Accounting Oversight Board (the “PCAOB”) at the time of 
+the audits.  As a result, Respondents WKMR and Disrud caused and willfully aided and abetted 
+Voit’s 2014 and 2015 violations of the Custody Rule within the meaning of Section 4C of the 
+Exchange Act and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice, and Respondent 
+Sehmer caused Voit’s 2015 violations of the Custody Rule. 
+ 
+3. In addition, the Respondents engaged in improper professional conduct within 
+the meaning of Section 4C of the Exchange Act and Rule 102(e)(1)(ii) of the Commission’s 
+Rules of Practice by: WKMR and Disrud failing to design and implement an appropriate 
+response to the risk of material misstatement and failing to obtain sufficient appropriate audit 
+evidence; WKMR failing to ensure that the engagement team had adequate technical training 
+and proficiency and failing to establish sufficient quality control standards; WKMR and 
+Sehmer failing to conduct the necessary engagement quality reviews and receive concurring 
+approvals; and WKMR, Disrud and Sehmer failing to exercise due professional care.  
+ 
+RESPONDENTS 
+ 
+4. Winter, Kloman, Moter & Repp, S.C., is a Wisconsin service corporation 
+headquartered in Brookfield, Wisconsin.  WKMR is a certified public accounting firm offering 
+audit, accounting, tax and business consulting services to closely held enterprises.  During the 
+period in question, WKMR had eight shareholders, including Disrud and Sehmer.  WKMR 
+registered with the PCAOB in May 2015 but was not subject to regular inspection until January 
+4, 2016. 
+ 
+5. Curtis W. Disrud, age 54, of Oconomowoc, Wisconsin, has been employed at 
+WKMR since 1988, and has been a shareholder since 1999.  Disrud has been WKMR 
+Financial Group, LLC’s Manager since January 2016.  Disrud has been a licensed CPA in 
+North Dakota since 1986, in Wisconsin since 1988, and in Illinois since 2016.  He holds a 
+Series 65 license. 
+ 
+6. Paul Sehmer, age 56, of Waukesha, Wisconsin, has been employed at WKMR 
+since 1998, and has been a shareholder since 1998.  Sehmer has been a licensed CPA in 
+Wisconsin since 1987 and in Washington D.C. since 2009. 
+ 
+  
+4 
+ 
+OTHER RELEVANT PARTIES 
+ 
+7. Voit & Company, LLC, (SEC File No. 801-60937) is a Wisconsin limited 
+liability company headquartered in Brookfield, Wisconsin.  It has been registered as an 
+investment adviser with the Commission since 2002.  Voit provides discretionary and non-
+discretionary investment management services, consulting services, and non-managed account 
+services, and is the investment manager for Voit Fund GP, a Voit affiliate which offers limited 
+partnership interests in the Funds.  Voit is the investment adviser to the Funds.  Voit’s assets 
+under management (“AUM”) were $196.9 million as of September 28, 2017.  Voit is owned by 
+Todd K. Voit (“T. Voit”). 
+ 
+8. Voit Fund GP, LLC, a Delaware limited liability company formed in 
+December 2013 and headquartered in Brookfield, Wisconsin, is the general partner of the 
+Funds.  Voit Fund GP is owned by T. Voit.  
+ 
+9. WKMR Financial Group, LLC, is a Wisconsin limited liability company 
+headquartered in Brookfield, Wisconsin.  It has been registered as an investment adviser with 
+the State of Wisconsin since 1999, and is wholly-owned by WKMR. WKMR Financial offers 
+personal financial planning, income tax planning, estate planning, and retirement planning.  Its 
+main advisory service involves recommending other investment management firms, including 
+Voit, to clients as well as assisting clients in evaluating other managers. 
+ 
+FACTS 
+ 
+10. Between at least December 2013 and December 2015, Voit had custody of 
+client assets invested in the Funds and was required to comply with the Custody Rule.  
+ 
+11. The Custody Rule requires, among other things, that registered investment 
+advisers with custody of client assets maintain those funds and securities with a qualified 
+custodian, who must provide account statements to the investors at least quarterly, and requires 
+client assets to be verified through an annual surprise examination by an independent public 
+accountant. 
+ 
+12. An adviser does not have to comply with certain Custody Rule requirements if, 
+in connection with a limited partnership, it completes and distributes annual audited financial 
+statements prepared in accordance with GAAP to each limited partner within 120 days of the 
+end of the partnership’s fiscal year (the “Audit Exception”).  See Rule 206(4)-2(b)(4) under the 
+Advisers Act.  The financial statements must also be audited in accordance with generally 
+accepted auditing standards for the purpose of expressing an opinion therein.  The financial 
+statements are required to be audited by an independent public accountant that is registered 
+with, and subject to regular inspection as of the commencement of the professional 
+engagement period, by the PCAOB (emphasis added).  See Rule 206(4)-2(b)(4)(i and ii) under 
+the Advisers Act.  To be considered independent, a public accountant must meet the standards 
+5 
+ 
+of independence described in Rule 2-01(b) and (c) of Regulation S-X.  See Rule 206(4)-2(d)(3) 
+under the Advisers Act. 
+ 
+Voit Fund GP Engaged WKMR to 
+Complete the Funds’ 2014 and 2015 Audits 
+ 
+13. Voit Fund GP engaged WKMR to perform annual audits for the Funds for the 
+years ended December 31, 2014 and 2015, and distributed the audited financial statements to 
+each limited partner.  The audit reports for each year stated that the audits were performed in 
+accordance with PCAOB standards.  Voit Fund GP distributed the Funds’ financial statements 
+to each limited partner within 120 days of the end of each partnership’s fiscal year. WKMR 
+knew that the Funds’ audits were being performed so that Voit could comply with the Custody 
+Rule. 
+ 
+14. Disrud was the WKMR engagement partner on both audits, and was thus 
+ultimately responsible for the Funds’ audit engagements and their performance, and for 
+WKMR’s audit reports. 
+ 
+15. Sehmer was the WKMR independent partner reviewer4 on both audits, and also 
+the EQ Reviewer on the 2015 audit.  As independent partner reviewer, Sehmer was responsible 
+for reviewing the audit file and financial report for completeness, and for reviewing the 
+financial report and statements before they were issued.  As EQ Reviewer, Sehmer was 
+responsible for meeting the requirements of PCAOB Auditing Standard 7, Engagement Quality 
+Review (“AS 7”). 
+ 
+WKMR was not Independent because it both Prepared 
+and Audited the Funds’ 2014 and 2015 Financial Statements 
+ 
+16. WKMR was not independent because it prepared the Funds’ 2014 and 2015 
+financial statements and notes to the financial statements, which it then audited.  
+ 
+17. Each year, Voit provided WKMR with accounting records, including excel files 
+and brokerage account statements, partnership agreements, and other information.  WKMR 
+performed audit procedures to test the financial data contained in these documents, and then 
+used the information to create the financial statements and the accompanying notes.  The 
+engagement team used an example financial statements and notes provided in the American 
+Institute of Certified Public Accountants (“AICPA”) Audit and Accounting Guide, Investment 
+Companies as a template to prepare the Funds’ financial statements and notes. 
+ 
+18. After the engagement team drafted the financial statements and notes, it 
+provided T. Voit with drafts, so that he could review, suggest changes, and approve them. 
+ 
+                                                 
+4  An “independent partner reviewer” was a quality control policy established by WKMR for all audits, and is 
+not required under  PCAOB standards. 
+6 
+ 
+19. Under Rule 2-01(c)(4)(i) of Regulation S-X, an accountant is not independent if 
+he provides certain bookkeeping or other services, related to the accounting records or financial 
+statements unless it is reasonable to conclude that the results of those services will not be 
+subject to audit procedures during an audit of the audit client’s financial statements. 
+ 
+20. The financial statements and accompanying notes that WKMR prepared were 
+subject to the audit procedures that WKMR performed during its audits of the Funds.  The 
+WKMR engagement team analyzed whether WKMR’s preparation of the financial statements 
+and notes impaired WKMR’s independence.  The WKMR engagement team erroneously 
+concluded that independence was not impaired.  Although this conclusion was documented in 
+WKMR’s workpapers, WKMR included no analysis to support the conclusion. 
+ 
+WKMR was not Independent because it had a  
+Direct Business Relationship with its Audit Client 
+ 
+21. WKMR was not independent because WKMR Financial had a direct business 
+relationship with Voit. 
+ 
+22. During the relevant period, WKMR Financial and Voit had a referral fee 
+arrangement.  The main advisory service of WKMR Financial involved recommending other 
+investment management firms, including Voit, to its clients.  In exchange, WKMR Financial 
+received a percentage of the annual fee that the investment adviser receives from those referred 
+clients.  WKMR Financial did not receive any referral fees from Voit if the client did not 
+become an investment management client, nor did it receive any referral fees for referring 
+clients who invested in the Voit Funds. 
+ 
+23. Disrud and Sehmer, as WKMR partners, are indirect owners of WKMR 
+Financial, meaning that they receive a portion of the income that WKMR Financial generates.  
+Disrud has also been WKMR Financial’s Manager since January 2016, but Sehmer has no 
+other involvement with WKMR Financial. 
+ 
+24. Under Rule 2-01(c)(3) of Regulation S-X, an accountant is not independent if it 
+has a direct business relationship with an audit client.  Under Rules 2-01(f)(1) and 2-01(f)(2) of 
+Regulation S-X, the term “accountant” includes both the registered public accounting firm, 
+such as WKMR, and its subsidiaries, such as WKMR Financial.  Under Rules 2-01(f)(6) and 
+Rule 2-06(f)(4) of Regulation S-X, the term “audit client” includes all entities under the 
+common control of the audit client.  Voit Fund GP and Voit were both under the control of T. 
+Voit.  As such, Voit was an affiliate of Voit Fund GP. 
+ 
+25.  WKMR had a direct business relationship with Voit because WKMR 
+Financial, an affiliate of WKMR, provided advisory services and recommended Voit to its 
+clients and, in exchange, received a fee from Voit.  For 2014 and 2015, all of WKMR 
+Financial’s income came from Voit, and WKMR Financial’s net income for 2014 and 2015 
+was approximately $217,000 and $233,000, respectively.  The WKMR engagement team did 
+7 
+ 
+not analyze whether WKMR was considered to have a direct business relationship with its 
+audit client.  
+ 
+WKMR was not Subject to Regular PCAOB Inspection  
+as of the Beginning of the Audit Engagement Periods 
+ 
+26. WKMR was not subject to regular PCAOB inspection as of the beginning of 
+the 2014 and 2015 Funds’ engagement periods.  WKMR has never issued audit reports for an 
+issuer.   
+ 
+27. WKMR’s first broker-dealer audit (“Broker-Dealer Audit”) was concurrent 
+with the 2015 Funds’ audits.  The engagement period for the 2015 Funds’ audits began the date 
+of the engagement letter, December 29, 2015.  WKMR’s engagement period for the Broker-
+Dealer Audit began afterwards, on January 4, 2016, the date of the engagement letter.   
+Therefore, WKMR became subject to regular PCAOB inspection as of January 4, 2016. 
+ 
+28. In order to be subject to regular PCAOB inspection, a PCAOB registered public 
+accountant must have issued an audit report with respect to at least one issuer during any of the 
+three prior calendar years, or be engaged to audit the financial statements of a broker or dealer.  
+See PCAOB Rule 4003, Frequency of Inspections; PCAOB Rule 4020T, Interim Inspection 
+Program Related to Audits of Brokers and Dealers. 
+ 
+29. Under Regulation S-X, the professional “engagement period” begins the earlier 
+of when the accountant signs an initial engagement letter (or other agreement to review of audit 
+a client’s financial statements) or begins audit, review, or attest procedures.  See Rule 2-
+01(f)(5) of Regulation S-X. 17 C.F.R. § 210.2-01(f)(5). 
+ 
+30. Because WKMR had neither issued an audit report as to an issuer nor been 
+engaged to audit a broker or dealer as of the beginnings of the 2014 and 2015 audit 
+engagement periods for Voit, it was not subject to PCAOB inspection at those times. 
+ 
+31. As a result of the conduct described in paragraphs 16 through 30 above, Voit 
+was not in compliance with the Custody Rule and did not qualify for the audit exception to the 
+Custody Rule. 
+ 
+The 2014 and 2015 Funds’ Audits  
+Were Not Conducted in Accordance with  
+Certain Applicable Professional Standards 
+ 
+32. WKMR’s audit reports for the 2014 and 2015 Funds’ audits state that the audits 
+were performed in accordance with PCAOB standards.  However, in connection with the audits 
+of the Funds, WKMR and Disrud, for 2014 and 2015, and Sehmer, for 2015, failed to adhere to 
+certain professional auditing standards, and WKMR for 2014 and 2015 failed to adhere to 
+certain professional quality control standards as described in paragraphs 33 through 64 below.  
+8 
+ 
+ 
+Failure to Design and Implement an Appropriate Response to the Risk of Material 
+Misstatement 
+ 
+33. WKMR and Disrud failed to design and implement an appropriate audit 
+response that resulted in it obtaining reliable evidence that verified the existence and 
+completeness of Voit Funds’ investments.   
+ 
+34. The WKMR engagement team performed a risk assessment during the planning 
+of the 2014 and 2015 audits, memorializing in the workpapers that the largest audit risk for 
+both years was that the “investor’s money is not invested properly or not invested at all.”   
+ 
+35. WKMR’s audit reports for the Funds’ financial reports in 2014 and 2015 both 
+stated “Our procedures included confirmation of securities owned…by correspondence with 
+the custodian and broker.” 
+ 
+36. The WKMR engagement team, however, did not obtain confirmations from a 
+third party, and there is no evidence of any correspondence with the custodian or broker-dealer 
+to confirm securities owned by the Funds.  Instead, each year, a WKMR staff accountant 
+watched a Voit employee download and print the Funds’ year end account statements from the 
+purported website of Custodian A, the Funds’ custodian and broker.   
+ 
+37. The downloaded account statements were not reliable evidence because 
+WKMR did not maintain control over the process and communicate with a third party – the 
+information was obtained by a Voit employee from a website that was under the control of 
+Voit. 
+ 
+38. WKMR’s appropriate audit response required WKMR to send Custodian A a 
+confirmation request, in accordance with AU 330, to verify that the Funds’ assets were not 
+materially misstated.  Because neither WKMR nor Disrud did so, they violated AS 13. 
+ 
+39. In connection with the 2014 audits, Sehmer suggested that “in future audits, we 
+may want to consider having Schwab send us their certified investment statements directly.”  
+There is no evidence that Disrud instructed the engagement team to request confirmations 
+directly from Custodian A in connection with the 2015 audits. 
+ 
+40. PCAOB Auditing Standard No. 13, The Auditor’s Response to the Risks of 
+Material Misstatement (“AS 13”) establishes requirements regarding designing and 
+implementing appropriate responses to the risks of material misstatement identified by the 
+auditor.  See AS 13 ¶ 1.  Auditors identify and assess risks in accordance with PCAOB 
+Auditing Standard No. 12, Identifying and Assessing Risks of Material Misstatement (“AS 
+12”).  For significant risks, the auditor should perform substantive procedures that are 
+specifically responsive to the assessed risks.  See AS 12 ¶ 11.  Substantive procedures 
+9 
+ 
+generally provide persuasive evidence when they are designed and performed to obtain 
+evidence that is relevant and reliable.  See AS 12 ¶ 39. 
+ 
+41. PCAOB AU Section 330, The Confirmation Process (“AU 330”) provides 
+guidance about the audit confirmation process, including the relationship of confirmation 
+procedures to the assessment of audit risk and performing alternative procedures when 
+responses to confirmation requests are not received.  Confirmation is the process of obtaining 
+and evaluating a direct communication from a third party in response to a request for 
+information about a particular item affecting financial statement assertions, including those 
+relating to existence and completeness.  See AU 330 at .04 and .11.  An auditor should 
+maintain control over confirmation requests and responses, which means establishing direct 
+communication between intended recipient and the auditor to minimize the possibility that the 
+results will be biased because of interception and alteration. See AU 330 at .28.  WKMR failed 
+to adhere to this guidance. 
+ 
+Failure to Obtain Sufficient Appropriate Audit Evidence 
+ 
+42. By failing to obtain third-party confirmation, WKMR and Disrud failed to 
+obtain sufficient appropriate audit evidence to support WKMR’s statement in the audit reports 
+that its procedures included confirmation of securities, in accordance with PCAOB Auditing 
+Standard  No. 15, Audit Evidence (“AS 15”). 
+ 
+43. AS 15 explains what constitutes audit evidence, and establishes the requirement 
+to plan and perform audit procedures to obtain sufficient appropriate audit evidence to support 
+the opinion in the auditor’s report.  See AS 15 ¶ 1 and ¶ 3.  To be appropriate, audit evidence 
+must be both relevant and reliable in providing support for the conclusions on which the 
+auditor’s opinion is based.  See AS 15 ¶ 6.  The reliability of evidence depends on its nature 
+and source, and the circumstances under which it is obtained.  Evidence obtained directly by 
+the auditor and from an independent third party is more reliable than evidence obtained directly 
+from the company.  See AS 15 ¶ 8.  A confirmation response represents a specific form of audit 
+evidence obtained by an auditor from a third party in accordance with AU  330 (emphasis 
+added).  See AS 15 ¶ 18.  WKMR failed to adhere to this guidance in its confirmation of 
+securities. 
+ 
+Failure to Have Adequate Technical Training and Proficiency 
+ 
+44. WKMR failed to ensure that the engagement team had adequate knowledge and 
+understanding of, and training and proficiency in, the Custody Rule, the PCAOB standards, 
+and the applicable SEC independence rules, in accordance with PCAOB AU Section 210, 
+Training and Proficiency of the Independent Auditor (“AU 210”). 
+ 
+45. The WKMR engagement team conducted the Funds’ audits without any prior 
+experience with SEC-registered clients or clients affiliated with an SEC registrant.  Voit Fund 
+GP was WKMR’s first client affiliated with an SEC-registered investment adviser. 
+10 
+ 
+ 
+46. The WKMR engagement team also conducted the Funds’ audits without proper 
+training in PCAOB standards and SEC independence rules.  WKMR conducted no relevant 
+firm-wide training prior to, or in conjunction with, the Funds’ audits.  WKMR’s workpapers 
+for the Funds’ audits do not document that any member of the engagement team reviewed the 
+PCAOB standards, which they claimed to have applied, or the SEC independence rules.  
+During the relevant time, there was also no reference in the workpapers to the SEC’s 
+independence standards in the firm’s quality control policies and procedures.  Disrud’s only 
+PCAOB training in conjunction with the Funds’ audits was in March 2015, when he viewed a 
+webinar regarding the results of PCAOB inspections. 
+ 
+47. PCAOB Quality Control Standards require an auditing firm to establish policies 
+and procedures which provide the firm with reasonable assurance that work is assigned to 
+personnel having the degree of technical training and proficiency required in the circumstances. 
+See PCAOB Quality Control standard 20, System of Quality Control for a CPA Firm’s 
+Accounting and Auditing Practice, at .13 and PCAOB Quality Control standard 40, The 
+Personnel Management Element of a Firm's System of Quality Control-Competencies 
+Required by a Practitioner-in-Charge of an Attest Engagement, at .02.  These standards also 
+require the firm to establish policies specifically designed to address the competencies of audit 
+partners, including a requirement that practitioners-in-charge of the applicable auditing 
+standards and standards directly related to the industry in which a client operates. See QC 
+40.08. 
+ 
+48. AU 210 requires that the audit be performed by a person or persons having 
+adequate technical training and proficiency as an auditor.  See AU 210 at .01.  Likewise, 
+PCAOB Quality Control standards require that “[p]olicies and procedures should be 
+established to provide the firm with reasonable assurance that the work performed by 
+engagement personnel meets applicable professional standards, regulatory requirements, and 
+the firm’s standards of quality.” QC 20.17.  Firm policies and procedures should also provide 
+reasonable assurance that the policies and procedures established for the elements of quality 
+controls described in the standard are “suitably designed and are being effectively applied.”  
+QC 20.20; see also AU 161. 
+ 
+Failure to Obtain the Necessary Engagement Quality Reviews and Concurring Approvals 
+ 
+49. WKMR, for 2014 and 2015, and Sehmer, for 2015, failed to conduct the 
+necessary engagement quality reviews (“EQRs”) and concurring approvals, in accordance with 
+PCAOB AS No. 7, Engagement Quality Review (“AS 7”).   
+ 
+50. WKMR failed to designate an EQ Reviewer and obtain an EQR and concurring 
+approval in connection with the 2014 Funds audits.  Sehmer acted only as the “independent 
+partner reviewer” for these audits, and only consulted on certain issues, and reviewed the 
+financial report and the audit file for completeness.  He did none of the work described in AS 
+7. 
+11 
+ 
+51. Although Sehmer was EQ Reviewer and performed an EQR for the 2015 
+Funds’ audits, he failed to perform his duties in accordance with AS 7.  His only involvement 
+in the planning and risk assessment process was that he made himself available to answer 
+engagement team questions.  He did not review any of the risk assessment audit programs or 
+the “Audit Strategy Memo,” which included the engagement team’s risk assessment and the 
+audit procedures planned to respond to the risks identified.  The two major issues that Sehmer 
+consulted on - independence and sending confirmations - were not performed in accordance 
+with PCAOB standards.  Sehmer also did not provide concurring approval for the 2015 Funds’ 
+audits. 
+ 
+52. An EQR and concurring approval of issuance are required for audit 
+engagements conducted pursuant to the PCAOB standards.  See AS 7 ¶ 1. 
+ 
+53. AS 7 requires that the EQ Reviewer possess the level of knowledge and 
+competence related to accounting, auditing, and financial reporting required to serve as the 
+engagement partner on the engagement under review.  See AS 7 ¶ 5.  The EQ Reviewer 
+should: 
+ 
+a) Evaluate significant judgments made by engagement team and the related 
+conclusions reached.  To do so, the EQ Reviewer should hold discussions 
+with the partner and team, and review documentation.  See AS 7 ¶ 9. 
+ 
+b) Evaluate the engagement team’s assessment of, and audit responses to, 
+significant risks identified by the engagement team.  See AS 7 ¶ 10b. 
+ 
+c) Review the engagement team’s evaluation of the firm's independence in 
+relation to the engagement.  See AS 7 ¶ 10d. 
+ 
+d) Evaluate whether the engagement documentation indicates that the 
+engagement team responded appropriately to significant risks, and supports 
+the conclusions reached by engagement team.  See AS 7 ¶ 11. 
+ 
+54. The EQ Reviewer may also provide concurring approval if, after performing 
+with due professional care, he or she is not aware of a significant engagement deficiency.  See 
+AS 7 ¶12.  A significant engagement deficiency in an audit exists when the engagement team 
+failed to obtain sufficient appropriate evidence in accordance with PCAOB standards or the 
+firm is not independent of its client.  See AS 7 ¶ 12. 
+ 
+Failure to Exercise Due Professional Care 
+ 
+55. WKMR and Disrud, for 2014 and 2015, and Sehmer, for 2015, failed to 
+exercise due professional care in planning and performing the Funds’ audits, in accordance 
+with PCAOB Standard AU Section 230, Due Professional Care in the Performance of Work 
+(“AU 230”). 
+12 
+ 
+ 
+56. WKMR was not independent when it performed the 2014 and 2015 Funds’ 
+audits and failed to have adequate training and proficiency.  WKMR and Disrud failed to 
+design and implement an appropriate audit response to provide reasonable assurance of 
+detecting material errors in the financial statements, and failed to obtain sufficient competent 
+evidence.  Furthermore, WKMR and Disrud failed to exercise professional skepticism when 
+they obtained audit evidence, relating to the largest identified risk, from a website that was 
+under the control of management during the Funds’ audits.  WKMR also violated AS 7. 
+ 
+57. For the 2015 Funds’ audits, neither Disrud nor Sehmer signed off on the 
+workpaper that documented the engagement team’s independence conclusions.  They only 
+signed off on the underlying “supporting” workpapers, which did not include any detailed 
+analysis.  In reality, some of the workpapers simply contained copies of the supporting 
+documentation from the 2014 Funds’ audits.  There is no documentation in the workpapers that 
+Sehmer reviewed the SEC independence standards.  Sehmer also violated AS 7. 
+ 
+58. AU 230 requires auditors to exercise due professional care in the planning and 
+performance of the audit and the preparation of the report.  See AU 230 at .01.  The 
+engagement partner should know, at a minimum, the relevant professional accounting and 
+auditing standards and should be knowledgeable about the client.  See AU 230 at .06. 
+ 
+59. Due professional care requires that the auditor exercise professional skepticism.  
+Professional skepticism is an attitude that includes a questioning mind and a critical assessment 
+of audit evidence.  See AU 230 at .07.  In exercising professional skepticism, the auditor 
+should not be satisfied with less than persuasive evidence because of a belief that management 
+is honest.  See AU 230 at .09. 
+ 
+Failure to Adhere to the Quality Control Standards 
+ 
+60. Although the relevant audit reports stated that the 2014 and 2015 audits were 
+performed in accordance with PCAOB standards, WKMR failed to establish sufficient quality 
+control standards in accordance with PCAOB Quality Control standard 20 and PCAOB Quality 
+Control standard 40. 
+ 
+61. WKMR failed to establish policies to ensure that it and its personnel were 
+independent and maintained their independence when it accepted Voit Fund GP as a client.  
+See QC 20 at .09 and .14.  WKMR’s quality control manual stated that the engagement partner 
+decides whether to accept or reject the prospective client and documents that conclusion on the 
+“engagement acceptance form.”  It was then in the engagement partner’s discretion whether he 
+routed the form to a second partner.  There was no check on the engagement partner to ensure 
+that the partner appropriately evaluated independence conflicts. 
+ 
+13 
+ 
+62. WKMR failed to satisfy the requirements of QC 20 and QC 40.  The 
+engagement team did not have the adequate training or experience in PCAOB standards or 
+SEC independence rules.  Disrud did not have the technical training and proficiency required. 
+ 
+63. WKMR’s failure to establish adequate quality control policies was reflected in 
+WKMR’s failure to identify any of the independence, audit procedures or EQ Reviewer 
+deficiencies in the Funds’ audits described above, even after WKMR selected the Funds’ audits 
+for inspection as part of its internal inspection program. 
+ 
+64. PCAOB Quality Control standard 20 requires that a system of quality control be 
+established and maintained.  See QC 20 at .01.  One of the elements of a system of quality 
+control is personnel management.  See QC 40 at .01.  The objective of the firm is to establish 
+and maintain a system of quality control to provide it with reasonable assurance that the firm 
+and its personnel comply with the professional standards.  See QC 20 at .03. 
+ 
+Respondents Misconduct Under Section 4C of the Exchange Act and Rule 102(e) 
+ 
+65. Rule 102(e)(1) of the Commission’s Rules of Practice and Section 4C of the 
+Exchange Act allows the Commission to censure a person, or deny the person, either 
+permanently or temporarily, from appearing or practicing before the Commission if the 
+Commission finds the person to be lacking in character or integrity or to have engaged in 
+unethical or improper professional conduct or to have willfully aided and abetted the violation 
+of any provision of the federal securities laws or the rules and regulations thereunder.  Section 
+4C(a)(2) and (3) of the Exchange Act and Rule 102(e)(1)(ii) and (iii) of the Commission’s 
+Rules of Practice. 
+ 
+WKMR, Disrud and Sehmer’s Improper Professional Conduct 
+ 
+66. WKMR and Disrud (for the 2014 and 2015 Funds’ audits) and Sehmer (for the 
+2015 Funds’ audits) engaged in improper professional conduct within the meaning of Rule 
+102(e)(1)(ii) of the Commission’s Rules of Practice by engaging in reckless conduct resulting 
+in a violation of the applicable professional standards, by negligently engaging in highly 
+unreasonable conduct that resulted in a violation of applicable professional standards in 
+circumstances for which heightened scrutiny is warranted, or by negligently engaging in 
+repeated instances of unreasonable conduct, each resulting in a violation of the applicable 
+professional standards. 
+ 
+67. WKMR and Disrud failed to comply with the SEC and PCAOB independence 
+standards, for which heightened scrutiny was warranted.  Although the WKMR engagement 
+team unreasonably concluded that it was independent from Voit Fund GP, WKMR failed to 
+consider whether WKMR was independent from Voit. 
+ 
+68. WKMR and Disrud also failed to design and implement an appropriate audit 
+response to provide reasonable assurance of detecting material errors in the financial 
+14 
+ 
+statements, failed to obtain sufficient competent evidence, and failed to have adequate training 
+and proficiency prior to conducting the audits. 
+ 
+69. In addition, WKMR and Disrud failed to exercise due professional care in 
+connection with the 2014 and 2015 Funds’ audits because: (1) they violated independence 
+standards; (2) they violated PCAOB audit standards; and (3) they failed to exercise 
+professional skepticism when they obtained confirmations from a website that was under the 
+control of management.  WKMR failed to designate an EQ Reviewer and obtain the necessary 
+EQR for 2014, and concurring approvals for the 2014 and 2015 Funds’ audits. 
+ 
+70. WKMR and Sehmer failed to exercise due professional care in connection with 
+the 2015 Voit Funds’ audits because Sehmer failed to comply with AS 7 in his role as the EQ 
+Reviewer.   
+ 
+71. Furthermore, WKMR failed to adhere to the quality control standards because it 
+failed to establish policies to ensure that WKMR was competent to perform the 2014 Funds’ 
+audits or policies to ensure that WKMR and its personnel were independent and maintained its 
+independence when it accepted Voit Fund GP as a client. 
+ 
+WKMR and Disrud Willfully Aided and Abetted 
+And Caused Voit’s 2014 and 2015 Custody Rule Violations 
+and Sehmer Caused Voit’s 2015 Custody Rule Violations 
+ 
+72. WKMR and Disrud willfully5 aided and abetted and caused Voit’s 2014 and 
+2015 violations of Section 206(4) of the Advisers Act and Rule 206(4)-2 thereunder and 
+Sehmer also caused Voit’s 2015 violations of Section 206(4) of the Advisers Act and Rule 
+206(4)-2 thereunder. 
+ 
+73. WKMR knew that Voit Fund GP needed the Funds’ audits to comply with the 
+Custody Rule.  Disrud, as the engagement partner for both audit periods, was ultimately 
+responsible for ensuring that the Funds’ audits complied with applicable PCAOB standards and 
+the Custody Rule’s requirements, including that WKMR was an independent accountant and 
+subject to regular PCAOB inspection. 
+ 
+74. Despite this, WKMR and Disrud failed to have adequate knowledge or 
+understanding of the Custody Rule and the applicable SEC independence requirements.  The 
+WKMR engagement team conducted the Funds’ audits without any prior experience with SEC 
+or PCAOB registered clients, or clients affiliated with such clients.  Disrud had no prior 
+experience or training regarding the Custody Rule, and he failed to determine or consider the 
+requirements for the Audit Exception.  WKMR or Disrud did not understand that Voit, in 
+                                                 
+5 A willful violation of the securities laws means merely “‘that the person charged with the duty knows what he 
+is doing.’” Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 
+(D.C. Cir. 1949)).  There is no requirement that the actor “‘also be aware that he is violating one of the Rules or 
+Acts.’” Id. (quoting Gearhart & Otis, Inc. v. SEC, 348 F.2d 798, 803 (D.C. Cir. 1965)). 
+15 
+ 
+addition to Voit Fund GP, was considered WKMR’s client.  At the time of the Funds’ audits, 
+WKMR and Disrud did not know that the SEC independence standards applied to the audits. 
+ 
+75. As a result, Disrud approved WKMR’s issuance of Voit Funds’ 2014 and 2015 
+audit reports despite the fact that WKMR’s independence was impaired, and despite the fact 
+that WKMR was not subject to regular PCAOB inspection. 
+ 
+76. Sehmer also caused Voit’s 2015 violations of Section 206(4) of the Advisers 
+Act and Rule 206(4)-2 promulgated thereunder because Sehmer was the EQ Reviewer on the 
+2015 Funds’ audits, reviewed the workpapers for the audits, and failed to reasonably ensure 
+that his work was performed in accordance with AS7.  Sehmer also failed to act reasonably 
+when he did not know the requirements of the Custody Rule and the steps necessary to ensure 
+Voit compiled with the Custody Rule.  He also failed to understand that WKMR was required 
+to be subject to regular PCAOB inspection but in fact was not, and that the WKMR Financial 
+and Voit referral fee arrangement impaired WKMR’s independence.   
+ 
+Findings 
+ 
+77. As a result of the conduct described above, WKMR and Disrud caused, and 
+willfully aided and abetted within the meaning of Section 4C of the Exchange Act and Rule 
+102(e)(1)(iii) of the Commission’s Rules of Practice, Voit’s 2014 and 2015 violations of 
+Section 206(4) of the Advisers Act and Rule 206(4)-2 promulgated thereunder. 
+ 
+78. As a result of the conduct described above, Sehmer caused Voit’s 2015 
+violations of Section 206(4) of the Advisers Act and Rule 206(4)-2 promulgated thereunder. 
+ 
+79. As a result of the conduct described above, in 2014 and 2015 WKMR, Disrud 
+and Sehmer engaged in improper professional conduct within the meaning of Section 4C of the 
+Exchange Act and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ Offers. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Respondents WKMR, Disrud and Sehmer cease and desist from committing or 
+causing any violations and any future violations of Section 206(4) of the Advisers Act and Rule 
+206(4)-2 promulgated thereunder.  
+ 
+  
+16 
+ 
+WKMR 
+ 
+ B. WKMR is denied the privilege of appearing or practicing before the 
+Commission as an accountant. 
+ 
+C. After one year from the date of this order, WKMR may request that the 
+Commission consider its reinstatement by submitting an application (attention: Office of the 
+Chief Accountant) to resume appearing or practicing before the Commission as: 
+      
+1. a preparer or reviewer, or a person responsible for the preparation or review, 
+of any public company’s financial statements that are filed with the 
+Commission (other than as a member of an audit committee, as that term is 
+defined in Section 3(a)(58) of the Exchange Act.  Such an application must 
+satisfy the Commission that WKMR’s work in its practice before the 
+Commission as an accountant will be reviewed either by the independent 
+audit committee of the public company for which it works or in some other 
+acceptable manner, as long as it practices before the Commission in this 
+capacity; and/or 
+      
+2. an independent accountant.  Such an application must satisfy the 
+Commission that: 
+      
+(a) WKMR is registered with the PCAOB in accordance with the 
+Sarbanes-Oxley Act of 2002, and such registration continues to be 
+effective; 
+ 
+(b) Respondent WKMR hired an independent CPA consultant 
+(“consultant”), who is not unacceptable to the staff of the 
+Commission and is affiliated with a public accounting firm 
+registered with the PCAOB, that has conducted a review of 
+WKMR’s quality control system and submitted to the staff of the 
+Commission a report that describes the review conducted and 
+procedures performed, and represents that the review did not 
+identify any criticisms of or potential defects in the firm’s quality 
+control system that would indicate that any of WKMR’s employees 
+will not receive appropriate supervision. WKMR agrees to require 
+the consultant, if and when retained, to enter into an agreement that 
+provides that for the period of review and for a period of two years 
+from completion of the review, the consultant shall not enter into 
+any employment, consultant, attorney-client, auditing or other 
+professional relationship with WKMR, or any of its present or 
+former affiliates, directors, officers, employees, or agents acting in 
+their capacity. The agreement will also provide that the consultant 
+will require that any firm with which he/she is affiliated or of which 
+17 
+ 
+he/she is a member, and any person engaged to assist the consultant 
+in performance of his/her duties under this Order shall not, without 
+prior written consent of the staff, enter into any employment, 
+consultant, attorney-client, auditing or other professional 
+relationship with WKMR, or any of its present or former affiliates, 
+directors, officers, employees, or agents acting in their capacity as 
+such for the period of the review and for a period of two years after 
+the review; 
+(c) WKMR has resolved all disciplinary issues with the PCAOB, and 
+has complied with all terms and conditions of any sanctions imposed 
+by the PCAOB (other than reinstatement by the Commission); and 
+ 
+(d) WKMR acknowledges its responsibility, as long as it appears or 
+practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the PCAOB, 
+including, but not limited to, all requirements relating to registration, 
+inspections, concurring partner reviews and quality control 
+standards.   
+      
+D. The Commission will consider an application by WKMR to resume 
+appearing or practicing before the Commission provided that its state CPA license is 
+current and it 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 WKMR’s character, integrity, professional conduct, 
+or qualifications to appear or practice before the Commission as an accountant.  Whether 
+an application demonstrates good cause will be considered on a facts and circumstances 
+basis with due regard for protecting the integrity of the Commission’s processes.  
+ 
+Disrud 
+ 
+ E. Disrud is denied the privilege of appearing or practicing before the Commission 
+as an accountant. 
+ 
+ F. After 2 years from the date of this order, Disrud 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 (other than as a member of an audit committee, as that term is 
+defined in Section 3(a)(58) of the Securities Exchange Act of 1934).  Such 
+an application must satisfy the Commission that Disrud’s work in his 
+18 
+ 
+practice before the Commission as an accountant 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.    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 as a member of an audit committee, as that term is defined in 
+Section 3(a)(58) of the Exchange Act.  Such an application will be 
+considered on a facts and circumstances basis with respect to such 
+membership, and the applicant’s burden of demonstrating good cause for 
+reinstatement will be particularly high given the role of the audit committee 
+in financial and accounting matters; and/or  
+ 
+3. an independent accountant.  Such an application must satisfy the 
+Commission that: 
+      
+(a) Disrud, or the public accounting firm with which he is associated, is 
+registered with the PCAOB in accordance with the Sarbanes-Oxley 
+Act of 2002, and such registration continues to be effective; 
+ 
+(b) Disrud, or the registered public accounting firm with which he is 
+associated, has been inspected by the PCAOB and that inspection 
+did not identify any criticisms of or potential defects in Disrud’s or 
+the firm’s quality control system that would indicate that the 
+respondent will not receive appropriate supervision; 
+ 
+(c) Disrud has resolved all disciplinary issues with the PCAOB, and has 
+complied with all terms and conditions of any sanctions imposed by 
+the PCAOB (other than reinstatement by the Commission); and 
+ 
+(d) Disrud acknowledges his responsibility, as long as he appears or 
+practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the PCAOB, 
+including, but not limited to, all requirements relating to registration, 
+inspections, concurring partner reviews and quality control 
+standards.   
+      
+ G. The Commission will consider an application by Disrud 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 
+19 
+ 
+Disrud’s character, integrity, professional conduct, or qualifications to appear or practice before 
+the Commission as an accountant.  Whether an application demonstrates good cause will be 
+considered on a facts and circumstances basis with due regard for protecting the integrity of the 
+Commission’s processes. 
+ 
+Sehmer 
+ 
+ H. Sehmer is denied the privilege of appearing or practicing before the 
+Commission as an accountant. 
+ 
+ I. After 1 year from the date of this order, Sehmer 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 (other than as a member of an audit committee, as that term is 
+defined in Section 3(a)(58) of the Securities Exchange Act of 1934).  Such 
+an application must satisfy the Commission that Sehmer’s work in his 
+practice before the Commission as an accountant 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.    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 as a member of an audit committee, as that term is defined in 
+Section 3(a)(58) of the Exchange Act.  Such an application will be 
+considered on a facts and circumstances basis with respect to such 
+membership, and the applicant’s burden of demonstrating good cause for 
+reinstatement will be particularly high given the role of the audit committee 
+in financial and accounting matters; and/or  
+ 
+3. an independent accountant.  Such an application must satisfy the 
+Commission that: 
+      
+(a) Sehmer, or the public accounting firm with which he is associated, 
+is registered with the PCAOB in accordance with the Sarbanes-
+Oxley Act of 2002, and such registration continues to be effective; 
+ 
+(b) Sehmer, or the registered public accounting firm with which he is 
+associated, has been inspected by the PCAOB and that inspection 
+did not identify any criticisms of or potential defects in Sehmer’s or 
+20 
+ 
+the firm’s quality control system that would indicate that the 
+respondent will not receive appropriate supervision; 
+ 
+(c) Sehmer has resolved all disciplinary issues with the PCAOB, and 
+has complied with all terms and conditions of any sanctions imposed 
+by the PCAOB (other than reinstatement by the Commission); and 
+ 
+(d) Sehmer acknowledges his responsibility, as long as he appears or 
+practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the PCAOB, 
+including, but not limited to, all requirements relating to registration, 
+inspections, concurring partner reviews and quality control 
+standards.   
+      
+ J. The Commission will consider an application by Sehmer 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 
+Sehmer’s character, integrity, professional conduct, or qualifications to appear or practice 
+before the Commission as an accountant.  Whether an application demonstrates good cause 
+will be considered on a facts and circumstances basis with due regard for protecting the 
+integrity of the Commission’s processes. 
+ 
+K.  Respondent WKMR shall, within 10 days of the entry of this Order, pay 
+disgorgement of $17,531 and prejudgment interest of $1,317, and pay a civil money penalty of 
+$15,000 to the Securities and Exchange Commission for transfer to the general fund of the 
+United States Treasury, subject to  Exchange Act Section 21F(g)(3).  If timely payment is not 
+made, additional interest shall accrue pursuant to SEC Rule of Practice 600 and/or pursuant to 
+31 U.S.C. §3717.  
+ 
+Payment must be made in one of the following ways: 
+ 
+(1) Respondent may transmit payment electronically to the Commission, 
+which will provide detailed ACH transfer/Fedwire instructions upon 
+request;  
+(2) Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; 
+or  
+ 
+(3) Respondent may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange 
+Commission and hand-delivered or mailed to:  
+21 
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+Payments by check or money order must be accompanied by a cover letter identifying 
+WKMR as a Respondent in these proceedings, and the file number of these proceedings; a 
+copy of the cover letter and check or money order must be sent to Robert J. Burson, Senior 
+Associate Regional Director, 175 West Jackson Boulevard, Suite 1450, Chicago, Illinois 
+60604. 
+ 
+L. Respondent Disrud shall, within 10 days of the entry of this Order, pay 
+disgorgement of $9,319 and prejudgment interest of $695, and pay a civil money penalty in the 
+amount of $10,000 to the Securities and Exchange Commission for transfer to the general fund 
+of the United States Treasury, subject to Exchange Act Section 21F(g)(3). If timely payment is 
+not made, additional interest shall accrue pursuant to SEC Rule of Practice 600 and/or pursuant 
+to 31 U.S.C. §3717. 
+ 
+Payment must be made in one of the following ways:   
+ 
+(1) Respondent may transmit payment electronically to the Commission, 
+which will provide detailed ACH transfer/Fedwire instructions upon 
+request;  
+ 
+(2) Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; 
+or  
+ 
+(3) Respondent may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange 
+Commission and hand-delivered or mailed to:  
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+Payments by check or money order must be accompanied by a cover letter identifying Disrud 
+as a Respondent in these proceedings, and the file number of these proceedings; a copy of the 
+cover letter and check or money order must be sent to Robert J. Burson, Senior Associate 
+Regional Director, 175 West Jackson Boulevard, Suite 1450, Chicago, Illinois 60604.   
+ 
+22 
+ 
+ M. Amounts ordered to be paid as civil money penalties pursuant to this Order 
+shall be treated as penalties paid to the government for all purposes, including all tax purposes.  
+To preserve the deterrent effect of the civil penalty, Respondents agree that in any Related 
+Investor Action, it/he shall not argue that it/he is entitled to, nor shall it/he benefit by, offset or 
+reduction of any award of compensatory damages by the amount of any part of Respondents’ 
+payment of a civil penalty in this action (“Penalty Offset”).  If the court in any Related Investor 
+Action grants such a Penalty Offset, Respondents agree that it/he shall, within 30 days after 
+entry of a final order granting the Penalty Offset, notify the Commission's counsel in this action 
+and pay the amount of the Penalty Offset to the Securities and Exchange Commission.  Such a 
+payment shall not be deemed an additional civil penalty and shall not be deemed to change the 
+amount of the civil penalty imposed in this proceeding.  For purposes of this paragraph, a 
+"Related Investor Action" means a private damages action brought against a Respondent by or 
+on behalf of one or more investors based on substantially the same facts as alleged in the Order 
+instituted by the Commission in this proceeding. 
+ 
+V. 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in 
+Section 523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and 
+admitted by Respondent, and further, any debt for disgorgement, prejudgment interest, civil 
+penalty or other amounts due by Respondents under this Order or any other judgment, order, 
+consent order, decree or settlement agreement entered in connection with this proceeding, is a 
+debt for the violation by Respondents of the federal securities laws or any regulation or order 
+issued under such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. 
+§523(a)(19). 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 

raw/aaer/2018/AAER-3940.txt

@@ -0,0 +1,112 @@
+UNITED STATES OF AMERICA  
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No.  83169 / May 4, 2018 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No.  3940 / May 4, 2018 
+ADMINISTRATIVE PROCEEDING  
+File No.  3-16819 
+ 
+In the Matter of  
+KEVIN W. MCALEER, 
+CPA  
+ 
+: 
+: 
+: 
+: 
+: 
+: 
+ORDER GRANTING APPLICATION FOR 
+REINSTATEMENT TO APPEAR AND PRACTICE 
+BEFORE THE COMMISSION AS AN 
+ACCOUNTANT RESPONSIBLE FOR THE 
+PREPARATION OR REVIEW OF FINANCIAL 
+STATEMENTS REQUIRED TO BE FILED WITH 
+THE COMMISSION 
+ 
+On September 17, 2015, Kevin W. McAleer, CPA (“McAleer”) was denied the privilege 
+of appearing or practicing before the Commission as an accountant as a result of settled public 
+administrative proceedings instituted by the Commission against him pursuant to Rule 
+102(e)(1)(iii) of the Commission’s Rules of Practice.1  This order is issued in response to 
+McAleer’s application for reinstatement to appear and practice before the Commission as an 
+accountant responsible for the preparation or review of financial statements required to be filed 
+with the Commission. 
+The Commission found that McAleer willfully violated the federal securities laws with 
+respect to his conduct as the Chief Financial Officer of Penson Worldwide, Inc. (“PWI”).  In 
+Forms 10-K, for annual periods ended December 31, 2009 and December 31, 2010, and in Forms 
+10-Q, for periods ended March 31, 2010 through June 30, 2011, filed with the Commission, 
+PWI’s financial statements failed to comply with Generally Accepted Accounting Principles 
+because they failed to recognize losses from certain loans made by a subsidiary of PWI.  In 
+addition, PWI failed to adequately disclose the nature of the loans in those annual filings in 
+violation of applicable disclosure requirements.  As a result, the Commission found that McAleer 
+willfully violated Exchange Act Section 13(b)(5), and Rules 13a-14 and 13b2-1, and caused 
+PWI’s 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. 
+                                                 
+1 See Accounting and Auditing Enforcement Release No. 3697 dated September 17, 2015.  McAleer was permitted, 
+pursuant to the order, to apply for reinstatement after one year upon making certain showings. 
+ 
+ 2 
+ 
+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, McAleer 
+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.  McAleer is not, at this time, seeking to 
+appear or practice before the Commission as an independent accountant.  If he should wish to 
+resume appearing and practicing before the Commission as an independent accountant, he will 
+be required to submit an application to the Commission showing that he has complied and will 
+comply with the terms of the original suspension order in this regard.  Therefore, McAleer’s 
+suspension from practice before the Commission as an independent accountant continues in 
+effect until the Commission determines that a sufficient showing has been made in this regard in 
+accordance with the terms of the original suspension order. 
+ 
+Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for 
+reinstatement, and provides that the Commission may reinstate the privilege to appear and 
+practice before the Commission “for good cause shown.”2  This “good cause” determination is 
+necessarily highly fact specific. 
+ 
+On the basis of information supplied, representations made, and undertakings agreed to 
+by McAleer, it appears that he has complied with the terms of the September 17, 2015 order 
+suspending him from appearing or practicing before the Commission as an accountant, that no 
+information has come to the attention of the Commission relating to his character, integrity, 
+professional conduct or qualifications to practice before the Commission that would be a basis 
+for adverse action against him pursuant to Rule 102(e) of the Commission's Rules of Practice, 
+and that McAleer, by undertaking to have his work reviewed by the independent audit committee 
+of any company for which he works, or in some other manner acceptable to the Commission, in 
+his practice before the Commission as a preparer or reviewer of financial statements required to 
+be filed with the Commission, has shown good cause for reinstatement.  Therefore, it is 
+accordingly, 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+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 rule 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). 
+ 
+ 
+ 3 
+ORDERED pursuant to Rule 102(e)(5)(i) of the Commission’s Rules of Practice that 
+Kevin W. McAleer, CPA is hereby reinstated to appear and practice before the Commission as 
+an accountant responsible for the preparation or review of financial statements required to be 
+filed with the Commission. 
+ 
+By the Commission. 
+ 
+ 
+ 
+Brent J. Fields  
+Secretary  

raw/aaer/2018/AAER-3941.txt

@@ -0,0 +1,114 @@
+   
+   
+  
+UNITED STATES OF AMERICA  
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 83170 / May 4, 2018 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 3941 / May 4, 2018 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-12263 
+ 
+In the Matter of  
+David T. Leboe, CPA  
+ 
+: 
+: 
+: 
+: 
+: 
+: 
+ORDER GRANTING APPLICATION FOR 
+REINSTATEMENT TO APPEAR AND PRACTICE 
+BEFORE THE COMMISSION AS AN ACCOUNTANT 
+RESPONSIBLE FOR THE PREPARATION OR 
+REVIEW OF FINANCIAL STATEMENTS REQUIRED 
+TO BE FILED WITH THE COMMISSION 
+ 
+On April 17, 2006, David T. Leboe, CPA (“Leboe”) was suspended from appearing or 
+practicing before the Commission as an accountant as a result of settled public administrative 
+proceedings instituted by the Commission against Leboe pursuant to Rule 102(e)(3)(i) of the 
+Commission's Rules of Practice.1  This order is issued in response to Leboe’s application for 
+reinstatement to appear and practice before the Commission as an accountant responsible for the 
+preparation or review of financial statements required to be filed with the Commission. 
+The Commission found that Leboe had been permanently enjoined by a United States 
+District Court from future violations of Sections 10(b) and 13(b)(5) of the Securities Exchange 
+Act of 1934 (“Exchange Act”) and Rules 10b-5 and 13b2-1 thereunder, and 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 a complaint filed on March 27, 2006 the Commission alleged, 
+among other things, that Leboe engaged in a fraudulent scheme which resulted in Enron Corp. 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 
+                                                 
+1 See Accounting and Auditing Enforcement Release No. 2415 dated April 17, 2006.  Leboe was permitted, pursuant 
+to the order, to apply for reinstatement after five years upon making certain showings. 
+ 
+ 2 
+construction contract and concealing undocumented side agreements from Enron’s independent 
+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.  
+ 
+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, Leboe 
+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.  Leboe is not, at this time, seeking to appear 
+or practice before the Commission as an independent accountant.  If he should wish to resume 
+appearing and practicing before the Commission as an independent accountant, he will be 
+required to submit an application to the Commission showing that he has complied and will 
+comply with the terms of the original suspension order in this regard.  Therefore, Leboe’s 
+suspension from practice before the Commission as an independent accountant continues in 
+effect until the Commission determines that a sufficient showing has been made in this regard in 
+accordance with the terms of the original suspension order. 
+ 
+Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for 
+reinstatement, and provides that the Commission may reinstate the privilege to appear and 
+practice before the Commission “for good cause shown.”2  This “good cause” determination is 
+necessarily highly fact specific. 
+ 
+On the basis of information supplied, representations made, and undertakings agreed to 
+by Leboe, it appears that he has complied with the terms of the April 17, 2006 order suspending 
+him from appearing or practicing before the Commission as an accountant, that no information 
+has come to the attention of the Commission relating to his character, integrity, professional 
+conduct or qualifications to practice before the Commission that would be a basis for adverse 
+action against him pursuant to Rule 102(e) of the Commission's Rules of Practice, and that 
+Leboe, by undertaking to have his work reviewed by the independent audit committee of any 
+company for which he works, or in some other manner acceptable to the Commission, in his 
+practice before the Commission as a preparer or reviewer of financial statements required to be 
+filed with the Commission, has shown good cause for reinstatement.  Therefore, it is accordingly, 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+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). 
+ 
+ 
+ 3 
+ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that 
+David T. Leboe, CPA is hereby reinstated to appear and practice before the Commission as an 
+accountant responsible for the preparation or review of financial statements required to be filed 
+with the Commission. 
+ 
+By the Commission. 
+ 
+ 
+ 
+Brent J. Fields  
+Secretary  

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+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 83391 / June 6, 2018 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3942 / June 6, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-18533 
+ 
+In the Matter of 
+MICHAEL J. MONA, JR. 
+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 Michael 
+J. Mona, Jr. (“Respondent” or “Mona”) 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.B.2 below, which are admitted, Respondent 
+consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 
+102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial 
+Sanctions (“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that:  
+ 
+ 1. Mona, age 63, of Las Vegas, Nevada, is CannaVEST’s CEO and a member 
+of its board of directors.  Mona became CannaVEST’s CEO in November 2012, and a board 
+member in January 2013.   
+ 
+ 2. On June 15, 2017, the Commission filed a complaint against Mona in SEC 
+v. CannaVEST Corp., et al. (Case No. CV-17-01681-APG-PAL) in the United States District 
+Court for the District of Nevada.  On June 1, 2018, the court entered an order permanently 
+enjoining Mona, by consent, from future violations of Sections 10(b) and 13(b)(5) of the 
+Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 13a-14, 13b2-1 and 13b2-2 
+thereunder, and from controlling any person who violates Sections 13(a), 13(b)(2)(A) and 
+13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.  Mona was also 
+ordered to pay a $40,000 civil money penalty and to reimburse CannaVEST $10,000 pursuant to 
+Section 304(a) of the Sarbanes-Oxley Act of 2002. 
+ 
+  3. The Commission’s complaint alleged, among other things, that Mona 
+made material misrepresentations and/or misleading omissions on CannaVEST’s quarterly 
+reports filed with the SEC for CannaVEST’s first three quarters of 2013.  The complaint 
+alleged that the overstatements related to CannaVEST’s acquisition of another company, 
+PhytoSphere Systems, LLC in the first quarter of 2013.  The complaint further alleged that 
+CannaVEST agreed to the purported $35 million purchase price only because CannaVEST 
+could pay it primarily with CannaVEST shares that had little or no trading volume at the time, 
+and which Mona believed had little value, and a small amount of cash.  The complaint further 
+alleged that Mona knew that CannaVEST was paying substantially less than $35 million to 
+acquire the PhytoSphere business, that PhytoSphere was not worth $35 million, and that 
+CannaVEST would have never agreed to the purported purchase price if CannaVEST were 
+required to pay cash for PhytoSphere.  The complaint further alleged that Mona had 
+CannaVEST record $35 million worth of assets related to the PhytoSphere acquisition on 
+CannaVEST’s balance sheet in its Form 10-Q for the first quarter of 2013 and that, as a result, 
+CannaVEST materially overstated its assets on its balance sheet for the first quarter of 2013.  
+The complaint further alleged that, in its Form 10-Q for the second quarter of 2013, 
+CannaVEST continued to report falsely the value of its assets related to the PhytoSphere 
+acquisition.  The complaint further alleged that, in its Form 10-Q for the third quarter of 2013, 
+CannaVEST and Mona wrote down the value of the assets related to the PhytoSphere 
+acquisition to $8 million after obtaining a valuation of PhytoSphere’s assets, but failed to 
+disclose that CannaVEST had never paid $35 million for those assets, that the assets were 
+3 
+ 
+never worth $35 million, and that the balance sheets for the first and second quarters of 2013 
+were materially overstated.  
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Mona’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Mona is suspended from appearing or practicing before the Commission as an 
+accountant.   
+ 
+ B. After five years from the date of this order, Mona 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 an accountant.  
+ 
+ By the Commission. 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 

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+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 83428 / June 14, 2018 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3943 / June 14, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-18542 
+ 
+ 
+In the Matter of 
+ 
+RSM US LLP, 
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS, 
+PURSUANT TO SECTION 4C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE COMMISSION’S 
+RULES OF PRACTICE, MAKING 
+FINDINGS, AND IMPOSING REMEDIAL 
+SANCTIONS. 
+  
+I. 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative proceedings be, and hereby are, instituted against RSM US LLP (“RSM” or 
+“Respondent”) pursuant to Section 4C1 of the Securities Exchange Act of 1934 (“Exchange Act”) and 
+Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.2 
+ 
+                                                 
+1 Section 4C provides, in relevant part, that: 
+ 
+The Commission may censure any person, or deny, temporarily or permanently, to 
+any person the privilege of appearing or practicing before the Commission in any 
+way, if that person is found . . . (1) not to possess the requisite qualifications to 
+represent others; (2) to be lacking in character or integrity, or to have engaged in 
+unethical or improper professional conduct; or (3) to have willfully violated, or 
+willfully aided and abetted the violation of, any provision of the securities laws or the 
+rules and regulations thereunder. 
+2 Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+The Commission may . . . deny, temporarily or permanently, the privilege of 
+appearing or practicing before it . . . to any person who is found . . . to have engaged 
+in unethical or improper professional conduct. 
+II. 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of 
+Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the purpose of 
+these proceedings and any other proceedings brought by or on behalf of the Commission, or to which 
+the Commission is a party, and without admitting or denying the findings herein, except as to the 
+Commission’s jurisdiction over Respondent and the subject matter of these proceedings, which are 
+admitted, Respondent consents to the entry of this Order Instituting Public Administrative Proceedings, 
+Pursuant to Section 4C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission’s 
+Rules of Practice, Making Findings, and Imposing Remedial Sanctions (“Order”), as set forth below. 
+ 
+III. 
+ On the basis of this Order and Respondent’s Offer, the Commission finds3 that: 
+ 
+Summary 
+1. This matter involves improper professional conduct by RSM while performing the 2011 
+audit of Madison Capital Energy Income Fund I LP (“Fund I”), a private fund formed for the general 
+purpose of acquiring oil and gas royalty interests to generate a return for its investors.4  During the 
+course of the Fund I engagement, RSM repeatedly violated professional standards, including by failing 
+to conduct the 2011 Fund I audit (hereinafter “Fund I audit”) in conformity with Generally Accepted 
+Auditing Standards (“GAAS”) and issuing to Fund I an audit report containing an unqualified opinion 
+that the fund’s statement of assets and partners’ capital was presented fairly, in all material respects, in 
+conformity with Generally Accepted Accounting Principles (“GAAP”).5  However, the schedule of 
+investments failed to separately report the fair value of the investments in each oil and gas royalty 
+interest held by Fund I, as required by GAAP.  Lisa Hanmer (“Hanmer”), the Fund I engagement 
+manager, knew that the Fund I schedule of investments was not in conformity with GAAP.  Hanmer 
+further knew that adequate procedures had not been performed in auditing the fair value of the 
+investment in the underlying Fund I royalty interests and took steps to conceal this fact from RSM 
+personnel, including engagement partner, Daniel Millmann (“Millmann”).  Millmann did not complete 
+the workpaper documentation, evidencing that all review comments for the audit were satisfactorily 
+resolved before the audit report was released.  Millmann neglected to review the investment audit 
+workpaper which, in the circumstances, was required.  Millmann improperly delegated critical 
+engagement partner responsibilities to an engagement manager, Hanmer.  RSM’s policies and 
+procedures failed to detect or prevent the audit failures that occurred on this matter as discussed below.6  
+                                                 
+3 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. 
+4 This Order references the American Institute of Certified Public Accountants (“AICPA”) standards in effect at 
+the time of the 2011 Fund I audit.  These standards are encompassed in Generally Accepted Auditing Standards.  
+5 As noted in its audit report issued for the Fund I audit, RSM’s audit of the statement of assets and par tners’ 
+capital included the schedule of investments.  As of December 31, 2011, Fund I reported net assets of $2,574,744.   
+6 All descriptions of RSM’s systems, policies, and procedures refer to those in effect at the time of the Fund I 
+audit. 
+In the wake of the Commission staff’s investigation, RSM withdrew the Fund I audit report, citing 
+significant concerns that certain necessary audit procedures were omitted from the Fund I audit. 
+ 
+Respondent 
+2. RSM US LLP (formerly known as McGladrey LLP) (“RSM”), a limited liability 
+partnership with its headquarters in Chicago, Illinois, is a national public accounting firm registered 
+with the Public Company Accounting Oversight Board (“PCAOB”).  Fund I engaged RSM, through 
+RSM’s Madison, Wisconsin office, to “perform an audit of [Fund I’s] statement of net assets, including 
+the schedules of investments as of December 31, 2011 and a review of the related statements of 
+operations, changes in partners’ capital and cash flows for the year then ended . . . in accordance with 
+auditing standards generally accepted in the United States of America” in May 2012. 
+ 
+Other Relevant Parties 
+3. Daniel Millmann (“Millmann”), age 54, currently resides in Madison, Wisconsin and 
+is a certified public accountant licensed to practice in Wisconsin.  Millmann has worked at RSM since 
+1990 and became a partner in 2005.  Millmann served as the RSM engagement partner for the Fund I 
+audit.  Millmann was charged by the Commission on May 23, 2017 under Exchange Act Section 4C 
+and Rule 102(e) for his conduct on the Fund I audit.  Millmann settled those charges on a no admit no 
+deny basis and consented to an order pursuant to Exchange Act Section 4C and Rule 102(e) that denies 
+him the privilege of appearing or practicing before the Commission as an accountant with the right to 
+apply for reinstatement after two years.  See Millmann, Exchange Act Release No. 80749 (May 23, 
+2017) (settled order). 
+ 
+4. Lisa Hanmer (“Hanmer”), age 44, currently resides in Oregon, Wisconsin and is a 
+certified public accountant licensed to practice in Wisconsin.  Hanmer began working at RSM in 1996, 
+became a partner in 2013, and resigned from the firm, effective March 31, 2015.  Hanmer served as the 
+RSM manager for the Fund I audit and held the title of director at the time.  Hanmer was sued by the 
+Commission on May 23, 2017 under Exchange Act Section 4C and Rule 102(e) for her conduct on the 
+Fund I audit.  See Hanmer, Exchange Act Release No. 80750 (May 23, 2017).  On June 12, 2017, 
+Hanmer settled the lawsuit on a no admit no deny basis and consented to an order pursuant to Exchange 
+Act Section 4C and Rule 102(e) that denies her the privilege of appearing or practicing before the 
+Commission as an accountant.  See Hanmer, Exchange Act Release No. 80904 (June 12, 2017). 
+Background 
+5. Madison Capital Investments LLC (“MCI”), a Wisconsin limited liability company 
+based in Madison, Wisconsin, organized a number of private placements of equity interests in oil and 
+gas limited partnerships since 2009, including Fund I.  MCI offered its funds to broker-dealers and 
+investment advisers, and they in turn introduced these funds to prospective investors.  These broker-
+dealers and investment advisers generally required certain information before they agreed to place these 
+funds on their platforms (to be sold to, among others, accredited individual investors), including audited 
+financial statements.  Thus, MCI signed a letter to engage RSM on May 16, 2012 to perform an audit of 
+Fund I’s statement of assets and partners’ capital as of December 31, 2011 and a review of the related 
+statements of operations, changes in partners’ capital and cash flows for the year then ended (the “audit 
+report”).  Fund I’s only material assets were interests in oil and gas royalty properties.  As such, 
+auditing the value of those assets was the primary purpose for MCI retaining RSM to conduct the audit 
+of Fund I’s statement of assets and partners’ capital. 
+ 
+6. RSM issued its final audit report to Fund I on May 30, 2012.  This report contained an 
+unqualified opinion on Fund I’s statement of assets and partners’ capital and a review conclusion, made 
+in accordance with AICPA standards, on the other financial statements issued by Fund I.  Specifically, 
+RSM opined that the Fund I statement of assets and partners’ capital “presents fairly, in all material 
+respects, the financial position of [Fund I] as of December 31, 2011, in conformity with accounting 
+principles generally accepted in the United States of America.” 
+ 
+7. The Fund I audit report was subsequently distributed by MCI to broker-dealers and 
+investment advisers, who reviewed the Fund I audit report in connection with their due diligence review 
+for MCI���s later funds.  RSM generally understood how MCI intended to utilize the final Fund I audit 
+report. 
+RSM’s Quality Control Policies and Procedures 
+8. The operational responsibility for the RSM quality control system is assigned to RSM’s 
+National Professional Standards Group, National Office of Risk Management (“NORM”), and 
+Regional Professional Practices Offices. 
+ 
+9. All RSM partners and other professionals are required to adhere to all applicable 
+provisions of the AICPA Code of Professional Conduct, as well as applicable ethics requirements of the 
+PCAOB and state boards of accountancy. 
+ 
+10. During the relevant time period, RSM’s client acceptance and continuation policies and 
+procedures required the engagement partner to carefully evaluate the prospective client engagement 
+prior to acceptance by, among things, ensuring that qualified professional staff and other functional and 
+industry specialists were available.  Acceptance of all clients required approval by the regional 
+assurance leader or his or her designee. 
+11. During the relevant time period, RSM used the McGladrey Risk Assessment Model 
+(“MRAM”), an RSM-developed electronic tool that assists engagement teams in performing consistent 
+and comprehensive evaluations of risk prior to client acceptance.  In arriving at an engagement risk 
+assessment, the MRAM considers several risk-rating factors, such as industry, financial condition, 
+governance, management, control environment, size, complexity, and international reach.  In addition 
+to providing for the approval of engagement acceptance or continuance, the MRAM process identifies 
+potential risks of material misstatement and the need for the involvement of subject matter experts, and 
+approves engagement staffing.  RSM’s policies in this area were designed to provide reasonable 
+assurance that RSM undertakes or continues relationships and engagements only where RSM: (i) has 
+considered the integrity of the client and the risks associated with providing professional services under 
+the circumstances; (ii) is competent to perform the engagement and has the capabilities and resources to 
+do so; (iii) can comply with the applicable legal and ethical requirements; and (iv) can reach an 
+understanding with the client regarding the nature, scope, and limitations of the services to be 
+performed. 
+12. RSM designed its policies and procedures to provide reasonable assurance that RSM has 
+sufficient professional personnel with the capabilities, competence, and commitment to ethical 
+principles necessary to perform RSM’s engagements in accordance with professional standards and 
+regulatory and legal requirements and to enable RSM to issue reports that are appropriate under the 
+circumstances.  NORM, in consultation with the Regional Professional Practice Offices, approves a list 
+of assurance partners, directors, and other professionals who have designations within RSM’s quality 
+control system.  This list identifies individuals by industry and engagement risk rating who are 
+authorized to serve as engagement partners and managers, engagement quality reviewers, industry 
+specialists, independent report reviewers, SEC compliance reviewers, and subject matter experts.  RSM 
+assigns an individual to a specific engagement after considering the professional competence and 
+industry experience of the individual, together with the degree of knowledge, skills, and abilities 
+required under the circumstances.  RSM’s Regional Professional Practice Officers have the ability to 
+approve RSM staff, who are not on the preapproved list, for a given audit. 
+13. To provide reasonable assurance that engagements are consistently performed properly, 
+RSM develops, maintains, and provides personnel with electronic manuals, software tools, and subject 
+matter guidance materials, which address: (i) audit methodology, (ii) engagement supervision, (iii) 
+appropriate documentation of work performed, and (iv) identifying matters for consultation or 
+consideration by more experienced professionals.  RSM’s audit methodology dictates that the 
+engagement team plan the audit work so that an effective audit is performed, designing procedures that 
+are responsive to the risks of material misstatement. 
+The Fund I Audit 
+ 
+14. Hanmer functioned in the role of engagement manager for the Fund I audit and 
+performed the most work on the audit, including performing or overseeing the field work and testing 
+for the audit (including its documentation in the workpapers) and drafting the Fund I audit report.  At 
+the time of the Fund I audit, Hanmer was a director at RSM whose primary experience was in auditing 
+privately-held manufacturing companies.  Fund I was the first oil and gas fund she had audited in her 
+career.  Hanmer had no prior training, competency or experience relating to the issuance of an audit 
+report involving fair value measurements and disclosures of these financial and non-financial assets. 
+ 
+15. Millmann was the engagement partner for the Fund I audit.  At the time of the Fund I 
+audit, Millmann’s primary experience was in auditing privately-held manufacturing companies and 
+professional service organizations.  Millmann had never worked on an audit of an oil and gas fund prior 
+to the Fund I audit.  Millmann had no prior training, competency or experience relating to the issuance 
+of an audit report involving fair value measurements and disclosures of these financial and non-
+financial assets. 
+ 
+16. The Fund I audit fell under the auspices of RSM’s financial services group, which 
+specializes in audits of broker-dealers, futures commodities merchants, non-registered proprietary 
+trading firms, business development companies, commodity pools, hedge funds, mutual funds, small 
+business investment company funds, registered investment advisers, and private equity funds 
+(hereinafter “RSM’s Financial Services Practice”).  At the time of the Fund I audit, Millmann and 
+Hanmer were not on RSM’s preapproved list for RSM’s Financial Services Practice audits.  This list 
+identifies competent individuals to perform audits for RSM’s Financial Services Practice, the purpose 
+of which is to provide reasonable assurance that such audits are performed according to firm and 
+professional standards. 
+ 
+17. Because Millmann and Hanmer were not on the preapproved list for RSM’s Financial 
+Services Practice audits, the Regional Professional Practices Officer for the RSM Great Lakes Region 
+(“RPPO”) was required, according to RSM policy, to approve the staffing of Millmann and Hanmer on 
+the engagement.  Despite their lack of experience with financial services or oil and gas fund audits, and 
+the fact that as described below, the MRAM for the audit determined that it was high risk, the RPPO 
+approved staffing Millmann and Hanmer on the Fund I audit, and did not do so until after they began 
+working on the audit.   
+ 
+18. In addition, contrary to RSM’s client acceptance and continuation policies, substantive 
+audit procedures had begun before RSM had cleared the Fund I engagement through the MRAM, 
+which, as discussed above, assessed the risk of audit engagements and was designed to ensure that the 
+audit engagement staff had the required competency and experience.  The MRAM for the Fund I audit, 
+which was approved on May 7, 2012, determined that the Fund I audit was high risk and therefore 
+required the assignment of a concurring review partner on the audit.  The concurring review partner, a 
+member of RSM’s national professional standards group, was on the preapproved list for RSM’s 
+Financial Services Practice audits but did not have experience auditing oil and gas funds.  As a 
+consequence, an oil and gas subject matter expert was assigned to the Fund I audit. 
+ 
+19. Millmann did not sign off on the investments audit program, which included the 
+contemplated audit procedures for Fund I’s only material assets.  In addition, the concurring review 
+partner did not sign off on the required Audit Engagement Concurring Review Questionnaire for the 
+Fund I audit, which is the workpaper that documents a concurring review partner’s review of the 
+significant areas of an audit engagement.   
+ 
+20. RSM did not perform adequate audit procedures on Fund I’s schedule of investments to 
+obtain sufficient evidence for their fair value.  Fund I valued the royalty interests it held using 
+engineering software that accounts for a number of inputs/factors when determining future production 
+and prices.  The RSM valuation specialist assigned to the audit concluded that the valuation 
+methodology employed by Fund I “does not appear unreasonable” but deferred to others on the audit 
+team to confirm a number of items, including that the value of the individual royalty interests purchased 
+and owned by Fund I were actually reflected in Fund I’s valuation report.  The audit team never 
+confirmed that the royalty interests purchased by Fund I were reflected in the Fund I valuation report.  
+Instead, Hanmer falsified the schedule of investments workpapers – by manually inserting the initials of 
+a staff member assigned to the Fund I audit next to certain audit procedures – to conceal that required 
+audit work was not completed. 
+21. RSM issued an audit report containing an unqualified opinion on the Fund I statement of 
+assets and partners’ capital; however, the Fund I financial statements, including the statement of assets 
+and partners’ capital, were not in conformity with GAAP.  Specifically, ASC 946-210-50-6 requires 
+breaking out and reporting the value of each individual fund asset on the schedule of investments that is 
+more than 5 percent of total net assets.7  Notwithstanding this GAAP disclosure requirement, the final 
+Fund I Schedule of Investments sent to the client by Hanmer only reported the combined cost and fair 
+values of all of the royalty interests purchased by the fund.  It did not report the values of Fund I’s 
+individual royalty interests.  
+                                                 
+7 Fund I was required to comply with the GAAP Industry Guidance found at ASC 946, Investment Companies. 
+22. At the time the final audit report was released, Hanmer knew that the Fund I financial 
+statements were not in conformity with GAAP and took steps to conceal this fact from RSM personnel.  
+Specifically, before Hanmer sent the final audit report to Fund I, the concurring review partner assigned 
+to the Fund I audit clearly alerted Hanmer that Fund I’s royalty interests needed to be broken out 
+individually to be in conformity with GAAP.  Nevertheless, submitting to client pressure to release the 
+Fund I audit report, Hanmer intentionally disregarded her concurring review partner’s comment and 
+sent the final audit report to the client with a schedule of investments that included only a single, 
+consolidated valuation of the royalty interests.  To evade detection, Hanmer sent her concurring review 
+partner a different schedule of investments – which was not sent to Fund I – that purported to 
+incorporate the concurring review partner’s comment, but, in reality, included fictitious fair values for 
+individual royalty interests. 
+23. Millmann failed to complete the RSM required engagement report release workpaper, 
+which, in relevant part, mandated that Millmann satisfy himself that all review comments for the audit 
+were satisfactorily resolved before the audit report was released.  Moreover, the final audit report was 
+not submitted to RSM’s report processing group before being released to the client.   
+24. Millmann neglected to review many investment workpapers (including Fund I’s 
+valuation summary report) and did not sign off on the investment audit program, which was necessary 
+in the circumstances of this engagement.  As a result, Millmann was unable to determine if the 
+engagement team’s audit procedures for Fund I’s investments, which represented a significant portion 
+of Fund I’s assets, were adequate or even if they were all completed.  In short, Millmann did not fulfill 
+his supervisory responsibility for the Fund I audit. 
+Withdrawal of Fund I Audit Report 
+25. RSM informed the Commission staff in early 2015 that the Commission staff’s 
+investigation caused it to conduct its own internal review of the Fund I audit.  In connection with this 
+internal review, the RSM Quality Control Inquiry Committee convened on February 7, 2015 and 
+concluded that: Hanmer’s conduct on the Fund I audit departed from professional standards and firm 
+policies to a degree that warranted a recommendation to separate Hanmer from RSM. 
+26. Subsequently, Millmann, on behalf of RSM, in a February 23, 2015 letter to MCI, 
+withdrew its Fund I audit report based on “significant concerns that certain auditing procedures [RSM] 
+considered necessary in the circumstances existing at the time of the engagement were omitted from the 
+audit of the statement of assets, including Fund I’s schedule of investments, and [RSM’s] review of the 
+other financial statements.”  The Fund I audit report was withdrawn after Fund I’s offering period 
+closed and after investors had already invested.  RSM did not prevent or detect the audit failures 
+discussed above prior to the final report being released to the client. 
+Violations of Professional Standards 
+27. AU Section 230 requires that an auditor exercise due professional care in the 
+performance of an audit and the preparation of an audit report.  AU § 230.01.  This standard requires 
+the auditor to plan and perform his work with due professional care.  Id. § 230.02.  Due professional 
+care imposes a responsibility upon each professional within an independent auditor’s organization to 
+conduct field work and reporting with reasonable care and diligence and to possess the degree of skill 
+commonly possessed by other auditors.  Id. §§ 230.02-.05.  Auditors should be assigned to tasks and 
+supervised commensurate with their level of knowledge, skill, and ability so that they can evaluate the 
+audit evidence they are examining.  Id. § 230.06.  As a result of the conduct described above, 
+Respondent failed to meet this standard on the Fund I audit. 
+28. AICPA standards require that an auditor adequately plan field work for an audit.  AU § 
+311.01.  Audit planning involves developing an overall audit strategy for the expected conduct, 
+organization, and staffing of the audit.  Id. § 311.02.  Obtaining an understanding of the entity and its 
+environment, including its internal control, is an essential part of planning and performing an audit in 
+accordance with GAAS.  Id. § 311.03.  The auditor must plan the audit so that it is responsive to the 
+assessment of the risk of material misstatement based on the auditor’s understanding of the entity and 
+its environment, including its internal control.  Id.  The auditor must develop an audit plan in which the 
+auditor documents the audit procedures to be used that, when performed, are expected to reduce audit 
+risk to an acceptably low level.  Id. § 311.19.  As a result of the conduct described above, Respondent 
+failed to meet this standard on the Fund I audit. 
+29. AICPA standards require that audit “assistants,” or firm personnel other than the auditor 
+with final responsibility for the audit, be properly supervised.  AU §§ 311.01, .04.  Elements of 
+supervision include instructing assistants, keeping informed of significant issues encountered, 
+reviewing the work performed, and dealing with differences of opinion among firm personnel.  Id. § 
+311.28.  The extent of supervision appropriate in a given instance depends on many factors, including 
+the complexity of the subject matter and the qualifications of persons performing the work, including 
+knowledge of the client’s business and industry.  Id.  As a result of the conduct described above, 
+Respondent failed to meet this standard on the Fund I audit. 
+30. According to AICPA standards, the auditor must perform the audit to obtain reasonable 
+assurance that material misstatements, whether caused by errors or fraud, are detected.  AU § 312.03.  
+As a result of the conduct described above, Respondent failed to meet this standard on the Fund I audit. 
+31. AICPA standards require that: “[t]he auditor must obtain sufficient appropriate audit 
+evidence by performing audit procedures to afford reasonable basis for an opinion regarding the 
+financial statements under audit.”  AU § 326.01.  Sufficiency is the measure of the quantity of audit 
+evidence, and appropriateness is the measure of the quality of audit evidence.  Id. § 326.06.  The 
+quantity of audit evidence needed is affected by the risk of misstatement (the greater the risk, the more 
+audit evidence is likely to be required) and also by the quality of such audit evidence (the higher the 
+quality, the less the audit evidence that may be required).  Id.  As a result of the conduct described 
+above, Respondent failed to meet this standard on the Fund I audit. 
+32. The AICPA established Quality Control Standards for CPA firms’ accounting and 
+auditing practices.  QC § 10.  A system of quality control consists of policies designed to achieve the 
+following objective and the procedures necessary to implement and monitor compliance with those 
+policies.  Id. § 10.04.  The objective of a CPA firm is to establish and maintain a system of quality 
+control to provide it with reasonable assurance that a) the firm and its personnel comply with 
+professional standards and applicable legal and regulatory requirements and b) reports issued by the 
+firm are appropriate in the circumstances.  Id. § 10.12.  A firm’s system of quality control should 
+include policies and procedures addressing acceptance and continuance of client relationships and 
+specific engagements, engagement performance and monitoring.  Id. § 10.17.  It should also include 
+policies and procedures requiring that the engagement partner and personnel have the necessary 
+competence and capabilities to perform the audit engagement.  Id. § 10.34.  A firm’s supervision 
+policies and procedures should reasonably assure that suitably experienced engagement team members, 
+including the engagement partner, supervise the work performed.  Id. § 10.36.  As a result of the 
+conduct described above, Respondent failed to meet the standards that required competency and 
+proficiency in client acceptance and continuance, staffing, and supervision on the Fund I audit. 
+ 
+Violations 
+ 
+33. Rule 102(e)(1)(ii) of the Commission’s Rules of Practice provides that the Commission 
+may deny the privilege of appearing or practicing before the Commission to any person who is found to 
+have engaged in improper professional conduct.  Respondent engaged in improper professional conduct 
+as defined in Rule 102(e)(1)(iv)(B)(2) (i.e., negligent conduct consisting of repeated instances of 
+unreasonable conduct, each resulting in a violation of applicable professional standards, that indicate a 
+lack of competence to practice before the Commission). 
+ 
+Findings 
+ 
+34. Based on the foregoing, the Commission finds that Respondent engaged in improper 
+professional conduct within the meaning of Section 4C(a)(2) of the Exchange Act and Rule 
+102(e)(1)(ii) of the Commission’s Rules of Practice. 
+ 
+RSM’s Remedial Efforts 
+ 
+35. In determining to accept RSM’s Offer, the Commission considered remedial acts 
+promptly undertaken by RSM and cooperation afforded the Commission staff. 
+ 
+Undertakings 
+ 
+36. RSM’s Review.  Within 240 days after the entry of this Order, RSM shall perform and 
+complete a review and evaluation (“RSM’s Review”) of the sufficiency and adequacy of RSM’s quality 
+controls and policies and procedures for all audits of SEC registrants as well as audits of private funds 
+within RSM’s Financial Services Practice regarding the following (hereinafter referred to as “RSM’s 
+Policies”): 
+a. the exercise of due professional care as it relates to audits involving fair value 
+measurements and disclosures of financial and non-financial assets; 
+b. the performance of client acceptance and continuance procedures relative to the 
+commencement of any significant audit procedures, including relating to fair 
+value measurements and disclosures of financial and non-financial assets; 
+c. the incorporation of the results of risk assessment on audit planning prior to the 
+commencement of any significant audit procedures, including relating to fair 
+value measurements and disclosures of financial and non-financial assets; 
+d. effective supervision by engagement partners and managers, including review of 
+work related to the appropriate use of specialists employed or engaged by RSM 
+to assist an engagement team in performing risk assessments, planning or 
+performing audit procedures, or evaluating audit results, including, but not 
+limited to: 
+i. the coordination of relative responsibilities between auditors and 
+specialists; and 
+ii. the effective supervision by engagement partner and managers of the 
+employed specialists’ work; 
+e. adequate audit documentation related to workpaper sign-offs and audit report 
+release procedures; and 
+f. obtaining reasonable assurance that: 
+i. the engagement partner and other individuals assisting the engagement 
+partner in supervising the engagement possess the competencies that are 
+necessary and appropriate in the individual engagement circumstances, 
+and 
+ii. work is assigned to personnel having the degree of technical training and 
+proficiency required in the circumstances. 
+RSM’s Review shall assess the foregoing areas to determine whether RSM’s Policies are adequate and 
+sufficient to provide reasonable assurance of compliance with all relevant Commission regulations and 
+relevant audit standards and rules.  In the event RSM’s Review results in any changes to RSM’s 
+Policies, RSM agrees to extend the same changes to policies and procedures related to audits in all 
+other practice areas where such changes are applicable and appropriate. 
+ 
+37. RSM Report.  Within 60 days of completing RSM’s Review, RSM shall deliver to the 
+Commission staff a detailed written report (“RSM Report”) summarizing its review and changes to 
+RSM’s Policies, if any, to provide reasonable assurance of compliance with all relevant Commission 
+regulations and relevant audit standards and rules.  The RSM Report shall identify the undertaking as 
+described in paragraph 36, provide written evidence of compliance in the form of a narrative (including, 
+but not limited to, the resources devoted to compliance with the undertaking), and be supported by 
+exhibits sufficient to demonstrate compliance with that undertaking.  The Commission staff may make 
+reasonable requests for further evidence of compliance with the undertakings described in paragraph 
+36, and RSM agrees to provide such evidence. 
+38. Certification by RSM’s CRO.  Within 60 days of issuance of the RSM Report, but not 
+sooner than 30 days after a copy of the RSM Report is provided to the Commission staff, RSM’s chief 
+risk officer (“CRO”) must certify to the Commission staff in writing that RSM has adopted and has 
+implemented or will implement all recommendations contained in the RSM Report.  To the extent that 
+RSM has not implemented all recommendations contained in the RSM Report within 60 days of 
+issuance of the RSM Report, RSM’s CRO must certify to the Commission staff in writing, 30 days 
+after their implementation, that RSM has adopted and has implemented all recommendations contained 
+in the RSM Report.  The certifications by RSM’s CRO shall identify the undertakings, provide written 
+evidence of adoption and implementation in the form of a narrative, and be supported by exhibits 
+sufficient to demonstrate adoption and implementation.  The Commission staff may make reasonable 
+requests for further evidence of adoption and implementation, and RSM agrees to provide such 
+evidence. 
+39. Training.  Within two years of entry of this Order, 
+a. RSM shall require each audit professional who performs audits of SEC 
+registrants as well as audits of private funds within RSM’s Financial Services 
+Practice to successfully complete a minimum of 16 hours of audit-related 
+training.  The audit-related training shall cover the topics specified above in 
+paragraph 36 with an emphasis on the need to follow policies, procedures and 
+professional standards at all times, even when faced with client pressure; and 
+b. RSM shall issue a firm-wide announcement describing this case and its 
+ramifications to those involved. 
+40. Within 60 days of the last certification required by paragraph 38 or the completion of 
+the training requirements contemplated by paragraph 39, whichever is later, RSM’s CRO shall certify, 
+in writing, adoption and implementation with the undertakings set forth above.  The certification shall 
+identify the undertakings, provide written evidence of adoption and implementation in the form of a 
+narrative, and be supported by exhibits sufficient to demonstrate adoption and implementation.  The 
+Commission staff may make reasonable requests for further evidence of adoption and implementation, 
+and RSM agrees to provide such evidence. 
+41. All reports and certifications mentioned in these undertakings shall be submitted to 
+Steven Klawans, Assistant Regional Director, Division of Enforcement, Securities and Exchange 
+Commission, 175 W. Jackson Blvd., Suite 900, Chicago, IL 60604, with a copy to the Office of Chief 
+Counsel of the Enforcement Division. 
+42. For good cause shown, the Commission staff may extend any of the procedural dates 
+relating to the undertakings.  Deadlines for procedural dates shall be counted in calendar days, except 
+that if the last day falls on a weekend or federal holiday, the next business day shall be considered to be 
+the last day. 
+43. In determining whether to accept RSM’s Offer, the Commission has considered these 
+undertakings.  RSM agrees that if the Division of Enforcement believes that RSM has not satisfied 
+these undertakings, it may petition the Commission to reopen the matter to determine whether 
+additional sanctions are appropriate. 
+IV. 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed 
+to in Respondent’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. RSM is censured; and  
+ 
+ B. RSM shall comply with the undertakings enumerated in paragraphs 36 through 43 above. 
+ 
+ 
+ 
+ By the Commission. 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 

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+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 83575 / July 2, 2018 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3944 / July 2, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-18568 
+ 
+ 
+In the Matter of 
+ 
+BEAM INC., n/k/a  
+BEAM SUNTORY INC., 
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, MAKING 
+FINDINGS, AND IMPOSING A CEASE-
+AND-DESIST ORDER  
+  
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), against Beam Inc., n/k/a Beam Suntory Inc. (“Beam” or 
+“Respondent”). 
+ 
+II. 
+ 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making 
+Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below. 
+2 
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds1 that:  
+ 
+Summary 
+ 
+1. These proceedings arise from violations of the books and records and internal 
+accounting controls provisions of the Foreign Corrupt Practices Act of 1977 (the “FCPA”) [15 
+U.S.C. § 78dd] by Beam in connection with conduct at Beam Global Spirits & Wine (India) 
+Private Limited (“Beam India”).  Beam makes and sells branded alcoholic beverages worldwide, 
+and Beam India bottled and sold Beam products in India throughout the relevant period. 
+ 
+2. From at least 2006 through 2012, Beam’s Indian subsidiary, Beam India, made 
+improper payments to various government officials in connection with obtaining or retaining 
+business in the Indian market.  Senior executives at Beam India directed schemes using its third-
+party sales promoters, distributors and other third parties in connection with sales, promotions, 
+distribution, and other commercial activities.  The promoters, distributors, and other third parties 
+made illicit payments to employees at government controlled depots and retail stores and various 
+government offices to increase sales orders, get better positioning on store shelves, process and 
+secure license and label registrations, and facilitate the distribution of Beam India’s spirit products 
+from its bottling facility to warehouses in other states.  The third parties received funds, or were 
+reimbursed, for the illicit payments by providing fabricated or inflated invoices to Beam India.  
+The expenses were falsely recorded at Beam India and thereafter consolidated into Beam’s books 
+and records.  During this period, Beam also failed to maintain a sufficient system of internal 
+accounting controls. 
+ 
+3. In 2011, Beam sought to introduce a new product in India.  The label registration 
+for the product stalled when the Indian excise official with the discretion to issue the registration 
+told the third-party bottler of the product that an improper payment to him of one million Rupees 
+(approximately his yearly salary or $18,000) was required to approve the registration.  The illicit 
+payment request ultimately made its way to three senior managers of Beam’s Asia Pacific/South 
+America region (“APSA”).  The payment to be made by the third-party bottler and a method of 
+reimbursing the bottler for making the payment was approved.  Within weeks after communicating 
+this down to the third-party bottler, the label registration was approved by the excise official and 
+Beam India’s bottler began canning and Beam India began distributing the new product. 
+ 
+4. As a result of the conduct during the relevant period, Beam violated Sections 
+13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act. 
+ 
+ 
+                                                 
+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 
+ 
+Respondent 
+ 
+5. Beam Inc., n/k/a Beam Suntory Inc. is a corporation organized under the laws of 
+the state of Delaware and headquartered in Chicago, Illinois.  Through April 2014, Beam had a 
+class of publicly traded securities pursuant to Section 12(b) of the Exchange Act, which were 
+traded on the New York Stock Exchange.  In April 2014, Suntory Holdings Limited (“Suntory”), a 
+Japanese corporation, acquired Beam.  Beam subsequently delisted from the New York Stock 
+Exchange and continued its operations as a subsidiary of Suntory.  During the period that Beam 
+was a public company, it operated and managed its global business on the basis of reportable 
+segments located in geographical regions, consisting of North America, Europe/Middle 
+East/Africa, and APSA (APSA was operated from Beam’s Australian subsidiary).   
+ 
+Other Relevant Entities 
+ 
+6. Beam Global Spirts & Wine (India) Private Limited was acquired in 2006, and 
+its books, records, and financial accounts were consolidated into Beam’s books and records and 
+reported by Beam on its financial statements.  In 2011, Beam India’s management started reporting 
+to Beam’s APSA region management in Australia.   
+ 
+Background 
+ 
+7. In India the alcoholic beverage industry is highly regulated by government 
+authorities.  Beam India, and third parties acting as agents on its behalf, had numerous interactions 
+with government officials related to importation of distilled mixes for its spirit products, shipments 
+to its bottling facility in Behror, Rajasthan, various inspections of the Behror plant, shipments from 
+the factory in Behror to distribution warehouses in multiple states in India, label registrations 
+required to distribute each brand of liquor in each state, licensing of warehouses in states prior to 
+retail distribution, and sales to retail stores that were operated by the Indian government.  
+Introduction of new spirit products and distribution warehouses required new applications for label 
+registrations and licensing of the warehouses in each state.  Label registrations and warehouse 
+licenses also required yearly renewal in Rajasthan and in the twenty-six Indian states where Beam 
+sold its products or had warehouses. 
+ 
+8. Prior to its acquisition by Beam, the Indian entity that subsequently became Beam 
+India regularly made direct and indirect payments to Indian government officials in connection 
+with inspections of the bottling facilities, distribution of its products, label registration and 
+warehouse license applications and renewals, and advantageous product placement and promotion 
+in both government and retail stores.  It also made payments to government officials responsible 
+for ordering alcoholic products for distribution in government run retail channels in order to secure 
+and increase sales of spirit products.  The Indian management maintained a second set of financial 
+records that tracked the payments and disguised the schemes in the entity’s books and records to 
+make it appear that the illicit payments were legitimate business expenses. 
+ 
+4 
+ 
+9. When Beam acquired the assets of the Indian entity, it also retained existing 
+management of the entity who knew of and orchestrated the bribe schemes.  Those retained 
+managers continued the schemes at Beam India without interruption from the 2006 acquisition 
+through the end of the third quarter 2012.  Beam profited from the illicit payment schemes at Beam 
+India. 
+ 
+Improper Payments Made in Government Sales Channels 
+ 
+10. From 2006 through the end of the third quarter 2012, Beam, through Beam India, 
+sold liquor products in six markets where the Indian state government regulated both the 
+distribution and retail sale of alcoholic products.  These included the Indian states of Delhi, Tamil 
+Nadu, Andaman & Nicobar, Orissa, and Karnataka and the Indian military’s Canteen Stores 
+Department (“CSD”).   
+ 
+11. During this period, Beam India used third-party promoters to market its products in 
+the government channel.  The third-party promoters, with Beam India’s knowledge and 
+authorization, also directed improper payments to government officials at retail stores and depots 
+in order to secure orders of Beam products as well as placement of Beam products in a prominent 
+shelf position in retail stores.   
+ 
+12. The illicit payments, made with the knowledge, authorization, and complicity of 
+Beam India’s management, were funded through the submission of inflated invoices from the 
+promoters, often for inflated per-case commissions.  Senior Beam India management directed the 
+distribution of funds to the various promoters in different markets to make payments to 
+government officials in those states.  Certain Beam India finance executives maintained off-the-
+books accounts that tracked amounts and uses of the funds provided to promoters.  For example, 
+over the period, Beam India paid more than $1.5 million to its promoter in the CSD channel and 
+over $550 thousand to its promoter in the state of Delhi to make improper payments to government 
+officials at government-controlled retail stores and depots in those markets. 
+ 
+13.   The illicit payments were falsely characterized in Beam India’s books and records 
+as legitimate business expenses for “Customer Support,” “Off-Trade Promotions,” “Commission to 
+Distributor/Promoter,” and “Commercial Discount, Ongoing” which disguised the true nature of 
+these payments.  Ultimately, the related expenses were consolidated in Beam’s general ledger 
+system coded as “Selling and Distribution Expenses.”   
+ 
+Beam India’s Payments to Excise Officials 
+ 
+14. From 2006 through the end of the third quarter 2012, Beam India also made 
+improper payments to insure timely inspections at Beam India’s Behror manufacturing facility, to 
+Indian government officials in fourteen states to secure and expedite the processing of annual label 
+registrations for distribution of Beam’s products from Rajasthan to other Indian states where the 
+liquor was to be sold, and for warehouse licenses in several states that served as depots for Beam 
+India’s products.  The payments fell into two categories, payments to lower level government 
+5 
+ 
+employees to insure routine administrative processes and payments made to senior level ministry 
+officials who had discretion to issue or renew label registrations or warehouse licenses, necessary 
+for the distribution and sale of Beam’s products in the various states. 
+ 
+15. In 2011, Beam India sought to introduce Beam’s profitable “Ready to Drink” 
+(“RTD”) products in India.  At the time, Beam had embarked on a broad global initiative to 
+develop RTD beverages in emerging markets and had targeted India as one of the markets to 
+introduce RTD.  In May 2011, Beam India contracted with a third-party bottling facility to produce 
+the RTD drinks.  Applications were then filed with the Excise Ministry to obtain the label 
+registrations required to operate the facility and bottle RTD products in that state.  
+ 
+16. The label registration process stalled for several months until the third-party bottler 
+met with a senior excise official, who demanded an improper payment of one million Indian 
+Rupees (approximately equal to the official’s yearly salary or $18,000 at the then exchange rate) to 
+approve the label registration.  The third-party bottler requested that Beam India fund the improper 
+payment.  Beam India management then sought approval to make the payment from Beam’s APSA 
+management located in Australia.  The payment was approved and certain APSA senior 
+management discussed how to disguise the payment by having the third-party bottler pay it to the 
+Excise official, and then submit false invoices to be reimbursed for the illicit payment.  After an 
+APSA senior manager communicated the authorization, a Beam India senior manager 
+implemented the scheme whereby the third-party bottler made the illicit payment.  Within weeks 
+after discussing the payment demand, the needed approvals were received from the Excise 
+Ministry.  Thereafter, the third-party bottler submitted two false invoices to Beam India, 
+purportedly for consulting services rendered at the bottling facility, in the approximate amount of 
+the payment demand, which Beam India paid.   
+ 
+Beam Failed to Timely Remediate Deficiencies 
+ 
+17. After Beam acquired Beam India in 2006, the company provided Beam India 
+management with its Code of Conduct manuals and additional compliance training.  Beam also 
+instituted annual internal audits starting in 2008. 
+ 
+18. In 2010, Beam engaged a global accounting firm to conduct a compliance review of 
+Beam India.  The accounting firm interviewed executives at Beam India and conducted a limited 
+sample testing of transactions.  In early January 2011, the firm reported that certain Beam India 
+executives believed that “promoters are likely making grease payments” to government officials in 
+India and, as a result, recommended that Beam follow-up and “conduct and document due 
+diligence to confirm activities undertaken” by third parties, “investigate red flags,” “discuss legal 
+considerations of third party actions taken on Beam’s behalf,” and “consider need to further 
+review” the CSD and other military outlet businesses.  After receiving this report, Beam consulted 
+a U.S. law firm with FCPA expertise, which advised that these issues required follow up.  Beam 
+then retained an Indian law firm to review and expand upon the work performed by the accounting 
+firm.  The Indian law firm interviewed Beam India senior management to determine whether 
+improper payments were being made to Indian government officials in contravention of company 
+6 
+ 
+policy and the FCPA.  The Indian law firm reported that Beam India managers believed that third 
+parties in India may make payments and/or provide gifts to customs officials and government 
+employees in the CSD channel.  The Indian law firm confirmed many of the accounting firm’s 
+recommendations including additional FCPA training and revising contracts with third parties.  
+Beam then requested its U.S. law firm to review the report and work done by the Indian law firm. 
+ 
+19. Before the U.S. law firm completed its review, the firm forwarded to Beam’s 
+general counsel’s office a July 2011 SEC enforcement action concerning FCPA violations by 
+Diageo plc in India.  Diageo, a direct competitor of Beam’s in the Indian spirit markets, had settled 
+an SEC administrative action related to, among other conduct, payments made through its third-
+party promoters to Indian government officials to obtain increased spirit orders in government 
+sales channels and to secure initial and annual label registrations and other administrative 
+approvals critical to Diageo’s business in India.  Beam subsequently sent a lawyer from its General 
+Counsel’s office to India to interview senior Beam India management to ask whether similar 
+conduct was occurring at Beam India and to provide additional FCPA training.  Thereafter, that 
+lawyer revised Beam India’s agreements with its customs house agent and third-party promoter in 
+the CSD channel, the largest revenue channel for Beam India, and used those agreements as 
+templates for agreements with other third parties in India. 
+ 
+20. In August 2011, the U.S. law firm reviewed the Indian law firm’s report and noted 
+that the Indian law firm had not provided an analysis of Beam India’s books and records, internal 
+controls or other issues related to its finance and accounting practices, that it had not conducted any 
+substantial transactional testing, and that it raised issues concerning Beam’s oversight of third 
+parties and the potential conduct of those third parties.  In addition to confirming the advice given 
+by the major accounting firm and the Indian law firm, the U.S. law firm proposed additional 
+recommendations, including that “Beam should strongly consider undertaking a financial review . . 
+. and that Beam should consider structuring the review so that in-house or outside counsel engages 
+an outside forensic investigator to conduct the review . . . .”  Beam did not then conduct additional 
+transactional testing as advised by the U.S. law firm or conduct due diligence on third parties as 
+advised earlier in the year by the global accounting firm.    
+ 
+21. In September 2011, the Indian law firm advised Beam to conduct interviews of 
+Beam India operational employees who interact and work with the promoters in the CSD channel 
+to identify specific risks associated with activities of the promoters.  Beam declined, as a Beam 
+lawyer stated, “I believe we basically would like to see the same information for the same 
+purposes, but with different approaches.  I am concerned about [the Indian law firm] digging and 
+finding information that we cannot impact, specifically, finding activities and practices by 
+[promoters] that we cannot remediate or change.  The risk may be ultimately having to choose 
+whether to continue to conduct business with any [promoters] that create [FCPA] risks for 
+us/Beam India. . . . [The Indian law firm] may be familiar with the Diageo matter but will not 
+assess it as we would because it involves the [FCPA].  The lawyer added, “if we are doing 
+anything in the same manner as Diageo did that was violative, we should change it and look to how 
+we can do things in a more clearly compliant manner.”  
+ 
+7 
+ 
+22. In November 2011, a former Beam India employee alleged a scheme through which 
+a Beam India manager was using false invoices from third parties to generate cash that was then 
+submitted to the manager.  A review completed in March 2012 confirmed the conduct alleged by 
+the former employee, and concluded that the cash from the distributors had been used to make 
+payments totaling $25,000 over two years to government officials in connection with the label 
+registration process in one sales zone in India.  However, Beam did not then expand the review to 
+other third parties or other markets that presented similar risks.  Beam did move up a planned 
+FCPA compliance review by several months to August 2012.  In July 2012, a former Beam India 
+zonal accountant raised similar issues which, along with the results of the August 2012 compliance 
+review, led to an internal investigation beginning in September 2012 that uncovered the schemes 
+conducted by Beam India management, which included managing the misconduct by Beam India’s 
+third parties and maintaining a second set of financial records. 
+ 
+Legal Standards and Violations 
+ 
+23. Under Section 21C(a) of the Exchange Act, the Commission may impose a cease-
+and-desist order upon any person who is violating, has violated, or is about to violate any provision 
+of the Exchange Act or any rule or regulation thereunder, and upon any other person that is, was, 
+or would be a cause of the violation, due to an act or omission the person knew or should have 
+known would contribute to such violation. 
+ 
+FCPA Violations 
+ 
+24. Section 13(b)(2)(A) of the Exchange Act requires every issuer with 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 
+disposition of the assets of the issuer.  [15 U.S.C. § 78m(b)(2)(A)]. 
+ 
+25. As described above, Beam violated Section 13(b)(2)(A) of the Exchange Act.  The 
+company’s subsidiary, Beam India, falsely characterized illicit payments to government officials as 
+legitimate business expenses in Beam’s books and records.   
+ 
+26. Section 13(b)(2)(B) of the Exchange Act requires every issuer with a class of 
+securities registered pursuant to Section 12 of the Exchange Act to devise and maintain a system of 
+internal accounting controls sufficient to provide reasonable assurances that (i) transactions are 
+executed in accordance with management’s general or specific authorization; (ii) transactions are 
+recorded as necessary (I) to permit preparation of financial statements in conformity with generally 
+accepted accounting principles or any other criteria applicable to such statements, and (II) to 
+maintain accountability for assets; (iii) access to assets is permitted only in accordance with 
+management’s general or specific authorization; and (iv) the recorded accountability for assets is 
+compared with the existing assets at reasonable intervals and appropriate action is taken with 
+respect to any differences.  [15 U.S.C. § 78m(b)(2)(B)]. 
+ 
+8 
+ 
+27. As described above, Beam violated Section 13(b)(2)(B) by failing to devise and 
+maintain a system of internal accounting controls sufficient to provide reasonable assurances that 
+company funds would only be used as authorized for legitimate corporate purposes, that 
+transactions would be recorded as necessary, and that access to company assets occurred only as 
+permitted. 
+ 
+Beam’s Self-Disclosure, Cooperation, and Remedial Efforts 
+ 
+28. In determining to accept the Offer, the Commission considered Respondent’s self-
+disclosure, cooperation, and remedial efforts.  Beam voluntarily disclosed this misconduct to the 
+Commission staff and timely shared the facts developed during the course of an internal 
+investigation by a special committee of its board.  Beam also cooperated by voluntarily producing 
+documents, summarizing its factual findings, translating numerous key documents, providing 
+timely reports on witness interviews, and making current or former employees available to the 
+Commission staff, including those that needed to travel to the United States or elsewhere for 
+interviews.   
+ 
+29. Beam’s remedial actions included: ceasing business operations at Beam India until 
+Beam was satisfied it could operate Beam India compliantly; terminating certain Beam India 
+employees who were involved in the misconduct; terminating third-party sales promoters in 
+government markets in India; updating and expanding its anti-corruption policies and procedures 
+on a global basis, including its relationship with third-party vendors and suppliers; enhancing its 
+internal controls and compliance functions; developing and implementing FCPA compliance 
+procedures, including expansion and implementation of policies and procedures such as the due 
+diligence and contracting procedures for vendors and suppliers; and conducting extensive anti-
+corruption training throughout the Beam organization. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Beam’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+ A. Pursuant to Section 21C of the Exchange Act, Respondent Beam cease and desist 
+from committing or causing any violations and any future violations of Sections 13(b)(2)(A), and 
+13(b)(2)(B) of the Exchange Act. 
+ 
+ B. Respondent shall, within 10 days of the entry of this Order, pay disgorgement of 
+$5,264,340, prejudgment interest of $917,498, and a civil monetary penalty of $2,000,000 to the 
+Securities and Exchange Commission for transfer to the general fund of the United States 
+Treasury, subject to Exchange Act Section 21F(g)(3).  If timely payment is not made, additional 
+interest shall accrue pursuant to 31 U.S.C. §3717 or SEC Rule of Practice 600.  Payment must be 
+made in one of the following ways:   
+9 
+ 
+ 
+(1) Respondent may transmit payment electronically to the Commission, which 
+will provide detailed ACH transfer/Fedwire instructions upon request;  
+ 
+(2) Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+(3) Respondent may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange 
+Commission and hand-delivered or mailed to:  
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+Payments by check or money order must be accompanied by a cover letter identifying 
+Beam as a Respondent in these proceedings, and the file number of these proceedings; a copy of 
+the cover letter and check or money order must be sent to Charles E. Cain, Chief, FCPA Unit, 
+Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, Washington, DC 
+20549.   
+ 
+ C. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 
+treated as penalties paid to the government for all purposes, including all tax purposes.  To 
+preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 
+Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any 
+award of compensatory damages by the amount of any part of Respondent’s payment of a civil 
+penalty in this action ("Penalty Offset").  If the court in any Related Investor Action grants such a 
+Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a final order granting 
+the Penalty Offset, notify the Commission's counsel in this action and pay the amount of the 
+Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be deemed 
+an additional civil penalty and shall not be deemed to change the amount of the civil penalty 
+imposed in this proceeding.  For purposes of this paragraph, a "Related Investor Action" means a 
+private damages action brought against Respondent by or on behalf of one or more investors based 
+on substantially the same facts as alleged in the Order instituted by the Commission in this 
+proceeding. 
+ 
+ By the Commission. 
+ 
+ 
+       Brent J. Fields 
+       Secretary 

raw/aaer/2018/AAER-3945.txt

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+              Axesstel, Inc., et al.
+           
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+     
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+        Axesstel, Inc., et al.
+       
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+      -->
+
+     SEC Charges California Company and Three Executives with Accounting Fraud 
+
+     Litigation Release No. 24181 / July 2, 2018 
+
+     Accounting and Auditing Enforcement Release No. 3945 / July 2, 2018 
+
+      Securities and Exchange Commission v. Axesstel, Inc., et al.  (S.D. Cal., filed June 28, 2018) 
+
+
+     
+
+       
+
+       
+
+       On June 28, 2018, the Securities and Exchange Commission charged a California-based telecommunications equipment manufacturer, its Chief Financial Officer, Former Chief Executive Officer, and Director of Contract Fulfillment and Sales Operations for inflating reported revenues in the company's Middle East, Africa, and Europe region in the fourth quarter of 2012 and first quarter of 2013. 
+ 
+       According to the SEC's complaint, Axesstel, Inc., Chief Financial Officer Patrick J. Gray, and former Chief Executive Officer Harold Clark Hickock III, aided and abetted by Director of Contract Fulfillment and Sales Operations Steven R. Sabin, inflated the company's revenues by prematurely recognizing revenue on sales and by improperly recognizing revenue despite entering into undisclosed side agreements that relieved customers of payment obligations.  Additionally according to the complaint, the Defendants inflated unit prices of products to hit revenue targets with the agreement that Axesstel would subsequently repay the inflated amounts to the customer as marketing development fees.  The SEC alleges that Axesstel's revenue was overstated by 66% in the fourth quarter of 2012 and 38% in the first quarter of 2013. 
+ 
+       The SEC's complaint alleges that Axesstel, Gray and Hickock violated Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and that Sabin aided and abetted these violations.  The complaint also alleges that Gray and Sabin circumvented internal accounting controls and falsified Axesstel's books and records in violation of Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder; that Axesstel violated the reporting provisions of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder, and that Gray, Hickock and Sabin aided and abetted Axesstel's  violations of 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 while Gray aided and abetted Axesstel's violations of Rule 13a-11; that Axesstel violated the books and records and internal accounting controls provisions of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and that Gray and Hickock aided and abetted these violations; and that by signing false Sarbanes-Oxley certifications and lying to Axesstel's auditor, Gray and Hickock violated Exchange Act Rules 13a-14 and 13b2-2. 
+ 
+       Axesstel, Gray, Hickock and Sabin agreed to settle the charges without admitting or denying the allegations of the Complaint and consented to entry of a final judgment that permanently enjoins them from future violations of the securities laws, and orders Gray, Hickock and Sabin to pay penalties of $40,000, $25,000 and $10,000, respectively.  Gray and Hickock also consented to entry of a judgment which permanently bars Hickock from serving as an officer or director of a public company, and bars Gray from serving as an officer or director of a public company for five years.  The settlements are subject to court approval. 
+ 
+       Gray also consented to the issuance of a Commission Order suspending him from appearing or practicing before the Commission as an accountant, with the right to apply for reinstatement after five years. 
+ 
+       The SEC's investigation was conducted by Adam B. Gottlieb and supervised by Amy L. Friedman, with the assistance of trial counsel Suzanne J. Romajas and Christian D. H. Schultz, supervised by Jan M. Folena. 
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