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+  
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 71261 / January 9, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3525 / January 9, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15673 
+ 
+ 
+In the Matter of 
+ 
+ALCOA 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 Alcoa Inc. (“Alcoa” 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, Respondent consents to the Commission’s 
+jurisdiction over the Respondent and the subject matter of these proceedings,  and 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 Foreign Corrupt Practices Act of 
+1977 (the “FCPA”) [15 U.S.C. § 78dd] by Respondent Alcoa Inc. (“Alcoa”) concerning alumina 
+sales to Aluminium Bahrain B.S.C. (“Alba”), an aluminum manufacturer owned primarily by the 
+Kingdom of Bahrain. 
+2. Between 1989 and 2009, Alcoa of Australia (“AofA”) and Alcoa World Alumina 
+LLC (“AWA”) (collectively, the “AWAC Subsidiaries”) retained a consultant to act as their 
+middleman in connection with sales of alumina to Alba and knew or consciously disregarded the 
+fact that the relationship with the consultant was designed to generate funds that facilitated 
+corrupt payments to Bahraini officials.  The consultant was paid a commission on sales where he 
+acted as an agent and received a markup on sales where he acted as a purported distributor. On 
+sales where the consultant acted as a purported distributor, no legitimate services were provided 
+to justify the role of the consultant as a distributor.   The consultant used these funds to enrich 
+himself and pay bribes to senior government officials of Bahrain.   
+3. The commission payments to the consultant and the alumina sales to the 
+consultant made pursuant to the distribution agreements were improperly recorded in Alcoa’s 
+books and records as legitimate commissions or sales to a distributor and did not accurately 
+reflect the transactions.  The false entries were initially recorded by the AWAC Subsidiaries 
+which were then consolidated into Alcoa’s books and records.  During the relevant period, Alcoa 
+also lacked sufficient internal controls to prevent and detect the improper payments.   
+Respondent 
+ 
+4. Alcoa is a corporation organized under the laws of the Commonwealth of 
+Pennsylvania.  Until 2006, Alcoa’s principal place of business was in Pittsburgh, Pennsylvania, 
+in the Western District of Pennsylvania.  In 2006, Alcoa moved its principal place of business to 
+New York, New York.  Alcoa issues and maintains a class of publicly traded securities registered 
+pursuant to Section 12(b) of the Securities Exchange Act of 1934, which are traded on the New 
+York Stock Exchange.   
+5. Alcoa is a global provider of primary aluminum and fabricated aluminum.  Alcoa 
+is also a global provider of smelter grade alumina, the raw material that is supplied to smelters to 
+                                                 
+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 
+produce aluminum.  Alcoa refines alumina from bauxite it extracts from its global mining 
+operations.  Alcoa operates worldwide through subsidiaries and affiliated entities in North 
+America, Asia, Australia, Europe, South America, Africa and the Caribbean.     
+Other Relevant Entities and Persons 
+6. Alcoa World Alumina and Chemicals (“AWAC”) is an unincorporated global 
+bauxite mining and alumina refining enterprise formed in 1995 between Alcoa and Alumina 
+Limited (“Alumina”), the majority and minority owners of AWAC, respectively.  AWAC 
+operates through a number of affiliated enterprise companies, including AofA and AWA, with 
+each enterprise company being owned by Alcoa and Alumina in proportion to their respective 
+ownership interests in the AWAC enterprise.  In matters of strategy and policy, the AWAC 
+enterprise companies receive direction and counsel from a “Strategic Council” that is chaired by 
+Alcoa.  Alcoa controls the Strategic Council and as such the operations and personnel of AWAC 
+report to Alcoa personnel in New York.     
+7. Alcoa of Australia Limited (“AofA”) is the AWAC enterprise company that 
+owns and operates AWAC’s bauxite mining and alumina refining assets in Australia.  AofA’s 
+principal place of business was located in Melbourne, in the state of Victoria, Australia, until 
+1996, and is now located in Perth, in the state of Western Australia.  AofA owns and operates 
+mines in Western Australia that extract bauxite, which AofA then processes into smelter grade 
+alumina in refineries it owns and operates.  AofA sells the smelter grade alumina to aluminum 
+smelters it owns in the state of Victoria as well as to customers and alumina traders around the 
+world.  AofA maintains bank accounts in the United States.  AofA’s books, records, and 
+accounts are consolidated into Alcoa’s books and records and reported by Alcoa in its financial 
+statements.  
+8. Alcoa World Alumina LLC (“AWA”) is a Limited Liability Company formed 
+under Delaware law, which maintains its principal place of business in Pittsburgh, Pennsylvania, 
+in the Western District of Pennsylvania.  AWA owns and operates (either directly or indirectly) 
+bauxite mining and alumina refining assets in North America, Europe, South America, and the 
+Caribbean.  AWA is an AWAC enterprise company.  Beginning in or around 2000, executives at 
+AWA’s offices in Pittsburgh and Knoxville, Tennessee, assumed primary responsibility for all of 
+AWAC’s relationships with global alumina customers, including Alba.  AWA personnel 
+responsible for these functions reported to Alcoa personnel in New York. 
+9. Consultant A is an international middleman who resides in London and is a 
+citizen of Canada, Jordan, and the United Kingdom.  Consultant A had close contacts with 
+certain members of Bahrain’s Royal Family, some of whom were senior officials in the 
+Government of Bahrain.  Consultant A met with Alcoa executives to discuss matters relating to 
+the relationship with Alba. Consultant A operates through many shell companies, including 
+Alumet Ltd (“Alumet”) and AA Alumina and Chemicals Ltd (“AAAC”). 
+10. Aluminium Bahrain B.S.C. (“Alba”) is an aluminum smelter operating in 
+Bahrain.  At the relevant times, the state holding company of the Kingdom of Bahrain, the 
+Mumtalakat, which was controlled by the Bahrain Ministry of Finance, held 77 percent of the 
+ 4 
+shares of Alba.   The Saudi Basic Industries Corporation (“SABIC”), which is majority-owned 
+and controlled by the government of the Kingdom of Saudi Arabia, held a twenty percent 
+minority stake in Alba, and three percent of Alba’s shares were held by a German investment 
+group. The majority of profits earned by Alba belonged to the Mumtalakat, though part of the 
+profit was permitted to be used by Alba for its operations.  The Bahrain Ministry of Finance had 
+to approve any change in Alba’s capital structure and had to be consulted on any major capital 
+projects or contracts material to Alba’s operations.  Members of the Royal Family of Bahrain and 
+representatives of the government sat on the Board of Directors of Alba, controlled its Board, 
+and had primary authority in selecting its chief executive officer and chief financial officer.   
+Facts 
+11. Alcoa’s global bauxite and alumina refining business (the “Alumina Segment”) is 
+part of the Global Primary Products group, one of Alcoa’s three business lines.  The Alumina 
+Segment operationally consists of multiple subsidiaries.  During the relevant time period, the 
+Alumina Segment reported to the global head of the Global Primary Products group, who was an 
+executive of Alcoa and reported directly to Alcoa’s CEO.   
+12. Alcoa exercised control over the Alumina Segment, including the AWAC 
+Subsidiaries.  Alcoa appointed the majority of seats on the AWAC Strategic Council, and the 
+head of Global Primary Products served as its chair.  Alcoa and AofA transferred personnel 
+between them, including alumina sales staff; Alcoa set the business and financial goals for 
+AWAC and coordinated the legal, audit, and compliance functions of AWAC; and the AWAC 
+Subsidiaries’ employees managing the Alba alumina business reported functionally to the global 
+head of the Alumina Segment.  Alba was a significant alumina customer for Alcoa’s Alumina 
+Segment and during the relevant period, members of Alcoa senior management met both with 
+Alba officials and Consultant A to discuss matters related to the Alba relationship, including a 
+proposed joint venture between Alcoa and Alba.  During this time, Alcoa was aware that 
+Consultant A was an agent and distributor with respect to AofA’s sales of alumina to Alba and 
+that terms of related contracts were reviewed and approved by senior managers of Alcoa’s 
+Alumina Segment in the United States. 
+13. From at least 1989 to 2009, AofA supplied alumina to Alba through a series of 
+multi-year contracts.  During this period, Alba was one of Alcoa’s largest alumina customers 
+purchasing a total of nearly 19 million metric tons beginning with an annual volume of 300,000 
+metric tons increasing to 1.6 million metric tons.  
+14. Beginning in approximately 1989, AofA retained Consultant A to assist in long-
+term contract negotiations with Alba and Bahraini government officials, including the 
+negotiation and execution of a new long-term alumina supply agreement in 1990 (the “1990 
+Supply Agreement.”)   
+15. By 1996, Consultant A was playing a significant role in the relationship between 
+the AWAC Subsidiaries and Alba. Around this time, Alba complained to the AWAC 
+Subsidiaries that it was paying an above-market price for alumina.  AofA learned that Alba was 
+seeking to increase its alumina supply requirements from 600,000 metric tons a year up to 
+ 5 
+970,000 metric tons a year, and that other major global suppliers of alumina were seeking to 
+capture these additional requirements.  The AWAC Subsidiaries’ sales team decided that, to 
+“comply with business norms in the Middle East[,]” the AWAC Subsidiaries would propose 
+supplying some of Alba’s alumina through Alumet, which was one of Consultant A’s shell 
+companies, which would pay the “required commission.”  An AofA manager proposed using 
+Consultant A as the intermediary because Consultant A was “well versed in the normal ways of 
+Middle East business” and “will keep the various stakeholders in the Alba smelter happy….”   
+16. Despite the red flags inherent in this arrangement, AofA’s in-house counsel 
+approved the arrangement without conducting any due diligence or otherwise determining 
+whether there was a legitimate business purpose for the use of a third party intermediary.  
+17. The AWAC Subsidiaries’ sales managers traveled to London in August 1996 to 
+meet with Consultant A to discuss this proposal to route some of AofA’s alumina through 
+Consultant A’s company for resale to Alba.  Upon their return to Australia, an AWA manager 
+told other members of the AWAC Subsidiaries sales team that: 
+It feels like we subsidise the Sheiks and end up with a 5 year outcome that is about 
+$10-15/t lower than the average of the rest of our business. 
+18. In September 1996, the AWAC Subsidiaries’ sales managers traveled to London 
+to meet with Alba and Consultant A and agreed to an addendum to the 1990 Supply Agreement 
+(“1996 Addendum”).  Under the 1990 Agreement, AofA was supplying 600,000 metric tons per 
+year to Alba under a formula pricing structure (as opposed to a “market”-based price).   Under 
+the 1996 Addendum, AofA agreed to supply Alba with an additional 285,000 metric tons per 
+year through one of Consultant A’s shell companies using a “market”-based price that resulted in 
+pricing that was, at times, actually below market and allowed Consultant A to mark up his sales 
+of alumina to Alba. 
+19. Employees at AWA and AofA either knew or were willfully blind to the high 
+probability that Consultant A would use his commissions and markup to pay bribes. For 
+example, in an internal document memorializing the negotiations surrounding the 1996 
+Addendum, a member of AofA’s alumina sales staff wrote: 
+The methodology of business in the Middle East is a complex web of interactions 
+that are necessarily difficult to understand to disguise the payment of commissions.  
+We have in the past maintained a position of paying our agent a 1% commission on 
+the basis of the agent work that he has done for us.  We have also, however, been 
+asked by Alba to supply some cargoes through other intermediaries, including our 
+agent, on various occasions and we can only assume at the purpose this 
+serves….Given that we want to supply the full tonnage going into the future we 
+need to fix on the best methodology for us given the commission requirements and 
+the contract structure. 
+20. The sales staff was concerned that the monies paid to Consultant A come from 
+Consultant A’s markup on sales to Alba, rather than through increased commission payments.  
+ 6 
+An AWA manager was concerned that the monies paid to Consultant A not come at AofA’s 
+expense and that the sales to Consultant A “protect our position.”  
+21.   In 2001, with the coming expiration of the 1990 Supply Agreement and 1996 
+Addendum, AWA approached Alba to extend and expand the alumina supply relationship.  Alba 
+agreed to extend the existing supply relationship (“2001 Extension”).  Following the 2001 
+Extension, AofA stopped selling alumina directly to Alba; all AofA alumina destined for Alba 
+was instead routed through AAAC, which was one of Consultant A’s shell companies.  
+22.  In 2004, AofA entered into another distribution agreement with Consultant A that 
+involved the sale of up to 1.6 million metric tons of alumina to Alba every year through AAAC, 
+which was a shell company of Consultant A.  This arrangement lasted until approximately 
+December 31, 2009. 
+23. The 2001 Extension and 2004 purported distributorship agreements facilitated the 
+corrupt payments by allowing Consultant A to impose an inflated markup on his purported sales 
+of alumina to Alba and used the markup from those sales to enrich himself and pay bribes to 
+senior government officials of Bahrain.   
+24. From 2002 to 2004, AWA caused Consultant A and AAAC, one of his shell 
+companies to receive in excess of $79 million in markups on alumina sales to Alba.  Consultant 
+A also received a commission under the terms of the 2001 Extension.  The 2001 Extension 
+provided for a commission of 0.125 percent of all payments made by Consultant A to AofA for 
+alumina.  From 2002 to 2004, AofA paid Consultant A “commissions” of $493,509. 
+25. In 2002, Alcoa was attempting to negotiate a joint venture with Alba, in which 
+Alcoa would supply Alba with alumina from the AWAC system’s refineries, and, in exchange, 
+Alba would supply Alcoa with aluminum.  Alcoa retained Consultant A to act as a consultant 
+and to privately lobby a Bahraini government official on behalf of Alcoa, and Alcoa entered a 
+consulting agreement with Consultant A pursuant to which Consultant A would receive an $8 
+million “success fee” based on limited specified negotiation “advice and assistance to Alcoa” if 
+the joint venture were successful.   
+26. As part of the negotiations, Alcoa proposed a joint venture structure that 
+contemplated supplying alumina to Alba through a distributor.  On or about March 26, 2003, an 
+in-house attorney in Alcoa’s legal department raised questions about the deal, and requested an 
+explanation for the role of the distributor.  On or about March 27, 2003, AWA sales executive 
+responded that “[t]he Distributorship rol[e] is something the Bahrain Government wants” and 
+that Alcoa “shouldn’t get too involved with how the Distributor and the Government interact.  
+We are currently selling the alumina we supply to Alba through a Distributor.”    
+27. On September 15, 2003, Alcoa and Alba agreed to a Memorandum of 
+Understanding (“MOU”) outlining an equity investment by Alcoa in Alba and providing for 
+alumina to be sold to the Government of Bahrain, as majority shareholder of Alba, “directly or 
+through an associated company of Alcoa satisfactory to GoB [Government of Bahrain] and 
+Alcoa.”  The MOU was approved by the same Bahraini government official on behalf of Alba 
+ 7 
+that Consultant A had been hired to lobby.   Subsequently, the joint venture negotiations fell 
+through, and Consultant A was never paid the $8 million success fee. 
+28.  By the summer of 2004, AofA was supplying approximately one million metric 
+tons of alumina annually to Alba, but Consultant A’s companies were invoicing Alba for the 
+shipments.  Unlike a true distributorship, Consultant A’s companies never took possession of the 
+alumina, assisted with the shipping arrangements, or otherwise performed any legitimate services 
+for either the AWAC Subsidiaries or Alba.  The only function the shell companies provided was 
+to invoice Alba for the shipments at a significant markup.   
+29. Alba’s obligations under pre-existing supply arrangements with AofA were set to 
+expire at the end of 2004.  In the summer of 2004, AWA sought to secure a new long term 
+alumina supply agreement with Alba.  On or around August 5, 2004, Alcoa management was 
+advised by a former senior Alcoa executive who had a relationship with Consultant A that if they 
+attempted to negotiate a direct contractual relationship between AofA and Alba, rather than 
+negotiate a supply arrangement through Consultant A and one of his companies, some or all of 
+Alba’s business could be lost to another alumina supplier. 
+30. On or about August 19, 2004, AWA management met with Consultant A at 
+Consultant A’s London Office to discuss using Consultant A’s companies “as Alcoa’s exclusive 
+distributor in the region.” On or about August 22, 2004, an AWA executive negotiating with 
+Consultant A sent an email documenting with more specificity certain items that were discussed 
+at the meeting.  Among them, the executive noted that “[w]e agreed to supply [Consultant A] 
+with pricing indications for supply to [AAAC, one of Consultant A’s shell companies] by 8/24 so 
+he can have these for his meeting with [a Bahraini official].  We mentioned pricing close to 
+14%.”  The email also noted that “[a Bahraini official] is holding on to publishing [Alba’s] 
+alumina tender [to the market] until he has further discussions with [Consultant A] on 8/29.”  
+The pricing terms per metric ton of alumina that the AWA executive quoted to Consultant A at 
+the meeting in London were less than the pricing terms for Alba that an AWA sales executive 
+had quoted to a Bahraini official approximately one month earlier. 
+31. On or around September 29, 2004, AWA facilitated Consultant A’s tendering a 
+bid to supply Alba up to 1.6 million metric tons of alumina for ten years commencing in 2005. 
+On or about October 8, 2004, the in-house attorney responsible for supporting the alumina 
+business suggested terminating the consulting agreement that Alcoa had entered with Consultant 
+A in connection with the proposed joint venture, as “the terms of [Consultant A’s] current 
+engagement created a lot of anxiety in the organization.”  However, an AWA executive decided 
+that the consultancy agreement should not be terminated until AofA had secured a new long-term 
+alumina supply agreement with Alba. 
+32. On or about November 1, 2004, a Bahraini official caused Alba to accept 
+Consultant A’s tender offer for a ten-year supply of alumina. On or about December 31, 2004, 
+AofA entered a sham ten-year distributorship agreement with AAAC, one of Consultant A’s 
+shell companies to purportedly supply annually up to 1.78 million metric tons of alumina for sale 
+to Alba from 2005 to 2014 (the “2005 Alba Supply Agreement”).   It was actually AofA that 
+would continue shipping the alumina directly from its refineries in Western Australia to Alba. 
+ 8 
+33. On or about March 4, 2005, a representative of Consultant A sent another 
+Bahraini government official a final, unexecuted contract for the purported supply agreement 
+between Consultant A and Alba.  On or about June 8, 2005, the final agreement negotiated 
+between Consultant A and Alba was signed by that government official on behalf of Alba.  The 
+agreement’s effective date was January 1, 2005, and its term was through December 31, 2014.  
+The agreement provided that Consultant A would supply Alba with 1.508 million metric tons of 
+alumina in 2005 and 1.6 million metric tons of alumina thereafter for each remaining contract 
+year.  Alba was required to bear the cost of shipping and insurance.  
+34. For sales of alumina to Alba, Consultant A did not receive payment until after 
+Consultant A was bound to pay AofA.  Given the discrepancy in the timing of payment, 
+Consultant A sought a line of credit from Alcoa to cover the cost of alumina shipments to Alba 
+until Alba remitted payment to Consultant A. Alcoa’s policies and procedures required its 
+customers to submit financial statements for an extension of credit.  Consultant A, however, 
+refused to provide financial statements to Alcoa’s credit department.  Nevertheless, in or around 
+December 2004, senior management of AWA invoked an override procedure that resulted in an 
+Alcoa executive approving a $23 million line of credit to Consultant A’s companies. 
+35. Thereafter, in each of contract years 2005 through 2009, Alcoa continued to grant 
+overrides to extend increasing credit lines to Consultant A’s purported distributorships.  By 
+2007, Alcoa was extending a credit line of $58 million.  During this period, Alcoa granted 
+Consultant A credit lines that were significantly greater than those granted by Alcoa to any other 
+third party.  By facilitating the extension of credit to Consultant A, AWA enabled the purported 
+distributorship scheme by allowing Consultant A to defer paying AofA for the multi-million 
+dollar shipments of alumina to Alba until Consultant A received payment from Alba.  
+36. From 2005 through 2009, AWA caused Consultant A to receive in excess of $188 
+million on the markup of alumina sales to Alba.  This money was transferred from the initial 
+accounts in which payment from Alba was received through various bank accounts controlled by 
+Consultant A, including accounts in the name of shell companies. 
+37. The AWAC Subsidiaries knew or consciously disregarded the fact that Consultant 
+A was inserted into the Alba sales supply chain to generate funds to pay bribes to Bahraini 
+officials.  Ultimately, these funds facilitated at least $110 million in corrupt payments to Bahraini 
+officials.  The vast majority of those funds were generated from the markup between the price 
+Consultant A sold to Alba and the price that AofA sold to Consultant A.  Those funds were also 
+generated from the commissions that AofA paid to Consultant A. 
+38. The recipients of the corrupt payments included a senior Bahraini official, 
+members of the board of directors of Alba, and senior management of Alba.  Examples of the 
+corrupt payments include: 
+ In August 2003, Consultant A’s shell companies made 2 payments totaling $7 million to 
+accounts for the benefit of a Bahraini government official who Consultant A had been 
+retained to lobby. Two weeks later, Alcoa and Alba signed an agreement in principle to 
+have Alcoa participate in Alba’s plant expansion. 
+ 9 
+ In October 2004, Consultant A’s shell company paid $1 million to an account for the 
+benefit of that same government official.  Shortly thereafter, Alba agreed in principle to 
+Alcoa’s offer for the 2005 Alba Supply Agreement. 
+ In or around the time of the execution of the final 2005 Alba Supply Agreement, 
+Consultant A-controlled companies paid another Bahraini government official and/or his 
+beneficiaries $41 million in three payments. 
+ 
+Legal Standards and Violations 
+C. 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 of omission the person knew or 
+should have known would contribute to such violation. 
+ 
+FCPA Violations 
+D. Under Section 30A(a) of the Exchange Act it is unlawful for any issuer, officer, 
+director, employee, or agent of such issuer or any stockholder thereof acting on behalf of the 
+issuer, to make use of the mails or any means or instrumentality of interstate commerce corruptly 
+in furtherance of an offer, payment, promise to pay, or authorization of the payment of any 
+money, or offer, gift, promise to give, or authorization of the giving of anything of value to any 
+foreign official  or any person, while knowing that all or a portion of such money or thing of 
+value will be offered, given, or promised, directly or indirectly, to any foreign official for the 
+purposes of (i) influencing any act or decision of such foreign official in his official capacity, (ii) 
+inducing such foreign official to do or omit to do any act in violation of the lawful duty of such 
+official, or (iii) securing any improper advantage in order to assist such issuer in obtaining or 
+retaining business for or with, or directing business to, any person.  [15 U.S.C. § 78dd-1]. 
+E. Additionally, under Section 30A(g) of the Exchange Act it is unlawful for any 
+issuer organized under the laws of the United States, or a State, territory, possession, or 
+commonwealth of the United States or for any United States person that is an officer, director, 
+employee, or agent of such issuer or a stockholder thereof acting on behalf of such issuer, to 
+corruptly do any act outside the United States in furtherance of an offer, payment, promise to 
+pay, or authorization of the payment of any money, or offer, gift, promise to give, or 
+authorization of the giving of anything of value to any of the persons or entities set forth in 
+paragraphs (i), (ii), and (iii) of subsection (a) of this section for the purposes set forth therein, 
+irrespective of whether such issuer or such officer, director, employee, agent, or stockholder 
+makes use of the mails or any means or instrumentality of interstate commerce in furtherance of 
+such offer, gift, payment, promise, or authorization. 
+ 10 
+F. This Order contains no findings that an officer, director or employee of Alcoa 
+knowingly engaged in the bribe scheme.  As described above, Alcoa violated Section 30A of the 
+Exchange Act by reason of its agents, including subsidiaries AWA and AofA, indirectly paying 
+bribes to foreign officials in Bahrain in order to obtain or retain business.  AWA, AofA, and their 
+employees all acted as “agents” of Alcoa during the relevant time, and were acting within the 
+scope of their authority when participating in the bribe scheme.  As described above, Alcoa 
+exercised control over the Alumina Segment, including the AWAC Subsidiaries.  Alcoa 
+appointed the majority of seats on the AWAC Strategic Council, and the head of the Global 
+Primary Products group served as its chair.  Alcoa and AofA transferred personnel between 
+them, including alumina sales staff; Alcoa set the business and financial goals for AWAC and 
+coordinated the legal, audit, and compliance functions of AWAC; and the AWAC Subsidiaries’ 
+employees managing the Alba alumina business reported functionally to the global head of the 
+Alumina Segment.  Alba was a significant alumina customer for Alcoa’s Alumina Segment and 
+during the relevant period, members of Alcoa senior management met both with Alba officials 
+and Consultant A to discuss matters related to the Alba relationship, including a proposed joint 
+venture between Alcoa and Alba.  During this time, Alcoa was aware that Consultant A was an 
+agent and distributor with respect to AofA’s sales of alumina to Alba and that terms of related 
+contracts were reviewed and approved by senior managers of Alcoa’s Alumina Segment in the 
+United States. 
+G. Under Section 13(b)(2)(A) of the Exchange Act issuers are required 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)]. 
+H. Under Section 13(b)(2)(B) of the Exchange Act issuers are required 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)]. 
+I. As described above, Alcoa violated Section 13(b)(2)(A) of the Exchange Act by 
+improperly recording the payments, to Consultant A, as agent commissions when the true 
+purpose of these payments was to make corrupt payments to Bahraini officials.  Alcoa violated 
+Section 13(b)(2)(A) when Alcoa recorded the sales to Consultant A as a distributor.  The false 
+entries were initially recorded by the AWAC Subsidiaries which were then consolidated and 
+reported by Alcoa in its consolidated financial statements.  Alcoa also violated Section 
+13(b)(2)(B) by failing to devise and maintain sufficient accounting controls to detect and prevent 
+the making of improper payments to foreign officials. 
+ 
+ 11 
+Alcoa’s Remedial Efforts 
+J. Alcoa made an initial voluntary disclosure of certain of these issues to the 
+Commission and Department of Justice in February 2008, and thereafter Alcoa’s Board of 
+Directors appointed a Special Committee of the Board of Directors to oversee an internal 
+investigation by independent counsel.  Alcoa’s counsel regularly reported on the results of the 
+investigation and fully cooperated with the staff of the Commission.   
+K. Alcoa also undertook extensive remedial actions including:  a comprehensive 
+compliance review of anti-corruption policies and procedures, including its relationship with 
+intermediaries; enhancing its internal controls and compliance functions; developing and 
+implementing enhanced FCPA compliance procedures, including the development and 
+implementation of policies and procedures such as the due diligence and contracting procedure 
+for intermediaries; and conducting comprehensive anti-corruption training throughout the 
+organization. 
+ 
+Criminal Plea Agreement  
+ 
+Respondent’s subsidiary AWA has agreed, with the United States Department of Justice, 
+Criminal Division, Fraud Section, to plead guilty for criminal conduct relating to certain of the 
+findings in the Order. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Alcoa’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+ A. Pursuant to Section 21C of the Exchange Act, Respondent Alcoa cease and desist 
+from committing or causing any violations and any future violations of Sections 30A, 13(b)(2)(A) 
+and 13(b)(2)(B) of the Exchange Act;   
+ 
+B. Respondent shall pay disgorgement of $175,000,000.  A portion of Respondent’s 
+disgorgement obligation in the amount of $14,000,000 shall be deemed satisfied by Respondent’s 
+payment of $14,000,000 in forfeiture as part of Respondent’s resolution with the United States 
+Department of Justice (“DOJ”) filed in the Western District of Pennsylvania.  In the event that 
+Respondent’s resolution with DOJ requires a forfeiture payment less than $14,000,000, the 
+Respondent acknowledges that its disgorgement obligation will be credited up to the amount of the 
+payment required by Respondent’s resolution with DOJ, with the remaining balance due and 
+payable to the Securities and Exchange Commission within 14 days of payment pursuant to 
+Respondent’s resolution with DOJ.  In light of the impact of the disgorgement payment upon 
+Respondent’s financial condition and its potential to substantially jeopardize Alcoa’s ability to 
+fund its sustaining and improving capital expenditures, its ability to invest in research and 
+development, its ability to fund its pension obligations, and its ability to maintain necessary cash 
+ 12 
+reserves to fund its operations and meet its liabilities, Respondent shall pay the disgorgement in 
+five equal payments  based upon the following schedule: 
+ 
+Amount    Date Due 
+$32,200,000   January 9, 2014 
+$32,200,000   January 9, 2015 
+$32,200,000   January 9, 2016 
+$32,200,000   January 9, 2017 
+$32,200,000   January 9, 2018 
+ 
+If timely payment of disgorgement is not made within 14 days of when due, 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 identif ying 
+Alcoa 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 Charles Cain, Deputy Unit Chief, 
+FCPA Unit , Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, 
+Washington, DC 20549.   
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+ 
+       Elizabeth M. Murphy 
+       Secretary 

raw/aaer/2014/AAER-3527.txt

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+                U.S. SECURITIES AND EXCHANGE COMMISSION 
+         Litigation Release No. 22902 / January 9, 2014 
+         Accounting and Auditing Enforcement Release No. 3527 / January 9, 2014 
+          Securities and Exchange Commission v. Diamond Foods, Inc. , Civil Action No. 3:14-cv-00122 (N.D. Cal.);  Securities and Exchange Commission v. Steven Neil  Civil Action No. 3:14-cv-00122 (N.D. Cal.) 
+
+         headline  -->
+         
+
+         The Securities and Exchange Commission ("Commission") today filed separate actions against Diamond Foods, Inc. ("Diamond"), a San Francisco-based snack food company, and its former chief executive officer (CEO) Michael Mendes, and its former chief financial officer (CFO) Steven Neil for their roles in an accounting scheme to falsify walnut costs in order to boost earnings and meet estimates by stock analysts. 
+
+         According to the Commission's complaints against former CFO Steven Neil and Diamond, which were filed in federal court in San Francisco, Neil directed the effort to fraudulently underreport money paid to walnut growers by delaying the recording of payments into later fiscal periods. In internal e-mails, Neil referred to these commodity costs as a "lever" to manage earnings in Diamond's financial statements. By manipulating walnut costs, Diamond correspondingly reported higher net income and inflated earnings to exceed analysts' estimates for fiscal quarters in 2010 and 2011.  After Diamond restated its financial results in November 2012 to reflect the true costs of acquiring walnuts, the company's stock price slid to just $17 per share from a high of $90 per share in 2011. 
+
+         Diamond Foods agreed to pay $5 million to settle the SEC's charges. Former CEO Michael Mendes, who allegedly should have known that Diamond's reported walnut cost was incorrect at the time he certified the company's financial statements, also agreed to settle charges against him. The SEC's litigation continues against Neil. 
+
+         According to the Commission's complaints filed against Neil and Diamond, one of the company's significant lines of business involves buying walnuts from its growers and selling the walnuts to retailers. With sharp increases in walnut prices in 2010, Diamond encountered a situation where it needed to pay more to its growers in order to maintain longstanding relationships with them. Yet Diamond could not increase the amounts paid to growers for walnuts, which was its largest commodity cost, without also decreasing the net income that Diamond reports to the investing public. And Neil was facing pressure to meet or exceed the earnings estimates of Wall Street stock analysts. 
+
+         The Commission alleges that while faced with competing demands, Neil orchestrated a scheme to have it both ways. He devised two special payments to please Diamond's walnut growers and bring the total yearly amounts paid to growers closer to market prices, but improperly excluded portions of those payments from year-end financial statements. Instead of correctly recording the costs on Diamond's books, Neil instructed his finance team to consider the payments as advances on crops that had not yet been delivered. By disguising the reality that the payments were related to prior crop deliveries, Diamond was able to manipulate walnut costs in its accounting to hit quarterly targets for earnings per share (EPS) and exceed estimates by analysts. For instance, after adjusting the walnut cost in order to meet an EPS target for the second quarter of 2010, Diamond went on to tout its record of "Twelve Consecutive Quarters of Outperformance" in its reported EPS results during investor presentations. 
+
+         The Commission further alleges that Neil misled Diamond's independent auditors by giving false and incomplete information to justify the unusual accounting treatment for the payments. Neil personally benefited from the fraud by receiving cash bonuses and other compensation based on Diamond's reported EPS in fiscal years 2010 and 2011. 
+
+         In a separate settled administrative proceeding filed today against former CEO Michael Mendes, the Commission found that Mendes should have known that Diamond's reported walnut cost was incorrect because of information he received at the time, and that he omitted facts in certain representations to Diamond's outside auditors about the special walnut payments. Mendes agreed to pay a $125,000 penalty to settle the charges without admitting or denying the allegations. Mendes already has returned or forfeited more than $4 million in bonuses and other benefits he received during the time of the company's fraudulent financial reporting. 
+
+         The Commission's complaint against Diamond alleges that Diamond violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), and Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13. Without admitting or denying the allegations, Diamond has consented to the entry of a permanent injunction against future violations of the relevant federal securities laws, and the imposition of a $5 million penalty. 
+
+         The Commission's complaint against CFO Neil alleges that Neil violated Section 17(a) of the Securities Act, and Sections 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5, 13a-14, 13b2-1, and 13b2-2, and Section 304 of the Sarbanes-Oxley Act of 2002, and aided and abetted Diamond's violations of 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13. The complaint against Neil seeks a permanent injunction, civil penalties, an officer and director bar, disgorgement plus prejudgment interest, and relief pursuant to the Sarbanes-Oxley Act of 2002. 
+
+         The cease and desist order against CEO Mendes alleges that he directly violated Sections 17(a)(2) and (a)(3) of the Securities Act, Exchange Act Rules 13a-14, 13b2-1, and 13b2-2, and caused Diamond's violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13. Without admitting or denying the factual findings, Mendes has consented to the entry of a cease and desist order against committing violations of Sections 17(a)(2) and (a)(3) of the Securities Act, Exchange Act Rules 13a-14, 13b2-1, and 13b2-2, and causing Diamond's violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13, and the imposition of a $125,000 penalty. The Commission's order against Mendes noted that he already has returned to Diamond or has forfeited over $4 million in bonuses and other benefits he received during the time of the company's fraudulent financial reporting. 
+
+         The Commission took into account Diamond's cooperation with the SEC's investigation and its remedial efforts once the fraud came to light. The penalties collected from Diamond and Mendes may be distributed to harmed investors if SEC staff determines that a distribution is feasible. 
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+                U.S. SECURITIES AND EXCHANGE COMMISSION 
+         Litigation Release No. 22906 / January 15, 2014 
+         Accounting and Auditing Enforcement Release No. 3528 / January 15, 2014 
+          Securities and Exchange Commission v. Christopher Hohol and Brian Poshak , Civil Action No. 2:14-CV-00041 (RTR) (E.D. Wis.) (filed January 14, 2014) 
+
+         SEC Charges Former Senior Executives of Public Company Subsidiary with Falsifying Financial Records and Circumventing Internal Controls 
+         
+
+ The Securities and Exchange Commission announced that on January 14, 2014, the Commission filed a civil injunctive action in federal district court Milwaukee, Wisconsin, charging Christopher Hohol ("Hohol") and Brian Poshak ("Poshak"), formerly the senior vice president for operations and the  controller, respectively, of Veolia Special Services ("Special Services"), a fourth-tier United States subsidiary of Veolia Environnement S.A. ("Veolia"), a multinational utilities and environmental services company, with falsifying books, records, and accounts and circumventing internal controls in order to overstate Special Services' earnings before taxes ("EBT") over a period of at least three years.   
+
+ The Commission's complaint alleges that beginning no later than January 2008 and continuing through February 2011, Hohol, who was the most senior executive at Special Services, and Poshak, among other things, made and caused others to make false accounting entries in Special Services' general ledger, including entries for fictitious revenue accruals, and entries that improperly reclassified expenses as inventory and improperly reclassified expenses (such as rental equipment, including industrial tools and diving gear) as prepaid assets, in order to artificially increase Special Services' monthly EBT to meet internal financial performance projections and create the false appearance that Special Services consistently was profitable.  The complaint further alleges that both Hohol and Poshak signed monthly certifications falsely verifying the accuracy of Special Services' financial information and efficacy of Special Services' internal controls.  The complaint also alleges that Poshak forged invoices and other documents to support the false accounting entries and to conceal the scheme.  According to the complaint, as a result of Hohol's and Poshak's misconduct, Special Services overstated its EBT by a total of approximately $64 million.  The complaint also alleges that, as a result of their misconduct, Hohol and Poshak received $136,000 and $28,000, respectively, in ill-gotten bonus payments that were triggered by the inflated financial performance of Special Services.  The complaint further alleges that the false financial information provided by Special Services was reported up through several intermediate subsidiaries and, ultimately, was consolidated into the parent company's publicly disclosed financial statements, which were filed with and furnished to the Commission.   
+
+ The complaint charges Hohol and Poshak with violating Section 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 13b2-1 thereunder, and aiding and abetting Veolia's violations of Section 13(b)(2)(A) of the Exchange Act.   
+
+ Without admitting or denying the allegations in the complaint, Hohol and Poshak have consented to the entry of final judgments that permanently enjoin them from violating Exchange Act Section 13(b)(5) and Rule 13b2-1 thereunder, and aiding and abetting violations of Exchange Act Section 13(b)(2)(A).  Hohol also has agreed to disgorge $106,000, and Poshak has agreed to disgorge $28,000, together with prejudgment interest in the amount of $3,500.  The settlements, which are subject to court approval, take into account Hohol's and Poshak's current financial condition. 
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raw/aaer/2014/AAER-3529.txt

@@ -0,0 +1,434 @@
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES ACT OF 1933 
+Release No. 9513 / January 17, 2014 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 71348 / January 17, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3529 / January 17, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15680 
+ 
+ 
+ 
+ 
+ 
+In the Matter of 
+ 
+EUGENE M. EGEBERG III, CPA, 
+ 
+Respondent. 
+ 
+ 
+ 
+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 RULES 
+102(e)(1)(ii) AND (iii) 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 pursuant to Section 
+8A of the Securities Act of 1933 (“Securities Act”), 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 . . . (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 Rules 102(e)(1)(ii) and (iii) of the Commission’s 
+Rules of Practice2 against Respondent Eugene M. Egeberg III, CPA (“Egeberg” or “Respondent”).  
+II. 
+ After an investigation, the Division of Enforcement alleges that:    
+ 
+A. RESPONDENT 
+1. Eugene M. Egeberg III, CPA (“Respondent” or “Egeberg”), a resident of 
+Hampstead, Maryland, operates a self-named sole-proprietorship accounting firm in Baltimore, 
+Maryland.  Egeberg is a Maryland-licensed CPA and was previously registered with the Public 
+Company Accounting Oversight Board (“PCAOB”) before his voluntary request for withdrawal 
+was accepted by the Board in November 2012.        
+B. RELATED ISSUERS 
+ 
+2. Fox Petroleum, Inc. (“Fox Petroleum”) is a Nevada corporation located in New 
+York, New York with a class of securities registered with the Commission pursuant to Exchange 
+Act Section 12(g).  Egeberg audited Fox Petroleum’s financial statements for its fiscal years ended 
+February 28, 2010,  February 28, 2011, and February 28, 2012.   
+ 
+3. RPM Advantage, Inc. (“RPM Advantage”) is a Nevada corporation located in 
+Houston, Texas.  RPM Advantage’s stock was previously registered with the Commission pursuant 
+to Exchange Act Section 12(g).  On November 8, 2011, and again on January 30, 2012, RPM 
+Advantage had its registration revoked by the Commission pursuant to Exchange Act Section 
+12(j).  Egeberg audited RPM Advantage’s financial statements for its fiscal years ended December 
+31, 2006 through December 31, 2010. 
+C. FACTS 
+Failure to Conduct Audits with Due Professional Care and Skepticism, and Failure 
+to Obtain Competent and Sufficient Evidential Matter.  
+4. AU3 §230.01, Due Professional Care in the Performance of Work, requires that an 
+auditor exercise due professional care in the planning and performance of an audit, and in 
+preparation of the audit report.  Due professional care requires an auditor to exercise professional 
+skepticism throughout the audit process.  AU § 230.07-08.  Similarly, AU § 326, Evidential 
+Matter, required that the auditor obtain sufficient competent audit evidence to support the opinion 
+                                                 
+2 Rule 102(e)(1)(ii) & (iii) provide, in pertinent part, that: (ii)  “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;” and (iii) “to have willfully violated, . . . any provision of the Federal 
+securities laws or the rules and regulations thereunder.”   
+3 References in this order are to the PCAOB standards in effect at the time of the relevant conduct.   
+ 3 
+expressed in the auditor’s report, for fiscal years beginning before December 15, 2010.  AU § 
+315.09, Communications Between Predecessor and Successor Auditors, requires a successor 
+auditor to make specific and reasonable inquiries of  the predecessor auditor regarding information 
+that might bear on the integrity of management, disagreements with management as to accounting 
+principles or auditing procedures, communications to audit committees regarding fraud or illegal 
+acts by clients, and the predecessor auditor’s understanding as to the reasons for the change of 
+auditors.   
+5. Egeberg violated AU § 230 by conducting the purported Fox Petroleum audits for 
+Fiscal Years 2010 and 2011, without exercising appropriate due professional care or professional 
+skepticism and violated AU § 326 by failing to obtain sufficient evidential matter.  Egeberg did so 
+by failing to perform any audit tests or procedures to determine the accuracy of Fox Petroleum’s 
+financial statements.  On a checklist Egeberg completed for Fox Petroleum, he noted, for example, 
+that the company’s large accounts payable balance was a troublesome audit area.4    Egeberg, 
+however, performed no tests to determine whether the balance was accurate.  Instead, Egeberg 
+simply concluded that management’s representations were adequate.    See also AU § 333.02, 
+Management Representations, which states, in part, “…[R]epresentations from management are 
+part of the evidential matter the independent auditor obtains, but they are not a substitute for the 
+application of those auditing procedures necessary to afford a reasonable basis for an opinion 
+regarding the financial statements under audit.” 
+6. Similarly, Egeberg noted that unrecorded liabilities were a potential fraud risk for 
+Fox Petroleum, but that his concerns were satisfied by the company’s “overhauled financials.”  
+Egeberg never identified what he was specifically referring to by that, nor did he point to any 
+documentation showing how the supposed overhauls satisfied him.  Egeberg’s acceptance of these 
+assertions at face value, without further inspection or procedures, constituted a failure to exercise 
+due professional care and skepticism and a failure to obtain sufficient competent evidential matter. 
+7. Egeberg was also required to inquire with the prior auditor for Fox Petroleum’s 
+2009 financial statements, the period immediately prior to the 2010 financial period.  Egeberg 
+never inquired with the previous auditor regarding Fox Petroleum, in violation of AU § 315.  Fox 
+Petroleum’s 2010 financial statements had already been audited and filed with the Commission in 
+a Form 10-K, but the prior auditor, who was hired to audit just that one period, had his PCAOB 
+registration permanently revoked on October 19, 2010 for non-cooperation with a PCAOB 
+investigation.  Egeberg was unaware that his audit of the 2010 financial statements was a re-audit, 
+even though it was public knowledge and the Form 10-K was available on the Commission’s 
+website.  Egeberg was required to try to inquire with the prior auditor regarding the re-audit of the 
+2010 financial statements for Fox Petroleum, pursuant to AU § 315.14.   
+                                                 
+4 Egeberg downloaded the checklist from the American Institute of Certified Public Accountants’ (“AICPA”) 
+website.  This checklist came from the AICPA’s Peer Review Program Manual.  AICPA STANDARDS FOR 
+PERFORMING AND REPORTING ON PEER REVIEWS § 20, 400, et seq. (Am. Inst. of Certified Pub. Accountants 2009).   
+The checklist was designed as part of the AICPA’s Peer Review Programs and was designed for independent 
+reviewers to examine member-auditors’ engagements after completion of the engagement to promote accounting 
+and auditing quality.  (AICPA STANDARDS FOR PERFORMING AND REPORTING ON PEER REVIEWS § 1000.02 (Am. 
+Inst. of Certified Pub. Accountants 2013). 
+ 4 
+8. Egeberg also violated AU § 230 by conducting the purported RPM Advantage 
+audits without excercising appropriate due professional care or professional skepticism and 
+violated AU § 326 by failing to obtain sufficient competent evidential matter.   Much like with Fox 
+Petroleum, Egeberg failed to document any audit procedures he performed for any of RPM 
+Advantage’s financial balances on its financial statements.  Moreover, it is questionable that 
+Egeberg actually audited RPM Advantage’s financial statements, because they were arithmetically 
+incorrect.  
+ 
+9. Egeberg claimed he inquired about RPM Advantage’s predecessor auditor, but he 
+determined that the auditor was “unavailable.”  RPM Advantage’s prior auditor had, on January 7, 
+2010, just one month prior to Egeberg’s engagement, been suspended from appearance or practice 
+before the Commission as an accountant with the right to apply for reinstatement after five years 
+pursuant to Rule of Practice 102(e)(1)(ii) and (iii) for numerous audit deficiencies, including 
+failure to exercise due professional care and failure to maintain adequate audit documentation.  The 
+order suspending the prior auditor was publicly available, and a minimal search would have 
+informed Egeberg of the suspension.       
+10. An example of Egeberg’s lack of due care and skepticism on the RPM Advantage 
+audits is the lack of work to obtain audit evidence to analyze the impact of the balances carried 
+over from the 2005 financial statements on the 2006 financial statements and consistency of 
+accounting principles. See AU § 315.12.  Egeberg noted on his checklist for RPM Advantage, 
+under the section for past adjustments and risk, that the financial statements were materially 
+misstated and that “there was no method to ascertain.”  Egeberg claimed that the only records the 
+company had were the previous SEC filings, and thus he had no method to ascertain past 
+adjustments.  Egeberg failed to point to any actual procedures that he performed.  Egeberg had no 
+audit work papers, and had no other evidence to overcome his lack of audit documentation on the 
+subject.  Because there were no records for prior periods and because Egeberg did not make 
+inquiries of the prior auditor for RPM Advantage, due professional care and skepticism should 
+have caused him to apply appropriate auditing procedures to account balances at the beginning of 
+fiscal year 2006 and to transactions in prior periods, but he did not.  See AU § 315.12.  See also 
+AU § 315.13 (“[t]he successor auditor’s review of the predecessor auditor’s working papers may 
+affect the nature, timing, and extent of the successor auditor’s procedures with respect to the 
+opening balances and consistency of accounting principles.”)   
+Failure to Obtain Engagement Quality Reviews. 
+11. Auditing Standard No. 7, Engagement Quality Review, requires an engagement 
+quality review and concurring approval of issuance for each audit engagement and for each 
+engagement to review interim financial information for fiscal years beginning after December 15, 
+2009.    The engagement quality reviewer may not be the same person as the engagement partner.   
+A sole practice firm, like Egeberg’s, is thus required to engage a qualified individual from outside 
+the firm to serve as the engagement quality reviewer.   
+12. Egeberg failed to obtain an engagement quality review for the Fox Petroleum audit 
+engagement for its fiscal years ended February 28, 2011 and February 28, 2012, and for the audit 
+ 5 
+of RPM Advantage’s financial statements for its fiscal year ended December 31, 2010, in violation 
+of Auditing Standard No. 7.   
+ Deficiencies in the Audits of Fox Petroleum’s Subsidiaries.    
+13. In September 2011, Fox Petroleum purchased two companies, Renfro Energy, LLC 
+(“Renfro”) and Cameron Parish Pipelines, LLC (“CPP”).  Fox Petroleum engaged Egeberg to 
+conduct audits of Renfro and CPP for each company’s fiscal years ended December 31, 2009 and 
+December 31, 2010.  On November 1, 2011, at 11:49 p.m., the CEO of Fox Petroleum emailed 
+Egeberg informing him of the purchase of the two companies.  The CEO told Egeberg that the two 
+companies’ financial statements would need to be audited as part of the purchase agreement, and 
+that the two separate auditors for each company were unable to complete the audits by November 
+3, less than two days later.  The Fox Petroleum CEO asked whether Egeberg would be able to 
+complete the audits for both companies for fiscal years 2009 and 2010 within the less than two-day 
+period, and told Egeberg that a $5 million credit line was contingent upon the deal closing, and that 
+if the deal closed on time, Egeberg would be able to collect outstanding bills for his audit of Fox 
+Petroleum that he had thus far been unable to collect.  Less than forty hours later, Egeberg signed 
+off on the audits of four years’ worth of financial statements for Renfro and CPP.  Egeberg 
+provided audit reports stating that he conducted the audits in accordance with PCAOB standards.  
+Those audit reports, along with the financial statements for Renfro and CPP, were both included in 
+a Form 8-K that Fox Petroleum publicly filed on November 3, 2011.     
+14. It is implausible that Egeberg could have conducted proper audits for Renfro and 
+CPP, each with two years of financial statements, in such a short time, regardless of the 
+companies’ small sizes.  Further, each company had separate auditors who were each unable to 
+complete the audits in this short time, despite having already begun the work.  Similarly troubling 
+is that Fox Petroleum’s CEO enticed Egeberg to complete the two audits under significant pressure 
+by promising him past-due payment owed for the Fox Petroleum audits, but only if Egeberg could 
+complete the audits in the two-day timeframe.  These circumstances suggest that Egeberg rubber-
+stamped the audit reports to help Fox Petroleum acquire the $5 million credit line in hopes of 
+payment for his completed audit of Fox Petroleum.    
+15. Neither Renfro nor CPP were SEC issuers.  Notwithstanding, Egeberg included in 
+his audit report for each company the statement that the audits were conducted “in accordance with 
+standards required by the [PCAOB].”  The audit reports were subsequently included on Forms 8-K 
+filed by Fox Petroleum with the Commission.  The egregiously deficient  audits of Renfro and CPP 
+further demonstrate Egeberg’s pattern of poor audit work and strengthen the need for the Rule 
+102(e) suspension.   
+16. Egeberg violated Auditing Standard No. 3, Audit Documentation, for his audits of 
+Renfro and CPP because he had no evidence demonstrating that he performed audit work for 
+Renfro or CPP.  Egeberg’s failure to maintain documentation places a burden upon the auditor to 
+provide persuasive other evidence that sufficient procedures were performed, sufficient evidence 
+was obtained, and appropriate conclusions were reached with respect to the relevant financial 
+statement assertions, which Egeberg failed to do. 
+ 6 
+17. Egeberg failed to perform the audits of Renfro and CPP with due professional care 
+and professional skepticism, in violation of AU § 230.  Egeberg also failed to collect competent 
+evidential matter for those audits, in violation of AU § 326.  Egeberg has provided no documented 
+evidence of procedures performed to ensure that Renfro’s and CPP’s financial statements were 
+presented fairly and accurately.  Similarly, Egeberg could not identify any procedures performed to 
+determine the accuracy of the financial statements.           
+18. Egeberg violated Auditing Standard No. 7 by failing to obtain an engagement 
+quality review for Renfro’s and CPP’s fiscal years ended December 31, 2010.   
+ Additonal Audit Deficiencies in RPM Advantage and Fox Petroleum Audits. 
+19. Egeberg lacked the knowledge, proficiency, training, and skill to audit issuers 
+registered with the Commission.  AU §§ 210 and 230, Training and Proficiency of the Independent 
+Auditor and Due Professional Care in the Performance of Work, respectively, which require that 
+an audit be performed by “a person or persons having adequate technical training and proficiency 
+as an auditor.”  AU § 210.01.  PCAOB auditing standards further require that auditors engage in 
+audit tasks “commensurate with their level of knowledge, skill, and ability so that they can 
+evaluate the audit evidence they are examining,” and that “[t]he auditor with final responsibility for 
+the engagement should know, at a minimum, the relevant professional accounting and auditing 
+standards . . . .”  AU § 230.06.   
+20. Egeberg has never had any audit training.  He has taken only four courses during 
+his professional career relating to audits and audit procedures, with at least two of them being self-
+directed online courses completed as part of his continuing professional education requirements.  
+The extent of Egeberg’s professional practice since college has primarily been preparing tax 
+returns and general ledger bookkeeping for individuals and businesses.  Yet he issued audit reports 
+covering financial statements for as many as twenty public companies before withdrawing his 
+PCAOB registration. 
+21. Because he had no training, Egeberg conducted all of his audits according to a 
+checklist he downloaded from the AICPA’s website, as discussed supra in footnote 4.  This 
+checklist came from the AICPA’s Peer Review Program Manual.  AICPA
+ STANDARDS FOR 
+PERFORMING AND REPORTING ON PEER REVIEWS § 20,400, et seq. (Am. Inst. of Certified Pub. 
+Accountants 2009).   The peer review checklist that Egeberg used for his engagements was not 
+designed to substitute for the more rigorous and detail-oriented requirements for audit 
+engagements.  Furthermore, AICPA’s Peer Review Program  is not applicable to Commission 
+issuers.  Id. §1000.03.     
+22. By following the Peer Review Program checklist, without any other experience or 
+guidance, Egeberg demonstrated his complete lack of understanding of public company audits.  
+Following these checklists also contributed to Egeberg’s performance of grossly deficient audits.   
+ Failure to Design and Plan Audits. 
+23. AU § 311, Planning and Supervision, required that for audits of companies with 
+fiscal years beginning before December 15, 2010,  
+ 7 
+the auditor should consider the nature, extent, and timing of work to be 
+performed and should prepare a written audit program (or set of written 
+audit programs) for every audit. The audit program should set forth in 
+reasonable detail the audit procedures that the auditor believes are necessary 
+to accomplish the objectives of the audit.  The form of the audit program 
+and the extent of its detail will vary with the circumstances. In developing 
+the program, the auditor should be guided by the results of the planning 
+considerations and procedures.  As the audit progresses, changed conditions 
+may make it necessary to modify planned audit procedures.  
+AU §311.05. 
+24. Egeberg was required to design and plan audit procedures and programs for each 
+audit engagement.  The audit programs should have taken into consideration, among other things, 
+the companies’ industries, the companies’ business practices, and judgments of potential 
+materiality and risk.  AU § 311.  Egeberg failed to perform any of these planning activities.  
+Instead, he simply followed the Peer Review Program checklist for each of his clients, which 
+simply asks whether the auditor properly designed an audit for the client, and for each of Egeberg’s 
+clients, he checked “yes.”   There was no planning by Egeberg for any of the audits for 2006 to 
+2011, in violation of AU § 311.     
+Egeberg��s Complete Lack of Audit Work Papers.  
+25. Egeberg’s audits completely lacked audit work papers.  Thus, Egeberg repeatedly 
+violated Auditing Standard No. 3, ¶ 6, Audit Documentation , which requires that audit 
+documentation “contain sufficient information to enable an experienced auditor, having no 
+previous connection with the engagement (a) to understand the nature, timing, extent, and results 
+of the procedures performed, evidence obtained, and conclusions reached, and (b) to determine 
+who performed the work and the date such work was completed as well as the person who 
+reviewed the work and the date of such review.”  An auditor that has not adequately documented 
+that he performed a procedure, obtained evidence, or reached an appropriate conclusion must 
+demonstrate with persuasive other evidence that it did so, and oral assertions and explanations 
+alone do not constitute persuasive other evidence.  See Auditing Standard No. 3, ¶ 9. 
+ Egeberg’s Failure to Issue Accurate Audit Reports. 
+26. PCAOB standards require that the auditor’s report contain an opinion on the 
+financial statements taken as a whole and contain a clear indication of the character of the auditor’s 
+work.  The auditor can determine that he is able to issue an audit report containing an unqualified 
+opinion only if he has conducted the audit in accordance with standards set forth by the PCAOB.  
+(AU § 508.07, Reports on Audited Financial Statements.)   
+27. Additionally, Regulation S-X, 17 CFR § 210 et seq., prescribes the qualifications of 
+accountants and the contents of the accountants’ reports that must be submitted with corporate 
+financial statements.  In particular, it requires that the financial statements of a public corporation 
+must be audited by an accountant in accordance with Generally Accepted Auditing Standards 
+ 8 
+(“GAAS”).  17 CFR § 210.1-02(d).  “[R]eferences in Commission rules and staff guidance and in 
+the federal securities laws to GAAS 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 Andrew Sims, CPA, Rel. No. 34-59584, 
+AAER No. 2950 (Mar. 17, 2009) (settled action).       
+28. The culmination of Egeberg’s numerous audit deficiencies made any representation 
+by Egeberg in his audit reports that his audits complied with PCAOB standards inaccurate.  
+Egeberg falsely made these representations in his audit reports for RPM Advantage and Fox 
+Petroleum, and Fox Petroleum’s subsidiaries, Renfro and CPP.     
+D. VIOLATIONS 
+29. Section 102(e)(1) of the Commission’s Rules of Practice provides that:  “The 
+Commission may censure a person or deny, temporarily or permanently, the privilege of appearing 
+or practicing before it in any way to any person who is found by the Commission after notice and 
+opportunity for hearing in the matter: . . . (ii) to be lacking in character or integrity or to have 
+engaged in unethical or improper professional conduct; or (iii) to have willfully violated, … any 
+provision of the Federal securities laws or the rules and regulations thereunder.”  Section 4C of the 
+Exchange Act provides, in relevant part, that:  “The Commission may censure any person, or deny, 
+temporarily or permanently, to any person the privilege of appearing or practicing before the 
+Commission in any way, if that person is found . . . (2) to … have engaged in … improper 
+professional conduct; or (3) to have willfully violated, . . . any provision of the securities laws or 
+the rules and regulations thereunder.”  
+ 
+30. Section 4C of the Exchange Act and Rule 102(e)(1)(iv) of the Commission’s Rules 
+of Practice define improper professional conduct with respect to persons licensed to practice as 
+accountants.  Section 4C of the Exchange Act and Rule 102(e)(1)(iv) of the Commission’s Rules 
+of Practice provide that improper professional conduct means “intentional or knowing conduct, 
+including reckless conduct, that results in a violation of applicable professional standards” Rule 
+102(e)(1)(iv)(A);  and the following two types of negligent conduct:  
+ 
+(1) a single instance of highly unreasonable conduct that results in a violation of applicable 
+professional standards in circumstances in which an accountant knows, or should know, 
+that heightened scrutiny is warranted.  
+(2) repeated instances of unreasonable conduct, each resulting in a violation of applicable 
+professional standards, that indicate a lack of competence to practice before the 
+Commission.  Rule 102(e)(1)(iv)(B).   
+As noted previously, “unreasonable conduct” as used in this provision means ordinary negligence.  
+See In re Dohan & Co. CPA, et al., Int. Dec. Rel. No. 420, at p. 16 (June 27, 2011), final, 
+Securities Exchange Act Rel. No. 64970 (July 26, 2011).  The Commission defines recklessness 
+under Rule 102(e) to be the same as recklessness under the antifraud provisions. Thus, recklessness 
+ 9 
+is “an extreme departure from the standards of ordinary care, . . . which presents a danger of 
+misleading buyers or sellers that is either known to the [actor] or is so obvious that the actor must 
+have been aware of it.”  Amendment to Rule 102(e) of the Commission’s Rules of Practice, 63 
+Fed. Reg. 57164, 57167 (Oct. 26, 1998).  It is “a lesser form of intent,” “not merely a heightened 
+form of ordinary negligence.”  Id. (internal citations and quotations omitted).  Egeberg’s conduct 
+of falsely representing  that his audit reports were conducted in accordance with PCAOB standards 
+was reckless and intentional under Rule 102(e). 
+31. As a result of the conduct described above, Egeberg engaged in improper 
+professional conduct within the meaning of Section 4C of the Exchange Act and Rule 
+102(e)(1)(iv)(B)(2) of the Commission’s Rules of Practice.  Egeberg’s unreasonable conduct 
+included his failures with respect to his audits of Fox Petroleum for its fiscal years ended February 
+28, 2010, 2011, and 2012, and his audits of Fox Petroleum subsidiaries Renfro and CPP for their 
+fiscal years ended December 31, 2009 and 2010.  These repeated instances of unreasonable 
+conduct resulted in violations of PCAOB Standards AU Section 210, AU Section 230, AU Section 
+311, AU Section 315, AU Section 326, AU Section 508, Auditing Standard No. 3, and Auditing 
+Standard No. 7.  
+32. Egeberg engaged in improper professional conduct under Rule 102(e)(1)(ii), and 
+willfully violated Exchange Act Section 10(b) and Rule 10b-5(b) thereunder, and Rule 2-02(b)(1) 
+of Regulation S-X, which calls for sanction under Rule 102(e)(1)(iii), because his auditing 
+practices were so deficient that the audits amounted to no audits as all. SEC v. Price Waterhouse, 
+797 F. Supp. 1217, 1240 (S.D.N.Y. 1992) citing McLean v. Alexander, 599 F.2d 1190, 1198 (3
+rd 
+Cir. 1979). An auditor violates Exchange Act Section 10(b) and Rule 10b-5 thereunder by issuing 
+false audit reports.  Egeberg violated these antifraud provisions by intentionally issuing audit 
+reports that falsely stated that his audits were conducted in accordance with PCAOB standards, and 
+these statements were material.  Egeberg’s audits were not conducted in accordance with PCAOB 
+standards, but instead constituted complete departures from professional standards.         
+33. Egeberg willfully violated Regulation S-X Rule 2-02(b)(1) because he issued 
+reports stating that he had conducted his audits of RPM Advantage, Fox Petroleum, Renfro, and 
+CPP in accordance with PCAOB standards, when he had not.   
+III. 
+ 
+In view of the allegations made by the Division of Enforcement, 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 Respondent an opportunity to establish any defenses to such allegations;  
+ 
+B.  What, if any, remedial action is appropriate in the public interest against Respondent 
+pursuant to Rules 102(e)(1)(ii) and (iii) of the Commission’s Rules of Practice; and 
+C.  Whether, pursuant to Section 8A of the Securities Act and Section 21C of the 
+Exchange Act, Respondent should be ordered to cease and desist from committing or causing 
+ 10 
+violations of and any future violations of Exchange Act Section 10(b), and Rules 10b-5(b) and 
+Regulations S-X Rule 2-02(b)(1) thereunder, whether Respondent should be ordered to pay a civil 
+money penalty pursuant to Section 8A(g) of the Securities Act and Section 21B of the Exchange 
+Act, and whether Respondent should be ordered to pay disgorgement pursuant to Section 8A(e) of 
+the Securities Act, and Sections 21B(e) and 21C(e) of the Exchange Act. 
+ 
+IV. 
+ 
+IT IS ORDERED that a public hearing for the purpose 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.  
+ 
+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 Respondent personally or by certified mail. 
+ 
+IT IS FURTHER ORDERED that the Administrative Law Judge shall issue an initial 
+decision no later than 300 days from the date of service of this Order, pursuant to Rule 360(a)(2) of 
+the Commission’s Rules of Practice.  
+ 
+In the absence of an appropriate waiver, no officer or employee of the Commission engaged 
+in the performance of investigative or prosecuting fu nctions 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. 
+ 
+ 
+ 
+ 11 
+        Elizabeth M. Murphy 
+        Secretary 

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+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 71389 / January 24, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3530 / January 24, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15687 
+ 
+ 
+In the Matter of 
+ 
+KPMG LLP, 
+ 
+Respondent. 
+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 
+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 pursuant to 
+Sections 4C1 and 21C of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 102(e) 
+of the Commission’s Rules of Practice against KPMG LLP (“KPMG” or “Respondent”).2   
+ 
+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 
+                                                 
+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 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 in any way to any person who is found . . . to have engaged in unethical or improper professional 
+conduct. 
+ 
+ 2 
+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 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 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 
+ 
+1. This matter concerns violations of the auditor independence rules by 
+public accounting firm KPMG.  The auditor independence rules are intended to ensure that 
+auditors remain independent, both in fact and in appearance, from their Commission-registered 
+audit clients (“SEC audit clients”).  KPMG violated these rules concerning its relationships with 
+and services provided to three of its public company audit clients or their affiliates.  At various 
+times from 2007 through the end of 2011, KPMG provided prohibited non-audit services to 
+affiliates of three of its SEC audit clients:  Company A, Company B and Company C.  With 
+regard to Company A, KPMG hired an employee who had recently retired from a senior position 
+at Company A’s affiliate, and then loaned him back to that affiliate to do the same work he had 
+done as an employee of that affiliate.  This engagement involved the loaned employee acting as a 
+manager, employee and advocate for the affiliate, causing KPMG to violate Rule 2-01 of 
+Regulation S-X of the Exchange Act.  With regard to Company B, KPMG was its audit firm, but 
+also provided various prohibited non-audit services, including restructuring, corporate finance, 
+and expert services, to an affiliate of Company B.  With regard to Company C, KPMG was its 
+audit firm, but also provided prohibited non-audit services, including bookkeeping and payroll 
+services, to affiliates of Company C.  These non-audit services caused KPMG to violate the 
+independence rules in relation to Company B and Company C.  Finally, certain KPMG 
+employees also owned stock in Company A and affiliates of Company B resulting in a further 
+violation of the independence rules. 
+2. Despite this conduct, KPMG repeatedly represented that it was 
+“independent” in audit reports issued on their financial statements, which were included or 
+incorporated by reference in public filings with the Commission.  By doing so, KPMG violated 
+Rule 2-02(b) of Regulation S-X and Rule 10A-2 of the Exchange Act, and caused the three 
+clients to violate Section 13(a) of the Exchange Act and Rule 13a-1 thereunder.  KPMG’s 
+conduct also constituted improper professional conduct pursuant to Section 4C of the Exchange 
+Act and Rule 102(e) of the Commission’s Rules of Practice.   
+B. Respondent 
+ 
+3. KPMG is a limited liability partnership registered in Delaware and 
+headquartered in New York, NY.  KPMG is registered with the Public Company Accounting 
+Oversight Board (the “PCAOB”).  KPMG is the U.S. member firm of KPMG International 
+Cooperative (“KPMGI”).  Pursuant to Rule 2-01 of Regulation S-X, KPMGI’s foreign member 
+ 
+ 3 
+firms are included within the definition of “accountant,” which is defined to include associated 
+entities. 
+C. Other Relevant Entities 
+4. Company A is a corporation located outside of the United States.  Until 
+September 2010, Company A’s common stock was registered with the Commission pursuant to 
+Section 12(b) of the Exchange Act and traded on the New York Stock Exchange (“NYSE”) and 
+one of KPMGI’s member firms served as Company A’s auditor.  From August 2007 until June 
+2009, Company A held a minority interest in one of its U.S. affiliates.  During the relevant time 
+period, KPMG served as the U.S. affiliate’s auditor.    
+5. Company B is a Delaware limited partnership.  Company B’s common 
+limited partner units are registered with the Commission pursuant to Section 12(b) of the 
+Exchange Act and trade on the NYSE.  KPMG served as Company B’s auditor from 2005 until 
+late 2011. 
+6. Company C is a Delaware corporation.  Company C’s common stock is 
+registered with the Commission pursuant to Section 12(b) of the Exchange Act and trades on the 
+NYSE.  KPMG has served as Company C’s auditor since 2008.     
+D. Legal Background 
+7. The purpose of Rule 2-01 of Regulation S-X is to ensure that auditors are 
+qualified and independent of their SEC audit clients3 – both in fact and in appearance.  The rule 
+sets forth a non-exhaustive list of non-audit services which an auditor cannot provide to its audit 
+clients and be considered independent.  See 17 C.F.R. § 210-2.01(c)(4)(i)-(x).  Among other 
+things, it prohibits an auditor from providing bookkeeping services, payroll services, appraisal or 
+valuation services, internal audit outsourcing services, legal services, expert services, and broker-
+dealer, investment adviser or investment bank services.  Id.  It also prohibits an auditor from 
+designing and implementing financial information systems or performing human resources or 
+management functions for its audit clients.  See 17 C.F.R. § 210-2.01(c)(4)(ii), (vi) and (vii).   
+8. Pursuant to Rule 2-01(c)(4)(vi) of Regulation S-X, an auditor is 
+specifically prohibited from “[a]cting, temporarily or permanently, as a director, officer, or 
+employee of an audit client, or performing any decision-making, supervisory, or ongoing 
+monitoring function for the audit client.”  17 C.F.R. § 210-2.01(c)(4)(vi).  Similarly, Preliminary 
+Note 2 to Rule 2-01 of Regulation S-X makes clear that, in applying the general standard of 
+auditor independence set forth in Rule 2-01(b), the Commission considers, among three other 
+principles, whether a relationship or service “results in the accountant acting as management or 
+an employee of the audit client.”  17 C.F.R. § 210-2.01, Preliminary Note 2.   
+                                                 
+3 With certain exceptions that are not relevant here, “audit client” is defined as “the entity whose financial 
+statements or other information is being audited, reviewed, or attested and any affiliates, of the audit client.”  17 
+C.F.R. § 210-2.01(f)(6) (emphasis added).  In turn, “affiliate” is defined to include “[a]n entity that has control over 
+the audit client, over which the audit client has control, or which is under common control with the audit client, 
+including the client’s parents and subsidiaries. . . .”  17 C.F.R. § 210-2.01(f)(4)(i).   
+ 
+ 4 
+9. Under the “financial relationships” provision of Rule 2-01 of Regulation 
+S-X,“[a]n accountant is not independent if, at any point during the audit and professional 
+engagement period, the accountant has a direct financial interest or a material indirect financial 
+interest in the accountant’s audit client.”  17 C.F.R. § 210-2.01(c)(1).  This provision is triggered 
+when “[t]he accounting firm or any covered person in the firm, or any of his or her immediate 
+family members, has any direct investment in an audit client, such as stocks, bonds, notes, 
+options, or other securities.”  17 C.F.R. § 210-2.01(c)(1)(i)(A).  As relevant here, “covered 
+person” includes any partner in the “chain of command;” any “managerial employee . . . who has 
+provided ten or more hours of non-audit services to the audit client;” and any partner “from an 
+‘office’ of the accounting firm in which the lead audit engagement partner principally practices 
+in connection with the audit.”  17 C.F.R. § 210-2.01(f)(11). 
+E. Prohibited Services Provided to Affiliate of Company A 
+10. In or around April 2007, an affiliate of Company A offered early 
+retirement packages to certain employees as part of the affiliate’s economic recovery plan.  One 
+employee who worked as Senior Tax Counsel in the affiliate’s Office of Tax Affairs’ Trade & 
+Customs Group accepted an early retirement package effective August 31, 2007.  Prior to 
+retirement, this individual’s work involved senior-level tasks, including tax compliance planning 
+for the affiliate and its subsidiaries, as well as international customs planning and advice.  
+Among other things, this individual was involved in planning related to the affiliate’s 
+international expansion efforts and responding to customs audits by international taxing 
+authorities.  This long-time employee’s retirement created an immediate need for someone to fill 
+this role for the affiliate of Company A. 
+11.  In November 2007, after discussions with the affiliate of Company A 
+about its staffing needs in this regard, KPMG hired the former employee of the affiliate to be 
+loaned back to the affiliate.  This employee was hired by KPMG at the manager level and loaned 
+back to the affiliate of Company A to perform essentially the same senior-level work that this 
+individual had performed as Senior Tax Counsel for the affiliate.  In fact, the KPMG engagement 
+letter specified that this individual was expected to devote all professional time over a period of 
+two years “to assisting [the affiliate of Company A] with such tax consulting matters as [the 
+affiliate’s] management may specify related to global customs compliance matters.”  The 
+individual had no other duties at KPMG.   
+12. Over the course of this engagement, the Company A affiliate’s former 
+employee performed a range of tax consulting work for the affiliate, all under the supervision of 
+this individual’s former supervisor at the affiliate.  This individual’s work was substantially the 
+same as the work performed as an employee of the affiliate.  It included responding to 
+international customs audits and inquiries, as well as advocating on the affiliate’s behalf in 
+dealings with customs officials.  As part of this work, this individual gathered information 
+responsive to customs officials’ inquiries and provided advice to the affiliate, based on prior 
+experience at the affiliate, about how to present this information to these officials.  During 
+Fall/Winter of 2008, this individual also traveled with a team of the affiliate’s employees to 
+various European countries to meet with government officials on the affiliate’s behalf.  In 
+addition, this individual took part in discussions regarding major operational and structural 
+issues, including discussions regarding the structure of the affiliate’s European operations.   
+ 
+ 5 
+13. From November 2007 until December 2008 (when KPMG terminated the 
+engagement pursuant to which it loaned the Company A affiliate’s former employee to the 
+affiliate of Company A), all of this individual’s professional time was spent doing work for the 
+affiliate.  In total, KPMG provided 1,897 hours of services in connection with this engagement 
+with Company A’s affiliate. 
+14. This engagement violated the independence rules because the affiliate’s 
+former employee acted as both a manager and an employee of Company A’s affiliate and 
+provided advocacy services for the affiliate.  In addition, this individual was allowed to hold 
+stock in Company A while providing manager-level services to Company A’s affiliate for over a 
+year, in further violation of the independence rules. 
+F. Prohibited Services Provided to Affiliate of Company B 
+15. KPMG was Company B’s outside audit firm from 2005 until December 
+2011.  On September 1, 2006, Company B became an affiliate of a large financial services firm 
+when one of the financial services firm’s subsidiaries purchased all the issued and outstanding 
+stock of a controlling affiliate of Company B.  The transaction resulted in the financial services 
+firm becoming the owner of Company B’s General Partner, which owned and controlled 
+Company B.  As a result of this transaction, and because KPMG was Company B’s auditor at the 
+time, the financial services firm should have been identified for independence purposes by 
+KPMG as an affiliate of Company B as of September 1, 2006. 
+16.  The financial services firm was a non-audit client of KPMG from at least 
+2006 through the end of 2011.  KPMG provided a variety of non-audit services to the financial 
+services firm, described further below.  These services were appropriate until such time that 
+Company B and the financial services firm became affiliates, at which point the non-audit 
+services provided to the financial services firm became prohibited under the auditor 
+independence rules. 
+17. From September 1, 2006 forward, Company B disclosed its relationship to 
+the financial services firm in every annual report it filed with the Commission and also included 
+a visual depiction of the relationship in these filings.  Despite these public disclosures, the 
+KPMG audit engagement teams for the Company B audits did not recognize the financial 
+services firm as a controlling affiliate for independence purposes until late 2011. As a result, 
+from September 1, 2006 until late 2011, KPMG provided a range of prohibited non-audit 
+services to the financial services firm, including 67 instances of management functions, 20 
+instances of restructuring services, 13 instances of loaned staff services (involving KPMG 
+employees providing services such as bookkeeping and expert services), six instances of 
+corporate finance services and three other instances of expert services.  KPMG also received 
+contingent fees for services provided to the financial services firm in 26 instances, which was 
+prohibited by Rule 2-01(c)(5).  See 17 C.F.R. § 210-2.01(c)(5). 
+18.  In late 2011, KPMG realized that the financial services firm should have 
+been identified as an affiliate of Company B.  In early December 2011, KPMG reported this fact 
+to the Audit Committee of Company B’s General Partner.  On December 15, 2011, the Audit 
+Committee terminated KPMG as Company B’s auditor. 
+ 
+ 6 
+19. In addition, six partners in the KPMG chain of command and two partners 
+in the KPMG office that conducted Company B’s audits owned stock in the financial services 
+firm, in further violation of the independence rules. 
+G. Prohibited Services Provided to Affiliates of Company C 
+20. During December 2007, KPMG was notified that Company C was 
+requesting proposals from three firms, including KPMG, to perform the 2008 audit and quarterly 
+reviews of its consolidated financial statements.  During the ensuing client acceptance process 
+for Company C’s audit engagement, the KPMG audit engagement team learned that KPMG had 
+been providing certain non-audit services to affiliates of Company C that KPMG would be 
+prohibited from providing if it became Company C’s independent auditor.  These services 
+included bookkeeping and payroll services provided to affiliates of Company C in eleven 
+different countries.  On February 22, 2008, Company C provided KPMG with a “Transition 
+Plan” that identified these services, the countries in which the services were being provided, and 
+actions being taken to transition the services to other providers.  The Transition Plan specified 
+that all such services would end by July 1, 2008.   
+21. On February 27, 2008, the KPMG audit engagement team – in 
+consultation with the firm’s Independence Group – concluded that, based on the perceived 
+immateriality of the locations and services being provided, the Transition Plan was reasonable 
+and KPMG’s overall independence would not be impaired if it became the auditor for Company 
+C but also continued providing the non-audit services to Company C’s affiliates through July 1, 
+2008.  On February 28, 2008, KPMG was appointed Company C’s auditor and confirmed by 
+letter to Company C that it was independent “with respect to [Company C] and its related entities 
+under applicable SEC and PCAOB independence requirements.”  In the letter, KPMG 
+acknowledged it was currently providing certain non-audit services to Company C’s affiliates, 
+but concluded that, “[b]ased on the nature of the matters identified and their planned timely 
+resolution we do not believe these matters compromise the firm’s independence.”   
+22. In fact, from February 28, 2008 through June 2008, the non-audit services 
+that KPMG continued to provide to Company C’s affiliates, including bookkeeping and payroll 
+services, constituted prohibited services in violation of the auditor independence rules (which do 
+not provide for limited duration transition periods or include any exceptions based on the nature 
+of the services provided).   
+H. Violations 
+23. As a result of the conduct described above, KPMG violated Rule 2-02(b) 
+of Regulation S-X, which requires that each accountant’s report state whether the audit was 
+made in accordance with generally accepted auditing standards (“GAAS”) (which standards 
+require that auditors maintain strict independence from SEC audit clients).  See PCAOB 
+ 
+ 7 
+Auditing Standards, Independence, AU § 220.03.4  A violation occurred each time that KPMG 
+issued an audit report for the three 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 independence requirements of GAAS, where either the period covered by the audit, or the 
+period of the audit work, or both, overlapped with prohibited conduct. 
+24. As a result of the conduct described above, KPMG violated Rule 10A-2 of 
+the Exchange Act each time that it provided non-audit services that are prohibited under Rule 2-
+01(c)(4) of Regulation S-X to the three audit clients.  Rule 10A-2 of the Exchange Act makes it 
+unlawful for an auditor to fail to be independent of its audit clients under Rule 2-01(c)(4) of 
+Regulation S-X. 
+25. As a result of the conduct described above, KPMG caused the three audit 
+clients 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 accountant.  KPMG knew, or should have known, that its conduct would cause the 
+audit clients to violate these reporting provisions. 
+26. As a result of the conduct described above, KPMG also engaged in 
+improper professional conduct, as defined in Exchange Act Section 4C and Rule 102(e)(1)(ii) of 
+the Commission’s Rules of Practice. 
+I. Undertakings 
+Respondent has undertaken to:   
+ 
+Implement internal changes (the “proposed changes”) to enhance KPMG’s ability to 
+educate and monitor compliance by its personnel with respect to the independence requirements 
+under PCAOB standards and applicable Commission rules concerning the provision of non-audit 
+services to SEC audit clients by achieving the following goals:  (a) increasing personnel and 
+expertise within KPMG’s Independence Group, (b) improving KPMG’s review procedures for 
+both new service offerings and engagement-specific requests for non-audit services, (c) 
+improving KPMG’s independence policies, guidance, and training, and (d) improving KPMG’s 
+clearance and compliance procedures related to the independence rules.  
+ 
+Retain, within sixty (60) days after the entry of this Order, an independent consultant (the 
+“Independent Consultant”), not unacceptable to the staff of the Commission.  The Independent 
+Consultant’s role will be to review and evaluate whether the proposed changes have been 
+designed and implemented in a manner reasonably sufficient to achieve the goals stated above 
+concerning the provision of non-audit services to SEC audit clients.  KPMG shall cooperate fully 
+with the Independent Consultant and shall provide the Independent Consultant with access to its 
+                                                 
+4 Pursuant to Commission Release 33-8422, GAAS, as used in Regulation S-X, means “the standards of the PCAOB 
+plus any applicable Commission rules.”  Audit reports dated on or after May 24, 2004 – the effective date of 
+PCAOB Auditing Standard 1 – are required to state they were performed in accordance with PCAOB standards.  
+PCAOB rules and standards require auditors to be independent from their audit c lients.  See, e.g., PCAOB Rule 
+3520, PCAOB Rule 3600T, and PCAOB AU § 220.   
+ 
+ 8 
+own files, books, records, and personnel as reasonably requested for the review.  The 
+Independent Consultant shall disclose to the staff of the Commission in the event that KPMG or 
+any of its employees, agents, consultants, contractors, or anyone else acting on its behalf refuses 
+to provide information necessary for the performance of the Independent Consultant’s 
+responsibilities.  KPMG agrees that it will not take any action to retaliate against the Independent 
+Consultant for such disclosures. 
+ 
+Require that the Independent Consultant issue a report, within six (6) months of being 
+retained, summarizing his or her review and reporting on whether the proposed changes have 
+been designed and implemented in a manner reasonably sufficient to achieve the goals stated 
+above concerning the provision of non-audit services to SEC audit clients. Simultaneously with 
+providing that report to KPMG, the Independent Consultant shall transmit a copy to LeeAnn 
+Gaunt, Assistant Director, Division of Enforcement, Securities and Exchange Commission, 33 
+Arch Street, 23rd Floor, Boston, MA 02110.  In the event that the Independent Consultant reports 
+that the proposed changes have in some way failed to be designed and implemented in a manner 
+reasonably sufficient to achieve the goals stated above concerning the provision of non-audit 
+services to SEC audit clients, the report will include recommendations of procedures reasonably 
+designed to do so.   
+ 
+Adopt all additional recommendations in the report of the Independent Consultant; 
+provided, however, that, within sixty (60) days after the Independent Consultant serves the 
+report, KPMG shall advise the Independent Consultant and the Commission, in writing of any 
+recommendations that it considers unnecessary, unduly burdensome, impractical or costly.  With 
+respect to any recommendation that KPMG considers unnecessary, unduly burdensome, 
+impractical or costly, KPMG need not adopt that recommendation at that time but shall propose 
+in writing an alternative policy, procedure or system designed to achieve the same objective or 
+purpose.  As to any recommendation on which KPMG and the Independent Consultant do not 
+agree, such parties shall attempt in good faith to reach an agreement within sixty (60) days after 
+KPMG serves the written advice.  In the event that KPMG and the Independent Consultant are 
+unable to agree on an alternative proposal, KPMG will abide by the determinations of the 
+Independent Consultant. 
+ 
+Require the Independent Consultant to enter into an agreement with KPMG that provides 
+that, for the period of engagement and for a period of two (2) years from completion of the 
+engagement, the Independent Consultant shall not enter into any employment, consultant, 
+attorney-client, auditing, or other professional relationship with KPMG, 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 or she is affiliated or of which he or she is a member, and any person engaged to assist 
+the Independent Consultant in performance of his or her duties under this Order shall not, 
+without prior written consent of the Securities and Exchange Commission’s Division of 
+Enforcement, enter into any employment, consultant, attorney-client, auditing, or other 
+professional relationship with KPMG, 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 (2) years from completion of the engagement.   
+ 
+ 
+ 9 
+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 Respondent agrees 
+to provide such evidence.  The certification and supporting material shall be submitted to 
+LeeAnn Gaunt, Assistant Director, Division of Enforcement at the address provided above, 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. 
+ 
+These undertakings shall be binding upon any acquirer or successor-in-interest to 
+KPMG’s, or substantially all of KPMG’s, audit practice for SEC audit clients. 
+ 
+For good cause shown, the Commission staff may extend any of the procedural dates set 
+forth above. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent’s Offer. 
+ 
+ Accordingly, pursuant to Sections 4C and 21C of the Exchange Act and Section 102(e) of 
+the Commission’s Rules of Practice, it is hereby ORDERED that: 
+ 
+ A. Respondent shall cease and desist from committing or causing any violations and 
+any future violations of Rule 2-02 of Regulation S-X, Rule 10A-2 of the Exchange Act, and Section 
+13(a) of the Exchange Act and Rule 13a-1 thereunder. 
+ 
+B. Respondent is censured.  
+ 
+C. Respondent shall, within fourteen (14) days of the entry of this Order, pay 
+disgorgement of $5,266,347, prejudgment interest of $1,185,002, and a civil money penalty in 
+the amount of $1,775,000, for a total of $8,226,349, 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;5 
+(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 make payment by certified check, bank cashier’s check, or 
+United States postal money order, payable to the Securities and Exchange Commission 
+and hand-delivered or mailed to:  
+                                                 
+5 On December 31, 2012, the minimum threshold for transmission of payment electronically was increased to 
+$1,000,000.  For amounts below the threshold, Respondent must make payments pursuant to option (2) or (3) above.  
+ 
+ 10 
+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 shall be accompanied by a cover letter identifying KPMG as 
+the Respondent and including the file number of these proceedings.  A copy of the letter and 
+check or money order must be sent to LeeAnn Gaunt, Assistant Director, Division of 
+Enforcement at the address provided above.   
+ 
+  
+D. Respondent shall comply with the undertakings enumerated in Section III.I above. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Elizabeth M. Murphy 
+       Secretary 

raw/aaer/2014/AAER-3531.txt

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+                U.S. SECURITIES AND EXCHANGE COMMISSION 
+     Litigation Release No. 22911 / January 27, 2014 
+     Accounting and Auditing Enforcement Release No. 3531 / January 27, 2014 
+      Securities and Exchange Commission v. Deloitte Touche Tohmatsu CPA Ltd. , Civil Action No. 1:11-MC-00512 (D.D.C. filed September 8, 2011) 
+
+     SEC, Joined by Deloitte China, Files a Motion to Dismiss Without Prejudice the Subpoena Enforcement Action 
+     
+
+     The Securities and Exchange Commission today filed a joint motion with Deloitte Touche Tohmatsu CPA Ltd. ("DTTC") to dismiss without prejudice the subpoena enforcement action that the SEC filed against DTTC in September 2011. Dismissal of the proceeding, as proposed by the parties, is subject to the approval of the district court.  
+     The SEC initiated the subpoena enforcement action to compel DTTC to produce audit workpapers and other documents responsive to an administrative subpoena issued in connection with the SEC's investigation into possible fraud by DTTC's former audit client, China-based Longtop Financial Technologies Limited, a foreign private issuer whose securities were registered with the Commission and traded on U.S. markets. DTTC had argued that it was prohibited under Chinese law from producing the requested documents, which are located in China, to the SEC. 
+     The SEC recently received a substantial volume of documents called for by its subpoena, including DTTC audit workpapers and certain other documents related to Longtop. The production was made by the China Securities Regulatory Commission ("CSRC") in response to the SEC's request for assistance in August 2012. The CSRC produced the documents to the SEC after obtaining them from DTTC.   
+     In light of the substantial volume of documents produced, the cooperation that the CSRC recently has provided to the SEC with respect to Longtop, and DTTC's statement that it will continue to cooperate with respect to CSRC requests for Longtop-related documents the SEC, at present, does not believe that there is a need for judicial relief with respect to the subpoena. However, it is possible that the SEC may later determine that it needs the Court's assistance and accordingly, the SEC, joined by DTTC, is requesting an order dismissing the proceeding without prejudice. 
+     For additional information, see Litigation Release No.  22088  / September 8, 2011 and SEA Release No.  65948  / December 14, 2011. 
+       
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raw/aaer/2014/AAER-3532.txt

@@ -0,0 +1,115 @@
+ 
+ 
+UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 71484 / February 5, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3532 / February 5, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15741 
+ 
+ 
+In the Matter of 
+ 
+ LAWRENCE A. O’DONNELL,    
+CPA 
+ 
+             Respondent. 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+AND IMPOSING TEMPORARY 
+SUSPENSION PURSUANT TO RULE 
+102(e)(3) OF THE COMMISSION’S 
+RULES OF PRACTICE   
+   
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted pursuant to 
+Rule 102(e)(3)1 of the Commission’s Rules of Practice against Lawrence A. O’Donnell 
+(“Respondent” or “O’Donnell”). 
+ 
+II. 
+ 
+The Commission finds that: 
+ 
+A. RESPONDENT 
+ 
+1. O’Donnell, age 61, was licensed as a certified public accountant (“CPA”) by 
+the State of Colorado from July 28, 1977, through October 8, 2010.  He audited and reviewed the 
+financial statements included in annual and other reports and registration statements filed with 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 by Imperiali, Inc. from October 19, 2006, through May 1, 2009. 
+   
+B. CIVIL INJUNCTION 
+   
+2. On November 8, 2013, the U.S. District Court for the Southern District of 
+Florida entered a final judgment against O’Donnell, permanently enjoining him from future 
+violations, direct or indirect, of Section 10(b) of the Securities Exchange Act of 1934 and Rule 
+10b-5 thereunder.  Securities and Exchange Commission v. Imperiali, Inc., et al., Civil Action 
+Number 9:12-cv-80021-KLR. 
+ 
+3. The Commission’s complaint alleged that, while serving as Imperiali, Inc.’s 
+auditor from May 2006 through March 2008, O’Donnell participated in a fraudulent scheme by 
+issuing false audit reports on Imperiali financial statements.  The financial statements, which 
+appeared in annual and other reports and registration statements filed with the Commission, listed 
+values for worthless assets in amounts ranging from $3.5 million to $269 million and failed to 
+disclose the issuance of five million shares of restricted stock.  O’Donnell’s audit reports falsely 
+stated that Imperiali’s financial statements were presented in conformity with generally accepted 
+accounting principles and falsely stated that his audits were conducted in accordance with Public 
+Company Accounting Oversight Board Standards. 
+ 
+III. 
+ 
+Based upon the foregoing, the Commission finds that a court of competent jurisdiction has 
+permanently enjoined O’Donnell, a CPA, from violating the Federal securities laws within the 
+meaning of Rule 102(e)(3)(i)(A) of the Commission’s Rules of Practice.  In view of these findings, 
+the Commission deems it appropriate and in the public interest that O’Donnell be temporarily 
+suspended from appearing or practicing before the Commission. 
+   
+IT IS HEREBY ORDERED that O’Donnell be, and hereby is, temporarily suspended from 
+appearing or practicing before the Commission.  This Order shall be effective upon service on the 
+Respondent. 
+ 
+IT IS FURTHER ORDERED that O’Donnell may within thirty days after service of this 
+Order file a petition with the Commission to lift the temporary suspension.  If the Commission 
+within thirty days after service of the Order receives no petition, the suspension shall become 
+permanent pursuant to Rule 102(e)(3)(ii). 
+  
+ 3 
+If a petition is received within thirty days after service of this Order, the Commission shall, 
+within thirty days after the filing of the petition, either lift the temporary suspension, or set the 
+matter down for hearing at a time and place to be designated by the Commission, or both.  If a 
+hearing is ordered, following the hearing, the Commission may lift the suspension, censure the 
+petitioner, or disqualify the petitioner from appearing or practicing before the Commission for a 
+period of time, or permanently, pursuant to Rule 102(e)(3)(iii). 
+ 
+This Order shall be served upon O’Donnell personally or by certified mail at his last known 
+address. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Elizabeth M. Murphy 
+       Secretary 
+ 
+ 
+ 
+ 
+ 

raw/aaer/2014/AAER-3533.txt

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+                U.S. SECURITIES AND EXCHANGE COMMISSION 
+         Litigation Release No. 22923 / February 10, 2014 
+         Accounting and Auditing Enforcement Release No. 3533 / February 10, 2014 
+          Securities and Exchange Commission v. Uriel Sharef et al. , Civil Action No. 11-CIV-09073 (S.D.N.Y.) (SAS) 
+
+         SEC Concludes Its Case Against Former Siemens Executives Charged with Bribery in Argentina, Obtaining Judgments over $1.8 Million 
+         
+
+ 
+	The Securities and Exchange Commission announced today that on February 3, 2014, the U.S. District Court for the Southern District of New York entered a final judgment against Andres Truppel, a former CFO of Siemens Argentina.  On February 4, 2014, the Court also entered a final judgment against Ulrich Bock and Stephan Signer, both former Heads of Major Projects at Siemens Aktiengesellschaft (Siemens).  The judgments resolve the Commission's Civil Action against Truppel, Bock and Signer for their role in a decade long bribery scheme at Siemens and its regional company in Argentina. 
+ 
+	On December 13, 2011, the Commission filed a Civil Action charging Bock, Signer, Truppel and four other senior executives of Siemens and its regional company in Argentina with violations of the anti-bribery, books and records, and internal controls provisions of the FCPA.  The Commission alleged that between 2001 and 2007, the defendants paid bribes to senior government officials in Argentina to retain a $1 billion contract ("the DNI contract") to produce national identity cards for Argentine citizens. The officials included two Argentine presidents and cabinet ministers in two presidential administrations.  
+ 
+	The Commission's complaint alleged that Bock and Signer, both senior Siemens managers based in Germany, took various actions to revive the DNI contract after it was cancelled by government officials in Argentina, and made sure that the bribery connected to the contract went undetected.  Truppel, a former CFO of Siemens Argentina with close ties to government officials, assisted their efforts.  The Commission's complaint also alleged that Uriel Sharef, a member of Siemens Managing Board, or "Vorstand," and the most senior officer charged in connection with the scheme, met with payment intermediaries in the U.S. and agreed to pay bribes to Argentine officials while enlisting subordinates to conceal payments and circumvent Siemens' internal accounting controls. 
+ 
+	The final judgment as to Bock and Signer enjoins them from violating Sections 30A and 13(b)(5) of the Exchange Act, and Rule 13b2-1 thereunder, and from aiding and abetting Siemens' violations of Exchange Act Sections 31(b)(2)(A) and 13(b)(2)(B), and orders them to each pay a civil penalty of $524,000, the highest penalty assessed against individuals in an FCPA case.  The judgment also orders Bock to pay disgorgement of $316,452, plus prejudgment interest thereon in the amount of $97,505.  Bock and Signer failed to respond to the Commission's complaint. 
+ 
+	The final judgment as to Truppel enjoins him from violating Sections 30A and 13(b)(5) of the Exchange Act, and Rule 13b2-1 thereunder, and from aiding and abetting Siemens' violations of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B), and orders him to pay a civil penalty of $80,000.  Truppel settled the Commission's charges without admitting or denying the allegations in the complaint. 
+ 
+	This concludes the SEC's case.  The Commission previously announced that on April 16, 2013, a final judgment was entered by the Court against Uriel Sharef, a former officer and board member of Siemens, for his role in the long standing bribery scheme.  The final judgment, to which Sharef consented without admitting or denying the allegations in the Commission's complaint, enjoined him from violating the anti-bribery and related books and records and internal controls provisions of the FCPA, and ordered him to pay a $275,000 civil penalty.  Bernd Regendantz settled with the Commission when the complaint was filed, and allegations against Herbert Steffen and Carlos Sergi were dismissed.  The SEC appreciates the assistance of the Department of Justice, Fraud Section, the Federal Bureau of Investigation, the Office of the Prosecutor General in Munich, Germany and authorities in Argentina. 
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raw/aaer/2014/AAER-3535.txt

@@ -0,0 +1,989 @@
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES ACT OF 1933 
+Release No. 9548 / February 12, 2014 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 71546 / February 12, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3535 / February 12, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15750 
+  
+ 
+In the Matter of 
+ 
+Apple REIT Six, Inc.; Apple 
+REIT Seven, Inc.; Apple 
+REIT Eight, Inc.; Apple 
+REIT Nine, Inc.; Apple Six 
+Advisors, Inc.; Apple Seven 
+Advisors, Inc.; Apple Eight 
+Advisors, Inc.; Apple Nine 
+Advisors, Inc.; Glade M. 
+Knight; and Bryan F. Peery, 
+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, IMPOSING CIVIL 
+PENALTIES AND 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 Apple REIT Six, Inc. (“AR6”), Apple REIT Seven, Inc. (“AR7”), Apple REIT 
+Eight, Inc. (“AR8”), Apple REIT Nine, Inc. (“AR9”), Apple Six Advisors, Inc. (“A6A”), Apple 
+Seven Advisors, Inc. (“A7A”), Apple Eight Advisors, Inc. (“A8A”), Apple Nine Advisors, Inc. 
+(“A9A”), Glade M. Knight, and Bryan F. Peery (“Respondents”).   
+ 
+ 2 
+II. 
+ In anticipation of the institution of these proceedings, each Respondent has submitted an 
+Offer of Settlement (“Offers”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over them and the subject matter of these 
+proceedings, which are admitted, Respondents consent to the entry of this Order Instituting Cease-
+and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of 
+the Securities Exchange Act of 1934, Making Findings, Imposing Civil Penalties and a Cease-and-
+Desist Order (“Order”), as set forth below.     
+III. 
+ 
+ On the basis of this Order and Respondents’ Offers, the Commission finds1 that:  
+ 
+SUMMARY 
+1. This matter involves disclosure and internal controls failures relating to valuation, 
+related party transactions, and executive compensation by four non-traded real estate investment 
+trusts (“REITs”) – AR6, AR7, AR8, AR9 (collectively the “Apple REITs”) – their respective 
+advisers, their Chief Executive Officer (“CEO”) and Chairman of the Boards of Directors, Glade 
+M. Knight (“Knight”), and their Chief Financial Officer (“CFO”), Bryan F. Peery (“Peery”).   
+2. AR6, AR7, and AR8 made material misrepresentations and omissions concerning 
+the valuation of their units in their Form S-3 dividend reinvestment plan (“DRIP”) registration 
+statements and in certain Forms 10-K.  The Apple REITs each initially sold units in blind pool 
+offerings at, according to public disclosures, an arbitrarily established offering price of $11.00 per 
+unit.  After the close of the initial offerings, each of the Apple REITs instituted a DRIP program 
+wherein existing unitholders could reinvest their distributions in lieu of receiving cash.  Internal 
+Revenue Service (“IRS”) rules require that REITs sell their DRIP units at a reasonably accurate 
+fair market value so that unitholders reinvesting dividends receive equivalent value to the cash 
+dividend.  In an effort to comply with the IRS framework, the Apple REITs, in language drafted by 
+outside counsel, represented to unitholders in the DRIP registration statements that the DRIP unit 
+price “[would] be based on the fair market value of [the REITs’] units as of the reinvestment date 
+as determined in good faith by [their] board[s] of directors from time to time.”  Although the 
+Forms S-3 disclosed that “the per unit price for the plan will be determined at all times based on 
+the most recent price at which an unrelated person has purchased our units,” the Forms S-3 failed 
+to disclose that the $11.00 unit price was not based on an appraisal of the Apple REITs’ assets or 
+other valuation methodology.  The Forms S-3 also failed to disclose that, in contrast to an actively 
+traded market, the price last paid for a DRIP share by an unrelated person in the context of a non-
+traded REIT did not reflect a meaningful estimate of the underlying or realizable value of the units.   
+Relying in part on DRIP sales and redemptions at $11.00, the Apple REITs also represented in 
+                                                 
+1 The findings herein are made pursuant to Respondents’ Offers and are not binding on any other person or 
+entity in this or any other proceeding.   
+ 3 
+Forms 10-K until 2011 that “[t]he per share estimated market value of common stock is deemed to 
+be the offering price of the shares, which currently is $11.00 per share” without disclosing that 
+$11.00 did not reflect a meaningful estimate of the underlying value of the units.    
+3. Additionally, AR6, AR7, and AR8 failed to devise and maintain sufficient 
+disclosure controls and procedures to meaningfully evaluate whether changes in market conditions 
+or other factors required changes to their valuation disclosures.  Consequently, despite receiving 
+internal and third-party analyses indicating a value below $11.00 per unit and despite significant 
+decreases in operating performance, AR6, AR7, and AR8 collectively sold more than 25 million 
+DRIP units following the 2008 global financial crisis while maintaining that the arbitrarily 
+established initial offering price of $11.00 constituted the “fair market value” of their DRIP units in 
+their Forms S-3 and the “estimated market value” of their units in their Forms 10-K.   
+4. The Apple REITs also failed to disclose numerous related party transactions 
+involving short-term transfers between REITs to meet cash needs and commercial loans personally 
+guaranteed by Knight between 2008 and 2011.  As part of their business model, the Apple REITs 
+historically have maintained little cash on hand, relying on cash flows from operations and, as 
+necessary, credit facilities.  However, rather than obtaining additional commercial credit or 
+requesting funds from the third-party management companies contained in the operating bank 
+accounts of hotels, Apple REIT management engaged in approximately 25 short-term cash 
+transfers between the Apple REITs – which at all times were separate companies with separate 
+boards of directors and separate unitholders.  The short-term cash transfers typically were repaid 
+within a few days, ranged in amounts from $25,000 to $20 million, and were used to, among other 
+things, fund acquisitions, distributions and redemptions, and to cover clearing checks and debt.  
+Further, Knight personally guaranteed several short-term commercial loans to the Apple REITs, 
+some of which were used to fund shareholder redemptions.  Neither the short-term transfers nor the 
+fact of Knight’s personal guarantee was disclosed to unitholders. 
+5. The Apple REITs further failed to disclose significant compensation paid by the 
+advisers and Knight to their executive officers between 2008 and 2010.  Specifically, the Apple 
+REIT advisers, which at all relevant times were private companies wholly owned by Knight, paid 
+undisclosed supplemental compensation out of funds belonging to the advisers to certain executive 
+officers for work they performed for the REITs.  Knight also sold the economic benefits associated 
+with Series B convertible shares issued to Knight to certain executive officers, including Peery, to 
+supplement their compensation, which was not disclosed to unitholders.  The undisclosed related 
+party transactions and undisclosed supplemental compensation contradicted affirmative disclosures 
+to unitholders – including representations that the independent directors would affirmatively 
+approve transactions between the REITs and their affiliates – and demonstrated insufficient 
+internal controls.    
+RESPONDENTS 
+6. Apple REIT Six, Inc. (“AR6”), at all times relevant herein, was a non-traded 
+REIT organized under the laws of Virginia with a class of securities registered under Section 12(g) 
+of the Exchange Act and was subject to the reporting requirements of Section 13(a) of the 
+Exchange Act.  AR6 owned 66 hotels operating in 18 states as of December 31, 2012.  AR6 raised 
+ 4 
+approximately $1 billion between January 2004 and March 2006, and had approximately 19,500 
+beneficial unitholders as of February 15, 2013.  AR6 instituted a DRIP by filing a Form S-3 
+registration statement on February 10, 2006, which it amended and restated on May 14, 2009.  As 
+of December 31, 2012, AR6 had sold a total of approximately 18.4 million units representing 
+$202.1 million in proceeds pursuant to these DRIP offerings.  AR6 merged with an unrelated entity 
+on May 14, 2013.  In connection with the merger, each AR6 share was exchanged for $9.20 in cash 
+and one share of redeemable preferred stock of the unrelated entity with an initial liquidation 
+preference of $1.90. 
+7. Apple REIT Seven, Inc. (“AR7”), is a non-traded REIT organized under the laws 
+of Virginia with a class of securities registered under Section 12(g) of the Exchange Act and is 
+subject to the reporting requirements of Section 13(a) of the Exchange Act.  AR7 owned 51 hotels 
+operating in 18 states as of December 31, 2012.  AR7 raised approximately $1 billion between 
+May 2005 and July 2007, and had approximately 19,800 beneficial unitholders as of February 28, 
+2013.  AR7 instituted a DRIP by filing a Form S-3 registration statement on July 17, 2007, which it 
+amended and restated on January 13, 2012.   As of December 31, 2012, AR7 had sold 
+approximately 11.3 million units representing approximately $124.5 million in proceeds pursuant 
+to these DRIP offerings.  
+8. Apple REIT Eight, Inc. (“AR8”), is a non-traded REIT organized under the laws 
+of Virginia with a class of securities registered under Section 12(g) of the Exchange Act and is 
+subject to the reporting requirements of Section 13(a) of the Exchange Act.  AR8 owned 51 hotels 
+operating in 19 states as of December 31, 2012.  AR8 raised approximately $1 billion between 
+January 2007 and April 2008, and had approximately 19,700 beneficial unitholders of February 28, 
+2013.  AR8 instituted a DRIP by filing a Form S-3 registration statement on April 23, 2008; it filed 
+a post-effective amendment thereto on February 19, 2013.  As of December 31, 2012, AR8 had 
+sold approximately 9.1 million units representing approximately $99.9 million in proceeds 
+pursuant to these DRIP offerings.  
+9. Apple REIT Nine, Inc. (“AR9”), is a non-traded REIT organized under the laws 
+of Virginia with a class of securities registered under Section 12(g) of the Exchange Act and is 
+subject to the reporting requirements of Section 13(a) of the Exchange Act.  AR9 owned 89 hotels 
+operating in 27 states as of December 31, 2012.  AR9 raised approximately $2 billion between 
+November 2007 and December 2010, and had approximately 38,100 beneficial unitholders as of 
+February 28, 2013.  AR9 instituted a DRIP by filing a Form S-3 registration statement on 
+December 10, 2010; it filed a post-effective amendment thereto on February 19, 2013. 
+10. Apple Six Advisors, Inc. (“A6A”), a Virginia corporation wholly owned by Glade 
+M. Knight was the adviser to AR6 at all times relevant herein.  The advisory agreement required 
+A6A to provide, inter alia, day-to-day management services to AR6 and provides for an annual 
+asset management fee ranging from 0.1 to 0.25% of the amount raised in the offering.  
+11. Apple Seven Advisors, Inc. (“A7A”), a Virginia corporation wholly owned by 
+Glade M. Knight, is the adviser to AR7.  The advisory agreement requires A7A to provide, inter 
+alia, day-to-day management services to AR7 and provides for an annual asset management fee 
+ranging from 0.1 to 0.25% of the amount raised in the offering.  
+ 5 
+12. Apple Eight Advisors, Inc. (“A8A”), a Virginia corporation wholly owned by 
+Glade M. Knight, is the adviser to AR8.  The advisory agreement requires A8A to provide, inter 
+alia, day-to-day management services to AR8 and provides for an annual asset management fee 
+ranging from 0.1 to 0.25% of the amount raised in the offering.  
+13. Apple Nine Advisors, Inc. (“A9A”), a Virginia corporation wholly owned by 
+Glade M. Knight, is the adviser to AR9.  The advisory agreement requires A9A to provide, inter 
+alia, day-to-day management services to AR9 and provides for an annual asset management fee 
+ranging from 0.1 to 0.25% of the amount raised in the offering.  
+14. Glade M. Knight (“Knight”), age 69, of Midlothian, Virginia, was the founder, 
+Chairman of the Board and Chief Executive Officer of AR6, and is the founder, Chairman of the 
+Board and Chief Executive Officer of AR7, AR8, and AR9.  Knight reviewed and signed the 
+relevant Forms S-3, 10-Q, and 10-K, which incorporate by reference, in part, the proxy statements.  
+Knight also certified pursuant to Exchange Act Rule 13a-14 the relevant Forms 10-Q and 10-K.
+2    
+15. Bryan F. Peery (“Peery”), age 49, of Mechanicsville, Virginia, served as 
+Executive Vice President and Chief Financial Officer (“CFO”) of AR6, and serves as the 
+Executive Vice President and CFO of AR7, AR8, and AR9.  Peery also was an officer of A6A, and 
+is an officer of A7A, A8A, and A9A.  Peery is a certified public accountant licensed in Virginia.  
+Peery reviewed and signed the relevant Forms S-3, 10-Q, and 10-K, which incorporate by 
+reference, in part, the proxy statements.  Peery also certified pursuant to Exchange Act Rule 13a-14 
+the relevant Forms 10-Q and 10-K. 
+RELEVANT ENTITY 
+16. Apple Fund Management, LLC (“AFM”), a wholly owned subsidiary of AR6 
+during the relevant time period, was an entity utilized by the advisers, which have no employees, to 
+provide the management services, including the executive officers, required by the advisory 
+contracts to, inter alia, AR6, AR7, AR8, and AR9.  Previously, AFM was a subsidiary of Apple 
+Hospitality Five, Inc. (“AH5”).  After AH5 merged with a third party in 2007, the board of 
+directors transferred AFM to AR6. 
+FACTS 
+A. Background 
+17. The Apple REITs are non-traded REITs that, during the relevant period, primarily 
+owned full service, limited service, and extended stay hotels.  As REITs, they are not subject to 
+federal corporate income taxation as long as they meet certain requirements such as the distribution 
+of at least 90% of their taxable income annually to unitholders in dividends.  The Apple REITs 
+have a class of securities registered under Section 12(g) of the Exchange Act and are subject to the 
+                                                 
+2 In 1976, the Commission settled an action, SEC v. Goodman Securities Corp., et al., CA 76-0007-R (E.D. Va. 
+1976), involving Knight and others for alleged disclosure violations in connection with a real estate limited 
+partnership offering.  See also In the Matter of Glade M. Knight, et al., Admin. Proc. File 35138, Release No. 13087 
+(Dec. 21, 1976). 
+ 6 
+reporting requirements of Section 13(a) of the Exchange Act, but their units are not publicly 
+traded, and generally are considered illiquid.  The Apple REITs represent to unitholders that, 
+although there “can be no assurance that this event will occur,” they “expect that within 
+approximately seven years from the initial closing” they will execute a liquidity event such as 
+causing the common shares to be listed on a national securities exchange or merging with a REIT 
+or similar investment vehicle.   
+18. Each of the Apple REITs is a separate reporting company with separate unitholders.  
+However, by virtue of the advisers’ reliance on AFM, a wholly owned subsidiary of AR6, to 
+provide employees and management services to the Apple REITs, the Apple REITs share common 
+corporate management.  Third-party management companies manage the day-to-day operations of 
+the hotels under the supervision of the advisory companies.    
+19. The Apple REITs were sold through their exclusive selling agent, as best efforts, 
+blind pool offerings at an offering price of $11.00 per share.
+3  The Form S-11 registration 
+statements represented that the “per-unit offering prices have been established arbitrarily … and 
+may not reflect the true value of the [u]nits; therefore, investors may be paying more for a [u]nit 
+than the [u]nit is actually worth.”  Except for limited redemption programs, there is no public 
+market for the Apple REITs.   
+20. Pursuant to redemption programs, unitholders of AR6, AR7, AR8, and AR9 who 
+had held their shares for at least one year were permitted to request unit redemptions on a quarterly 
+basis.  Pursuant to SEC guidance concerning tender offers, no more than 5% of the weighted 
+average number of units outstanding could be redeemed during any 12-month period.  If 
+shareholder requests exceeded the number of shares that were authorized to be redeemed during 
+any quarter, the Apple REITs redeemed on a pro rata basis.   
+21. Following the close of their initial offerings, the Apple REITs each instituted a 
+DRIP wherein they each sold DRIP units on a monthly basis during the relevant period.4  The 
+Apple REITs primarily used the DRIP proceeds to redeem units under their limited unit 
+redemption programs.  Under the terms of the unit redemption programs, the number of units 
+redeemed could not exceed the aggregate net proceeds received from DRIP sales and the additional 
+share option program.          
+22. Between at least 2008 and 2012, the Apple REITs each paid between 7% and 8% in 
+distributions (which generally included a component of return of capital), with the exception of 
+AR8, which lowered its distribution to 5% in June of 2011.  The Apple REITs generally have paid 
+more in distributions than they generated in cash from operations.  The Apple REITs disclosed in 
+their Form S-11 registration statements that, although they generally seek to make distributions 
+                                                 
+3 Units are initially sold at $10.50 per share until the minimum offering is complete.   
+4 The Apple REITs’ DRIPs were continuous offerings during the relevant period.  However, AR6 suspended its 
+DRIP in November 2012 upon execution of its merger agreement with an unrelated third party according to public 
+filings.  AR7, AR8, and AR9 also suspended their DRIPs and redemptions on or about June 27, 2013 in connection 
+with the evaluation of a potential consolidation transaction in which AR7, AR8 and AR9 would be  combined 
+according to a Form 8-K filed on June 27, 2013.  
+ 7 
+from operating revenues, they may pay distributions in part from financing proceeds or other 
+sources, including offering proceeds.   
+B. Misstatements and Omissions Concerning Valuation  
+23. During the relevant period, AR6, AR7, and AR8 made material misstatements and 
+omissions concerning valuation in their Form S-3 DRIP registration statements and in certain of 
+their Forms 10-K.5  Additionally, the Apple REITs did not have sufficient controls in place to 
+meaningfully evaluate whether changes in market conditions or other factors required changes to 
+their valuation disclosures in their Forms S-3 and Forms 10-K. 
+24. Item 5 of Form S-3 requires registrants to include a description pursuant to Item 
+505 of Regulation S-K of the “various factors considered in determining [the] offering price” 
+where common equity is being registered for which there is no established public trading market. 
+Item 5 of Form 10-K requires registrants to furnish pursuant to Item 201 of Regulation S-K certain 
+high and low bid information if the principal United States market is not an exchange and to 
+qualify such quotations with an appropriate explanation “[w]here there is an absence of an 
+established public trading market.”       
+25. In a section titled, “How are unit prices determined?”, the Apple REITs’ initial 
+Forms S-3 registration statements, as drafted by outside counsel, represented that:
+6 
+ 
+The price of units purchased under the plan directly from 
+us by dividend reinvestments will be based on the fair market 
+value of our units as of the reinvestment date as determined in 
+good faith by our board of directors from time to time.  
+Our units are not publicly traded; consequently, there is no 
+established public trading market for our units on which we could 
+readily rely in determining fair market value . Nevertheless, the 
+board has determined that, for purposes of this plan, at any given 
+time the most recent price at which an unrelated person has 
+purchased our units represents the fair market value of our units. 
+Consequently, unless and until the board decides to use a different 
+method for determining the fair market value  of our units, the 
+per unit price for the plan will be determined at all times based on 
+the most recent price at which an unrelated person has purchased 
+our units. Notwithstanding the foregoing, the board of directors may 
+determine a different fair market value and price for our units for 
+purposes of this plan if (1)  in the good faith judgment of the board 
+                                                 
+5 Although AR9 made substantially similar representations in its DRIP plan filed on December 10, 2010, AR9 did 
+not have the same type of operating history available and rarely was included in the internal and third-party strategic 
+planning analyses that contradicted the disclosures at issue.      
+6 The Form S-3 filed by AR6 on February 10, 2006, used the term “distribution” rather than “dividend” in the first 
+sentence of the disclosure, but it was changed to the above quoted language for AR6’s Form S -3 filed on May 14, 
+2009.  
+ 8 
+an amount of time has elapsed since our units have been purchased 
+by unrelated persons such that the price paid by such persons would 
+not be indicative of the fair market value  of our units or (2)  our 
+board determines that there are other factors relevant to such fair 
+market value…. (emphasis added)7  
+26. Outside counsel drafted the language at issue in part to comply with certain federal 
+tax requirements prohibiting the deduction of preferential distributions by REITs, which, as 
+disclosed in the Forms S-3, “could subject the REIT[s] to federal corporate income taxes which 
+most likely would reduce the after-tax yield on any distributions to shareholders.”  The Forms S-3 
+represented that “[t]o avoid this result under [the] plan, a reasonably accurate determination of 
+the fair market value of units by [the REITs’] board[s] of directors is required.” (emphasis 
+added.)   
+27. Although the Forms S-3 disclosed that “the per unit price for the plan will be 
+determined at all times based on the most recent price at which an unrelated person has purchased 
+our units,” the disclosures omitted to state that the “fair market value” of the units was not based on 
+an appraisal of the Apple REITs’ assets or other valuation methodology.  They also failed to 
+disclose that, in contrast to an actively traded market, the price last paid for a DRIP share by an 
+unrelated person in the context of a non-traded REIT did not reflect a meaningful estimate of the 
+underlying or realizable value of the units.    
+28. In addition, following the 2008 global financial crisis until the fiscal year ended 
+December 31, 2011, AR6, AR7, and AR8 represented in their Forms 10-K that “[t]he per share 
+estimated market value of common stock is deemed to be the offering price of the shares, which 
+currently is $11.00 per share.” (emphasis added)  The Forms 10-K further represented that the 
+disclosed estimated market value of $11.00 was “supported by the fact that the [REITs are] 
+currently selling shares to the public at a price of $11.00 per share through … Dividend 
+Reinvestment Plan[s].”
+8  However, the Forms 10-K failed to disclose that $11.00 did not reflect a 
+meaningful estimate of the underlying value of the units.    
+29. Consequently, AR6, AR7, and AR8 maintained the arbitrarily established initial 
+offering price of $11.00 as the “fair market value” and the “estimated market value” of the units 
+following the 2008 global financial crisis despite internal and third-party analyses suggesting that 
+the per unit values of the Apple REITs were below $11.00 and despite declines in operating 
+performance.        
+                                                 
+7 AR7 filed an amended and restated Form S-3 on January 13, 2012, which, among other things, disclosed that “the 
+market value of [its] units and the unit price of units purchased from [it] under the plan will not be based on an 
+appraisal or other valuation of [AR7], [its] net assets, or the units, and will not necessarily reflect [its] value, earnings, 
+net worth or other measures of value, but rather will be deemed equal to the most recent price at which an unrelated 
+person has purchased our units from [it].”  AR7, AR8, and AR9 filed post-effective amendments to their Forms S-3 on 
+February 19, 2013 incorporating substantially similar language.  
+8 The Apple REITs stopped using the term “estimated market value” in Item 5 in their Forms 10 -K for the fiscal year 
+ended December 31, 2011.  Further, in their Forms 10-K for the fiscal year ended December 31, 2012, the Apple 
+REITs disclosed that the $11.00 price (or $10.25 in the case of AR9 due to a special distribution of $0.75 to 
+unitholders relating to an asset sale on April 27, 2012) “[was] not based on an appraisal or valuation of the Company 
+or its assets.”   
+ 9 
+Internal and Third-Party Analyses Contradicted AR6, AR7, and AR8’s Valuation Disclosures 
+30. Following the 2008 global financial crisis, Apple REIT management received 
+internal strategic planning analyses between late 2008 and 2011 that contradicted the REITs’ 
+representations that $11.00 constituted the “fair market value” of the units in their Form S-3 and 
+the “estimated market value” of the units in their Forms 10-K.   
+31. For example, in late 2008, an Apple REIT employee created a basic model for an 
+executive officer estimating AR6, AR7, and AR8’s performance over a five year period.  The 
+model was linked directly to the accounting system, was updated regularly through at least mid-
+2011 and was distributed to certain members of management.  Although the primary purpose of the 
+model related to evaluating future cash flow performance, the model included an estimated market 
+value section calculating the REITs’ enterprise, equity and per share values.   The estimated market 
+values of the AR6, AR7 and AR8 mostly showed per share values below $11.00.  A different 
+analysis performed by the same Apple REIT employee for an executive officer in August 2009 
+showed that, without substantial revenue and FFO
+9 increases, the per share values of AR6, AR7, 
+and AR8 would be below $11.00. 
+32. In addition, starting in approximately mid-2009 through mid-2011, several third-
+party investment banks made presentations to Apple REIT management concerning potential 
+strategic options for the Apple REITs.  The estimated valuations included in these presentations 
+varied and were not a static $11.00 per unit for AR6, AR7, and AR8 as represented in their Forms 
+S-3 and Forms 10-K.  Some of the per-unit valuations were below $11.00 for AR6 and most of the 
+per unit valuation estimates were below $11.00 for AR7 and AR8.   
+AR6, AR7, and AR8’s Economic Performance Contradicted the Valuation Disclosures  
+33. AR6, AR7, and AR8’s operating performance following the 2008 global financial 
+crisis also should have caused the Apple REITs to amend their disclosure of $11.00 as a “fair 
+market value” and “estimated market value” of units.  AR6, AR7, and AR8’s net incomes declined 
+more than 40% in 2009 as compared to 2008, and remained below 2008 levels through at least 
+December 31, 2012.   
+34. Further, given the up-front fees and ramp up periods10 for the properties, Apple 
+REIT management knew that growth would be required to reach a fair market value of $11.00 per 
+share, and further knew or should have known that the economic performance of the REITs 
+between 2009 and at least 2011 fell short of that growth level.   
+35. AR6, AR7, and AR8 also increased their debt levels between 2008 and 2012.  
+Increased debt levels may affect the Apple REITs’ valuations because any debt incurred by the 
+                                                 
+9 FFO, or Funds From Operations, is defined by the National Association of Real Estate Investment Trusts as net 
+income (computed in accordance with GAAP), excluding gains/losses on sales of depreciable property, plus 
+depreciation and amortization of real property used in operations, less preferred dividends and after adjustments for 
+unconsolidated partnerships and joint ventures. 
+10 “Ramp up period” is a term used by the REITs’ management to describe the 6 to 24-month period following 
+initial property purchase or construction needed to position the property to reach the expected level of return 
+through, for example, improved management or improved marketing.       
+ 10 
+REITs must eventually be repaid, thereby reducing the equity available for distribution to 
+unitholders in connection with a liquidity event.  AR6, AR7, and AR8 nonetheless never adjusted 
+the $11.00 per unit valuation disclosures. 
+Failure to Implement Sufficient Processes or Procedures to Evaluate the Valuation Disclosures  
+36. Despite the representation in the Forms S-3 that the Apple REITs’ boards of 
+directors would determine in good faith the fair market value of the DRIP units from time-to-time, 
+the Apple REITs failed to develop or maintain sufficient procedures relating to the disclosure of 
+the valuation of units sold in the DRIPs.  The Apple REITs did not establish a valuation committee 
+or valuation working group.  Nor did they establish any formal or informal valuation guidelines or 
+otherwise attempt to identify relevant factors for determining fair market value.  Further, 
+management did not provide the boards of directors with the contradictory internal valuations 
+discussed in paragraph 31 or the contradictory third-party valuations for consideration in 
+determining fair market value.  
+37. Consideration of the fair market value of the units for purposes of the DRIP was not 
+included as a formal agenda item for board meetings.  Although the directors periodically 
+discussed the DRIP program during board meetings, a record of substantive discussion concerning 
+DRIP prices at board meetings does not appear in meeting minutes until February 2012 even 
+though the DRIP programs for AR6, AR7, and AR8 had been in place since 2006, 2007 and 2008, 
+respectively.   That discussion was recorded merely as: “There was … a discussion concerning 
+DRIP and redemption pricing.  Those in attendance considered the price currently paid ($11 per 
+unit) to be appropriate and would reconsider if at some point it is warranted.”  Rather, the boards of 
+directors operated under the theory that as long as there were DRIP sales, they did not need to 
+reconsider the unit price. 
+C. Undisclosed Related Party Transactions:  Short-Term Transfers Between REITs to 
+Meet Cash Needs and Commercial Loans Personally Guaranteed by Knight  
+38. Between 2008 and 2011, the Apple REITs, which were separate companies with 
+separate unitholders and boards of directors at all relevant times, engaged in numerous undisclosed 
+cash transfers between REITs to meet short-term cash needs and obtained certain commercial loans 
+personally guaranteed by Knight, which were undisclosed.  The Apple REITs executed most of 
+these undisclosed related party transactions without following internal controls described in public 
+filings, including a disclosed policy that such transactions would be approved by an affirmative 
+vote of the independent directors.  Further, although the boards of directors had adopted general 
+borrowing resolutions for each of the REITs, the independent directors did not affirmatively 
+approve the fact of the personal guarantee by Knight or the short-term transfers. 
+39. Item 7 of Form 10-K and Item 3 of Form 10-Q both require registrants to “identify 
+and separately describe internal and external sources of liquidity” pursuant to Item 303 of 
+Regulation S-K, which requires identification of “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.”  Item 13 of Form 10-K and Item 7 of Schedule 14A 
+both require registrants to describe “any transaction … in which the registrant was or is to be a 
+ 11 
+participant and the amount involved exceeds $120,000, and in which any related person had or will 
+have a direct or indirect material interest,”11 and to disclose the “registrant’s policies and 
+procedures for the review, approval, or ratification” of such related party transactions pursuant to 
+Item 404 Regulation S-K.  Accounting Standards Codification Topic 850-10 (hereinafter “ASC 
+850-10”), Related Party Disclosures,12 requires the disclosure of material related party transactions 
+in the financial statements, even if no or nominal amounts were ascribed thereto.13  Additionally, 
+the Commission issued a statement in January 2002 providing that registrants should include a 
+discussion of material related party transactions in their Management’s Discussion and Analysis of 
+Financial Condition and Results of Operations (“MD&A”).   
+Undisclosed Cash Transfers Between REITs To Meet Short-Term Cash Needs 
+40. As part of their business model, the Apple REITs historically have maintained little 
+cash on hand, relying on cash flows from operations and, as necessary, credit facilities.  On 
+approximately 25 occasions between 2008 and 2011, rather than obtaining additional commercial 
+credit or attempting to obtain funds from the third-party management companies contained in the 
+operating bank accounts of hotels, Peery, in consultation with other members of management, 
+effectuated or authorized undisclosed, short-term cash transfers between REITs – which are 
+separate companies with separate unitholders – to meet short-term cash needs.  The transfers at 
+issue ranged between $25,000 and $20 million.14  The “borrowing” REIT typically repaid the 
+transfer within a few days, and used the assets in connection with property acquisitions, 
+redemptions and distributions, and to cover clearing checks and debt.  The Apple REITs’ records 
+lacked sufficient detail to determine the business purpose of certain of the transfers.   
+41. The Apple REITs recorded the transfers between the separate companies in 
+intercompany accounts as opposed to as payables and receivables, and, except for one of the 
+largest transfers, did not execute loan documentation or, except for the two largest transfers, did 
+not charge interest.  In addition, the Apple REITs failed to record four of the transfers in their 
+general ledgers.  The Apple REITs also failed to disclose as a source of liquidity pursuant to Item 
+303 that they adopted a cash management policy in 2011 providing for transfers up to $1 million 
+between REITs to cover, among other things, “unanticipated cash need[s].”     
+                                                 
+11 The Instructions to Item 404(a) define “related person” to include any director or executive officer of the 
+registrant.  Transaction is defined to include “any financial transactions, arrangement, or relationship (including any 
+indebtedness or guarantee of indebtedness) or any series of similar transactions, arrangements or relationships.”  
+Under Item 404(a), a related person’s indirect material interest in a firm, corporation, or other entity engaging in a 
+transaction with the registrant may require disclosure of certain details concerning the transaction.   
+12 ASC 850-10 formerly was Statement of Financial Accounting Standards (“SFAS”) No. 57 prior to the September 
+2009 codification.  
+13 ASC 850-10 defines affiliates as related parties, and provides that similar related party transactions may be 
+aggregated by type.  Affiliate is defined as “[a] party that, directly or indirectly through one or more intermediaries, 
+controls, is controlled by, or is under common control with an entity.”  Related Party is defined to include “[o]ther 
+parties that can significantly influence the management or operating policies of the transacting parties… .” 
+14 The $20 million transfer, which was largest of the undisclosed transfers at issue, involved a situation in which 
+AR8 purchased a $100 million Certificate of Deposit (“CD”), but subsequently identified properties for 
+acquisition.  The closing date for some of the properties was scheduled before the maturity of the CD.   Rather than 
+seeking an early withdrawal from AR8’s CD, Peery, in consultation with others in management, transferred $20 
+million from AR9 to AR8, which AR8 repaid with interest in the amount matching that earned in the CD 
+approximately one month later.  
+ 12 
+42. The majority of the transactions at issue exceeded the $120,000 Item 404 disclosure 
+threshold, even before aggregating similar transactions.15  Further, the practice of making periodic 
+short-term transfers between the REITs to meet cash needs was material due to qualitative factors 
+and required to be disclosed because it facilitated their business practice of maintaining little cash 
+on hand during the relevant period.  For example, the related party nature of the relationship 
+between the REITs was important to this cash management tool because common management 
+controlled all the relevant bank accounts and could make book transfers between REITs following 
+which the transferred funds were immediately available for use.  Additionally, unlike in connection 
+with borrowing on commercial credit lines, no advance notice was needed to execute transfers 
+between REITs.  However, Peery treated these transactions as immaterial for disclosure purposes 
+because, among other reasons, they typically were repaid within a few days. 
+Undisclosed Loans Personally Guaranteed by Knight 
+43. Between 2009 and 2010, Knight personally guaranteed, and provided personal 
+assets as collateral for, four short-term commercial loans and lines of credit to AR6 and AR7: $10 
+million in July 2009 to AR6; $2 million in April 2010 to AR6; $2 million in April 2010 to AR7; 
+and $9 million in July 2010 to AR7.  With the exception of the $9 million loan to AR7, neither the 
+loans nor the personal guarantees were disclosed to unitholders as required by ASC 850-10 and 
+Items 303 and 404 of Regulation S-K.  Although the $9 million loan was disclosed, Knight’s 
+personal guarantee was not disclosed.  Peery and others were aware of these loans.   
+44. AR6 and AR7 obtained these personally guaranteed loans and lines of credit in part 
+to fund redemption payments during periods when the Apple REITs had borrowed the maximum 
+available on their existing lines of credit.  Knight received no compensation or other benefit in 
+exchange for his personal guarantee.  
+The Short-Term Transfers and Personally Guaranteed Loans at Issue Contradicted Internal 
+Controls and Affirmative Disclosures to Unitholders 
+45. The undisclosed short-term cash transfers between REITs and the undisclosed 
+personally guaranteed loans, contradicted several affirmative disclosures and internal controls set 
+forth in the Apple REITs’ public disclosures.   
+46. The Forms S-11 represented that it was the Apple REITs’ policy not to “sell, 
+transfer or lend assets or property to any of [their] affiliates” nor to “purchase, borrow, or 
+otherwise acquire assets or property from any of [their] affiliates” unless the transactions were 
+approved by an affirmative vote of the majority of independent directors.  The Apple REITs’ 
+bylaws, which are exhibits to numerous public filings, contained similar language.
+16  Although the 
+                                                 
+15 The Apple REITs amended their Form 10-K disclosures for the fiscal year ended December 31, 2010 to include 
+that “the individual companies may make payments for any or all of the related companies” in order “[t]o efficiently 
+manage cash disbursements” and that “[t]he amounts due to or from the related individual co mpanies are reimbursed 
+or collected and are not significant in amount.”   However, these amended disclosures failed to accurately 
+characterize the nature, frequency and purpose of the transfers between REITs.  Additionally, s ome of the 2010 cash 
+transfers exceeded Item 404’s $120,000 disclosure threshold, even before aggregating similar transactions. 
+16 AR8 and AR9’s Forms S-11 also represented that a majority of disinterested directors would approve any material 
+agreement or arrangement between, or transactions involving the Apple REITs and their affiliates, and that the 
+ 13 
+boards of directors had adopted general borrowing resolutions for each REIT, management failed 
+to seek the affirmative approval of the independent directors for all but one of the undisclosed 
+short-term transfers and personally guaranteed loans at issue.   
+47. Some of the undisclosed transfers between REITs also were inconsistent with 
+representations to unitholders concerning the use of proceeds.  Neither the Forms S-11 nor the 
+Forms S-3, which specifically set forth the use of proceeds, disclosed the possibility that a REIT 
+might use investor assets to make loans to affiliates.17  The Forms S-11 also represented that “[t]he 
+proceeds of [the] offering [would] be received and held in trust for the benefit of the investors in 
+compliance with applicable securities laws, to be used only for the purposes set forth in [the] 
+prospectus.”   Additionally, the Forms S-11 stated that the Apple REITs “expect[ed] borrowings to 
+come from third party, non-affiliated lenders,” and that they had “no current plan or intention to 
+make loans to other persons or entities.”
+ 18   
+48. The advisory agreements provided that either the REITs paid directly or the 
+advisers paid and sought reimbursement for certain enumerated expenses on behalf of the Apple 
+REITs, such as distributions to unitholders, interest expense, and all costs of personnel.  The 
+advisory agreements also required the advisers to prepare statements documenting any such 
+reimbursable expenses within 45 days and required the Apple REITs to reimburse the advisers 
+within 60 days after the end of the quarter.  Here, rather than following the procedures outlined in 
+the advisory agreements, Peery authorized and/or transferred funds directly between the Apple 
+REITs in varying amounts and at varying intervals as cash needs arose.  In addition, 
+notwithstanding their actual cash management practices, AR6, AR7, AR8, AR9 misrepresented 
+that the expense reimbursements flowed from the Apple REITs to their advisers consistent with the 
+advisory agreements in their Forms 10-K for 2008 and 2009 and in their proxies filed in 2008, 
+2009, and 2010.19     
+D. Undisclosed Compensation Arrangements  
+49. AR6, AR7, AR8 and AR9 failed to disclose material compensation arrangements in 
+their Forms 10-K for 2008, 2009, and 2010, and in their Schedule 14A proxy statements, including 
+those filed in April 2011 in which they solicited nonbinding advisory votes approving executive 
+compensation (i.e., “say-on-pay” votes). 
+                                                                                                                                                             
+officers, directors and employees were required to report to the board related party transactions where the amount 
+exceeded $120,000. 
+17 The Forms S-11 represented that the proceeds of the offering would be used to pay organization expenses, to 
+repay any outstanding balance on the Apple REITs’ lines of credit, to pay expenses and fees of selling the units, to 
+invest in properties, to pay expenses associated with acquisition properties, and to establish a working capital 
+reserve.  The Form S-3 registration statements provided that the REITs expected to use the proceeds from DRIP 
+sales for general corporate purposes which may include redeeming units, enhancing properties, satisfying financing 
+obligations and other expenses, increasing working capital, funding various corporate operations, and acquiring 
+hotels or other properties. 
+18 The Forms S-11 represented that the unitholders were entitled to rely on the fiduciary duties of the advisers and 
+similar duties of officers to provide substantial protection for unitholders’ interests. 
+19 The Apple REITs Form 10-K disclosures continued to be materially misleading in 2010 and 2011 because they 
+state that expenses were reimbursed by the advisers to AR6 (as the owner of AFM) or paid directly to AR6 on behalf 
+of the advisers when they knew or should have known that the payments were always made directly between REITs.  
+ 14 
+50. Item 11 of Form 10-K and Item 8 of Schedule 14A20 both require that registrants 
+furnish the information required by Item 402 of Regulation S-K, including “clear, concise and 
+understandable disclosure of all plan and non-plan compensation awarded to, earned by, or paid to 
+the named executive officers … by any person for all services rendered in all capacities to the 
+registrant and its subsidiaries,” including compensation involving “transactions between the 
+registrant and a third party where a purpose of the transaction is to furnish compensation to any 
+such named executive officer or director….”    
+Failure to Disclose Payments from the Advisers to the Apple REITs’ Officers 
+51. Knight, the 100% owner of the advisers to the Apple REITs, entered into written 
+agreements with four executive officers, including Peery (as to A8A and A9A only) to share 
+profits earned by the advisers.  Although the supplemental compensation was paid from the assets 
+of the advisers, and although the Apple REITs disclosed the advisory fees from which the 
+payments to executive officers were made, they failed to disclose the profit-sharing agreement in 
+their Forms 10-K for the fiscal years ended December 31, 2008, 2009, and 2010, or in the proxy 
+statements incorporated by reference therein, thereby materially understating the compensation 
+paid to executive officers.   
+52. The total amount of undisclosed compensation paid by the advisers exceeded the 
+disclosed compensation for executive officers by between $85,375 and $1.197 million per REIT as 
+presented in the compensation tables in the fiscal years ended December 31, 2008, 2009, and 2010.   
+ 
+ 
+A6 AR7 AR8 AR9 
+ 
+Disclosed 
+Compensation 
+Paid by the 
+Apple REITs 
+Undisclosed 
+Supplemental 
+Compensation 
+Paid by the 
+Advisers 
+Disclosed 
+Compensation 
+Paid by the 
+Apple REITs 
+Undisclosed 
+Supplemental 
+Compensation Paid 
+by the Advisers 
+Disclosed 
+Compensation 
+Paid by the 
+Apple REITs 
+Undisclosed 
+Supplemental 
+Compensation Paid 
+by the Advisers 
+Disclosed 
+Compensation 
+Paid by the 
+Apple REITs 
+Undisclosed 
+Supplemental 
+Compensation Paid 
+by the Advisers 
+2008 $368,611  $1,197,306  $368,611  $732,249  $368,611  $478,622  $368,611  $85,375  
+2009 $476,271  $720,657  $476,271  $493,074  $476,271  $510,397  $476,271  $360,868  
+2010 $468,127  $721,866  $468,127  $488,942  $468,127  $517,407  $468,127  $744,882  
+Failure to Disclose the Sale of Benefits Relating to B Shares from the CEO to Executive Officers 
+of the Apple REITs 
+53. AR6, AR7, AR8, and AR9 failed to disclose in the Forms 10-K and Schedule 14A 
+proxy statements as required by Item 402 of Regulation S-K that Knight sold the economic 
+benefits relating to nearly 30% of his Series B convertible preferred shares (“B shares”) in AR6, 
+AR7, AR8, and AR9 to certain officers of the Apple REITs, including Peery, to supplement the 
+compensation paid to those officers.    
+54. Depending on its size, each REIT issued between 240,000 and 480,000 B shares to 
+Knight in his capacity as founder at $0.10 per share.  The B shares are convertible into common 
+                                                 
+20 Schedule 14A’s requirement to disclose the information required by Item 402 and Item 404 of Regulation S-K 
+applies if action is to be taken with respect to, among other things, election of directors, which was the case in all the 
+Apple REITs’ relevant Schedule 14A filings.   
+ 15 
+shares upon the occurrence of certain events such as a sale or transfer of substantially all of the 
+REIT’s assets, or a listing on any securities exchange.       
+55. The executive officers paid $0.10 per share to Knight for the economic benefits 
+associated with the B shares transferred to them.  The interest in the B shares represented 
+compensation for work done for the REITs and their advisers that should have been disclosed. 
+56. Knight’s sale of benefits relating to the B shares also was inconsistent with 
+affirmative disclosures in each of the Apple REITs’ Schedule 14A proxy statements that Knight 
+was the 100% owner of those shares, and disclosures in the Forms 10-K that all of the B shares 
+were issued to Knight.      
+Misstatements and Omissions in the Apple REITs’ Compensation Discussion and Analysis Section 
+of their Proxy Statements 
+57. Given the fact of undisclosed compensation described above, the Apple REITs also 
+misstated or omitted material information required by Item 402(b) of Regulation S-K from the 
+Compensation Discussion and Analysis section of their proxy statements filed in 2009, 2010, and 
+2011.  Item 402(b) requires a discussion of “all material elements of the registrant’s compensation 
+of the executive officers” including information concerning the registrant’s compensation 
+objectives and rationale.  
+58. The Apple REITs represented to unitholders, without disclosing the payments to 
+executive officers by the advisers or the B Share sales, that the base salaries and bonuses for the 
+executive officers are “designed to be competitive with comparable employers” and that the REITs 
+believe that a “simplistic approach to compensation better matches the objectives of all 
+stakeholders.”  They also represented that their executive officer compensation targets were 
+developed “using comparisons to compensation paid by other public hospitality REITs” and that 
+the targets were set “sufficiently high to attract and retain a strong and motivated leadership team, 
+but not so high that it creates a negative perception with … other stakeholders.”   
+E. Failure to Timely File Forms 3 and Forms 4 
+59. The directors and executive officers of the Apple REITs were subject to the 
+reporting requirements of Section 16(a) of the Exchange Act, which requires the filing of 
+beneficial ownership forms with the Commission.  Section 16(a) and Rule 16a-3 of the Exchange 
+Act require directors and officers to file initial reports of ownership on Form 3 and changes of 
+ownership on Form 4 with the Commission.
+21  During the relevant period, Glade Knight failed to 
+timely file one Form 3 and one Form 4 related to AR9.  Bryan Peery failed to timely file one Form 
+3 relating to AR9.   
+                                                 
+21 Section 16(a)(2) requires that a reporting person of an issuer that is registering securities for the first time under 
+Section 12 of the Exchange Act must file Form 3 no later than the effective date of the registration statement.  Once 
+the initial report is filed, any changes in holdings must be reported on Form 4 within two business days of the 
+change.  
+ 16 
+60. In addition, Item 10 of Form 10-K and Item 7 of Schedule 14A both require 
+disclosure of the information required by Item 405 of Regulation S-K, including any reporting 
+violations by insiders in a clearly marked section, the number of late reports, the number of 
+transactions not reported on a timely basis, and any known failure to file a required Form.  Item 
+405 explicitly states that a known failure to file includes a failure to file a Form 3, which is 
+required of all reporting persons.  AR6, AR7, AR8 and AR9 misrepresented in their proxy 
+statements until April 2011 that the Apple REITs’ executive officers had filed reports with the 
+Commission with respect to their initial ownership of common shares and that the REITs believed 
+that each of its officers complied with any applicable filing requirements.   
+VIOLATIONS 
+61. In the offer or sale of securities, Section 17(a)(2) of the Securities Act makes it 
+unlawful “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;” and Section 17(a)(3) proscribes “any 
+transaction, practice, or course of business which operates or would operate as a fraud or deceit on 
+the purchaser.” Violations of Sections 17(a)(2) and 17(a)(3) may be established by a showing of 
+negligence.   
+62. Section 13(a) of the Exchange Act requires issuers that have securities registered 
+pursuant to Section 12 of the Exchange Act to file such periodic and other reports as the 
+Commission may prescribe and in conformity with such rules as the Commission may promulgate. 
+Exchange Act Rules 13a-1and 13a-13 require the filing of annual and quarterly reports, 
+respectively.  In addition to the information expressly required to be included in such reports, Rule 
+12b-20 under the Exchange Act requires issuers to add such further material information, if any, as 
+may be necessary to make the required statements, in the light of the circumstances under which 
+they are made, not misleading.  A violation of the reporting provisions is established if a report is 
+shown to contain materially false or misleading information.  No showing of scienter is necessary 
+to establish a violation of Section 13(a).  
+63. Section 13(b)(2)(A) of the Exchange Act requires issuers to “make and keep books, 
+records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and 
+dispositions of the assets of the issuer.”  Section 13(b)(2)(B) of the Exchange Act requires issuers 
+to devise and maintain a system of internal accounting controls sufficient to provide reasonable 
+assurances that, among other things, transactions are executed in accordance with management’s 
+general or specific authorization and that transactions are recorded to permit the preparation of 
+financial statements in conformity with generally accepted accounting principles or any other 
+criteria applicable to such statements and to maintain accountability for assets.  No showing of 
+scienter is required to establish a violation of Section 13(b)(2)(A) or Section 13(b)(2)(B).   
+64. Exchange Act Rule 13a-14, among other things, requires principal executive 
+officers and principal financial officers to certify in quarterly and annual reports filed under 
+Section 13(a) of the Exchange Act certain information in the form set forth in Item 601(b)(31)(i) of 
+Regulation S-K, including, inter alia, that they have reviewed the reports, that they are responsible 
+ 17 
+for designing and maintaining certain controls, and that they have designed or caused the design of 
+such controls. 
+65. Section 14(a) of the Exchange Act requires registrants that solicit any proxy or 
+consent or authorization in connection with any security registered pursuant to Section 12 of the 
+Exchange Act (other than an exempted security) to comply with such rules as the Commission may 
+promulgate.  Exchange Act Rule 14a-9 prohibits the use of proxy statements containing materially 
+false or misleading statements or materially misleading omissions.  No showing of scienter is 
+required to establish a violation of Section 14(a) of the Exchange Act and Rule14a-9 thereunder.  
+66. Section 16(a) of the Exchange Act and Rule 16a-3 thereunder require, inter alia, 
+timely and accurate filing of Forms 3 and Forms 4 with the Commission.  
+67. By engaging in the conduct described above relating to valuation, AR6, AR7, and 
+AR8 violated Section 17(a)(2) and Section 17(a)(3) of the Securities Act.   
+68. By engaging in the conduct described above, AR6, AR7, AR8, and AR9 violated 
+Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 
+13a-13, and 14a-9 thereunder. 
+69. By engaging in the conduct described above, Knight and Peery each caused AR6, 
+AR7, AR8 and AR9’s violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), 14(a) of the 
+Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-13, and 14a-9 thereunder, and Knight 
+and Peery each violated Section 16(a) of the Exchange Act and Exchange Act Rules 13a-14 and 
+16a-3. 
+70. By engaging in the conduct described above, A6A, A7A, A8A, and A9A caused, 
+respectively, AR6, AR7, AR8, and AR9’s violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), 
+and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, and 14a-9 thereunder. 
+ 
+UNDERTAKINGS 
+ Respondents AR7, AR8, AR9,22 and their successors, have undertaken to: 
+71. AR7, AR8, and AR9, and/or their successors, each will maintain a Disclosure 
+Committee that will be responsible for oversight of disclosures made to their respective securities 
+holders in order to ensure accurate, complete, and timely disclosure of all matters requiring 
+disclosure.  The Disclosure Committee will be chaired by an independent director, and will consist 
+of at least three members and outside counsel.  The Disclosure Committee shall meet no less than 
+quarterly to review the companies’ disclosure of financial statements, results of operations, and 
+other matters required by the federal securities laws, and shall require all officers and directors to 
+submit annual Officer/Director Questionnaires.  
+                                                 
+22 The undertakings required by this Order are not applicable to AR6 due to AR6’s May 2013 merger with an 
+unrelated entity.  According to a Form 15 terminating the registration of shares under Section 12(g) of the Exchange 
+Act filed with the Commission on May 14, 2013, AR6 merged into an unrelated entity on May 14, 2013, at which 
+time the separate corporate existence of AR6 ended.   
+ 18 
+72. Should AR7, AR8, and AR9, and/or their successors re-establish their DRIPs, AR7, 
+AR8, and AR9, and/or their successors, will hire an Independent Consultant, not unacceptable to 
+the staff of the Commission, to address the determination of fair market value for purposes of their 
+Form S-3 DRIP registration statements, including advising on setting the price for sales thereunder, 
+and other public disclosures.  Should AR7, AR8, and AR9, and/or their successors, re-establish 
+their DRIPs, AR7, AR8, and AR9, and/or their successors, will maintain a Valuation Committee 
+comprised of independent board members that will be responsible for the oversight of all valuation 
+issues relating to their respective REITs.  Each of the Valuation Committees will establish and 
+maintain written policies and procedures relating to valuation of the Apple REITs, and will consult 
+with third-party valuation services and/or experts concerning their valuations policies, procedures, 
+and methodologies. 
+73. The independent members of the Boards of Directors of AR7, AR8, and AR9, or 
+their successors, will have separate counsel and will meet no less than quarterly outside the 
+presence of senior management.  
+74. AR7, AR8, and AR9, and/or their successors, will hire an Independent Consultant, 
+not unacceptable to the staff of the Commission, to evaluate and address: (1) policies, procedures, 
+and internal controls relating to appropriate oversight by the respective Boards of Directors; (2) 
+policies, procedures and internal controls relating to related party transactions; (3) policies, 
+procedures and internal controls relating to executive compensation; (4) policies, procedures, and 
+internal controls relating to public disclosure, including compliance with applicable disclosure 
+requirements; and (5) policies, procedures, and internal controls relating to the oversight of 
+external advisers, to the extent utilized, including, but not limited to, evaluation of compliance with 
+the advisory agreements and evaluation of adviser performance.  The Independent Consultant will 
+review each of the Apple REIT’s internal accounting, internal controls relating to record-keeping, 
+and regulatory and compliance functions, including, but not limited to, compliance with all of the 
+provisions found to have been violated by this Order.     
+75. Management shall provide the Audit Committee or other subcommittee of 
+independent directors of AR7, AR8, and AR9, and/or their successors, on a quarterly basis a list of 
+all related party transactions, including, but not limited to, transactions, directly or indirectly, 
+between or among the separate REITs, the advisers, members of management, board members, or 
+other related parties.  The Audit Committee or other subcommittee of independent directors of 
+AR7, AR8, and AR9, and/or their successors, each will undertake to develop and implement 
+written internal policies and controls concerning related party transactions, including that all 
+related party transactions be recorded on a monthly and quarterly basis in sufficient detail to permit 
+the determination of their business purpose, and that the CFO of each of AR7, AR8, and AR9, 
+and/or their successors, be designated to ensure compliance with the related party transactions 
+policy and to certify compliance on a quarterly basis. 
+76. AR7, AR8, AR9,  and/or their successors, will require the Independent Consultants 
+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 Consultants shall not enter into any 
+employment, consultant, attorney-client, auditing or other professional relationship with AR7, 
+AR8, AR9, or their successors, or any of its present or former affiliates, directors, officers, 
+ 19 
+employees, or agents acting in their capacity.  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 Consultants in performance of 
+his/her duties under this Order shall not, without prior written consent of the Commission staff, 
+enter into any employment, consultant, attorney-client, auditing or other professional relationship 
+with AR7, AR8, AR9, or their successors, 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.  
+77. AR7, AR8, AR9, and/or their successors, will 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 Respondents agree to provide such evidence.  The certification and 
+supporting material shall be submitted to Douglas McAllister, Assistant Director, Division of 
+Enforcement, Securities and Exchange Commission, 100 F St., NE, Washington, DC 20549-6561, 
+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.   
+ 
+IV. 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ Offers. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+A. Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, 
+Respondents Apple REIT Six, Inc., Apple REIT Seven, Inc. and Apple REIT Eight, Inc. cease and 
+desist from committing or causing any violations and any future violations of Sections 17(a)(2) and 
+17(a)(3) of the Securities Act and Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the 
+Exchange Act and Rules 12b-20, 13a-1, 13a-13, and 14a-9 thereunder.   
+B. Pursuant to Section 21C of the Exchange Act, Respondent Apple REIT Nine, Inc., 
+cease and desist from committing or causing any violations and any future violations of Sections 
+13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, 
+and 14a-9 thereunder.   
+C. Pursuant to Section 21C of the Exchange Act, Respondents Apple Six Advisors, 
+Inc., Apple Seven Advisors, Inc., Apple Eight Advisors, Inc., and Apple Nine Advisors, Inc. cease 
+and desist from committing or causing any violations and any future violations of Sections 13(a), 
+13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, and 
+14a-9 thereunder. 
+D. Pursuant to Section 21C of the Exchange Act, Respondents Glade M. Knight and 
+Bryan F. Peery, cease and desist from committing or causing any violations and any future 
+ 20 
+violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), 14(a), and 16(a) of the Exchange Act and 
+Rules 12b-20, 13a-1, 13a-13, 13a-14, 14a-9, and 16a-3 thereunder. 
+E. Respondents shall comply with the undertakings enumerated in Sections 71-77 
+above.    
+  
+F. Respondent Apple Six Advisors, Inc. shall, within 10 days of the entry of this 
+Order, pay a civil money penalty in the amount of $437,500 to 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) 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  
+(2) 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 
+Apple Six Advisors, 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 Gerald Hodgkins, 
+Associate Director, Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, 
+Washington, DC 20549-6010.   
+ 
+G. Respondent Apple Seven Advisors, Inc. shall, within 10 days of the entry of this 
+Order, pay a civil money penalty in the amount of $375,000 to 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) 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  
+(2) 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 
+Apple Seven Advisors, 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 Gerald Hodgkins, 
+ 21 
+Associate Director, Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, 
+Washington, DC 20549-6010.   
+ 
+H. Respondent Apple Eight Advisors, Inc. shall, within 10 days of the entry of this 
+Order, pay a civil money penalty in the amount of $437,500 to 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) 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  
+(2) 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 
+Apple Eight Advisors, 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 Gerald Hodgkins, 
+Associate Director, Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, 
+Washington, DC 20549-6010.   
+ 
+I. Respondent Apple Nine Advisors, Inc. shall, within 10 days of the entry of this 
+Order, pay a civil money penalty in the amount of $250,000 to 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) 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  
+(2) 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 
+Apple Nine Advisors, 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 Gerald Hodgkins, 
+Associate Director, Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, 
+Washington, DC 20549-6010.   
+ 
+ 22 
+J.   Respondent Glade M. Knight shall, within 10 days of the entry of this Order, pay a 
+civil money penalty in the amount of $125,000 to 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) 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  
+(2) 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 
+Glade M. Knight 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 Gerald Hodgkins, Associate 
+Director, Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, 
+Washington, DC 20549-6010.   
+K. Respondent Bryan F. Peery shall, within 10 days of the entry of this Order, pay a 
+civil money penalty in the amount of $50,000 to 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) 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  
+(2) 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 
+Bryan F. Peery 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 Gerald Hodgkins, Associate 
+Director, Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, 
+Washington, DC 20549-6010.   
+ 
+ By the Commission. 
+ 
+       Elizabeth M. Murphy 
+       Secretary 

raw/aaer/2014/AAER-3536.txt

@@ -0,0 +1,41 @@
+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 71576 / February 19, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3536 / February 19, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15116 
+ 
+____________________________________ 
+      : 
+In the Matter of    : 
+      : 
+  BDO China Dahua CPA Co., Ltd., et al. : EXTENSION ORDER 
+      : 
+Respondents     : 
+____________________________________: 
+ 
+ 
+ The Division has requested an extension of time in which to file a response to 
+Respondents’ motion for leave to adduce additional evidence.  Respondents’ do not 
+object to the extension.  Therefore, 
+ 
+ It is ORDERED that the time for filing the Division’s response is extended to 
+February 28, 2013.  Respondents’ reply is due March 11, 2014. 
+ 
+ For the Commission, by its Secretary, pursuant to delegated authority. 
+ 
+ 
+ 
+ 
+       Lynn M. Powalski 
+       Deputy Secretary 
+ 
+ 

raw/aaer/2014/AAER-3537.txt

@@ -0,0 +1,636 @@
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 71585 / February 20, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3537 / February 20, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15760 
+ 
+ 
+ 
+ 
+In the Matter of 
+ 
+    SAM KAN, CPA, and  
+    SAM KAN & COMPANY, 
+ 
+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 
+pursuant to Sections 4C1 and 21C of the Securities Exchange Act 
+of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) 2 and (iii) 3 of the Commission’s Rules of                                 
+Practice against Sam Kan, CPA (“Kan”) and Sam Kan & Co. (“Kan & Co.” or the “firm”) 
+(collectively “Respondents”).   
+                                                 
+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." 
+ 
+ 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, Respondents consent to the entry 
+of this Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant 
+to Sections 4C and 21C of the Exchange Act 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 finds that: 
+ 
+A. SUMMARY 
+1. In connection with audits and quarterly reviews of four microcap issuers, 
+Kan and Kan & Co. failed to comply with auditing standards issued by the Public 
+Company Accounting Oversight Board (“PCAOB”).  Respondents repeatedly engaged in 
+unreasonable conduct that resulted in violations of applicable professional standards and 
+demonstrated a lack of competence to practice before the Commission.  Respondents’ 
+improper professional conduct extended over an 18-month period (November 2010 to 
+May 2012) and was inconsistent with seven PCAOB standards.  Respondents failed to: 
+(1) comply with requirements for engagement quality reviews; (2) perform appropriate 
+procedures to ascertain the occurrence of subsequent events; (3) properly document 
+procedures relating to the evaluation of the adequacy of disclosure in the financial 
+statements; (4) prepare engagement completion documents; (5) obtain sufficient evidence 
+to support the firm’s audit opinion; (6) properly supervise audits; and (7) obtain written 
+representations from management.   
+ 
+ 2. Additionally, Respondents willfully violated Rule 2-02(b)(1) of Regulation 
+S-X because each audit report at issue falsely claimed that the audit had been conducted in 
+compliance with PCAOB standards.  
+                                                                                                                                                 
+3  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 
+B. RESPONDENTS 
+ 
+1. Sam Kan, age 35, resides in Alameda, California.  Kan has been licensed 
+as a certified public accountant in the State of California since 2003.  Kan is the founder 
+and sole owner of Kan & Co.   
+ 
+ 2. Sam Kan & Company, is an auditing and accounting firm with its 
+principal place of business in Alameda, California.  Kan & Co. was registered with the 
+PCAOB on July 14, 2008.   
+ 
+C. RELEVANT  ENTITIES   
+ 
+1. Issuer A is a Nevada corporation.  Issuer A’s common stock is registered 
+with the Commission pursuant to Section 12(g) of the Exchange Act and is traded on the 
+OTC Market.  Issuer A’s public filings state that it sells computer monitoring software.  
+In fiscal year 2010 the company reported no revenues.  In fiscal year 2011 it reported 
+gross revenues of approximately $6,000 and operating expenses of over $1.6 million.  As 
+of December 2011 the company had an accumulated deficit of over $2.5 million.  Kan & 
+Co. issued five audit reports regarding Issuer A, relating to financial statements and 
+restatements for fiscal years 2009, 2010, and 2011.  These reports were dated November 
+19, 2010; March 17, 2011; April 25, 2011; March 30, 2012; and May 18, 2012.     
+ 
+ 2. Issuer B is a Nevada corporation.  Issuer B voluntarily files periodic 
+reports with the Commission.  Its stock is traded on the OTC Market.  Issuer B’s public 
+filings state that it pursues oil and gas exploration activities.  From its inception in 2006 
+until August 2012, it had no revenues.  Kan & Co. issued an audit report dated December 
+29, 2011, on Issuer B’s fiscal year 2010 and 2011 financial statements.    
+ 
+3. Issuer C is a Nevada corporation.  Issuer C files periodic reports and is 
+believed to be a voluntary filer.  The shares of Issuer C are traded on the OTC Market.  
+Issuer C’s public filings state that it is a development stage mineral exploration and 
+carbon development company.  From its inception in 2007 through December 2011, the 
+company had no revenues.  Kan & Co. issued audit reports dated April 14, 2011 and 
+April 16, 2012, on Issuer C’s financial statements for fiscal years 2009, 2010, and 2011.  
+Respondents also conducted quarterly reviews for the quarters ended March 31, 2011, 
+June 30, 2011, and September 30, 2011.   
+ 
+4. Issuer D is a Delaware corporation.  Issuer D’s common stock is 
+registered with the Commission pursuant to Section 12(g) of the Exchange Act and is 
+traded on the OTC Market.  Issuer D’s public filings state that it is engaged in the 
+development and commercialization of iodine-based agents and antimicrobials.  In fiscal 
+year 2010 it had revenue of approximately $23,000 and at year end had an accumulated 
+deficit of over $22.5 million.  Kan & Co. issued an audit report dated April 15, 2011 on 
+Issuer D’s fiscal year 2009 and 2010 financial statements.  Respondents also conducted a 
+quarterly review for the quarter ended March 31, 2011.   
+ 
+ 4 
+D. THE CONDUCT AT ISSUE  
+ 
+Failure to Comply with the Requirements for  
+Engagement Quality Reviews (AS No. 7) 
+ 
+1. PCAOB standards require an engagement quality review and concurring 
+approval of issuance for each audit engagement.4  The objective of the engagement 
+quality reviewer is to perform an evaluation of the significant judgments made by the 
+engagement team and the related conclusions reached in forming the overall conclusion 
+on the engagement and in preparing the engagement report, in order to determine whether 
+to provide concurring approval of issuance.  PCAOB standards require that the 
+engagement quality reviewer be independent of the company, perform the engagement 
+quality review with integrity, and maintain objectivity in performing the review.  In order 
+to ensure the necessary level of objectivity, the person who served as the engagement 
+partner during either of the two audits preceding the audit subject to the engagement 
+quality review may not be the engagement quality reviewer.  AS No. 7, Engagement 
+Quality Review, at .01-.02, .06, and .08. 
+ 
+2. The engagement quality review must be sufficiently documented and 
+include information that identifies: (1) the engagement quality reviewer; (2) the 
+documents reviewed by the engagement quality reviewer; and (3) the date 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, Engagement Quality 
+Review, at .12-.13, and .19. 
+ 
+3. Issuer A:  Respondents failed to comply with the engagement quality 
+review requirements in connection with three audits of Issuer A.  First, Respondents 
+failed to obtain an engagement quality review in connection with the audit of Issuer A's 
+restated financial statements for 2010.  After Issuer A informed Kan that there was a 
+material accounting error in its 2010 financial statements, Respondents audited the 
+restated financial statements and issued an audit report dated April 25, 2011.  They failed 
+to obtain an engagement quality review of their audit of the restated financial statements.    
+ 
+ 4. Second, the engagement quality review for the audit of Issuer A for fiscal 
+year 2011 was performed by Kan himself even though he had acted as engagement 
+partner for the audits of Issuer A for fiscal 2010 and 2009.  Because Kan served as 
+engagement partner for the preceding audit, he was prohibited from performing the 
+engagement quality review for the fiscal 2011 audit.   
+ 
+ 5. Third, when Issuer A was required to restate its financial statements for 
+fiscal year 2011, Kan & Co. audited the restated financial statements and issued an audit 
+                                                 
+4  PCAOB standard AS No. 7, Engagement Quality Review, was effective for engagement quality 
+reviews of audits and interim reviews for fiscal years beginning on or after December 15, 2009.   
+ 5 
+report dated May 18, 2012.  Here too, Kan & Co. failed to obtain an engagement quality 
+review of its audit.     
+ 
+6. Issuer C:   For fiscal year 2011, Respondents failed to obtain the 
+engagement quality review before completing their audit and granting Issuer C 
+permission to use their audit report.  The audit report was dated April 16, 2012.  Issuer C 
+filed its 2011 Form 10-K, with the Kan & Co. report, on April 17, 2012.  But Kan’s 
+engagement quality reviewer did not complete the review until April 18, 2012, after the 
+report was filed with the Commission.   
+ 
+ 7. Issuer D: The engagement quality review was completed after Kan & 
+Co.'s audit report for Issuer D's fiscal year 2010 was filed with the Commission.  Kan's 
+audit report was dated April 15, 2011.  That same day Issuer D filed its 2010 Form 10-K, 
+including the audit report.  But the engagement quality reviewer did not perform the 
+review until May 16, 2011, a month after the report was filed with the Commission. 
+ 
+Failure to Perform Appropriate Procedures to  
+Ascertain the Occurrence of Subsequent Events (AU § 560) 
+ 
+8. An independent auditor's report ordinarily is issued in connection with 
+historical financial statements that purport to present the issuer's financial position at a 
+stated date and results of operations and cash flows for a period ended on that date.  
+However, events or transactions sometimes 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 and therefore require adjustment or disclosure in the statements.  
+Failure to ascertain whether a material subsequent event has occurred requiring 
+adjustments to or disclosure in the financial statements may result in the misstatement of 
+the financial statements or misleading disclosure.  PCAOB standards require the 
+independent auditor to perform procedures, at or near the date of the auditor’s report, to 
+evaluate these “subsequent events.”  These procedures generally include:  
+ 
+ Read the latest available interim financial statements; compare them 
+with the financial statements being reported upon; and make any other 
+comparisons considered appropriate in the circumstances. 
+ 
+ Inquire of and discuss with officers and other executives having 
+responsibility for financial and accounting matters as to whether any 
+substantial contingent liabilities or commitments existed at the date of 
+the balance sheet being reported on or at the date of inquiry; whether 
+there was any significant change in the capital stock, long-term debt, 
+or working capital to the date of inquiry; the current status of items, in 
+the financial statements being reported on, that were accounted for on 
+the basis of tentative, preliminary, or inconclusive data; and whether 
+any unusual adjustments had been made during the period from the 
+balance-sheet date to the date of inquiry. 
+ 
+ 6 
+ Read the available minutes of meetings of stockholders, directors, and 
+appropriate committees.  
+ 
+ Inquire of client’s legal counsel concerning litigation, claims, and 
+assessments. 
+ 
+ Obtain a letter of representations, dated as of the date of the auditor’s 
+report, from appropriate officials as to whether any events occurred 
+subsequent to the date of the financial statements being reported on 
+that in the officials’ opinion would require adjustment or disclosure in 
+these statements.   
+ 
+AU § 560, Subsequent Events, at .01, .02 and .12.   
+ 
+9.        Issuer A was required to reissue its financial statements for 2010 and 2011.   
+For each reissuance, Respondents merely reviewed Issuer A’s Form 8-Ks and asked 
+management whether there were any subsequent events.  They failed to: (1) make 
+inquiries of appropriate personnel as to the existence of contingent liabilities, changes in 
+equity, debt or working capital, and whether any unusual adjustments had been made 
+since the date of the auditor’s previous review; (2) request from management and read 
+any minutes of stockholders’ or directors’ meetings that were held since the date of the 
+auditor’s previous review; and (3) obtain a letter of representations, dated as of the date 
+of the auditor’s report, as to whether any events occurred that in the opinion of 
+management would require adjustment or disclosure in the financial statements. 
+ 
+Failure to Properly Document Procedures Relating to the Evaluation  
+of the Adequacy of Disclosure in Financial Statements (AS No. 3) 
+ 
+ 10. AS No. 3 requires that an auditor prepare and retain documentation 
+providing a written record of the basis for the auditor’s conclusions.  This includes 
+documentation of the procedures performed, evidence obtained, and conclusions reached 
+with regard to the relevant financial statement assertions.  AS No. 3, Audit 
+Documentation, at .01 and .06.  
+ 
+ 11. Kan & Co. repeatedly failed to document the work performed with regard 
+to the notes to the financial statements.  Kan’s work papers for the following five 
+engagements do not adequately document such work:  (i) Issuer A -- audit report dated 
+11/19/10 covering fiscal year 2009; (ii) Issuer A -- audit report dated 3/17/11 covering 
+fiscal year 2010; (iii) Issuer C -- audit report dated 4/14/11 covering fiscal years 2009 and 
+2010; (iv) Issuer C -- audit report dated 4/16/12 covering fiscal year 2011; and (v) Issuer 
+D -- audit report dated 4/15/11 covering fiscal years 2009 and 2010.  These work papers 
+provide no evidence that the dollar amounts in the notes were agreed to the books and 
+records of the company or other supporting documents as required by AU § 326.5 6   
+                                                 
+5  PCAOB standards require that the auditor’s substantive procedures must include reconciling the 
+financial statements to the accounting records.  See AU § 326 Evidential Matter at .19.  In addition, the 
+auditor considers the adequacy of disclosure in the financial statements, including the notes to the financial 
+ 7 
+Failure to Prepare an Engagement Completion Document (AS No. 3) 
+ 
+12. PCAOB standards require an auditor to prepare, for each engagement, an 
+engagement completion document which identifies all significant findings or issues.  AS 
+No. 3, Audit Documentation, at .13.  An engagement completion document discusses the 
+significant findings or issues which are substantive matters important to understanding 
+the procedures performed, evidence obtained, or conclusions reached during the audit.  
+See AS No. 3, Audit Documentation, at .12.    
+ 
+13. Issuer B:  No engagement completion document was prepared in 
+connection with the audit of Issuer B’s fiscal year 2010 and 2011 financial statements 
+for which the audit report was dated 12/29/11.       
+ 
+14. Issuer C:  No engagement completion document was prepared for 
+the audit of Issuer C’s fiscal year 2011 financial statements.   
+ 
+15. Issuer D:  Respondents also failed to prepare an engagement completion 
+document in connection with the audit of Issuer D’s fiscal year 2009 and 2010 financial 
+statements for which the audit report was dated 4/15/2011.  Although the work papers 
+included a checklist noting the need for an engagement completion document, there was 
+no engagement completion document in the work papers. 
+ 
+Failure to Obtain Sufficient Evidence to Support the Audit Opinion and 
+Adequately Document the Procedures Performed (AU § 326 and AS  No. 3) 
+ 
+16. AU § 326 requires an auditor to obtain sufficient competent evidential 
+matter to support the opinion expressed in the auditor's report, including evidential matter 
+with respect to management’s assertions of completeness, presentation, and disclosure 
+elements of the financial statements.  AU § 326, Evidential Matter, at .01-.03.   
+  17. Respondents failed to obtain sufficient evidence to support the firm’s audit 
+of Issuer B’s fiscal year 2010 and 2011 financial statements for which the audit report 
+was dated 12/29/2011.  Issuer B was a development stage company that had no recorded 
+revenues since its inception in September 2006, but for fiscal years 2010 and 2011 
+recorded significant operating expenses.  The work papers lacked sufficient evidence to 
+show that expenses for professional fees, travel and promotions, and general and 
+                                                                                                                                                 
+statements.  See AU § 431 Adequacy of Disclosure in Financial Statements.   AU § 431 states: “The 
+presentation of financial statements in conformity with generally accepted accounting principles includes 
+adequate disclosure of material matters. These matters relate to the form, arrangement, and content of the 
+financial statements and their appended notes, including for example, the terminology used, the amount of 
+detail given, the classification of items in the statements, and the bases of the amounts set forth.  An 
+independent auditor considers whether a particular matter should be disclosed in light of the circumstances 
+and facts of which he is aware at the time. ”  AU § 431 at .02. 
+ 
+6  AU § 326 was superseded by AS No. 15, Audit Evidence, effective for fiscal years beginning on or 
+after December 15, 2010.  AU § 431 was superseded by AS No. 14, Evaluating Audit Results, effective for 
+fiscal years beginning on or after December 15, 2010.   
+ 8 
+administrative fees were adequately tested.  These expenses comprised 34% and 31%, 
+respectively, of total operating expenses.   
+18. Additionally, for the audit of Issuer B’s fiscal year 2010 financial 
+statements, Kan & Co. failed to prepare adequate work papers.  The work papers did not 
+include documentation of the procedures performed or the conclusions reached, as 
+required by AS No. 3 at .06.   
+Failure to Properly Plan and Supervise the Audit (AU § 311 and AS No. 10) 
+ 
+19. AU § 311 requires that the work be adequately planned and that assistants, 
+if any, be properly supervised.  AU § 311, Planning and Supervision, at .01.7  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.  
+The work performed by each assistant should be reviewed to determine whether it was 
+adequately performed and to evaluate whether the results are consistent with the 
+conclusions to be presented in the auditor’s report.  AU § 311 at .11 and .13. 
+ 
+20. The vast majority of Kan & Co.’s relevant audit work was performed by a 
+staff member who had no auditing experience at the time he started his employment with 
+Kan in June of 2009.  This staff member reported directly to Kan, who was responsible 
+for the supervision and review of the work.  Kan was required to consider the staff 
+member’s lack of auditing experience and correspondingly increase his supervision and 
+review.  
+ 
+21. Kan failed to properly supervise and review the work performed by his 
+staff.  This failure is evidenced by his not having detected that the audit documentation 
+did not comply with PCAOB standards and that required procedures had not been 
+performed.  In multiple audit engagements Kan’s staff member, and not Kan himself, 
+signed off as having performed the procedures in the checklist relating to determining 
+that the work papers contained adequate documentation and that all required checklists 
+and audit programs had been completed.       
+ 
+22. Issuer A:  Kan failed to properly supervise his staff’s work relating to 
+whether the work performed for the audits of Issuer A for fiscal years 2009 and 2010 was 
+properly documented, and for Issuer A's amended financial statements for fiscal year 
+2010 Kan failed to properly plan the restatement audit to ensure an engagement quality 
+review was performed.   
+ 
+23. Issuer B:  Kan failed to properly supervise his staff to determine whether 
+an engagement completion document was included for the fiscal year 2010 and 2011 
+                                                 
+7  AU § 311 was superseded by AS No. 10, Supervision of the Audit Engagement, which applies to 
+audits of fiscal years beginning on or after December 15, 2010.  AS No. 10 requires the engagement partn er 
+(or other engagement team members performing supervisory activities) to review the work of engagement 
+team members to evaluate whether the work was performed and documented; the objectives of the 
+procedures were achieved; and the results of the work support the conclusions reached.  AS No. 10, 
+Supervision of the Audit Engagement, at .03 and .05.   
+ 9 
+Issuer B audits.  For these audits Kan also failed to detect that there was insufficient 
+evidential matter to support the audit with regard to Issuer B’s operating expenses, and to 
+confirm that his firm completed substantive testing of those expenses.   
+ 
+24. Issuer C:  Kan failed to properly supervise the audits of Issuer C for fiscal 
+years 2009 and 2010 as required by AU § 311, and 2011 as required by AS No. 10 
+relating to whether his staff’s work was properly documented.  Kan also failed to 
+determine whether an engagement completion document was prepared for the fiscal year 
+2011 audit.  When he completed the “Supervision and Review” checklist for that audit, 
+Kan represented that he reviewed the engagement completion document -- but in fact no 
+engagement completion document was prepared.   
+ 
+25. Issuer D: Kan failed to properly supervise his staff’s work relating to 
+whether the work performed for Issuer D’s fiscal year 2009 and 2010 audits was properly 
+documented and failed to determine whether his staff prepared an appropriate 
+engagement completion document.   
+  
+Failure to Obtain Written Management Representations  
+for Reviews of Interim Financial Information (AU § 722) 
+ 
+26. AU § 722 provides that written representations from management should 
+be obtained for all interim financial information presented and for all periods covered by 
+the auditor’s review.  The representations should address, inter alia, financial statements, 
+internal controls, completeness of information, procedures for recognition, measurement 
+and disclosure, and subsequent events.  AU § 722, Interim Financial Information, at .24.   
+ 
+27. Respondents failed to obtain written representations from management in 
+connection with three quarterly reviews: the reviews of Issuer C's interim financial 
+statements for the quarters ended March 31 and June 30, 2011 and the review of Issuer 
+D's interim financial statements for the quarter ended March 31, 2011. 
+    
+     Misrepresentations Regarding Compliance with PCAOB Standards 
+ 
+28. Rule 2-02(b)(1) of Regulation S-X requires that an accountant’s audit 
+report “state whether the audit was made in accordance with generally accepted auditing 
+standards . . . .” 17 C.F.R. 210.2-02(b)(1).  As used in Commission regulations, the 
+phrase “generally accepted auditing standards” includes the standards issued by PCAOB.  
+29. In each of the audit reports at issue, Kan & Co. stated that it had 
+conducted its audits in accordance with PCAOB standards.  Those representations were 
+false. 
+30. Kan was the sole proprietor of Kan & Co.  Kan approved the signing of the 
+firm’s name to the audit reports and their issuance for inclusion in the filings with the 
+Commission as the engagement partner for all but one of the audits at issue.  As a result, 
+Kan too falsely stated that the audits were conducted in accordance with PCAOB 
+standards. 
+ 10 
+E. VIOLATIONS 
+ 
+ 1. Rule 2-02(b)(1) -- Misrepresentations Regarding Compliance:  An 
+auditor violates Rule 2-02(b)(1) of Regulation S-X by issuing a report falsely stating that 
+an audit was conducted in accordance with PCAOB standards.  As a result of the conduct 
+described above, Respondents willfully violated Rule 2-02(b)(1). 
+ 
+2. Rule 102(e)(1)(ii) -- Improper Professional Conduct:  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.  As a result of the conduct described 
+above, Respondents 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. 
+ 
+ 3. Rule 102(e)(1)(iii) -- Violations of Federal Securities Laws:  Rule 
+102(e)(1)(iii) 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 found 
+“[t]o have willfully violated, or willfully aided and abetted the violation of, any provision 
+of the Federal securities laws or the rules and regulations thereunder.”  As a result of the 
+conduct described above, Respondents willfully violated certain provisions of the federal 
+securities laws or rules and regulations thereunder pursuant to Rule 102(e)(1)(iii) of the 
+Commission’s Rules of Practice.   
+  
+F. FINDINGS 
+ 
+1. Based on the foregoing, the Commission finds that Respondents willfully 
+violated Rule 2-02(b)(1) of Regulation S-X. 
+ 
+2. Based on the foregoing, the Commission finds that 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. 
+ 
+ 3. Based on the foregoing, the Commission finds that Respondents willfully 
+violated certain provisions of the federal securities laws or the rules and regulations 
+thereunder pursuant to Section 4C(a)(3) of the Exchange Act and Rule 102(e)(1)(iii) of 
+the Commission’s Rules of Practice.   
+ 11 
+IV. 
+ 
+In view of the foregoing, the Commission deems it appropriate to impose the 
+sanctions agreed to in Respondents’ Offer.   
+ 
+Accordingly, it is hereby ORDERED, effective immediately, that:   
+ 
+1. Respondents shall cease and desist from committing or causing any 
+violations and any future violations of Rule 2-02(b)(1) of Regulation S-X.   
+ 
+ 2. Respondents are denied the privilege of appearing or practicing before the 
+Commission as an accountant.   
+ 
+ 3. After three years from the date of this order, Kan & Co. may request 
+that the Commission consider its reinstatement by submitting an application (attention: 
+Office of the Chief Accountant) to resume appearing or practicing before the 
+Commission as an independent accountant.  Such an application must satisfy the 
+Commission that: 
+ 
+a. Kan & Co. is registered with the PCAOB in accordance with the 
+Sarbanes-Oxley Act of 2002, and such registration continues to be effective.  However 
+if registration with the PCAOB is dependent upon reinstatement by the Commission, 
+the Commission will consider the application on its other merits;  
+  
+b. Kan & Co. has hired an independent CPA consultant 
+ (“consultant”), who is not unacceptable to the staff of the Commission and is 
+affiliated with a public accounting firm registered with the PCAOB, that has 
+conducted a review of Kan & Co.’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 Kan & 
+Co.’s employees will not receive appropriate supervision.  Kan & Co. 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 Kan & Co., or any of its present or former 
+affiliates, directors, officers, employees, or agents acting in their capacity.  The 
+agreement will also provide that the consultant will require that any firm with which 
+he/she is affiliated or of which he/she is a member, and any person engaged to assist 
+the consultant in performance of his/her duties under this Offer shall not, without prior 
+written consent of the staff, enter into any employment, consultant, attorney-client, 
+auditing or other professional relationship with Kan & Co., 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. Kan & Co. has resolved all disciplinary issues with the PCAOB,  
+ 12 
+and has complied with all terms and conditions of any sanctions imposed by the 
+PCAOB (other than reinstatement by the Commission); and 
+ 
+d. Kan & Co. 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.   
+ 
+ 4. Kan & Co. shall pay disgorgement of $40,000 and prejudgment interest of 
+$1,155.26 and a civil money penalty in the amount of $40,000 to the United States 
+Treasury. Kan & Co. shall also pay post-judgment interest in the amount of $264.10.  
+Payment shall be made in the installments noted below.  If any payment is not made by 
+the date the payment is required by this Order, the entire outstanding balance of 
+disgorgement, prejudgment interest, and civil penalties, plus any additional interest 
+accrued pursuant to SEC Rule of Practice 600 or 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:   
+ 
+a.  Kan & Co. 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 
+  
+b.  Kan & Co. 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 Kan & Co. 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.   
+ 
+ 5. Accordingly, Kan & Co. shall make payments in accordance with the 
+following schedule:   
+ 
+(1)       March 1, 2014:  $20,315.19 
+(2)       May 1, 2014:  $20,341.60 
+(3)       August 1, 2014:  $20,368.04 
+(4)       November 1, 2014:  $20,394.53 
+ 
+ 13 
+ 6. After three years from the date of this order, Kan 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:    
+      
+       a. 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 Kan’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 
+      
+  b.    an independent accountant.  Such an application must satisfy 
+the Commission that: 
+      
+           (1) Kan, 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; 
+ 
+   (2) Kan, 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 Kan’s or the firm’s quality control system that would 
+indicate that Kan will not receive appropriate supervision; 
+   (3) Kan 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 
+ 
+   (4) Kan acknowledges his responsibility, as long as Kan 
+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.   
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+      
+ 14 
+7. The Commission will consider an application by Kan 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 Kan’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-3538.txt

@@ -0,0 +1,40 @@
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+      
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 71595 / February 21, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3538 / February 21, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-14171  
+____________________________________ 
+      : 
+In the Matter of    : 
+      : 
+ JAMES M. SCHNEIDER, CPA, :  
+      :  EXTENSION ORDER 
+Respondent.     : 
+____________________________________: 
+ 
+ 
+ The Division of Enforcement (“Division”) and counsel for Respondent James M. 
+Schneider, CPA have submitted an agreed motion for an extension of time for the 
+Division to respond to Respondent Schneider’s February 18, 2014 Motion Under SEC 
+Rules of Practice 154 or in the alternative Application for Modification of Commission 
+Order Imposing Remedial Sanctions Against James M. Schneider.  It appears appropriate 
+to grant the requested extension in this matter.  Therefore,  
+ 
+ It is ORDERED that the time for filing the Division’s response is extended to 
+March 21, 2014 and Respondent’s reply, if any, shall be filed by April 4, 2014.  
+  
+ For the Commission, by its Secretary, pursuant to delegated authority. 
+ 
+ 
+ 
+ 
+       Jill M. Peterson 
+       Assistant Secretary 

raw/aaer/2014/AAER-3539.txt

@@ -0,0 +1,1377 @@
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+                U.S. SECURITIES AND EXCHANGE COMMISSION 
+     Litigation Release No. 22930 / February 21, 2014 
+     Accounting and Auditing Enforcement Release No. 3539 / February 21, 2014 
+      Securities and Exchange Commission v. Christopher Sells and Timothy Murawski , Civil Action No. 4:11-cv-04941-CW (N.D. Cal. filed October 6, 2011) 
+
+     SEC Settles Claims Against Two Former Employees of Hansen Medical, Inc. Relating to Fraudulent Sales Scheme 
+     
+
+     The United States District Court for the Northern District of California has approved settlements resolving claims by the Securities and Exchange Commission against two former sales executives of Hansen Medical, Inc., a Mountain View, California medical equipment company. The SEC's complaint alleged the former sales executives participated in fraudulent sales transactions to inflate the company's reported revenues. 
+
+ 
+The SEC's complaint alleged that Christopher Sells, Hansen Medical's former Vice President of Commercial Operations, and Timothy Murawski, a former Vice President of Sales, took steps to complete improper sales transactions in 2008 and 2009. According to the Complaint, Mr. Sells and Mr. Murawski engaged in a scheme to provide false information to Hansen Medical's finance department, resulting in publicly-disclosed financial statements that reported overstated revenue and sales numbers. 
+
+ 
+Without admitting or denying the allegations, Mr. Sells agreed to pay a civil money penalty of $85,000. The final judgment, entered by the District Court on February 21, 2014, permanently enjoins Mr. Sells from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and Sections 17(a)(1) and 17(a)(3) of the Securities Act of 1933, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. The judgment also prohibits Mr. Sells from acting as an officer or director of a public company under the Exchange Act for five years. 
+
+ 
+Without admitting or denying the allegations, Mr. Murawski agreed to pay a civil money penalty of $35,000. The final judgment, entered by the District Court on November 6, 2013, permanently enjoins Mr. Murawski from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5(a), 10b-5(c), and 13b2-1 thereunder, and Sections 17(a)(1) and 17(a)(3) of the Securities Act, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. 
+For additional information, see Litigation Release No.  22116  and Accounting and Auditing Enforcement Release No. 3326 (October 6, 2011).
+     
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raw/aaer/2014/AAER-3541.txt

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+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 71639 / February 28, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3541 / February 28, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15771 
+______________________________ 
+:  
+In the Matter of   : 
+     : ORDER OF FORTHWITH SUSPENSION 
+PAUL DESJOURDY, CPA, Esq. : PURSUANT TO RULE 102(e)(2) OF THE 
+: COMMISSION’S RULES OF PRACTICE  
+Respondent.   :   
+______________________________: 
+ 
+ I. 
+ 
+The Securities and Exchange Commission deems it appropriate to issue an order of 
+forthwith suspension of Paul Desjourdy pursuant to Rule 102(e)(2) of the Commission’s Rules of 
+Practice [17 C.F.R. § 201.102(e)(2)].
+1  
+ 
+ II. 
+ 
+The Commission finds that:  
+ 
+1. From 1986 to at least 2012, Desjourdy was a certified public accountant licensed 
+in Massachusetts.  
+ 
+2. Desjourdy is an attorney, whom the Commonwealth of Massachusetts admitted to 
+practice law in 1989.   
+ 
+2. On January 16, 2014 , a judgment was entered convicting Desjourdy of one count 
+of mail fraud and one count of conspiracy to commit securities fraud in violation of 18 United 
+States Code Sections 1341 and 371 before the United States District Court for the District of 
+                         
+1  Rule 102(e)(2) provides in pertinent part:  “Any ... person who has been convicted of a felony or a 
+misdemeanor involving moral turpitude shall be forthwith suspended from appearing or practicing before the 
+Commission.”  
+ 
+ 
+ 
+ 
+2 
+ 
+Massachusetts, in United States v. Desjourdy, No. 1:11-CR-10396-JLT.   
+ 
+3. As a result of this conviction, Desjourdy was sentenced to 18 months’ probation, 
+a $200 special assessment, and ordered to forfeit $54,000 as proceeds of his crimes. 
+ 
+III. 
+ 
+In view of the foregoing, the Commission finds that Desjourdy has been convicted of a 
+felony within the meaning of Rule 102(e)(2) of the Commission’s Rules of Practice. 
+ 
+Accordingly, it is ORDERED, that Paul Desjourdy is forthwith suspended from 
+appearing or practicing before the Commission pursuant to Rule 102(e)(2) of the Commission’s  
+Rules of Practice. 
+ 
+By the Commission. 
+ 
+ 
+ 
+Elizabeth M. Murphy 
+Secretary 
+ 
+ 
+ 
+ 
+ 
+ 

raw/aaer/2014/AAER-3542.txt

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+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES ACT OF 1933 
+Release No. 9557 / March 11, 2014 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 71688 / March 11, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3542 / March 11, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15783 
+ 
+ 
+ 
+In the Matter of 
+ 
+Clayton T. Marshall, 
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+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 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 Clayton T. 
+Marshall (“Marshall” or “Respondent”) pursuant to Section 8A of the Securities Act of 1933 
+(“Securities Act”), Sections 4C and 21C of the Securities Exchange Act of 1934 (“Exchange Act”), 
+and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice.
+1   
+ 
+                                                 
+1 Section 4C provides, in relevant part, that:  
+The Commission may . . . 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.  
+ 
+Rule 102(e)(1)(iii) provides, in pertinent part, that: 
+The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before it . . . to 
+any person who is found…to have willfully violated, or willfully aided and abetted the violation of any provision of 
+the Federal securities laws or the rules and regulations thereunder. 
+2 
+ 
+ 
+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 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 and Notice of Hearing (“Order”), as set forth below.    
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds
+2 that  
+ 
+Respondent 
+ 
+ 1. Clayton T. Marshall, age 37, is a resident of Grand Junction, CO.  He 
+joined AgFeed Industries, Inc. in September 2010 as a divisional chief financial officer (“CFO”).  
+He then served as AgFeed’s CFO from July 15, 2011 until August 2012, when he left the 
+company.  Marshall has a bachelor’s degree in accounting and is not a certified public accountant.   
+ 
+Other Relevant Entity 
+ 
+  2. AgFeed Industries, Inc. (“AgFeed” or “the Company”), is a Nevada 
+corporation with its principal place of business in Hendersonville, TN.  At all relevant times, 
+AgFeed was an animal nutrition and hog production company with operations in China and the 
+United States.  On July 15, 2013, AgFeed filed a Chapter 11 bankruptcy petition and is currently in 
+liquidation.  Until February 2012, AgFeed’s common stock was registered with the Commission 
+pursuant to Section 12(g) of the Exchange Act.  At all relevant times, AgFeed’s stock was quoted 
+on The NASDAQ Stock Market LLC, until the company was delisted on March 24, 2012.  
+AgFeed’s stock is currently quoted on OTC Link operated by OTC Markets Group Inc. 
+ 
+ 
+ 
+ 
+                                                 
+2 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any 
+other person or entity in this or any other proceeding.  
+ 
+3 
+ 
+Facts 
+ 
+ 3. From approximately mid-2008 through June 30, 2011, AgFeed’s publicly-
+reported revenues were inflated falsely by approximately $239 million due to actions by former 
+members of AgFeed’s Chinese management including, among other things, inflating revenues by 
+booking sales of non-existent hogs and manipulating hog weights, and later covering it up by, 
+among other things, reporting that the fake hogs had died.   
+ 
+ 4. In September 2010, AgFeed began a plan of expansion by merging with a 
+privately-held U.S. company.  Respondent, who had no prior experience with Commission-
+reporting companies, joined AgFeed as part of the merger.  By approximately early June 2011, 
+Respondent was generally aware that allegations of fraud had been reported regarding operations 
+in the Jiangxi region, one of the five Chinese regions where AgFeed maintained hog farms, and 
+that the Company was investigating the fraud allegations.     
+ 
+  5. In or about mid-June 2011, Respondent, and others, learned of a new report 
+of fraud allegations regarding operations in another AgFeed Chinese region (the Fujian region).  
+Among other things, the report alleged that the Company had recorded false revenues and inflated 
+fixed assets.  Thereafter, Respondent knew or should have known that AgFeed failed to undertake 
+a meaningful investigation regarding the Fujian region fraud allegations.  Further, Respondent 
+knew or should have known that the Company, following a limited review of its fixed assets, was 
+unable to substantiate its fixed asset values.  Further, Respondent learned that information had been 
+discovered relating to the maintenance of two sets of accounting books in the Company’s China 
+operations.  Respondent, even after he was promoted on July 15, 2011 to CFO of the Company, 
+did not ensure that appropriate action was taken to determine whether AgFeed’s current or prior 
+financial statements were accurate.   
+ 
+ 6. On August 2, 2011, AgFeed published its earnings release for the period 
+ended June 30, 2011.  Respondent knew or should have known that AgFeed’s financial 
+statements included therein were false and misleading.    
+ 
+ 7. On August 9, 2011, Respondent signed the Company’s management 
+representation letter to AgFeed’s independent auditor.  The management representation letter 
+was materially false or misleading as it, among other things, failed to disclose the fraud 
+allegations relating to the Fujian region.   
+ 
+  8. On August 9, 2011, AgFeed filed with the Commission the Company’s 
+Form 10-Q for the period ended June 30, 2011 (the “Form 10-Q”), which Respondent signed and 
+certified as CFO.  The Form 10-Q was incorporated into the Company’s active June 2009 Form S-
+3 registration statement.  The Form 10-Q also incorporated by reference the Company’s Form 10-
+K for the period ended December 31, 2010.  Respondent knew or should have known that the 
+Company’s Form 10-Q for the period ended June 30, 2011 was false and misleading.   
+ 
+4 
+ 
+ 9. On December 19, 2011, AgFeed finally disclosed that “financial accounting 
+staff and management based in China engaged in accounting improprieties” and that “the 
+Company’s previously issued unaudited financial statements for the quarters ended March 31 and 
+June 30, 2011, as well as its audited financial statements for the years ended December 31, 2010 
+and 2009, should be restated.  As a result, the Company’s consolidated balance sheets as of March 
+31 and June 30, 2011 and December 31, 2010 and 2009, the Company’s consolidated statements of 
+operations and other comprehensive income (loss) for the quarters ended March 31 and June 30, 
+2011 and the years ended December 31, 2010 and 2009, the Company’s consolidated statements of 
+cash flows for the quarters ended March 31 and June 30, 2011 and the years ended December 31, 
+2010 and 2009 and the footnotes thereto should no longer be relied upon.”  On January 31, 2012, 
+AgFeed further disclosed that due to the “accounting irregularities” in China, “the Company’s 
+audited financial statements for the year ended December 31, 2008 should no longer be relied 
+upon.” 
+ 
+Violations 
+ 
+ 10. Section 17(a)(2) of the Securities Act prohibits any person from obtaining 
+money or property by means of untrue statement of material facts or omissions, in the offer or sale 
+of securities.  Section 17(a)(3) of the Securities Act proscribes “any transaction, practice or course 
+of business which operates or would operate as a fraud or deceit…” in the offer or sale of 
+securities.  A violation of these provisions may be established by a showing of negligence.  Aaron 
+v. SEC, 446 U.S. 680, 697 (1980).   
+  11. Section 13(a) of the Exchange Act and Rule 13a-13 thereunder require 
+issuers of securities registered pursuant to Section 12 of the Exchange Act, such as AgFeed, to file 
+with the Commission accurate quarterly reports.  Rule 12b-20 of the Exchange Act requires that 
+these reports contain such further material information as may be necessary to make the required 
+statements in the reports not misleading.  Section 13(b)(2)(A) of the Exchange Act requires issuers 
+to “make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly 
+reflect the transactions and dispositions of the assets of the issuer.”  Exchange Act Rule 13b2-1 
+prohibits any person from directly or indirectly falsifying, or causing to be falsified, any book or 
+record subject to Section 13(b)(2)(A).  Section 13(b)(2)(B) of the Exchange Act requires reporting 
+companies to devise and maintain an adequate system of internal accounting controls.  Rule 13b2-2 
+of the Exchange Act prohibits officers and directors from, directly or indirectly, making or causing 
+to be made materially false or misleading statements or omissions to accountants in connection 
+with an audit or preparation of reports to be filed with the Commission.  Rule 13a-14 of the 
+Exchange Act requires that the principal executive and financial officers certify each periodic 
+report containing financial statements filed by an issuer pursuant to Section 13(a) of the Exchange 
+Act.
+3   
+ 
+                                                 
+3 Under Section 302 of the Sarbanes-Oxley Act of 2002, the principal executive and financial officers are required to 
+certify, among other things, that:  (1) they reviewed annual and quarterly reports; (2) based upon their knowledge, 
+the report does not omit or misstate a material fact; and (3) they had disclosed any fraud, whether or not material, 
+involving management to the audit committee and the auditors. 
+5 
+ 
+  12. As a result of the conduct described above, Marshall willfully4 violated 
+Sections 17(a)(2) and 17(a)(3) of the Securities Act, and Rules 13a-14, 13b2-1 and 13b2-2 under 
+the Exchange Act, and was a cause of AgFeed’s violations of Sections 13(a), 13(b)(2)(A) and 
+13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder. 
+  
+IV. 
+ 
+  13. Pursuant to this Order, Respondent agrees to additional proceedings in this 
+proceeding to determine what, if any, civil penalties pursuant to Section 8A(g) of the Securities 
+Act and Section 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 federal securities laws described in this Order; (b) 
+Respondent agrees that he may not challenge the validity of this Order; (c) solely for the 
+purposes of such additional proceedings, the allegations of the 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 affidavits, declarations, excerpts of sworn deposition 
+or investigative testimony, and documentary evidence. 
+ 
+V. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Marshall’s Offer. 
+ 
+ Accordingly, pursuant to Section 8A of the Securities Act, Sections 4C and 21C of the 
+Exchange Act, and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice it is hereby 
+ORDERED that: 
+ 
+A. Respondent Marshall shall cease and desist from committing or causing any 
+violations and any future violations of Section 17(a) of the Securities Act, Sections 13(a), 
+13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 13a-13, 13a-14, 13b2-1, 13b2-2 and 
+12b-20 promulgated thereunder. 
+ 
+B. Respondent Marshall is denied the privilege of appearing or practicing before the 
+Commission as an accountant.   
+ 
+ C. After five years from the date of this order, Respondent may request that the 
+Commission consider his reinstatement by submitting an application (attention: Office of the 
+Chief Accountant) to resume appearing or practicing before the Commission as an accountant.  
+ 
+                                                 
+4 A willful violation of the securities laws means merely “‘that the person charged with the duty knows what he is 
+doing.’” Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. 
+Cir. 1949)).   
+ 
+6 
+ 
+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 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(s) in Securities and Exchange Commission v. AgFeed Industries, Inc., et al. (M.D. TN) 
+(the “Related Actions”). 
+If Marshall fails to appear at a hearing after being duly notified, Marshall 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 Marshall personally or by certified mail. 
+E.  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 120 days from the 
+date of the entry of a final judgment in the Related Actions. 
+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. 
+ 
+ 
+ 
+       Jill M. Peterson 
+       Assistant  Secretary 
+ 

raw/aaer/2014/AAER-3543.txt

@@ -0,0 +1,135 @@
+ 
+ 
+1 
+ 
+UNITED STATES OF AMERICA 
+before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 71761 / March 20, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3543 / March 20, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15659 
+ 
+ 
+In the Matter of 
+ 
+ THOMAS D. MELVIN, CPA 
+  
+ 
+ORDER DENYING PETITION 
+TO LIFT TEMPORARY SUSPENSION 
+AND DIRECTING HEARING 
+ 
+ 
+On December 20, 2013, we issued an order instituting proceedings against Thomas D. 
+Melvin pursuant to Commission Rule of Practice 102(e)(3)
+1 that temporarily suspended him 
+from appearing or practicing before the Commission based on his having been enjoined from 
+violations of antifraud provisions of the securities laws.2  Melvin petitions now that we lift that 
+suspension. 3  As discussed below, we deny Melvin's request to lift the temporary suspension and 
+set the matter down for a hearing before an administrative law judge. 
+                                                           
+1 Rule of Practice 102(e)(3)(i), 17 C.F.R. § 201.102(e)(3)(i), provides, in part, that 
+The Commission, with due regard to the public interest and without preliminary hearing, 
+may, by order, temporarily suspend from appearing or practicing before it any attorney, 
+accountant, engineer, or other professional or expert who has been by name: 
+(A)  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 Thomas D. Melvin, Exchange Act Release No. 71161, 2013 WL 6705182 (Dec. 20, 
+2013). 
+3  Because it contains an explicit request to lift the temporary suspension, we deem the 
+document styled "Entry of Appearance and Request for Hearing" a petition to lift the temporary 
+suspension pursuant to Rule 102(e)(3)(ii).  
+ 
+ 
+2 
+ 
+The Order Instituting Proceedings in this matter alleges that Melvin is a certified public 
+accountant and a partner in the accounting firm of Melvin, Rooks and Howell in Griffin, 
+Georgia.4  On August 14, 2013, the U.S. District Court for the Northern District of Georgia 
+entered a final judgment against Melvin, permanently enjoining him from future violations of 
+Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.5  The 
+Commission's complaint, which forms the basis for the district court's injunction, alleges that 
+Melvin and others were engaged in a fraudulent insider trading scheme.  According to the 
+complaint, Melvin misappropriated confidential information from one of his clients about an 
+upcoming merger involving a company of which the client was director.
+6  With this information, 
+the complaint alleges, Melvin tipped four friends and business associates about the merger in 
+violation of his fiduciary duties to his client, and the tippees then purchased shares of the target 
+company and realized large profits.
+7 
+In instituting these disciplinary proceedings, we found it "appropriate and in the public 
+interest" that Melvin be temporarily suspended from appearing or practicing before the 
+Commission based on the district court's final judgment.  We stated that the temporary 
+suspension would become permanent unless Melvin filed a petition challenging it within thirty 
+days of service of the order, pursuant to Rule 102(e)(3)(ii).  We further advised that, pursuant to 
+Rule 102(e)(3)(iii), upon receipt of such a petition, we would either lift the temporary 
+suspension, set the matter down for hearing, or both. 
+In his petition, Melvin requests that the temporary suspension be lifted, arguing that (i) 
+the suspension order was "untimely under the Commission's Rules of Practice," and (ii) the 
+Commission, "in conjunction with the negotiation of a settlement in corresponding civil 
+enforcement proceedings," entered into a "binding agreement" with Melvin that he "would not be 
+suspended in excess of the three years." 
+In its opposition to Melvin's petition, the Division of Enforcement contends that the 
+December 20, 2013 suspension order was timely because it was issued within 90 days of the 
+expiration of Melvin's time to appeal the district court's judgment.
+8  The Division further 
+                                                           
+4 Melvin, 2013 WL 6705182, at *1. 
+5  SEC v. Thomas D. Melvin, Jr., No. 1:12-cv-2984 (N.D. Ga. Aug. 14, 2013). 
+6  Complaint for Injunctive Relief at 2-3, SEC v. Thomas D. Melvin, Jr., No. 1:12-cv-2984 
+(N.D. Ga. Aug. 28, 2012), available at http://www.sec.gov/litigation/complaints/2012/ 
+comp22468.pdf. 
+7  Id. at 3. 
+8  Rule 102(e)(3), 17 C.F.R. § 201.102(e)(3), provides, "No order of temporary suspension 
+shall be entered by the Commission . . . more than 90 days after the date on which the final 
+judgment or order entered in a judicial or administrative proceeding became effective, whether 
+upon completion of review or appeal or because further review or appeal procedures are no 
+longer available."   
+ 
+ 
+3 
+ 
+contends that it made no such agreement with Melvin regarding the length of his suspension, and 
+that such an agreement is inconsistent with the terms of the consent Melvin executed in 
+conjunction with the settlement of the underlying case. 
+Rule 102(e)(3)(i)(a) permits the Commission to suspend any accountant or other 
+professional or expert who has been "[p]ermanently enjoined . . . from violating . . . any 
+provision of the Federal securities laws or of the rules and regulations thereunder."9  At this 
+stage, it appears that the injunction issued against Melvin, based on alleged securities fraud 
+violations, "justif[ies] the continuance of his suspension until it can be determined what, if any, 
+action may be appropriate to protect the Commission’s processes."10  We therefore believe it is 
+in the public interest to deny Melvin's request to lift the suspension.11  We will set the matter 
+down for a hearing before an administrative law judge, as provided in Rule 102(e)(3)(iii).12  We 
+express no opinion as to the merits of Melvin's claims. 
+Accordingly, IT IS ORDERED that the petition of Thomas D. Melvin to lift the 
+temporary suspension entered on December 20, 2013, is denied and the suspension will remain 
+in effect pending a hearing and decision in this matter; it is further 
+ORDERED that this proceeding be set down for public hearing before an administrative 
+law judge in accordance with Rule of Practice 110.  As specified in Rule of Practice 
+102(e)(3)(iii), the hearing in this matter shall be expedited in accordance with Rule of Practice 
+500; and it is further 
+ORDERED that the administrative law judge shall issue an initial decision no later than 
+210 days from the date of service of this order. 
+By the Commission. 
+ 
+                     Jill M. Peterson 
+       Assistant Secretary 
+                                                           
+9 17 C.F.R. § 201.102(e)(3)(i)(a). 
+10 Williams D. Shovers, Exchange Act Release No. 59874, 2009 WL 1271170, at *2 (May 
+6, 2009). 
+11  Cf. Virginia K. Sourlis, Exchange Act Release No. 69358, 2013 WL 1453371, at *2 (Apr. 
+10, 2013) (denying request by an attorney to lift a Rule 102(e)(3) temporary suspension because 
+"[c]ontinuing [petitioner's] temporary suspension pending a hearing on the issues raised in [the] 
+petition serves the public interest and protects the Commission's processes"); Stewart A. Merkin, 
+Exchange Act Release No. 68981, 2013 WL 661621, at * 2 (Feb. 25, 2013) (same). 
+12 17 C.F.R. § 201.102(e)(3)(iii). 

raw/aaer/2014/AAER-3545.txt

@@ -0,0 +1,394 @@
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES ACT OF 1933 
+Release No. 9565 / March 27, 2014 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 71823 / March 27, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3545 / March 27, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15815 
+ 
+ 
+In the Matter of 
+ 
+L&L ENERGY, INC.  
+and DICKSON LEE, CPA   
+ 
+Respondents. 
+ 
+ 
+ORDER INSTITUTING ADMINISTRATIVE 
+AND CEASE-AND-DESIST PROCEEDINGS 
+PURSUANT TO SECTION 8A OF THE 
+SECURITIES ACT OF 1933 AND 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 and in the 
+public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
+instituted pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”) and Sections 4C 
+and 21C of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 102(e) of the 
+Commission’s Rules of Practice against Dickson Lee, and cease-and-desist proceedings be, and 
+hereby are, instituted pursuant to Section 8A of the Securities Act and Section 21C against L&L 
+Energy, Inc. 
+ 
+II. 
+ 
+ After an investigation, the Division of Enforcement alleges that: 
+ 
+ 
+ 2 
+SUMMARY 
+ 
+ This action arises out of a fraudulent scheme by L&L Energy and Dickson Lee to create the 
+appearance that L&L was run by a professional management team and conceal Lee’s single-handed 
+control of the company.  L&L Energy is a Seattle-headquartered coal company with all of its 
+operations in China and Taiwan.  At all relevant times, it was led by Dickson Lee, its current 
+Chairman of the Board and Chief Executive Officer.  From approximately August 2008 to June 
+2009, L&L and Lee repeatedly and fraudulently misrepresented to the public that it had certain 
+persons serving in critical executive management roles at the company when, in reality, those 
+persons served in no such roles. 
+   
+ First, in its Form 10-K for the fiscal year 2008, L&L falsely represented that Lee’s brother 
+served as the company’s CEO when, in reality, Lee served in that role and ran the day to day 
+operations of the company.  In that same filing, L&L represented that a former company employee 
+(“the purported Acting CFO”) had served as the company’s Acting Chief Financial Officer when, in 
+reality, the purported Acting CFO had emailed Lee a month prior to the 2008 Form 10-K and 
+rejected the Acting CFO position.  In the company’s next three quarterly report filings for 2009, 
+L&L and Lee continued to misrepresent that the purported Acting CFO was in fact the company’s 
+Acting CFO.  For example, L&L’s public filings contained certifications required under the 
+Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley) that ostensibly bore the purported Acting CFO’s 
+electronic signature when, in reality, the purported Acting CFO had not signed any L&L public 
+filings during this period; did not provide authorization for her signature to be placed on any L&L 
+public filings; and did not perform any of the reviews necessary to have a basis for any of the 
+attestations contained on the Sarbanes-Oxley certifications.  
+  
+ In approximately May 2009, the purported Acting CFO learned that L&L had been falsely 
+representing her as the company’s Acting CFO and confronted Lee and the chair of L&L’s Audit 
+Committee.  In response, Lee separately admitted to the purported Acting CFO and the Audit 
+Committee Chair that the purported Acting CFO had not performed the duties of L&L’s Acting 
+CFO, and then directed the Audit Committee Chair to conceal this fact from both the company’s 
+Board and the public.  Lee maintained his fraudulent scheme by continuing to falsely represent to 
+L&L’s Board of Directors that the purported Acting CFO had served as the Acting CFO.  Lastly, 
+during the fall of 2009, in connection with an application for L&L to gain listing on NASDAQ, Lee 
+misled NASDAQ by informing it that the company had made all of the required Sarbanes-Oxley 
+certifications – including during the period of the purported Acting CFO’s ostensible service.  As a 
+result, L&L became listed on the NASDAQ.  
+ 
+RESPONDENTS 
+ 
+1. L&L is a Seattle, Washington headquartered coal company with all of its operations 
+in China and Taiwan.  The company became public through a reverse merger in August 2001. 
+L&L’s common stock is registered with the Commission pursuant to Exchange Act Section 12(b), 
+and its stock is currently listed on NASDAQ. 
+2. Dickson Lee, age 65, is the company’s founder and has been L&L’s Chairman of 
+the Board and Chief Executive Officer since August 2008.  Lee previously served as CEO from 
+ 3 
+1995 through July 2007 and Chairman at various periods.  He previously held CPA licenses in 
+Washington and New York (both licenses have lapsed, with the Washington license lapsing in June 
+2012) and previously audited public companies.  Lee obtained his Series 7 license in 1998 and his 
+Series 24 and 27 licenses in 2000.  Lee was an associated person with a number of broker dealers 
+until about 2005. 
+      FACTS 
+A. The Purported Acting CFO Rejects Acting CFO Position  
+ 
+3. In August 2007, L&L publicly announced that Lee had resigned his position as 
+L&L’s Chairman of the Board and CEO.   Lee resigned those positions shortly after he was 
+disciplined by the National Association of Securities Dealers, Inc. (“NASD”) and received a one-
+year suspension for conducting private placement offerings of L&L securities in which the private 
+placement memoranda contained false statements.  Lee believed that, if he was an L&L officer, his 
+suspension would impede L&L from becoming listed on a stock exchange. 
+4. At that time, Lee installed his brother as the CEO of L&L (hereinafter “Lee’s 
+brother”).  During the one-year period (August 2007 – August 2008) in which Lee’s brother held 
+the title of L&L’s CEO, however, Lee continued to run the company as he had when he held the 
+title of CEO.  
+5. In January 2008, L&L’s stock became quoted on the Over-The-Counter Bulletin 
+Board (“OTCBB”).  In order to gain listing on a larger trading venue, such as NASDAQ, Lee 
+sought to hire a Chief Financial Officer (“CFO”). 
+6. L&L hired a CFO in February 2008, but within two months that person resigned.  
+As L&L sought a replacement CFO, Lee proposed the name of a former employee and L&L 
+director (hereinafter, “the purported Acting CFO”) as a candidate for L&L’s Acting CFO position.  
+7. In approximately June 2008, Lee, on L&L’s behalf, engaged a U.S.-based placement 
+agent (the “placement agent”) to assist L&L in raising money from investors.  This placement agent 
+encouraged L&L to hire a CFO.  In a June 18, 2008 email, Lee referred to the purported Acting 
+CFO as a member of the management team that had been requested by the placement agent.  In 
+another June 2008 email, Lee wrote that the purported Acting CFO could become L&L’s Acting 
+CFO in order to meet the placement agent’s “requirement.” 
+8. On June 23, 2008, members of L&L’s board and Lee held a meeting.  At that 
+meeting, Lee communicated that the purported Acting CFO would be appointed as the company’s 
+Acting CFO because the placement agent “suggested that L&L needs to have [an] Acting CFO (a 
+Non-Officer position) as one of the conditions to move L&L’s funding forward.” 
+9. On that same day, at Lee’s instruction, Lee’s assistant sent the purported Acting 
+CFO an email thanking her for becoming L&L’s Acting CFO.  The purported Acting CFO, 
+however, had never accepted the Acting CFO position. 
+ 4 
+10. On July 14, 2008, the purported Acting CFO forwarded to Lee the June 23, 2008 
+email she received from his assistant regarding the Acting CFO position and informed Lee that she 
+was “unable to become L&L Acting CFO as I don’t have time to make any contribution to L&L.  I 
+need to take care of my own job and my kids as well . . . I wish you could find a more suitable CFO 
+soon.” 
+B. L&L Falsely Represents Lee’s Brother and the Purported Acting CFO as the 
+Company’s CEO and Acting CFO 
+ 
+11. On August 12, 2008, L&L filed its Form 10-K with the Commission for its fiscal 
+year ended April 30, 2008 (the “2008 Form 10-K”).  Lee reviewed the filing before it was made 
+public. 
+12. L&L, in its 2008 Form 10-K, falsely represented that Lee’s brother had performed 
+the functions of the company’s CEO when, in reality, Lee continued to perform the functions of the 
+company’s CEO. 
+13.  Moreover, in that same filing, L&L reported for the first time that the purported 
+Acting CFO had been named as the company’s Acting CFO, disclosing that “she is a CPA with 
+experience of both U.S. and China accounting practices.  She was a senior auditing manager for a 
+New York CPA firm with PCAOB qualification, and conducted US GAAP audits for US public 
+listed companies.”  These representations were false because the purported Acting CFO had 
+rejected the Acting CFO position. 
+14. L&L’s 2008 Form 10-K contained certifications required under Sarbanes-Oxley for 
+the company’s principal executive officer and principal financial officer, namely, its CEO and CFO.  
+These certifications contained the electronic signatures of both Lee’s brother and the purported 
+Acting CFO by which each of them attested to, among other things, the fact that the 2008 Form 10-
+K contained no untrue statements of material fact.  
+15. Neither Lee’s brother nor the purported Acting CFO, however, provided any such 
+attestation and neither Lee’s brother nor the purported Acting CFO provided any authorization to 
+have their electronic signatures placed on their respective Sarbanes-Oxley certifications.  
+16. L&L, in its 2008 Form 10-K, also falsely represented that it had – with the 
+participation of its CEO (Lee’s brother) and CFO (the purported Acting CFO) – evaluated the 
+effectiveness of the design and operation of its disclosure controls and procedures, and based on 
+such evaluation, the company, its CEO (Lee’s brother), and CFO (the purported Acting CFO) 
+concluded that the disclosure controls and procedures were effective. 
+ 
+C. L&L and Lee Continue their Scheme to Falsely Represent the Purported Acting CFO 
+as the Acting CFO  
+ 
+17. On August 25, 2008, after his one-year NASD suspension was over, Lee officially 
+returned to the position of L&L’s CEO and Chairman of the Board. 
+ 5 
+18. On September 15, 2008, L&L filed with the Commission its Form 10-Q for the 
+period ended July 31, 2009 (the “First Quarter 2009 Form 10-Q”).  Lee signed the filing.  Like the 
+2008 Form 10-K, the First Quarter 2009 Form 10-Q contained a Sarbanes-Oxley certification that 
+was ostensibly electronically signed by the purported Acting CFO.  Moreover, the First Quarter 
+2009 Form 10-K also contained the representation that the CEO (Lee) and the purported Acting 
+CFO had evaluated the effectiveness of the design and operation of the company’s disclosure 
+controls and procedures and those controls and procedures were effective. 
+19. The purported Acting CFO, however, did not serve as the company’s Acting CFO in 
+any capacity; did not authorize her electronic signature to be placed on the Sarbanes-Oxley 
+certifications; did not perform any of the reviews or functions enumerated on the Sarbanes-Oxley 
+certifications; and did not evaluate the effectiveness of the company’s disclosure controls and 
+procedures. 
+20. The First Quarter 2009 Form 10-Q also contained a Sarbanes-Oxley certification for 
+Lee.  In his Sarbanes-Oxley certification, Lee falsely certified that, to his knowledge, L&L’s First 
+Quarter 2009 Form 10-Q contained no untrue statements of material fact.  
+21. In approximately December 2008, L&L retained a U.S.-based investment research 
+firm to write a research report concerning L&L.  In late December 2008, the research firm emailed 
+Lee a draft research report for his review.  The research report contained a prominent section on 
+L&L’s management team, listed the purported Acting CFO as the company’s CFO and stated that 
+the purported Acting CFO “coordinates all accounting for L&L.”  Lee sent a revised version of the 
+research report to the research firm with some “minor changes,” but did not correct the false 
+statements regarding the purported Acting CFO.  This report was published in approximately April 
+2009 and included the false statements regarding the role of the purported Acting CFO. 
+22. On December 22, 2008, L&L filed with the Commission its Form 10-Q for the 
+period ended October 31, 2008, and on March 23, 2009, L&L filed with the Commission its Form 
+10-Q for the period ended January 31, 2009.  Lee signed both of these filings.  These two public 
+filings again contained false, electronically signed, Sarbanes-Oxley certifications by the purported 
+Acting CFO.  Moreover, these two filings contained the false statements concerning the purported 
+Acting CFO’s evaluation of the effectiveness of the company’s disclosure controls and procedures. 
+23. These two public filings also contained Lee’s own Sarbanes-Oxley certification in 
+which he again falsely certified that, to his knowledge, the Form 10-Qs contained no untrue 
+statements of material fact.  
+24. As noted above, L&L placed electronic signatures on the public filings to reflect that 
+the purported Acting CFO had signed the requisite Sarbanes-Oxley certifications.  The Commission 
+staff requested from L&L, but never received, the actual signature pages bearing the purported 
+Acting CFO’s signature for each of the requisite Sarbanes-Oxley certifications. 
+25. On August 12, 2009, L&L filed its 2009 Form 10-K, which contained Lee’s 
+Sarbanes-Oxley certification that, based on his and the CFO’s most recent evaluation of the 
+company’s internal control over financial reporting, all fraud involving management had been 
+ 6 
+disclosed to the company’s auditors and to the company’s Audit Committee.  This certification was 
+false because Lee had not disclosed to the company’s external auditors or the company’s entire 
+Audit Committee that the purported Acting CFO was misrepresented in L&L’s previous filings as 
+its Acting CFO. 
+D. Lee Admits to Purported Acting CFO that She Did Not Perform the Work of the 
+Acting CFO 
+ 
+26. In approximately May 2009, the purported Acting CFO became aware that L&L had 
+falsely represented her as the company’s Acting CFO in the company’s public filings and, on May 
+6, 2009, sent Lee an email that included her July 14, 2008 email in which she rejected the Acting 
+CFO position.  In the email, the purported Acting CFO wrote that she “clearly indicated that [she] 
+would not accept the offer of being the Acting CFO of L&L,” and asked Lee for an immediate 
+explanation. 
+27. On May 13, 2009, Lee emailed the purported Acting CFO and wrote, “[t]here is a 
+misunderstanding of the Acting CFO role . . .   Based on your input, your name is removed to please 
+you.”  The purported Acting CFO replied that – just because she and Lee had known each other for 
+ten years – it did not mean “that you could use my name, without authorisation, to the file 10K to 
+the U.S. SEC.”  In response, on May 19, 2009, Lee emailed the purported Acting CFO and 
+separately admitted, “[y]ou did not actually conduct the work as Acting [CFO].”  
+E. Lee Admits to L&L’s Audit Committee Chair That Purported Acting CFO Did Not 
+Serve as Acting CFO 
+ 
+28. On May 21, 2009, the purported Acting CFO emailed Shirley Kiang, who was then 
+the Chair of L&L’s Audit Committee and member of its Board of Directors.  In the email, the 
+purported Acting CFO told Kiang that she had a “serious and urgent” matter related to L&L’s 
+public information made without her knowledge and asked Kiang to investigate. 
+29. Kiang subsequently contacted Lee and asked whether the purported Acting CFO had 
+actually served as the company’s Acting CFO.  Lee initially informed Kiang that the purported 
+Acting CFO had served as the company’s Acting CFO and was making false allegations in an 
+attempt to obtain money from the company. 
+30. Kiang asked Lee for evidence to support his assertion that the purported Acting CFO 
+had served as the company’s Acting CFO.  In response, Lee provided Kiang with a letter that 
+appeared to be addressed to the purported Acting CFO, dated May 28, 2008, and purported to be 
+signed by Lee’s brother as the company’s CEO.  The letter asked the purported Acting CFO to 
+confirm that she had agreed to accept the Acting CFO position and stated that if the company did 
+not receive a response to the letter within ten days, the company would treat her lack of response as 
+her acceptance of the position. 
+31. This letter, however, was not created on May 28, 2008; was not signed by Lee’s 
+brother; and was never sent to the purported Acting CFO.  Rather, this letter was created on May 26, 
+ 7 
+2009 – almost one year after the purported Acting CFO had rejected the Acting CFO position – and 
+was stored in Lee’s L&L computer network folder.  
+32. On June 4, 2009 – after receiving no response from Kiang – the purported Acting 
+CFO emailed Kiang again.  The purported Acting CFO again asked Kiang to investigate her 
+allegations, specifically that she was misrepresented in L&L’s filings as the company’s Acting 
+CFO, and included her July 14, 2008 email to Dickson Lee rejecting the Acting CFO position. 
+33. After receiving the June 4 email, Kiang again asked Dickson Lee for an explanation.  
+Lee then admitted to Kiang that the purported Acting CFO had not actually served as the company’s 
+Acting CFO and that he had used the purported Acting CFO’s name on L&L’s public filings 
+without the purported Acting CFO’s permission.   Lee directed Kiang to not disclose this 
+information to anyone, including the company’s Board of Directors or the public, and told her that if 
+this information became publicly known, L&L’s stock price would drop. 
+34. After this, Lee continued to falsely represent to the company’s Board of Directors 
+that the purported Acting CFO had served as the company’s Acting CFO. 
+35. During the nearly one-year period in which the purported Acting CFO was falsely 
+represented as the company’s Acting CFO, L&L raised approximately $750,000 from investors 
+using stock purchase agreements in which L&L expressly attested to the accuracy of its public 
+filings and private placement documents that referred the investor to publicly available additional 
+information about the company. 
+F. L&L Makes Materially False and Misleading Statements on NASDAQ Application to 
+Gain NASDAQ Listing 
+ 
+36. In approximately September 2009, L&L completed an application to become listed 
+on the NASDAQ.  As part of the application process, NASDAQ requested a variety of information, 
+including confirmation that the company had made all of the required Sarbanes-Oxley certifications. 
+37. L&L, in a communication from Lee, confirmed that the company had made all of 
+the required Sarbanes-Oxley certifications.  L&L misled NASDAQ in this communication because 
+it did not inform NASDAQ that its required CFO Sarbanes-Oxley certifications for its 2008 Form 
+10-K or its three 2009 Form 10-Qs were false.  As a result, L&L gained listing on NASDAQ in 
+February 2010.  
+ 
+     VIOLATIONS 
+38. By engaging in the conduct described above, L&L violated – and Lee willfully 
+violated – Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibits fraudulent 
+conduct in connection with the purchase or sale of securities.  Also, by engaging in the conduct 
+described above, Lee willfully aided and abetted and caused L&L’s violations of Section 10(b) of 
+the Exchange Act and Rule 10b-5(b) thereunder. 
+ 8 
+39. By engaging in the conduct described above, L&L violated – and Lee willfully 
+violated – Section 17(a) of the Securities Act, which prohibits fraudulent conduct in the offer or sale 
+of securities.   
+40. By engaging in the conduct described above, L&L violated – and Lee willfully aided 
+and abetted and caused violations of – Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-
+13 thereunder, which require issuers of registered securities to file factually accurate annual and 
+quarterly reports.  Also, L&L violated – and Lee willfully aided and abetted and caused violations 
+of – Rule 12b-20 of the Exchange Act, which requires the addition to such reports of further 
+material information necessary to make the required report statements not misleading. 
+41. By engaging in the conduct described above, L&L violated – and Lee willfully 
+violated, and willfully aided and abetted and caused violations of – Rule 13a-14 of the Exchange 
+Act, which requires, among other things, that principal executive and financial officers certify that 
+based on their knowledge, the issuer’s financial statements are accurate, and that, based on the 
+principal executive and financial officer’s most recent evaluation of the company’s internal control 
+over financial reporting, they have disclosed all fraud, whether or not material, involving 
+management to the company’s auditors and Audit Committee. 
+42. By engaging in the conduct described above, L&L violated – and Lee willfully aided 
+and abetted and caused violations of – Rule 13a-15 of the Exchange Act, which requires each 
+issuer’s management, with the participation of the company’s principal executive officer and 
+principal accounting officer, or persons performing similar functions, to evaluate the effectiveness 
+of the company’s disclosure controls and procedures on a quarterly basis. 
+43. By engaging in the conduct described above, L&L violated – and Lee willfully aided 
+and abetted and caused violations of – Section 302 of Regulation S-T of the Exchange Act, which 
+requires that (i) a signatory to an electronic filing actually sign the signature page before or at the 
+time of the electronic filing; (ii) the filer retain the original executed document for five years; and 
+(iii) that the filer provide the Commission staff with a copy of the document upon request. 
+III. 
+ In view of the allegations made by the Division of Enforcement, the Commi ssion deems 
+it necessary and in the public interest that public administrative and cease-and-desist proceedings 
+against Lee, and public cease-and-desist proceedings against L&L, 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. What, if any, remedial action is appropriate in the public interest against L&L, 
+including, but not limited to, disgorgement and civil penalties pursuant to Section 
+21B of the Exchange Act and Section 8A of the Securities Act; 
+ 9 
+C. What, if any, remedial action is appropriate in the public interest against Lee, 
+including, but not limited to, disgorgement and civil penalties pursuant to Section 
+21B of the Exchange Act and Section 8A of the Securities Act; 
+D. What, if any, remedial action is appropriate in the public interest against Lee, 
+including, but not limited to, a permanent officer and director bar pursuant to Section 
+21C(f) of the Exchange Act and Section 20(e) of the Securities Act;   
+E. What, if any, remedial action is appropriate in the public interest against Lee, 
+including, but not limited to, being permanently denied the privilege of appearing or 
+practicing before the Commission pursuant to Section 4C of the Exchange Act and 
+Rule 102(e) of the Commission’s Rules of Practice;   
+F. Whether, pursuant to Section 8A of the Securities Act and Section 21C of the 
+Exchange Act, L&L should be ordered to cease and desist from committing or 
+causing violations of and any future violations of Section 17(a) of the Securities Act 
+Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Section 13(a) of 
+the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, Exchange Act 
+Rules 13a-14 and 13a-15, and Section 302(b) of Regulation S-T of the Exchange Act; 
+and 
+G. Whether, pursuant to Section 8A of the Securities Act and Section 21C of the 
+Exchange Act, Lee should be ordered to cease and desist from committing or causing 
+violations of and any future violations of Section 17(a) of the Securities Act, Section 
+10(b) of the Exchange Act and Rule 10b-5 thereunder and Section 13(a) of the 
+Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, Exchange Act Rules 
+13a-14, and 13a-15, and Section 302(b) of Regulation S-T of the Exchange Act. 
+IV. 
+ 
+IT IS ORDERED that a public hearing for the purpose 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 L&L and Lee shall file Answers 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. 
+  
+If Respondents fail to file the directed answer, or fail to appear at a hearing after being 
+duly notified, the Respondents may be deemed in default and the proceedings may be determined 
+against them 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. 
+  
+ 10 
+This Order shall be served forthwith upon Respondents personally or by certified mail.  
+ 
+IT IS FURTHER ORDERED that the Administrative Law Judge shall issue an initial 
+decision no later than 300 days from the date of service of this Order, pursuant to Rule 360(a)(2) 
+of the Commission’s Rules of Practice. 
+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. 
+ 
+ 
+       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. 71824 / March 27, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3546 / March 27, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15816 
+ 
+ 
+In the Matter of 
+ 
+SHIRLEY KIANG   
+ 
+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 Shirley Kiang (“Respondent”).   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over her and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings 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 finds
+1 that: 
+ 
+Summary 
+ 
+ From August 2008 to approximately June 2009, L&L Energy, Inc. (L&L), a Seattle-
+headquartered coal company with all of its operations in China – led by its Chairman of the Board 
+and Chief Executive Officer, Dickson Lee – misrepresented in public filings with the Commission 
+that a person served as the company’s Acting Chief Financial Officer when, in reality, she never did 
+(hereinafter, the “purported Acting CFO”).  In May 2009, the purported Acting CFO became aware 
+that L&L had falsely represented her as the company’s actual Acting CFO and asked Shirley Kiang, 
+who was then the company’s Audit Committee Chair and a Director, to investigate.  Kiang 
+approached Lee regarding the purported Acting CFO’s allegations, and he told Kiang that the 
+purported Acting CFO had never served as the company’s actual Acting CFO and to not share this 
+information with anyone, including the company’s Board of Directors and the public.  In August 
+2009, L&L filed its Form 10-K for the 2009 fiscal year, and it included a false certification required 
+under the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) that – based on Lee’s and the other 
+certifying officer’s most recent evaluation of the company’s internal control over financial reporting 
+– any fraud, whether or not material, involving management had been disclosed to the company’s 
+auditors and the company’s Audit Committee.  Kiang signed this public filing as a Director and 
+Audit Committee Chair when she knew or should have known that the filing contained this false 
+Sarbanes-Oxley certification.  
+ 
+Respondent 
+ 
+1. Shirley Kiang, age 63, was associated with L&L from 1998 to August 2012 as a 
+board member.  Kiang was also a member of L&L’s Audit Committee from its inception in July 
+2008 through August 2012, and was the Audit Committee Chair from approximately July 2008 
+through at least the filing of L&L’s 2009 Form 10-K on August 13, 2009.  Kiang is a U.S. citizen, 
+currently living in Thailand. 
+Facts 
+ 
+2. Beginning in approximately April 2008, L&L did not have a CFO, as its prior CFO 
+had just resigned.  L&L, led by Lee, wanted to hire an Acting CFO and, to that end, thought of the 
+purported Acting CFO, who had previously been associated with the company as an accountant 
+from 1997 to 2004, and as a director until 2006. 
+                                                 
+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 
+3. In a July 14, 2008 email to Lee, the purported Acting CFO rejected an offer to 
+become L&L’s Acting CFO.   
+4. Notwithstanding this rejection, L&L falsely represented that the purported Acting 
+CFO was the company’s actual Acting CFO in four separate public filings with the Commission, 
+including the company’s Form 10-K for fiscal year 2008, and three subsequent Form 10-Qs for 
+fiscal year 2009.  Each filing included a Sarbanes-Oxley certification with the purported Acting 
+CFO’s digital signature that she had, among other things, attested to the accuracy of the company’s 
+financial statements and the appropriateness of the company’s disclosure controls and procedures. 
+The purported Acting CFO, however, never performed any such functions.  
+5. In May 2009, the purported Acting CFO became aware that L&L had falsely 
+represented her as the company’s actual Acting CFO in the above-described filings and sent various 
+emails to Lee, demanding an explanation.  In a May 19, 2009 email, Lee wrote to the purported 
+Acting CFO that she “did not perform the work of the Acting CFO.” 
+6. On May 21, 2009, the purported Acting CFO emailed Kiang, who was then the 
+Chair of the company’s three person Audit Committee and member of the company’s Board of 
+Directors.  Prior to this email, Kiang had no interaction with the purported Acting CFO with regard 
+to any L&L business.  In the email, the purported Acting CFO told Kiang that she had a “serious 
+and urgent” matter related to L&L’s filings that were made without her knowledge and asked her to 
+investigate. 
+7. Kiang subsequently contacted Lee and asked whether the purported Acting CFO had 
+actually served as the company’s Acting CFO, and was informed that the purported Acting CFO 
+had actually served as the company’s Acting CFO and was making false allegations in an attempt to 
+obtain money from the company.  Kiang contacted no one else, including anyone at the company or 
+the company’s external auditors, to investigate whether the purported Acting CFO had actually 
+served as the company’s Acting CFO. 
+8. On June 4, 2009 – after receiving no response from Kiang – the purported Acting 
+CFO emailed her again.  The purported Acting CFO asked whether Kiang had investigated the 
+allegations that she had not actually served as the company’s Acting CFO, and in the email, 
+included her July 14, 2008 email in which she rejected the offer to be L&L’s Acting CFO. 
+9. After receiving the email, Kiang asked Lee for an explanation.  Lee told Kiang that 
+the purported Acting CFO had not actually served as the company’s Acting CFO; that he had used 
+the purported Acting CFO’s name on L&L’s public filings without the purported Acting CFO’s 
+permission; told Kiang not to worry about it because it was in the past
+2; told Kiang to not tell 
+anyone about the purported Acting CFO, including the company’s Board of Directors or the public; 
+and that, if she shared this information with anyone, L&L’s reputation would be affected negatively 
+and its stock price would drop. 
+                                                 
+2  On June 23, 2009, L&L issued a Form 8-K in which it announced that it had hired a California resident as 
+the company’s Acting CFO.  The California resident, unlike the purported Acting CFO, actually did perform the 
+duties of a CFO.   
+ 4 
+10. On August 12, 2009, L&L filed its 2009 Form 10-K, which contained a false 
+Sarbanes-Oxley certification that – based on Lee’s and the other certifying officer’s most recent 
+evaluation of the company’s internal control over financial reporting – any fraud, whether or not 
+material, involving management had been disclosed to the company’s auditors and to the 
+company’s Audit Committee.  Kiang signed L&L’s 2009 Form 10-K as Audit Committee Chair and 
+a Director, when she knew or should have known that any fraud, whether or not material, involving 
+management had not been disclosed to the company’s auditors and the company’s Audit 
+Committee. 
+Violation 
+11. Under Section 21C of the Exchange Act, the Commission may impose a cease-
+and-desist order upon, among others, any 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 of any provision of the Exchange Act. 
+12. Section 13(a) of the Exchange Act requires issuers that have securities registered 
+pursuant to Section 12 of the Exchange Act to file such periodic and other reports as the 
+Commission may prescribe and in conformity with such rules as the Commission may promulgate.  
+Exchange Act Rule 13a-1 requires the filing of annual reports.  In addition to the information 
+expressly required to be included in such reports, Rule 12b-20 under the Exchange Act requires 
+issuers to add such further material information, if any, as may be necessary to make the required 
+statements, in the light of the circumstances under which they are made, not misleading.  “The 
+reporting provisions of the Exchange Act are clear and unequivocal, and they are satisfied only by 
+the filing of complete, accurate, and timely reports.”  SEC v. Savoy Industries, 587 F.2d 1149, 1165 
+(D.C. Cir. 1978) (citing SEC v. IMC Int’l, Inc., 384 F. Supp. 889, 893 (N.D. Tex. 1974)).  A 
+violation of the reporting provisions is established if a report is shown to contain materially false or 
+misleading information. SEC v. Kalvex, Inc., 425 F. Supp. 310, 316 (S.D.N.Y. 1975).   
+13. L&L violated Exchange Act Section 13(a) and Rules 12b-20 and 13a-1 thereunder 
+by filing an annual report – the 2009 Form 10-K – that included a false Sarbanes-Oxley certification 
+that – based on the CEO’s and the other certifying officer’s most recent evaluation of the company’s 
+internal control over financial reporting – any fraud, whether or not material, involving management 
+had been disclosed to the company’s auditors and the company’s Audit Committee.   
+14. By engaging in the conduct described above, Kiang caused L&L’s violations of 
+Exchange Act Section 13(a) and Rules 12b-20 and 13a-1 thereunder. 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in the Respondent’s Offer. 
+ 
+ Accordingly, pursuant to Section 21C of the Exchange Act, it is hereby ORDERED that: 
+ 
+ 5 
+A. Respondent Kiang cease and desist from committing or causing any violations and 
+any future violations of Exchange Act Section 13(a) and Rules 12b-20 and 13a-1 promulgated 
+thereunder. 
+B. To effect compliance with the above-referenced provision and rules of the 
+Exchange Act, Kiang permanently refrain from signing any Commission public filing that contains 
+any certification required pursuant to the Sarbanes-Oxley Act of 2002. 
+ 
+By the Commission. 
+ 
+ 
+ 
+       Jill M. Peterson 
+       Assistant Secretary 
+ 

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+UNITED STATED OF AMERICA 
+before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 71833 / March 31, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3547 / March 31, 2014 
+ 
+Admin. Proc. File No. 3-15012 
+ 
+ 
+In the Matter of 
+ 
+S.W. HATFIELD, CPA and 
+SCOTT W. HATFIELD, CPA 
+9002 Green Oaks Circle, 2nd Floor 
+Dallas, Texas 75243-7212 
+ 
+ 
+ 
+ORDER DIRECTING  
+THE FILING 
+OF ADDITIONAL BRIEFS 
+ 
+The Division of Enforcement appeals from the decision of an administrative law judge in 
+a proceeding brought pursuant to Sections 4C and 21C of the Securities Exchange Act of 1934 
+and Rule 102(e)(1)(i) and (iii) of the Commission's Rules of Practice.1  The law judge found, 
+among other things, that S.W. Hatfield, CPA ("the Firm"), a Texas accounting firm, and Scott W. 
+Hatfield, the Firm's sole proprietor (together, "Respondents"), did not violate Exchange Act 
+Section 10(b) with respect to certain audit reports that Respondents allegedly issued while the 
+Firm's state license was expired.2  This order requests that the parties address (1) the legal 
+theories and facts regarding the "in connection with" requirement under Exchange Act Section 
+10(b); (2) the implication on the Division's request for sanctions under Exchange Act Section 4C 
+and Rule 102(e) of the disciplinary sanctions imposed on Respondents in a separate disciplinary 
+proceeding after the conclusion of briefing in this matter before the law judge; and (3) the 
+applicability of Rule of Practice 102(e)(1)(i) to Respondents where the Firm's state license had 
+been renewed and was current as of the date of the institution of this proceeding. 
+I. The "in connection with" requirement under Exchange Act Section 10(b) 
+A September 6, 2012 Corrected Order Instituting Proceedings ("OIP") alleges that 
+Respondents "issued thirty-eight audit reports that twenty-one issuers included in periodic 
+reports and registration statements filed with the Commission."  An appendix attached to the OIP 
+                                                 
+1  15 U.S.C. §§ 78d-3, 78u-3; 17 C.F.R. § 201.102(e)(1)(i) and (iii). 
+2  15 U.S.C. § 78j(b). 
+1 
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+identifies, among other things, the dates of each of the thirty-eight reports, and the date on which 
+each report was included as part of a filing with the Commission. 
+The OIP further alleges that Respondents issued those audit reports between 
+January 31, 2010 and May 19, 2011, a period during which the Firm's state license was expired 
+("Expired License Period").  The OIP alleges that the following activity occurred during the 
+Expired License Period with respect to the securities of some of the twenty-one issuers: 
+ Five of the issuers (888 Acquisition Corp., Eight Dragons Co., HPC Acquisitions, Inc., 
+Truewest Corp., and X-Change Corp.) were quoted on the Over-The-Counter Bulletin Board 
+("OTCBB"), and trading occurred during the Expired License Period for a specified number 
+of days in each issuer's securities; the dates on which the trades occurred are not identified.3   
+ SMSA Kerrville Acquisition Corp. issued restricted, unregistered common stock on 
+December 15, 2010.4   
+ Asia Green Agriculture Corp., f/k/a SMSA Palestine Acquisition Corp. ("SMSA Palestine"), 
+issued shares for 100% of the outstanding common stock of Sino Oriental Agriculture Group 
+Limited "in August 2010," and filed a Form S-1 on September 20, 2010 and subsequent 
+amendments before going effective on July 15, 2011.5   
+ Three of the issuers (Signet International Holdings, Inc., SMSA Crane Acquisition Corp., 
+and SMSA Gainesville Acquisition Corp.) "disclosed issuances" of unregistered, restricted 
+common stock for acquisitions and for services during the Expired License Period.6   
+ X-Change Corp. issued securities to convert or retire outstanding debt and to obtain certain 
+intellectual property rights during the Expired License Period.7   
+In the factual discussion of its motion for summary disposition, the Division reiterates the 
+activity of the five issuers who were quoted on the OTCBB; SMSA Kerrville Acquisition Corp.; 
+the three issuers who "disclosed issuances" of unregistered, restricted common stock; and X-
+Change Corp.'s issuance of securities.  But the Division does not refer to SMSA Palestine.  In the 
+argument section of its motion, the Division states that "Respondents' actions were made in 
+connection with the purchase and sale of securities of the 21 issuers for whom they issued audit 
+reports."  But, in support of this argument, the Division references only the five issuers whose 
+securities traded on the OTCBB and a sixth issuer, SMSA Kerrville Acquisition Corp.  The 
+Division provides no analysis or citation to any authority other than SEC v. Zandford,8 for the 
+                                                 
+3  OIP ¶ A.8.  
+4  OIP ¶ A.9.  
+5  OIP ¶ A.9.  
+6  OIP ¶ A.10. 
+7  Id.  
+8  535 U.S. 813, 819-20 (2002). 
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+proposition that the "in connection with" requirement under Exchange Act Section 10(b) should 
+be read broadly, and Ames Dep't Stores Inc. Stock Litig.,9 for the proposition that the "in 
+connection with" requirement is satisfied if the misrepresentation occurs in periodic reports filed 
+with the Commission. 
+The Division's reply brief in support of its motion for summary disposition alleges that a 
+"[m]ore-[t]han [s]ufficient" number of misstatements were made in connection with the purchase 
+and sale of securities, citing in support the same six issuers as discussed in the argument section 
+of its motion for summary disposition, and arguing that the "in connection with" requirement 
+was met because "Respondents' fraud 'somehow touche[d] upon' and had 'some nexus' with 'any 
+securities transaction.'  SEC v. Clark, 915 F.2d 439, 449 (9th Cir. 1990) (emphasis added)."  But 
+the reply brief also argues that the fees earned for all thirty-eight reports issued for the twenty-
+one issuers are "directly traceable to Respondents' fraud" and should be disgorged.  The 
+Division's brief on appeal provides no further clarification of its theory of the "in connection 
+with" element of its fraud charge. 
+ After the Division filed its brief on appeal, the Supreme Court issued its decision in 
+Chadbourne & Park, LLP v. Troice,10 which addresses the scope of the "in connection with" 
+element of Exchange Act Section 10(b) and Rule 10b-5 thereunder in the context of an implied 
+private right of action.  For purposes of determining whether the Securities Litigation Uniform 
+Standards Act of 1988 ("SLUSA") forbade the bringing of a state securities class action, the 
+Court determined that, under SLUSA, "[a] fraudulent misrepresentation or omission is not made 
+'in connection with' such a 'purchase or sale of a covered security' unless it is material to a 
+decision by one or more individuals (other than the fraudster) to buy or to sell a 'covered 
+security.'"11  The Court clarified that its holding "does not limit the Federal Government's 
+authority to prosecute 'frauds like the one here.'"12  Rather, the Court pointed out that, "despite 
+the Government's and the dissent's hand wringing, neither has been able to point to an example 
+of any prior SEC enforcement action brought during the past 80 years that our holding today 
+would have prevented the SEC from bringing."13  The parties have not had the opportunity to 
+                                                 
+9  991 F.2d 953, 962 (2d Cir. 1993). 
+10  134 S. Ct. 1058 (Feb. 26, 2014). 
+11  Id. at 1066.  SLUSA forbids the bringing of large securities class actions "based upon the 
+statutory or common law of any State" in which the plaintiffs allege "a misrepresentation or 
+omission of a material fact in connection with the purchase or sale of a covered security."  
+15 U.S.C. § 78bb(f)(1).  A covered security is one that trades on a national exchange.  Id. at 
+§ 78bb(f)(1)(5)(E).  In the underlying case, the plaintiffs alleged that the defendants helped Allen 
+Stanford and his companies implement a Ponzi scheme by misrepresenting that the uncovered 
+securities (certificates of deposit in Stanford International Bank) plaintiffs purchased were 
+backed by highly-marketable and stable covered securities.  The district court dismissed the case, 
+concluding that the alleged misrepresentations provided the requisite "connection" to 
+transactions in covered securities.   
+12  Chadbourne & Park, LLP, 134 S. Ct. at 1062 (emphasis in original).  
+13  Id. at 1070. 
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+ 4 
+address any implications of that case on the analysis of the "in connection with" issue in this 
+matter.   
+For the foregoing reasons, we direct the Division to submit supplemental briefing to: 
+ Identify specifically the issuers for which the Division argues that Respondents made 
+misstatements "in connection with" the purchase or sale of the issuer's securities. 
+ For each issuer identified in response to the above, identify specifically:  the purchases or 
+sales of securities in connection with which alleged misstatements were made; Respondents' 
+reports in which those alleged misstatements were made and the filing or filings with the 
+Commission in which those alleged misstatements appeared; and when the purchases or sales 
+of securities occurred in relation to when each of the filings were made.   
+ For each issuer identified in response to the above, explain in what way Respondents' alleged 
+misstatements touch upon and have some nexus with any securities transaction. 
+ If, in responding to the above, the Division identifies alleged misstatements in fewer than all 
+thirty-eight reports for the twenty-one issuers listed in the appendix to the OIP, explain the 
+basis for the assertion that fees earned for all thirty-eight reports issued for the twenty-one 
+issuers, are "directly traceable to Respondents' fraud" for purposes of assessing 
+disgorgement. 
+ Address the significance, if any, of the decision in Chadbourne & Park, LLP v. Troice on any 
+of the Division's arguments in this case. 
+II. Exchange Act Section 4C and Commission Rule 102(e) 
+ 
+A. Sanctions under Exchange Act Section 4C and Commission Rule 102(e) 
+ 
+The OIP instituted public administrative and cease-and-desist proceedings to determine 
+whether, among other things, Respondents should be censured or denied, temporarily or 
+permanently, the privilege of appearing or practicing before the Commission as accountants 
+pursuant to Exchange Act Section 4C and Rule 102(e).  In the Division's brief in support of its 
+motion for summary disposition, and in a similar statement in its reply brief, the Division states 
+that "Respondents are currently licensed as CPAs who continue to provide attest services to 
+public—and possibly non-public—companies.  They therefore pose a continuing threat to the 
+Commission's processes and to the investing public." (citations omitted)  Thus, the Division 
+argues, "Respondents should be permanently barred from appearing before the Commission in 
+accordance with Rule 102(e)(1)(i) and (iii)."  
+ 
+The parties completed their briefing before the law judge in March 2013.   On July 3, 
+2013, the Commission issued an adjudicatory opinion regarding an appeal filed by Respondents 
+that challenged disciplinary action taken by the Public Company Accounting Oversight Board 
+1 
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+ 5 
+("PCAOB") against Respondents for conduct not at issue in this proceeding.14  The Commission 
+found that Respondents violated certain PCAOB rules by repeatedly failing to adhere to the 
+PCAOB's interim auditing standards during the audits of two unrelated public companies.  The 
+Commission sustained the PCAOB's decision to permanently revoke the firm's registration and 
+permanently bar Hatfield from association with a registered public accounting firm.15  The 
+Commission concluded that the PCAOB's sanctions were necessary "to protect the integrity of 
+the Commission's processes and encourage more rigorous compliance with auditing standards 
+both by [Respondents] and by other independent auditors."16  Respondents did not appeal the 
+Commission's decision.   
+ 
+We have stated that "[t]he Commission disciplines professionals pursuant to Rule 102(e) 
+in order to 'protect the integrity of its processes.'"17  There is a similarity between the purpose 
+and scope of the PCAOB sanctions discussed above and the bar sought by the Division under 
+Exchange Act Section 4C and Rule 102(e).  The parties did not have the opportunity to address 
+before the law judge, and have not addressed before the Commission, any implications that the 
+July 3, 2013 Commission decision may have on the analysis of sanctions under Exchange Act 
+Section 4C and Rule 102(e) in this matter.  We direct the Division to submit supplemental 
+briefing to explain the extent to which there is overlap, if any, between the PCAOB sanctions 
+and sanctions under Exchange Act Section 4C and Rule 102(e), and whether such additional 
+sanctions are necessary in the public interest in light of the PCAOB sanctions. 
+ 
+B. Applicability of Exchange Act Section 4C(a)(1) and Rule 102(e)(1)(i) 
+ 
+Exchange Act Section 4C(a)(1) and Rule 102(e)(1)(i) provide that the Commission may 
+impose sanctions on any person who is found "not to possess the requisite qualifications to 
+represent others."18  The OIP alleges that "Respondents do not possess the requisite 
+qualifications to represent others, pursuant to Section 4C(a)(1) and Rule 102(e)(1)(i) of the 
+Commission's Rules of Practice."19  Similarly, the Division states in its Motion for Summary 
+Disposition that "Respondents do not possess the requisite qualifications to represent others," 
+and, in its brief on appeal, that "Respondents lack the requisite qualifications to represent others."  
+In support of these allegations, the Division points to the lapse in the Firm's state license 
+                                                 
+14  S.W. Hatfield, C.P.A. and Scott W. Hatfield, C.P.A., Exchange Act Release No. 69930, 
+2013 WL 3339647 (July 3, 2013).  In the September 10, 2013 initial decision in this matter, the 
+law judge mentioned the fact of the Commission's July 3, 2013 decision. 
+15  Id. at *21. 
+16  Id. at *26. 
+17  Michael C. Pattison, CPA, Exchange Act Release No. 67900, 2012 WL 4320146, at *12 
+& n.70 (Sept. 20, 2012) (citing Robert W. Armstrong, III, Exchange Act Release No. 51920, 
+2005 WL 1498425, at *11 & n.62 (June 24, 2005) (citation omitted)). 
+18  15 U.S.C. § 78d-3(a)(1); 17 C.F.R. § 201.102(e)(1)(i). 
+19  OIP ¶ C.2. 
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+ 6 
+commencing on January 31, 2010.  But the Firm's state license was renewed on May 19, 2011 
+and remained current at the time the Commission issued the OIP.  
+Moreover, the precedent cited by the Division in its brief on appeal regarding matters 
+brought under Exchange Act Section 4C(a)(1) and Rule 102(e)(1)(i) involved parties who were 
+not licensed at the time the Commission issued orders instituting proceedings and imposing 
+remedial sanctions, i.e., settlement orders.20  Supplemental briefing should address the relevance, 
+for purposes of Exchange Act Section 4C(a)(1) and Rule 102(e)(1)(i), of the fact that a 
+respondent's state license is current when an order instituting proceedings issues.  
+Accordingly, it is ORDERED that the Division file a supplemental brief addressing all of 
+the above, together with all appropriate citations to relevant facts and authority within fourteen 
+calendar days from the date of service of this order and not exceeding 7,000 words.  Respondents 
+may file a reply brief responding to the Division's supplemental brief within fourteen days from 
+the date of service of the Division's supplemental brief and not exceeding 5,000 words. 
+ 
+ For the Commission by the Office of the General Counsel, pursuant to delegated 
+authority. 
+ 
+ 
+ 
+ 
+ 
+ 
+Lynn M. Powalski 
+Deputy Secretary 
+                                                 
+20  Alan S. Goldstein, Exchange Act Release No. 34641, 1994 WL 499304, at *2-3 (Sept. 6, 
+1994); Elliot Stumacher, Exchange Act Release No. 39124, 1997 WL 587063, at *1, *3 
+(Sept. 24, 1997). 

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+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES ACT OF 1933 
+Release No. 9573 / April 8, 2014 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 71896 / April 8, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  3548 / April 8, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-15825 
+ 
+ 
+ 
+ 
+In the Matter of 
+ 
+LAIRD DANIELS, CPA,  
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+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 and in the 
+public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
+instituted against Laird Daniels (“Respondent” or “Daniels”) pursuant to Section 8A of the 
+Securities Act of 1933 (“Securities Act”), Sections 4C and 21C of the Securities Exchange Act of 
+1934 (“Exchange Act”), and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice.   
+ 
+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 
+ 2 
+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 (“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that:  
+A. SUMMARY 
+ In the third quarter of 2009, CVS Caremark Corporation (“CVS”) dramatically and without 
+public disclosure changed its accounting for 525 Longs drugstores that had been acquired in 
+October 2008.  CVS improperly reduced the value of $189 million of personal property in the 
+Longs stores down to $0.  CVS then reversed $49 million of depreciation that had been taken on 
+those assets since the acquisition.  The undisclosed depreciation reversal increased third-quarter 
+2009 earnings per share (“EPS”) by approximately 2.4¢, enabling CVS to exceed analysts’ 
+expectations at a time when it was announcing a significant reduction in its earnings projections for 
+2010.  With proper accounting, the asset write-down would have been treated as a current-period 
+expense, and third-quarter 2009 EPS would have been reduced by as much as 17% (as much as 
+9.3¢). 
+ Respondent Daniels, then the Retail Controller at CVS, orchestrated the improper 
+accounting adjustment, causing CVS to value at $0 all the personal property in approximately 430 
+of the 525 Longs stores, including more than 360 stores that CVS was going to operate for the long 
+term.  In Daniels’ own words, CVS’s accounting turned the acquisition of the Longs drugstores 
+from a “bad guy” into a “good guy.” 
+B. RESPONDENT 
+ Daniels is 44 years old and lives in North Attleboro, Massachusetts.  He is licensed in 
+Connecticut as a certified public accountant.  Prior to May 2009, he was Vice President for 
+Corporate Budgeting at CVS, with responsibility for preparing budgets and forecasts for its retail 
+pharmacy business.  In May 2009, he became Retail Controller, with responsibility for collecting 
+financial information from units within the retail pharmacy business and supervising the 
+preparation of budgets, actual financial results, and forecasts.  In January 2010, he became Chief 
+Accounting Officer, with responsibility for the consolidation of financial information for all 
+segments of CVS.  He is currently the Senior Vice President for International Operations and 
+Business Development at CVS.    
+C. OTHER RELEVANT ENTITY 
+ CVS is a Delaware corporation with its principal executive offices in Woonsocket, Rhode 
+Island.  Its common stock is traded on the New York Stock Exchange under the symbol “CVS.”  It 
+operates a nationwide chain of more than 7,400 drugstores and currently ranks #13 on the Fortune 
+500 list, with more than $120 billion of revenue in 2012. 
+ 
+ 3 
+D. DANIELS ORCHESTRATED IMPROPER ADJUSTMENTS TO THE 
+ACCOUNTING FOR THE LONGS ACQUISITION 
+Introduction 
+1. On October 20, 2008, CVS acquired the Longs chain of approximately 525 
+drugstores.  CVS hired a major accounting firm to prepare a valuation for the Longs purchase price 
+accounting (“PPA”) under Statement of Financial Accounting Standards (“SFAS”) 141 (“Business 
+Combinations”).
+1  On January 27, 2009, the valuation firm submitted a draft report.  As required 
+by its contract with CVS, the valuation firm applied a “continued use” premise – that CVS would 
+retain and continue using all of the Longs stores’ property, plant and equipment (except for stores 
+to be closed, as identified by CVS).  The firm valued the Longs stores’ property, plant and 
+equipment at more than $1.2 billion, including $937 million of real property and $229 million of 
+personal property.  The valuation results were included in CVS’s audited financial statements for 
+the fiscal year ended December 31, 2008, which were incorporated by reference in the annual 
+report on Form 10-K that CVS filed with the Commission on February 27, 2009. 
+2. After accounting for the Longs PPA in its financial statements for 2008 and the first 
+and second fiscal quarters of 2009, CVS, through Daniels, improperly adjusted the way the Longs 
+PPA was accounted for and included the improper adjustments to the Longs PPA in later financial 
+statements filed in November 2009.  The result of this change was to boost CVS’s financial results 
+for its quarter ended September 30, 2009 (its third quarter). 
+3. On November 5, 2009, CVS filed with the Commission a quarterly report on Form 
+10-Q for its third quarter ended September 30, 2009 containing unaudited financial statements that 
+included adjustments to the Longs PPA.  Compared to the valuation firm’s January 2009 draft 
+report, the value of Longs tangible assets was reduced by $212 million and goodwill was increased 
+by the same amount.  The reduction of tangible assets resulted primarily from a $189 million 
+decrease in the value of the Longs stores’ personal property (from $229 million to $40 million).  
+Despite the “continued use” premise that had been built into the valuation firm’s January 2009 
+draft report, CVS now completely wrote off all personal property in approximately 430 of the 525 
+Longs stores, including more than 360 stores that were going to be operated for the long term. 
+4. In its third-quarter 2009 unaudited financial statements, CVS made a one-time 
+catch-up adjustment reversing $49 million of the depreciation that had been taken on Longs 
+personal property from October 20, 2008 through June 30, 2009, and it did not take an additional 
+$19 million of depreciation that would otherwise have been taken on Longs personal property in 
+the third quarter.  The one-time depreciation reversal increased CVS’s third-quarter 2009 earnings 
+per share (“EPS”) by approximately 2.4¢.
+2    
+5. The Longs PPA adjustments did not comply with generally accepted accounting 
+principles (“GAAP”), specifically SFAS 141, because:  (1) they did not reflect the expected future 
+use of the Longs personal property as of the acquisition date in October 2008; (2) they did not 
+                                                 
+1 SFAS 141 was superseded by SFAS 141R as of December 2008 – two months after the Longs acquisition. 
+2 CVS emphasizes, and analysts usually focus on, the company’s “adjusted” EPS –  GAAP EPS minus amortization 
+and net of tax.  All references to EPS in this Order are to adjusted EPS. 
+ 4 
+reflect information that CVS knew or had arranged to obtain as of the acquisition date; and (3) they 
+did not account for CVS’s use of the assets to generate revenue after the acquisition date.  The 
+failure to comply with GAAP had a material impact on the company’s third-quarter 2009 financial 
+results. 
+6. Between the time that CVS initially included the Longs PPA in its 2008 financial 
+statements and the time it adjusted the Longs PPA in its financial statements for the 2009 third 
+quarter, Daniels took a series of steps to improperly alter the Longs PPA in order to get a more 
+positive accounting impact for CVS. 
+7. On June 16, 2009, Daniels told a co-worker that he had been making “some good 
+progress on the tangible asset side” with the valuation firm and that he was now “extremely 
+confident (by the way that’s the most confident I get) that the final valuation will no longer be a 
+bad guy but rather a good guy.”  (Daniels routinely used the terms “good guy” and “bad guy” to 
+indicate whether an item improved or harmed CVS’s purported profitability.)   
+The Original Purchase Price Allocation for the Longs Acquisition 
+8. In November 2008, CVS hired a major accounting firm to prepare a valuation for 
+the Longs PPA.  The engagement letter specified that, applying SFAS 141, the firm would 
+determine the “fair value” of the Longs assets “as part of a ‘going concern in continued use,’” and 
+that “this valuation premise presupposes the continued utilization of the assets in connection with 
+all other assets as the highest and best use.”  The engagement letter called for the firm to submit 
+“Phase One” summary schedules by December 31, 2008 and a draft “Phase Two” report three 
+weeks later. 
+9. On November 4, the valuation firm asked CVS for certain information about the 
+Longs tangible assets, including “Information regarding any future use / development / 
+refurbishment projects at existing stores.  List of rationalization / store closure plans.”  
+10. On December 14, Daniels (who was then the Director of Budgeting and 
+Forecasting) told the CVS real estate group to provide the valuation firm with the latest strategy for 
+using the Longs drugstores, adding “I know it’s not final but I assume it’s pretty close.” 
+11. On December 15, the Real Estate Finance Director provided the valuation firm with 
+the current strategy for each Longs store, along with a cover email from a manager in the real 
+estate group stating, “I don’t expect many changes.”  The list indicated that CVS planned to close 
+36 stores right away, relocate 19 stores within one year, operate 123 stores with the intent to 
+relocate them within three years (if possible), and operate 349 stores for the long-term.  Soon after, 
+the Finance Director told another manager in the real estate group that the December 15 list was 
+“predominately finished, but will have limited ongoing changes.” 
+12. The valuation firm’s approach to determining the “fair value” of the tangible assets 
+in the Longs stores depended on CVS’s intended use of each store. 
+a. For assets in the stores to be operated for more than one year, the firm 
+applied a “continued use” premise.  The firm determined the “direct replacement cost” for the 
+leasehold improvements and the furniture, fixtures and equipment (“FF&E”) in each store, using 
+ 5 
+data from the CVS real estate group that a typical new CVS store had fixed costs of $45,101 and 
+variable costs of $38.77 per square foot.  The firm applied an “indirect cost approach” (historical 
+cost trended forward) for the computer equipment and the assets in the Longs corporate locations. 
+b. For the assets in the stores to be closed within one year, the firm determined 
+the “orderly liquidation value” using data from the CVS real estate group indicating that 
+approximately 35% of the assets would have liquidation value.  
+13. On December 23, the valuation firm sent draft schedules to the Retail Controller 
+(Daniels’ predecessor in this position).  For the Longs drugstores, the real property was valued at 
+$937.2 million and the personal property was valued at $229.3 million.  These schedules were the 
+“Phase One” summary schedules required by the engagement letter.   The Retail Controller 
+forwarded the schedules to CVS’s outside auditors.     
+14. On January 12, 2009, the Retail Controller asked the valuation firm for “updated 
+valuation schedules that reflect all changes to date.”  He also stated, “We are entering the danger 
+zone on closing the year.  If there are any significant open items affecting the current valuation 
+estimates, we have to resolve them tomorrow.”  Minutes later, a Senior Manager at the valuation 
+firm replied that, on a recent call with CVS’s outside auditors, “all of the major issues were 
+discussed and agreed to, which would mean leaving our analysis as is.”   
+15. On January 13, the valuation firm sent updated schedules to the Retail Controller.  
+For the Longs retail operations, the valuation of real property ($937.2 million) and personal 
+property ($229.3 million) was unchanged from the schedules sent on December 23.  The Retail 
+Controller forwarded the schedules to the Controller and to CVS’s outside auditors. 
+16. Also on January 13, CVS’s outside auditors told the Retail Controller that they 
+wanted to have “a quick wrap up call this morning on the Longs valuation just to make sure we are 
+all on the same page and close down our procedures.  We wanted to talk about the wrap up process 
+[and] timing of [the] narrative from [the valuation firm] etc.”   
+17. As of mid-January, the valuation firm was not performing any additional valuation 
+work, and both the Retail Controller and CVS’s outside auditors expected that the firm would 
+submit its report in time for inclusion in the 2008 audit.    
+18. On January 27, the valuation firm submitted a draft report that applied the 
+“continued use” valuation premise mandated in the engagement letter (except for the stores to be 
+closed).  The valuation of the Longs drugstores had not changed from the draft schedules sent on 
+December 23 and January 13:  $937.2 million of real property and $229.3 million of personal 
+property.  The draft report was the “Phase Two” narrative report required by the engagement letter. 
+19. Between November 2008 and January 27, 2009, CVS and its outside auditors were 
+in regular communication with the valuation firm about its work.  At no point did CVS or the 
+outside auditors express any concerns about the valuation firm’s approach to the valuation.  Nor 
+did CVS tell the valuation firm about any plans to dispose of almost all personal property in most 
+Longs stores, despite the firm’s specific request for information about “future use / development / 
+refurbishment projects at existing stores.”  As a result, the valuation firm assumed that the 
+conversion of Longs stores to CVS stores would primarily entail a change of signage. 
+ 6 
+20. After submitting its draft report on January 29, the valuation firm waited for 
+comments from CVS’s outside auditors so it could prepare its final report.  On January 30, the 
+Retail Controller told the firm:  “[The auditors] completed their review of the draft valuation report 
+and had no comments.  Please issue your report in final form as soon as you can.”  The firm 
+responded that it would send a draft management representation letter for CVS to sign, as well as 
+“a final invoice for our work.” 
+21. On January 31, the Retail Controller told the valuation firm to put finalizing the 
+valuation report “on hold” in light of an upcoming meeting between the firm and the CVS real 
+estate group.  
+22. On February 2, a manager in the CVS real estate group sent the valuation firm a list 
+of topics to be discussed on a call later that day.  Most of the topics concerned the accounting for 
+leasehold interests and personal property in Longs stores to be closed.  None of the topics 
+concerned the remodeling of any Longs stores. 
+23. On February 11, the valuation firm sent CVS a “final summary” of the Longs 
+valuation.  The personal property in the Longs drugstores was still valued at $229.3 million. 
+24. In connection with the year-end 2008 audit, CVS’s outside auditors reviewed the 
+valuation firm’s approach to valuing tangible assets and concluded that the firm’s methodology 
+was reasonable.  While the outside auditors were working on the 2008 audit, CVS did not disclose 
+anything about its plans to remodel any Longs stores, and so the auditors did not review the Longs 
+valuation report for any potential impact of the remodeling.    
+25. CVS included the values from the January 29 draft valuation report in its audited 
+financial statements for 2008, which were included in its annual report to shareholders for 2008 
+and were incorporated by reference in the annual report on Form 10-K that it filed with the 
+Commission on February 27.  Note 2 to the audited financial statements, entitled “Business 
+Combinations,” indicated that CVS had acquired Longs for approximately $2.6 billion.  Note 3, 
+entitled “Goodwill and Other Intangibles,” stated that “goodwill increased primarily due to the 
+Longs Acquisition” and that the increase in amortizable intangible assets “was primarily due to the 
+preliminary purchase price allocations (which may change and the result of such changes, if any, 
+may be material).”  The audited financial statements did not contain any indication that the 
+valuation of Longs tangible assets such as personal property was not final. 
+26. The asset values from the January 29 draft valuation report were loaded into CVS’s 
+books and records, and CVS began taking depreciation on the Longs assets.   
+27. On February 27, the Real Estate Finance Director asked the valuation firm about 
+potential adjustments to the value of assets in the Longs stores to be closed.  He also wrote: 
+Plus, it seems there have been several changes in individual store 
+strategies over the past few weeks, and I would guess these have 
+not been picked up by you guys or [the Retail Controller].  I would 
+like to talk about how these changes and future changes should be 
+handled with respect to these value adjustments. 
+ 7 
+Minutes later, a Senior Manager at the valuation firm responded with a warning: 
+[K]eep in mind that any changes in strategy that were not known as 
+of the acquisition date cannot be reflected in the valuation.  The 
+valuation was as of October 30, 2008.  So the valuation can only 
+reflect the strategies in place at that time – which I believe we 
+accurately reflected.  Any changes after the valuation date would 
+have to be discussed with your audit team. 
+28. The valuation firm did not perform any further work on the Longs valuation 
+between February and April, although it responded to occasional questions from CVS. 
+Daniels Persuaded the Valuation Firm to Reduce its  
+Valuation of the Longs Stores’ Personal Property by $189 Million 
+29. In March 2009, the CVS fixed asset group adjusted the depreciation being taken on 
+Longs FF&E and technology assets by lengthening the remaining useful lives beyond the time 
+period that the valuation firm had used.  In other words, the fixed asset group assumed that these 
+assets in the Longs stores would remain in use for a longer period than the valuation firm had 
+assumed. 
+30. In April, the CVS property accounting group identified a discrepancy between the 
+depreciation on Longs assets built into the 2009 budget and the actual depreciation being taken on 
+those assets.  On April 30, the Controller complained to the Retail Controller and to Daniels, who 
+was then Vice President for Corporate Budgeting, that the CVS fixed asset group had apparently 
+made decisions about the remaining useful lives of Longs assets that were inconsistent with the 
+valuation firm’s draft report, and the result was an unfavorable variance of $20 million per month.   
+31. In early May, the Controller fired the Retail Controller.  Daniels became the Retail 
+Controller and took charge of working with the valuation firm on the Longs valuation.  (At the 
+time, the Controller was being scrutinized by CVS senior management as a possible successor to 
+the CFO, who had expressed his intent to retire.) 
+32. On May 1, the Controller and Daniels asked for a conference call with the valuation 
+firm on May 8.  On May 7, Daniels prepared a list of four topics for the call:  (1) a request for a 
+summary schedule listing each asset class and the remaining useful lives; (2) a discussion of any 
+recent changes in the valuation; (3) a discussion of the fair value and remaining useful lives for the 
+“technology” assets; and (4) an apparent discrepancy in the labeling in two versions of the 
+valuation schedules.  The list did not mention the remodeling of any Longs stores or the disposal of 
+any Longs assets.  The Controller forwarded the list to the valuation firm.   
+33. As of May 8, the Controller had no concerns about the valuation of Longs drugstore 
+assets or the projected depreciation on those assets.   
+34. After the call on May 8, the valuation firm sent Daniels its latest fixed asset 
+valuation figures and the depreciation and amortization schedules that it had used.  There had been 
+no change to the $229.3 million valuation of personal property in the Longs retail operations.   
+ 8 
+35. On May 11, after reviewing the materials he received from the valuation firm on 
+May 8, Daniels told the Controller that:  (1) the blame for the depreciation variance lay with the 
+fixed asset group; (2) the valuation firm’s estimated fair values and suggested remaining useful 
+lives were the same as used by CVS in its current budget; and (3) the depreciation variance 
+problem would likely be resolved in the financial results for April 2009.   
+36. At no point between January 27 and May 13 did CVS tell the valuation firm about 
+any plans to dispose of almost all of the Longs stores’ personal property, despite the firm’s specific 
+request for such information back in November 2008.   
+37. On May 13, Daniels told the valuation firm during a conference call that: 
+a. CVS was remodeling the Longs stores that were going to be operated for 
+the long-term, and as part of the remodeling process, CVS was gutting the stores and discarding all 
+the personal property; and   
+b. CVS was not receiving any value for the assets being discarded.  
+Daniels also told the valuation firm that, as of the acquisition date on October 20, 2008, CVS had 
+intended to throw out all that personal property in the Longs stores.     
+38. On May 19, a Senior Manager at the valuation firm warned Daniels that it appeared 
+CVS was improperly changing its real estate strategy after the acquisition date: 
+I had the opportunity to discuss our call from last week with [name 
+omitted].  [He] is the partner in charge of the tangible asset valuation 
+practice in the US and was the tangible asset partner on the CVS 
+engagement.  We discussed many of the changes in the plans for the 
+PP&E [property, plant and equipment] that have occurred since the 
+acquisition.  [The valuation firm] valued the PP&E as of the acquisition 
+date utilizing the plans of CVS at this time.  The valuation of the PP&E 
+cannot be modified for changes in plans that occurred after the 
+valuation date.  The future plans of the company had to be known prior 
+to the acquisition date.  Any changes that have occurred over the last 7 
+months that were not known as of October 30, 2008 cannot be 
+incorporated into the valuation.   
+One hour later, Daniels sent an email to allay the valuation firm’s concerns: 
+As a reminder, what we would like to discuss is the assumptions used 
+regarding the intended use of the assets to ensure that the correct plans 
+were used.  Rest assured we are not looking to change the plans 
+regarding the use of the acquired assets as the plans remain unchanged 
+since the close.  Rather, we want to make sure the correct assumptions 
+were used.  
+39. Also on May 19, the partner responsible for the valuation firm’s overall relationship 
+with CVS reported on a call with Daniels: 
+ 9 
+He said he understands the acctg [accounting] literature and believes 
+that we were given incorrect info.  He said they hadn’t really looked at 
+our final report until after March when the info that was loaded into 
+their g/l [general ledger] didn’t look right. 
+40. On May 20, Daniels told a co-worker that he was working with the valuation firm 
+“to ensure their valuation assumptions are correct.” 
+41. On May 26, Daniels had a conference call with the valuation firm.  Prior to the call, 
+Daniels provided the firm with CVS’s current real estate strategy for the Longs stores.  The 
+strategy list indicated that CVS planned to:  (1) close 71 stores within one year; (2) operate 124 
+stores with the intent to relocate them within three years (if possible); and (3) operate 333 stores for 
+the long-term.  Daniels also sent the firm an overview of the store remodeling project.  The 
+remodel overview indicated that 420 stores would be remodeled to some extent, of which 361 
+stores would receive a “full remodel.”  (The stores not being remodeled at all were stores that had 
+been or were about to be closed, as well as stores in Hawaii that were going to retain the “Longs” 
+name.).  The remodel overview indicated that less than one-third of the “full remodel” stores were 
+going to receive all-new fixtures.  However, Daniels told the valuation firm that all assets in all 361 
+“full remodel” stores were being scrapped. 
+42. The valuation firm’s internal manual on SFAS 141 stated that PPA adjustments are 
+appropriate only if “the necessary information was determinable at the time the preliminary 
+allocation was reported,” as when, for example, the acquiring entity has commissioned an appraisal 
+of plant and equipment that is not complete by the acquisition date. 
+43. The valuation firm accepted Daniels’ statements in May that, as of the acquisition 
+in October 2008, CVS intended to throw out personal property in the stores to receive a “full 
+remodel,” and that CVS’s failure to provide the firm with the correct information for six months 
+after the firm was retained was due to a “miscommunication.”  If the valuation firm had received 
+this information before it submitted its draft report in January 2009, the fair value of the Longs 
+drugstore assets would have been significantly reduced. 
+44. On June 3, the valuation firm told Daniels that the personal property in the Longs 
+drugstores was now valued at $49.6 million (compared with $229.3 million as of May 8).  The firm 
+reduced the value of personal property by $179.7 million based on the supposedly correct 
+information provided by Daniels in May – that, as of the acquisition date on October 20, 2008, 
+CVS intended to discard the assets in the stores to be remodeled, and that the discarded assets had 
+no liquidation value.   
+45. On June 4, Daniels received a copy of the outside auditors’ internal manual on 
+SFAS 141R.
+3  The manual stated: 
+The measurement period ends once the acquirer is able to determine 
+that it has obtained all necessary information that existed as of the 
+                                                 
+3 SFAS 141R expanded the subjects that can be modified during the allocation period but did not change the 
+definition of the allocation period itself. 
+ 10 
+acquisition date or has determined that such information is 
+unavailable… 
+Once the acquirer obtains the information it has arranged to obtain or 
+determines that the information does not exist, then the measurement 
+period is closed.  The measurement period is not a fixed twelve-month 
+period during which all changes in carrying values of assets acquired or 
+liabilities assumed are considered adjustments to the business 
+combination accounting. 
+46. On June 16, Daniels told a co-worker, “Wanted to give you a quick update on the 
+Longs valuation.  We have made some good progress on the tangible asset side based on having 
+[the valuation firm] update their assumptions to include the correct real estate disposition and 
+intended use of the assets.” 
+47. On July 28, the valuation firm sent Daniels an “updated draft” of its valuation 
+report.  The text of the report had not changed since the January 27 draft, but the value of personal 
+property in the Longs drugstores had been reduced from $229.3 million to $50.8 million.  
+48. On October 1, the valuation firm sent Daniels a “final draft” of its valuation report.  
+The text of the report had not changed since the draft sent on July 28.  However, the value of 
+personal property in the Longs drugstores had been further reduced – from $50.8 million to 
+$39.6 million.  The total reduction in the value of personal property in the Longs drugstores since 
+the firm’s January 27 draft report was approximately $189 million (from $229.3 million to $39.6 
+million).   
+CVS’s Outside Auditors Accepted the $189 Million  
+Reduction in the Valuation of the Longs Stores’ Personal Property 
+49. Until the spring of 2009, CVS’s outside auditors were not aware that CVS planned 
+to discard almost all of the Longs stores’ personal property. 
+50. In early June 2009, Daniels told the outside auditors that CVS had finalized its 
+strategy for which Longs stores would be closed, relocated or remodeled, and that the adjustments 
+to the valuation of the Longs stores could be larger than expected, because CVS was going to scrap 
+all personal property in the stores being remodeled.  That was the first time the outside auditors 
+heard about the write-off of assets in stores being remodeled.  The Coordinating Partner told the 
+Engagement Partner that he was a “little worried about what he [Daniels] may be trying to do.” 
+51. On June 19, Daniels told a member of the Longs remodeling team at CVS: 
+I’m close to completing the valuation work with [the valuation firm] for 
+Longs.  One final step I have is getting our auditors comfortable with 
+the changes.  Our auditors were hoping they could see a summary of 
+what we are spending on the resets [remodels] that have been 
+completed.  Is it possible to get a summary (with some detail) for the 4 
+stores that are done?  Since we are writing off a lot of the assets they 
+ 11 
+would feel more comfortable seeing that we’re spending a fair amount 
+per store to reset them. 
+52. On September 25, the Manager of Property Accounting provided Daniels with a 
+spreadsheet listing the amount spent on remodeling:  (1) each Longs location whose assets had 
+been written down to zero, and (2) each Longs location whose assets were included in the residual 
+valuation of $50 million: 
+You had asked me to compare the Long’s Personal Property acquisition 
+assets that retained their value ($50M) following the recent revaluation, 
+to the total spending for the Long’s Reset capital projects.  This 
+analysis is attached. 
+As you can see on the “Summary” tab, the theory you outlined to me 
+holds true for the majority of the stores.  Those stores that have 
+retained-value acquisition assets generally have lower levels of 
+spending on their Reset projects.  Conversely, those locations that have 
+significant Reset spending generally do not have large acquisition asset 
+activity.  There are exceptions, of course, but in general the attached 
+information supports your position. 
+53. The language in these emails is very revealing.  Daniels asked for data about “reset 
+spending” at the Longs stores to help the outside auditors get “comfortable” because CVS was 
+“writing off a lot of the assets.”  He did not ask for confirmation that CVS was actually scrapping 
+all personal property in the stores being remodeled.  The Manager of Property Accounting told 
+Daniels that, “for the majority of the stores,” the data supported “the theory you outlined to me” 
+and that “in general the attached information supports your position.”  The “theory” and “position” 
+which Daniels had outlined to him was simply that stores with lower retained asset values tended 
+to have more “reset spending” – not that all assets in the “full remodel” stores were actually being 
+discarded. 
+54. On October 5, the outside auditors’ Senior Manager alerted others members of the 
+audit team about the upcoming finalization of the Longs PPA: 
+The biggest change is that PP&E went from 229 million in the initial 
+valuation to 50 million (and in final one expected to be 39 million). 
+The reason behind this as it has been explained to us is that CVS was 
+either resetting / relocating / closing a number of the stores that was 
+never communicated to [the valuation firm] and therefore an asset 
+value was assigned that was way too high. 
+55. On October 8, after the valuation firm had further reduced the valuation of the 
+remaining Longs store assets to $39 million, the Manager of Property Accounting sent Daniels an 
+updated store-by-store spreadsheet reflecting a total of $97 million of “reset [remodeling] project” 
+spending and $225 million of “post-acquisition” spending.  Daniels forwarded the spreadsheet to 
+the outside auditors. 
+ 12 
+56. On October 14, the valuation firm’s Senior Manager provided Daniels with answers 
+to questions from the outside auditors about the revised valuation.  In response to the auditors’ 
+request for clarification about the adjustments to personal property, the Senior Manager wrote: 
+We were provided an updated strategy list from CVS that contained a 
+future plan for each store.  Below is a synopsis of how we valued the 
+personal property for each strategy. 
+Remodel – We were informed that stores that were being remodeled 
+from a Long’s to a CVS were being gutted and the personal property 
+was being scrapped.  CVS was not obtaining any residual value for 
+these assets as they were being discarded.  Therefore the personal 
+property at stores that were undergoing a complete renovation to a CVS 
+were given no value (scrap = $0). 
+Closed Stores – All stores that were closed were being gutted and none 
+of the personal property was being retained by CVS.  The personal 
+property was valued at $0. 
+Closing Stores – Stores that would be operated for less than 1 year and 
+then closed – We valued the personal property with a 1 year RUL 
+[remaining useful life].  The depreciation was accelerated so that the 
+personal property would be fully depreciated at the end of 1 year.  
+Stores that were being converted to CVS for long term use and 
+underwent minor cosmetic changes – We valued the personal property 
+in continued use and the signage at $0. 
+Daniels forwarded the valuation firm’s response to the outside auditors. 
+57. Daniels never provided the outside auditors with any documents specifically 
+confirming that CVS was gutting all the “full remodel” stores.  Instead, when they accepted the 
+PPA adjustments, the outside auditors relied on:  (1) the representations by Daniels that CVS had 
+always intended to scrap all assets in the Longs stores to be remodeled; and (2) the data identifying 
+the amount of capital expenditures at each store. 
+CVS’s Form 10-Q for the Third Quarter of 2009 
+Included Adjustments to the Longs PPA 
+58. On November 5, CVS filed a Form 10-Q with unaudited financial statements for 
+the third quarter of 2009 that included adjustments to the Longs PPA. 
+59. Compared to the valuation firm’s January 2009 draft report, the value of Longs 
+tangible assets was reduced by $212 million and goodwill was increased by the same amount.  The 
+reduction of tangible assets resulted primarily from the $189 million decrease in the value of 
+personal property in the Longs drugstores reflected in the firm’s “final draft” valuation report dated 
+October 1. 
+ 13 
+60. CVS made a one-time catch-up adjustment by reversing $49 million of the 
+depreciation taken on Longs assets from the closing in October 2008 through June 2009.  In 
+addition, CVS did not take $19 million of depreciation that would otherwise have been taken on 
+Longs assets in the third quarter. 
+61. The $49 million one-time depreciation reversal increased third-quarter 2009 EPS 
+by 2.4¢. 
+Daniels Caused CVS to Make Improper Accounting Adjustments 
+62. Daniels told a co-worker on June 16, 2009 that he had been making “some good 
+progress on the tangible asset side” with the valuation firm and that he was now “extremely 
+confident (by the way that’s the most confident I get) that the final valuation will no longer be a 
+bad guy but rather a good guy.”   
+63. Some of Daniels’ statements to the valuation firm and the outside auditors are 
+inconsistent: 
+a. Daniels told the valuation firm on May 19 that no one at CVS had really 
+looked at the January 27, 2009 draft report until after March, and that CVS became worried about 
+the valuation only when the values that were loaded into its general ledger “didn’t look right.”  
+However, Daniels told the Controller earlier in May that the valuation firm’s estimates of fair value 
+and suggested remaining useful lives were the same as used by CVS in its current budget. 
+b. Daniels told the valuation firm and the outside auditors on several occasions 
+that CVS had not provided the valuation firm with the correct plans for the Longs stores.  
+However, on September 28, Daniels told the Controller that the PPA adjustments should not be 
+considered as the correction of an error: 
+[W]e don’t fall under this scenario in my opinion as the r/e [real estate] 
+strategy was still being worked on, thus we didn’t ignore available info 
+resulting in an error.  Rather we were waiting to gather info to complete 
+the valuation in the first place. 
+64. More importantly, the facts fatally undermine Daniels’ justification for the PPA 
+adjustments –that, as of the acquisition date on October 20, 2008, CVS intended to scrap all assets 
+in the Longs stores to be remodeled. 
+65. When CVS acquires a chain of drugstores, it typically tries to reuse as many assets 
+as possible, and it makes a store-by-store determination about the ultimate disposition of the assets.  
+When it acquired the Longs stores in October 2008, CVS did not know what its remodeling plan 
+was going to be or which assets in the stores to be retained would have value.  As a result, it took 
+months after the acquisition for CVS to develop its plans for remodeling the Longs stores. 
+66. On October 17, 2008, the CVS real estate group circulated a “Longs Integration 
+Update” indicating that CVS would “update the look of the Longs’ fleet of stores” with “CVS 
+Decor Elements – Graphics, Aisle Guides, Carpet, Paint etc.”  The document contained numerous 
+ 14 
+references to the minimization of construction costs, the retention of many existing fixtures, and 
+the need to finalize the scope of work.     
+67. On January 6, 2009, a member of the CVS real estate group circulated a brief 
+comparison between the company’s plans for the Longs stores and its treatment of the Albertsons 
+stores that CVS had acquired a few years earlier: 
+LDG [Longs]:  Retain major elements from Longs > Total Visual 
+Appeal (TVA) Remodel store program. 
+ABS [Albertsons]:  All new CVS design. 
+Benefit:  Reduced cost while adding CVS look and feel elements (e.g. 
+aisle markers, graphics, carpet etc). 
+68. On January 29, members of the Longs integration team reported on a site visit to a 
+model “Alpha” store that had been built in an empty location to assess possible interior design 
+elements for the remodeled Longs stores.  The report included several suggestions for how to adapt 
+to the taller shelving in a Longs store and how to respond to customer feedback.
+  
+69. On February 13, members of the Longs integration team submitted a report on the 
+“Alpha” store that included “reusing existing fixtures where possible, even if not standard for 
+CVS.”
+  
+70. On February 19, the CVS real estate group circulated a proposed budget of 
+$202 million for the Longs store remodeling project.  For the 419 stores to be remodeled, the report 
+identified five levels of work, running from the “A+ scope” costing $640,000 per store to the 
+“C scope” costing $67,000 per store.  Another presentation of the proposed budget noted that “the 
+following areas drive the costs:  1) photo/checkout; 2) former cosmetic service areas; 3) carpets.”  
+There was no reference to the complete replacement of all fixtures in all remodeled stores.   
+71. On May 1, members of the Longs integration team reported on lessons learned from 
+the five “Beta” stores built in March.  The report mentioned potential changes to the store design 
+and concluded, “Save tens or hundreds of thousands of dollars by keeping some existing 
+elements.” 
+72. On May 22, the CVS real estate group circulated a “Longs Remodel Overview” 
+indicating that 420 stores were being remodeled to some extent.  361 stores would receive a “full 
+remodel” that included: 
+New CVS checkout:  this will require the removal of 1 or 2 grocery 
+style checkout lanes; 
+New CVS Photo Lab:  this will require the removal of the existing 
+Longs photo lab in order to accommodate the CVS design; 
+New Graphics/Wayfinding:  all existing Longs department and 
+merchandise graphics will be replaced with the standard CVS package; 
+ 15 
+New exterior signage:  replacement of existing Longs banner with 
+CVS/pharmacy. 
+The overview indicated that, despite the nomenclature, only 111 of the 361 “full remodel” stores 
+(fewer than one-third) were going to receive “replacement of existing wall and gondola fixtures.”     
+73. Although it did not involve the gutting of all stores to be operated for the long-term, 
+the final remodeling plan was more extensive than either CVS or its outside auditors had initially 
+expected. 
+The Longs PPA Adjustments Did Not Comply with GAAP 
+74. Under SFAS 141 (“Business Combinations”), an acquiring entity should allocate 
+the cost of the acquired entity to the assets and liabilities assumed “based on their estimated fair 
+values at [the] date of acquisition.”  [¶35.]  “Plant and equipment” should be valued at “current 
+replacement cost … unless the expected future use of the assets indicates a lower value.”  
+[¶37d(1).]   
+75. Under SFAS 141, an “allocation period” may be needed “to identify and measure 
+the fair value” of the assets and liabilities.  [Appendix F.]  The allocation period “is intended to 
+differentiate between amounts that are determined as a result of the identification and valuation 
+process … and amounts that are determined because information that was not previously 
+obtainable becomes obtainable.”  [¶B183.]  The allocation period “ends when the acquiring entity 
+is no longer waiting for information that it has arranged to obtain and that is known to be available 
+or obtainable.”  [Appendix F.]  In other words, a PPA adjustment is valid only if it is based on 
+information that the acquiring entity “has arranged to obtain” and that was “known to be available 
+or obtainable” on the acquisition date.
+4 
+76. Under SFAS 141, CVS could only make adjustments to the Longs PPA based on 
+information that was known or knowable as of the acquisition date on October 20, 2008.  Given the 
+facts set forth above, the PPA adjustments in the third quarter of 2009 (writing off $189 million of 
+personal property in the Longs stores) were not proper under SFAS 141 because: 
+a. They did not reflect CVS’s intended future use of those assets as of the 
+acquisition date on October 20, 2008; 
+b. They did not reflect information that was known or knowable to CVS as of 
+October 20, 2008; and  
+c. They did not account for CVS’s use of the assets to generate revenue after 
+October 20, 2008. 
+77. The conclusion that the write-off of assets supposedly discarded during the 
+remodeling process should not have been treated as a PPA adjustment is consistent with CVS’s 
+                                                 
+4 See also Staff Accounting Bulletin No. 103 (“The staff believes that the allocation period should not extend beyond 
+the minimum reasonable period necessary to gather the information that the registrant has arranged to obtain for 
+purposes of the estimate.”). 
+ 16 
+prior acquisitions, in which:  (1) CVS did not write off the assets in stores being remodeled; and 
+(2) subsequent decisions about which stores to close (not which stores to remodel) were the 
+primary reason for changes to the PPA.  
+78. Under SFAS 144 (“Accounting for the Impairment or Disposal of Long-Lived 
+Assets”),5 if CVS really had discarded $189 million of personal property in the third quarter of 
+2009, it should have: 
+  a. Written off $140 million of net book value (the original $189 million minus 
+the $49 million of depreciation to date) as an expense in the period in which it stopped using the 
+assets; and  
+  b. Left the $49 million of previously recorded depreciation unchanged.   
+79. With proper accounting, current-period expenses in the third quarter of 2009 would 
+have been as much as $189 million higher than was actually reported.  For the quarter, the failure 
+to recognize as much as $189 million of current-period expenses overstated operating profit by as 
+much as 13.7%, overstated income from continuing operations by as much as 12.5%, overstated 
+net income by as much as 12.5%, and overstated EPS by as much as 17% (as much as 9.3¢). 
+Violations 
+ 80. As a result of the conduct described above, Daniels: 
+  a. Violated Section 17(a)(2) and (3) of the Securities Act, which prohibits 
+making untrue or misleading statements of material fact or engaging in conduct which operates or 
+would operate as a fraud or deceit upon the purchaser in the offer and sale of securities.  Sections 
+17(a)(2)  and 17(a)(3) do not require a showing of  scienter.  Aaron v. SEC, 446 U.S. 680, 697 
+(1980); 
+  b. Violated Rule 13b2-1 promulgated under the Exchange Act, which 
+prohibits any person from directly or indirectly falsifying any books and records subject to Section 
+13(b)(2)(A) of the Exchange Act; 
+  c. Aided and abetted and caused CVS’s violations of Section 13(a) of the 
+Exchange Act and Rules 12b-20 and 13a-13 thereunder, which require an issuer to file accurate 
+quarterly reports with the Commission and require those reports to contain such further material 
+information as is necessary to make the required statements in the reports not misleading; 
+  d. Aided and abetted and caused CVS’s violations of Sections 13(b)(2)(A) and 
+13(b)(2)(B) of the Exchange Act, which require an issuer to make and keep books and records that 
+accurately and fairly reflect the dispositions of its assets, and to devise and maintain a system of 
+internal accounting controls sufficient to ensure that its transactions comport with Generally 
+Accepted Accounting Principles; and 
+                                                 
+5 FASB statements were codified for all interim periods ending after September 15, 2009.  SFAS 144 has been 
+codified as ASC 360, Property, Plant and Equipment. 
+ 17 
+  e. Pursuant to Rule 102(e)(1)(iii) of the Commission’s Rules of Practice, 
+willfully violated Section 17(a)(2) and (3) of the Securities Act and Rule 13b2-1 promulgated 
+under the Exchange Act, and also willfully aided and abetted and caused CVS’s violations of 
+Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 
+thereunder.6 
+Findings 
+ 81. Based on the foregoing, the Commission finds that Daniels:  (a) willfully violated 
+Section 17(a)(2) and (3) of the Securities Act and Rule 13b2-1 promulgated under the Exchange 
+Act; and (b) willfully aided and abetted and caused CVS’s violations of Sections 13(a), 
+13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.  
+ 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Daniels’ Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+A.  Daniels shall 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-13, and 13b2-1 thereunder and Section 17(a) of the Securities Act. 
+B. Daniels is denied the privilege of appearing or practicing before the Commission as 
+an accountant, pursuant to Rule 102(e)(1)(iii) of the Commission’s Rules of Practice.   
+C. After one year from the date of this order, Respondent may request that the 
+Commission consider his reinstatement by submitting an application (attention: Office of the Chief 
+Accountant) to resume appearing or practicing before the Commission as: 
+      
+1. a preparer or reviewer, or a person responsible for the preparation or 
+review, of any public company’s financial statements that are filed with 
+the Commission.  Such an application must satisfy the Commission that 
+Respondent’s work in his practice before the Commission will be 
+reviewed either by the independent audit committee of the public company 
+for which he works or in some other acceptable manner, as long as he 
+practices before the Commission in this capacity; and/or 
+ 
+2.    an independent accountant.  
+  
+ Such an application must satisfy the Commission that:  (a)  Respondent, or the public 
+accounting firm with which he is associated, is registered with the Public Company Accounting 
+                                                 
+6 As used in these findings, 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)).  
+ 18 
+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.   
+D.  The Commission will consider an application by Respondent to resume appearing 
+or practicing before the Commission provided that his state CPA license is current and he has 
+resolved all other disciplinary issues with the applicable state boards of accountancy.  However, 
+if state licensure is dependent on reinstatement by the Commission, the Commission will 
+consider an application on its other merits.  The Commission’s review may include consideration 
+of, in addition to the matters referenced above, any other matters relating to Respondent’s 
+character, integrity, professional conduct, or qualifications to appear or practice before the 
+Commission. 
+ 
+E. Respondent shall, within 10 days of the entry of this Order, pay a civil penalty in 
+the amount of $75,000 to 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 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 
+Laird Daniels 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, Associate 
+Regional Director, Boston Regional Office, Securities and Exchange Commission, 33 Arch Street, 
+Boston, MA 02110.   
+ By the Commission. 
+        
+ 
+       Jill M. Peterson 
+       Assistant Secretary 

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+                U.S. SECURITIES AND EXCHANGE COMMISSION 
+         Litigation Release No. 22968 / April 8, 2014 
+         Accounting and Auditing Enforcement Release No. 3549 / April 8, 2014 
+          Securities and Exchange Commission v. CVS Caremark Corp. , Civil Action No. 14-177-ML (D.R.I., April 8, 2014) 
+
+         SEC Charges CVS with Misleading Investors and Committing Accounting Violations 
+         
+
+ The Securities and Exchange Commission today charged CVS Caremark Corp. with misleading investors about significant financial setbacks and using improper accounting that artificially boosted its financial performance. 
+
+ CVS has agreed to pay $20 million to settle the charges. 
+
+ According to the SEC's complaint filed in federal court in Rhode Island, CVS has two business segments as a pharmacy benefits manager and a retail chain of drug stores.  In offering documents for a $1.5 billion bond offering in 2009, CVS fraudulently omitted that it had recently lost significant Medicare Part D and contract revenues in the pharmacy benefits segment.  Investors were therefore misled about the expected future financial results for that line of business.  When CVS eventually revealed the full extent of the setbacks on Nov. 5, 2009, its stock price fell 20 percent in one day.  CVS further misled investors on an earnings call that same day by maintaining there was a slight improvement in its "retention rate," which is a key metric of retained business often used to compare pharmacy benefits management companies.  But CVS omitted the fact that it had manipulated how it calculated the rate and concealed the full extent of its lost business. 
+
+ The SEC's complaint further alleges that CVS made improper accounting adjustments that overstated the financial results for its retail pharmacy line of business.  During the same 2009 timeframe, CVS altered the accounting treatment for its acquisition of another drug store chain - Longs Drugs - and failed to disclose the adjustments in its quarterly report filed on November 5.  CVS improperly reduced the value of $189 million of personal property in the Longs stores down to $0, and then reversed $49 million of depreciation that had been taken on those assets since the acquisition.  The undisclosed depreciation reversal increased the third-quarter earnings and enabled CVS to exceed analysts' expectations at a time when it was otherwise announcing significant bad news about earnings projections in its pharmacy benefits line of business.   
+
+ The SEC alleges that the improper accounting adjustments were orchestrated by Laird Daniels, who was the retail controller at CVS and is charged with accounting violations in a related SEC administrative proceeding.  According to the SEC's order against Daniels, proper accounting would have treated the asset write-down as a current period expense, and the third quarter earnings per share for CVS would have been reduced by as much as 17 percent.  As Daniels described in an e-mail, the dramatic change in accounting turned the acquisition of Longs Drugs from a "bad guy" to a "good guy" in terms of purported profitability for CVS. 
+
+ Daniels has agreed to settle the administrative case against him by paying a $75,000 penalty and being barred for at least one year from practicing as an accountant on behalf of any publicly traded company or other entity regulated by the SEC.  Without admitting or denying the allegations, Daniels agreed to the entry of a cease-and-desist order finding that he willfully violated Sections 17(a)(2) and (3) of the Securities Act of 1933 and Rule 13b2-1 under the Securities Exchange Act of 1934.  The order finds that Daniels willfully aided, abetted, and caused violations by CVS of the reporting, books and records, and internal control provisions of the federal securities laws. See Order Instituting 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, and Imposing Remedial Sanctions and a Cease-and-Desist Order, Administrative Proceeding File No. 3-15825, Securities Act  Release No. 9573 , Exchange Act Release No. 71896, Accounting and Audit Enforcement Release No. 3548 (April 8, 2014). 
+
+ The SEC's complaint charges CVS with violations of Section 10(b) of the Exchange Act and Rule 10b-5, and Section 17(a) of the Securities Act.  CVS also is charged with violations of the reporting, books and records, and internal control provisions of the federal securities laws.  In addition to the $20 million penalty, CVS consented to the entry of a final judgment permanently enjoining the company from violating various anti-fraud, books and records, and internal control provisions of the securities laws.  CVS neither admitted nor denied the allegations.  The settlement is subject to court approval.   
+
+ The SEC's investigation was conducted by Marc Jones, Frank Huntington, Ruth Anne Heselbarth, Amy Gwiazda, and Kevin Currid of the Boston Regional Office.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority (FINRA).   
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raw/aaer/2014/AAER-3550.txt

@@ -0,0 +1,103 @@
+ 
+ 
+UNITED STATES OF AMERICA  
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 71951 / April 15, 2014 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 3550 / April 15, 2014 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-13737  
+ 
+In the Matter of  
+Scott T. Veech, 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 January 6, 2010, Scott T. Veech, CPA (“Veech”) 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 Veech pursuant to Rule 102(e)(3)(i) of the 
+Commission's Rules of Practice.
+1  This order is issued in response to Veech’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 Veech participated in a fraudulent scheme which resulted in 
+Merge Healthcare Inc. (“Merge”) filing materially false and misleading financial statements in the 
+company’s annual report on Form 10-K for the fiscal years ended December 31, 2002, December 31, 
+2003 and December 31, 2004, and in the company’s quarterly reports on Form 10-Q for the first 
+three quarters of fiscal year 2005.  While serving as Merge’s Chief Financial Officer, Veech engaged 
+in improper accounting practices that materially increased the company’s annual and quarterly 
+revenue in a material departure from generally accepted accounting principles.  These practices 
+included, among other things, causing Merge to recognize revenue improperly on transactions in 
+which Merge promised specified future software enhancements to customers.  As a result, Veech 
+violated Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the 
+Securities Exchange Act (“Exchange Act”) and Rules 10b-5, 13a-14, 13b2-1 and 13b2-2 
+thereunder, and he aided and abetted violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) 
+of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. 
+                                                 
+1 See Accounting and Auditing Enforcement Release No. 3096 dated January 6, 2010.  Veech was permitted, 
+pursuant to the order, to apply for reinstatement after three years 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, Veech 
+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.  Veech 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, Veech’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 Veech, it appears that he has complied with the terms of the January 6, 2010 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 
+Veech, by undertaking to have his work reviewed by the independent audit committee of any 
+company for which he works, or in some other manner acceptable to the Commission, in his 
+practice before the Commission as a preparer or reviewer of financial statements required to be 
+filed with the Commission, has shown good cause for reinstatement.  Therefore, it is accordingly, 
+ 
+ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that 
+Scott T. Veech, 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  
+                                                 
+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 affor ded 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). 
+ 

raw/aaer/2014/AAER-3551.txt

@@ -0,0 +1,104 @@
+ 
+UNITED STATES OF AMERICA  
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 72005 / April 23, 2014 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 3551 / April 23, 2014 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-14044 
+ 
+In the Matter of  
+Anthony J. Price, CPA  
+ 
+: 
+: 
+: 
+: 
+: 
+: 
+ORDER GRANTING APPLICATION FOR 
+REINSTATEMENT TO APPEAR AND PRACTICE 
+BEFORE THE COMMISSION AS AN ACCOUNTANT 
+ 
+On September 13, 2010, Anthony J. Price, CPA (“Price”) was denied the privilege of 
+appearing or practicing as an accountant before the Commission as a result of settled public 
+administrative proceedings instituted by the Commission against Price pursuant to Section 4C of 
+the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) of the 
+Commission's Rules of Practice.1  This order is issued in response to Price’s application for 
+reinstatement to appear and practice before the Commission as an accountant. 
+ 
+Price was found to have engaged in improper professional conduct with respect to his 
+role on KMJ Corbin & Company LLP’s (“KMJ”) audits and reviews of Home Solutions of 
+America, Inc.’s financial statements for the year ended December 31, 2004 through the quarter 
+ended June 30, 2007.  The Commission found that, during the relevant period, Price’s actions 
+during the engagements were unreasonable and failed to conform to applicable professional 
+standards. Price failed to (i) obtain sufficient competent evidential matter regarding bonuses, 
+revenues, and cost of revenues with respect to KMJ’s 2004, 2005, and 2006 audit engagements; 
+(ii) comply with PCAOB Auditing Standard No. 3, Audit Documentation; (iii) adequately plan 
+the audit and properly supervise assistants in connection with the 2006 engagement; and (iv) 
+conduct reviews of interim financial information in accordance with PCAOB standards and 
+rules. 
+ 
+ 
+                                                 
+1 See Accounting and Auditing Enforcement Release No. 3185 dated September 13, 2010.  Price was permitted, 
+pursuant to the order, to apply for reinstatement after two years upon making certain showings. 
+Price has met all of the conditions set forth in the original order and, in his capacity as an 
+independent accountant, has stated that he will comply with all requirements of the Commission 
+and the Public Company Accounting Oversight Board, including, but not limited to all 
+requirements relating to registration, inspections, concurring partner reviews and quality control 
+standards.  In his capacity as a preparer or reviewer, or as a person responsible for the 
+preparation or review, of financial statements of a public company to be filed with the 
+Commission, Price 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.   
+ 
+Price is currently subject to probation under the California Board of Accountancy that is 
+scheduled to end in March 2016. Failure to abide by the terms of his probation could result in the 
+revocation of Price’s CPA license pending notice and an opportunity to be heard by the 
+California Board of Accountancy. Price has attested that he will notify the Commission if he is 
+found to have violated the terms of the probation. He also has attested that he understands that 
+the revocation of his CPA license could result in the revocation of his reinstatement to appear 
+and practice before the Commission as an accountant. 
+ 
+Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for 
+reinstatement, and provides that the Commission may reinstate the privilege to appear and 
+practice before the Commission “for good cause shown.”2  This “good cause” determination is 
+necessarily highly fact specific. 
+ 
+ On the basis of the information supplied, representations made, and undertakings agreed 
+to by Price, it appears that he has complied with the terms of the September 13, 2010 order 
+denying him the privilege of appearing or practicing before the Commission as an accountant, 
+that no information has come to the attention of the Commission relating to his character, 
+integrity, professional conduct or qualifications to practice before the Commission that would be 
+a basis for adverse action against him pursuant to Rule 102(e) of the Commission's Rules of 
+Practice, and that Price, by undertaking to have his work reviewed by the independent audit 
+committee of any company for which he works, or in some other manner acceptable to the 
+Commission, in his practice before the Commission as a preparer or reviewer of financial 
+statements required to be filed with the Commission, and that Price, by undertaking to comply 
+with all requirements of the Commission and the Public Company Accounting Oversight Board, 
+including, but not limited to, all requirements relating to registration, inspections, concurring 
+partner reviews and quality control standards, in his practice before the Commission as an 
+independent accountant has shown good cause for reinstatement.  Therefore, it is accordingly, 
+ 
+                                                 
+2 Rule 102(e)(5)(i) provides: 
+ 
+“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) 
+of this section may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a 
+hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated 
+by the Commission for good cause shown.”  17 C.F.R. § 201.102(e)(5)(i). 
+ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that 
+Anthony J. Price, CPA is hereby reinstated to appear and practice before the Commission as an 
+accountant. 
+ 
+By the Commission. 
+ 
+ 
+ 
+Jill M. Peterson  
+Assistant Secretary  
+ 

raw/aaer/2014/AAER-3552.txt

@@ -0,0 +1,284 @@
+UNITED STATES OF AMERICA 
+before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  72134 / May 9, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  3552 / May 9, 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 DENYING THE 
+DIVISION'S MOTION TO STRIKE 
+THE NOTICE OF WITHDRAWAL 
+OF APPEARANCE AND SETTING 
+A BRIEFING SCHEDULE 
+ 
+ 
+These administrative proceedings were instituted pursuant to Rule 102(e)(1)(iii) of our 
+Rules of Practice.1  They center on the alleged willful refusal of respondents, all accounting 
+firms located in the People's Republic of China, 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 (Dodd-
+Frank Act).2  On January 22, 2014, the law judge issued an initial decision.  That decision denied 
+the privilege of practicing or appearing before the Commission to four of the five respondents for 
+a period of six months.3  It censured the remaining respondent, Dahua CPA, Ltd. (Dahua).4 
+On February 12, 2014, the Division filed a petition for review and sought review of, 
+among other things, "that portion of the Initial Decision that would exclude Dahua from a 
+practice bar."  On February 21, DLA Piper LLP (DLA), which had previously entered an 
+appearance on behalf of Dahua and defended it in the proceedings before the law judge, filed a 
+Notice of Withdrawal of Appearance that purported to be effective February 26.  The notice did 
+                                                 
+1  17 C.F.R. § 201.102(e)(1)(iii). 
+2  15 U.S.C. § 7216(b)(1).  
+3  The petition for review and the motion for leave to adduce additional evidence filed by 
+these four respondents will be addressed by separate order. 
+4  Dahua was formerly affiliated with BDO International Limited and did business as BDO 
+China Dahua CPA Co., Ltd. 
+2 
+ 
+not provide a reason for the purported withdrawal and did not identify substitute counsel.  The 
+Division filed an opposition to the notice and moved to strike it.  DLA filed a response stating in 
+essence that the scope of its agreed-upon engagement with Dahua was limited to the hearing 
+before the law judge only and that it has been discharged as counsel.  Attached to the response is 
+a declaration by Zhang Yan, who is described as Dahua's "international liaison," reciting the 
+same facts. 
+On March 20, Dahua filed, "[p]ursuant to Rule of Practice 102(d)(2)," a notice of 
+appearance "by and through its representative partner Zhang Yan, 11/F B Block Union Square 
+5022 Binhe Road Shenzhen, China 518033, telephone no. +86 755 82966044, facsimile no. +86 
+755 82900965, email yan_zhang@dahua-cpa.com."  Dahua unqualifiedly represented that it 
+would "accept documents in English," "communicate with the Commission in English," and 
+"abide by the previously agreed terms of the . . . Stipulated Protective Order" and "all other 
+orders concerning confidential treatment of documents."
+5   
+DISCUSSION 
+We have determined to deny the Division's motion to strike DLA's notice of withdrawal. 
+A. The requirements of Rule of Practice 102(d)(4) 
+The Division argues that the Commission should strike the February 21 notice of 
+withdrawal under Rule of Practice 102(d)(4) because DLA has not established good cause 
+insofar as withdrawal would have an adverse effect on the orderly adjudication of this matter.  
+DLA responds that Rule 102(d)(4) does not require withdrawing counsel to offer a reason for 
+withdrawal and that Commission action is unnecessary to make its withdrawal effective.   
+In our view, a notice of withdrawal that complies with the technical requirements of Rule 
+102(d)(4) generally is self-effectuating; no additional showing of good cause need be made.  
+That rule provides, among other things, that "[a]ny person seeking to withdraw his or her 
+appearance in a representative capacity shall file a notice of withdrawal with the Commission 
+. . . . The notice shall be filed at least five days before the proposed effective date of the 
+withdrawal."
+6  We reject the Division's contention that italicized language of the rule—i.e., 
+"seeking" and "proposed"—implicitly confers upon us the discretion to strike (or otherwise to 
+reject) a notice of withdrawal whenever we deem appropriate.  As a countervailing textual 
+                                                 
+5  The document management system footer of Dahua's March 20 notice of appearance has 
+some similarities in formatting to that of DLA's February 21 notice of withdrawal (and filings by 
+DLA in other proceedings).  We do not draw any further conclusions, but we note that the 
+nondisclosure of attorney participation in the preparation of a filing might raise serious concerns.  
+Among other things, it could permit lawyers to evade the certifications required by Rule 153, 17 
+C.F.R. § 201.153.  See, e.g., Duran v. Carris, 238 F.3d 1268, 1273-74 (10th Cir. 2001) (per 
+curiam); Ellis v. Maine, 448 F.2d 1325, 1328 (1st Cir. 1971). 
+6  17 C.F.R. § 201.102(d)(4) (emphasis added). 
+3 
+ 
+matter, the rule's consistent use of the word "notice" (as opposed to "motion") is a strong 
+indication that a notice of withdrawal neither seeks nor requires Commission approval.7  
+Furthermore, we specifically revised Rule 102(d)(4) in 2004 to remove the prior requirement that 
+counsel file a motion to withdraw.  Our commentary accompanying the revisions makes clear 
+that the need for Commission action to make withdrawal effective was "eliminate[d]" and that 
+"only" notice was required.8  For these reasons, we conclude a notice of withdrawal properly 
+filed and served in accordance with Rule 102(d)(4) is effective without a showing of good cause. 
+This conclusion does not, however, dispose of the Division's motion to strike.  Standing 
+alone, the February 21 notice was deficient because it did not formally apprise an individual 
+authorized to act for Dahua of DLA's intent to withdraw its appearance on Dahua's behalf.  
+Nonetheless, as we also shall explain, under the circumstances of this case—and relying on 
+Dahua's representations as set forth in its March 20 notice of appearance—we find it unnecessary 
+to grant the Division's motion to strike and, accordingly, have determined to deny it. 
+B. DLA's notice of withdrawal was deficient because it was not properly served 
+on Dahua 
+The February 21 notice of withdrawal does not comply with Rule 102(d)(4) because it 
+does not reflect that it was served on anyone at Dahua, let alone someone with authority to 
+appear for Dahua under Rule 102(b).  Rule 102(d)(4) requires that a notice of withdrawal "be 
+served on the parties."
+9  This requirement ensures "timely notice to both the Commission and the 
+parties of the withdrawal."10  The "parties" include "any person named as a respondent," 
+necessarily embracing the respondent for which counsel entered an appearance.11  In other 
+words, we require that an attorney who wishes to withdraw his or her appearance serve the notice 
+of withdrawal on the attorney's own client—here, Dahua.   
+                                                 
+7   See, e.g., United States v. Harris, 491 F.3d 440, 444 (D.C. Cir. 2007) (contrasting a 
+"notice" with a "motion," which "means '[a]n application made to a court or judge'"). 
+8  Adopting Release, Exchange Act Release No. 49412, 2004 WL 503739, at *8 (Mar. 12, 
+2004), 69 Fed. Reg. 13166, 13169 (Mar. 19, 2004); see also Proposed Rule, Exchange Act 
+Release No. 48832, 2003 WL 22827684, at *8 (Nov. 23, 2003), 68 Fed. Reg. 68186, 68189 
+(Dec. 5, 2003) (explaining that the filing of a notice of withdrawal "does not require agency 
+action but informs the agency and parties of counsel's withdrawal"). 
+9  17 C.F.R. § 201.102(d)(4). 
+10  Proposed Rule, 2003 WL 22827684, at *8, 68 Fed. Reg. at 68189. 
+11  Rule 101(a)(8), 17 C.F.R. § 201.101(a)(8) (emphasis added).  By assumption, counsel 
+filing the notice of withdrawal desires to discontinue representing the respondent; in this context, 
+it would be an empty gesture if counsel seeking to withdraw merely notified itself.  
+4 
+ 
+When the respondent is an artificial entity (such as Dahua), it has no physical form and 
+can act only through its individual agents.12  A responsible individual at the client must be 
+formally apprised that the attorney no longer intends to act in a representative capacity.  
+Necessarily, the individual so notified must be someone who is authorized by our Rules of 
+Practice to step in and act for the client in the proceeding:  It should be plain that the lawyer 
+could not, for example, simply inform a parking lot attendant at the corporation of the 
+withdrawal.  Our requirement runs in tandem with an attorney's professional responsibilities, 
+which require that a withdrawing lawyer provide reasonable notice to the client so that the client 
+can look after its own interests.13  A partnership can be represented in our proceedings—and 
+therefore can protect its interests in that proceeding—only through an attorney or a "member."14  
+The February 21 notice did not on its face comply with Rule 102(d)(4)'s service requirement and 
+so was deficient under that rule.15 
+The present situation brings into sharp relief why adherence to this service requirement 
+protects the integrity of our administrative proceedings and promotes their just and orderly 
+determination.  The Division's petition for review, filed more than a week before the February 21 
+notice of withdrawal, explicitly seeks to increase the discipline imposed on Dahua.  It argues that 
+the Commission should enter an order barring Dahua from serving as a principal auditor and 
+issuing audit opinions and barring Dahua from playing a 50% or greater role in the preparation or 
+furnishing of an audit report filed with the Commission.  Additionally, we might on our own 
+initiative raise and determine any issues found to be material in the course of our review.16  
+Furthermore, portions of the record—e.g., material containing commercially sensitive, 
+proprietary information or sensitive inter-governmental communications—have been designated 
+"OUTSIDE COUNSEL'S EYES ONLY," and so cannot, by the terms of the stipulated protective 
+                                                 
+12  See, e.g., Daimler AG v. Bauman, 134 S. Ct. 746, 759 n.13 (2014); Bus. Guides, Inc. v. 
+Chromatic Commc'ns, 498 U.S. 533, 548 (1991). 
+13  E.g., D.C. R. Prof'l Conduct R. 1.16(d) ("In connection with any termination of 
+representation, a lawyer shall take timely steps to the extent reasonably practicable to protect a 
+client's interests, such as giving reasonable notice to the client . . . ."); N.Y. Code Prof'l 
+Responsibility DR 2-110(A)(2) ("A lawyer shall not withdraw from employment until the lawyer 
+has taken steps to the extent reasonably practicable to avoid foreseeable prejudice to the rights of 
+the client, including giving due notice to the client . . . ."). 
+14  Rule 102(b), 17 C.F.R. § 201.102(b). 
+15  We note also that the February 21 notice identified the respondent merely as "Dahua 
+CPA, Ltd., 12th Floor, 7th Building, No. 16 Xi Si Huan Zhong Road, HaiDan District, Beijing, 
+China 100039 (attn.: Gaolei Li, Executive Assistant to Managing Partner, tel. +86 10 5835 0046, 
+ligaolei@dahuacpfi.com)."  It is not apparent that Li, whose title is given as an "Executive 
+Assistant to Managing Partner," would be authorized to appear on behalf of Dahua. 
+16  Rule 411(d), 17 C.F.R. § 201.411(d). 
+5 
+ 
+order, be reviewed directly by any respondent.17  The same would be true of any briefs filed in 
+the proceeding that cite or reference such material.  And of course, we expect even unrepresented 
+parties to comply with our rules, to file all required papers, and to comply with all orders:  
+"Parties, including those appearing pro se, are obligated to familiarize themselves with the Rules 
+of Practice."18  Failure to make a required filing may result in the imposition of sanctions, which 
+may include the entry of a default, the making of an adverse finding as to particular matters, or 
+the determination of the proceeding on the basis of the other side's evidence or briefing.19   
+These circumstances illustrate why we have an interest in being assured that when an 
+attorney seeks to withdraw, he or she has properly informed someone authorized to act for the 
+client that the client thereafter must represent itself or obtain substitute counsel.20  Indeed, our 
+Rules of Practice anticipate that when an attorney does withdraw, the respondent immediately 
+will "keep current" its notice of appearance to designate a new individual authorized to represent 
+the entity under Rule 102(b).21  We insist that parties "keep the information contained in the 
+                                                 
+17  It is undisputed that the stipulated protective order continues to bind DLA and Dahua.  
+The Commission retains jurisdiction to ensure that obligations thereunder are, and will continue 
+to be, appropriately discharged.  See Rule 102(e)(1)(ii), 17 C.F.R. § 201.102(e)(1)(ii); D.C. R. 
+Prof'l Conduct R. 3.4(c). 
+18  Adopting Release, Rules of Practice, Exchange Act Release No. 35833, 1995 WL 
+368865, at *36 (June 9, 1995), 60 Fed. Reg. 32738, 32754 (June 23, 1995). 
+19  Rule 180(c) & cmt. (c), 17 C.F.R. § 201.180(c). 
+20  Cf. D.C. R. Prof'l Conduct R. 1.16(b) (providing that a lawyer ordinarily may withdraw 
+only if doing so "can be accomplished without material adverse effect" on the client's interests).  
+Nothing herein should be understood as receding from our oft-stated views that the "Commission 
+does not have a general obligation to ensure the competence or suitability of . . . representation," 
+Kevin Hall, CPA, Exchange Act Release No. 61162, 2009 WL 4809215, at *21 (Dec. 14, 2009), 
+and that respondents do not have a statutory or constitutional right to appointment of counsel in 
+our administrative proceedings, Demitrios Julius Shiva, Exchange Act Release No. 38389, 1997 
+WL 112328, at *3 n.14 (Mar. 12, 1997).  We may choose in appropriate circumstances to 
+exercise our authority to require compliance with our rules and to protect the integrity of our 
+processes, but we do not thereby assume the responsibility in every case to superintend the 
+relationship between respondents and their attorneys.  See, e.g., Tamenut v. Mukasey, 521 F.3d 
+1000, 1005 (8th Cir. 2008) (en banc) (explaining "the mere fact that the [the agency] has 
+acknowledged the existence of its authority to [act] sua sponte in what it deems to be 
+'exceptional situations' is not sufficient to establish" when "the [agency] is required to [act] on its 
+own motion") (emphasis in original). 
+21  Rule 102(d)(2), 17 C.F.R. § 201.102(d)(2) (requiring parties to "file with the 
+Commission" and "keep current" contact information). 
+6 
+ 
+notice . . . up-to-date" to ensure the "expeditious service of orders as well as other efforts to 
+contact a party."22   
+C. It is unnecessary to grant the Division's motion to strike 
+Although the February 21 notice of withdrawal was by itself deficient, as supplemented 
+by Yan's declaration attached to DLA's response and Dahua's March 20 notice of appearance, the 
+record now shows that Dahua has been fully apprised of DLA's withdrawal and has chosen to 
+represent itself.  Dahua eventually did a file a notice of appearance by and through a responsible 
+"representative partner" with current contact information.  Relying on that fact—as well as 
+accepting Dahua's representations in its March 20 notice—we deny the Division's motion to 
+strike DLA's notice of withdrawal.  We direct that Dahua be served by email as well as by mail 
+to ensure that it expeditiously receives orders, decisions, and other papers. 
+* * * 
+By separate order, we granted the Division's petition for review of the law judge's initial 
+decision; in that order, we also determined, on our own initiative, to review what sanctions, if 
+any, are appropriate in this matter.23  Accordingly, IT IS ORDERED, pursuant to Rule 450(a), 
+that the Division and Dahua shall file briefs as follows:24 
+ 
+Opening brief:  The Division shall file an opening brief, not to 
+exceed 5,000 words, by June 23, 2014.  The brief shall be limited 
+to the scope of remedies imposed on Dahua. 
+ 
+Response brief:  Dahua shall file a response brief, not to exceed 
+5,000 words, by August 7, 2014.  The brief shall be limited to 
+responding to the Division's opening brief. 
+ 
+Because Dahua did not file a petition for review or a cross-petition for review, it is not 
+entitled to challenge any of the findings or conclusions made by the law judge.25  As provided by 
+Rule 450(a), no briefs in addition to those specified in this schedule may be filed without leave 
+                                                 
+22  Adopting Release, 1995 WL 368865, at *21, 60 Fed. Reg. at 32747; id. at *28, 60 Fed. 
+Reg. at 32750 ("The notice [of appearance] will provide an address of record where the party can 
+be served with subsequent orders."). 
+23  That order is being issued concurrently with this one. 
+24  17 C.F.R. § 201.450(a). 
+25  Rule 410(b), 17 C.F.R. § 201.410(b); Jacob Wonsover, Exchange Act Release No. 41123, 
+1999 WL 100935, at *11 & n.63 (Mar. 1, 1999); cf. El Paso Natural Gas Co. v. Neztsosie, 526 
+U.S. 473, 479 (1999) (explaining the "firmly entrenched rule" that, "[a]bsent a cross-appeal, an 
+appellee . . . may not attack the decree with a view either to enlarging his own rights thereunder 
+or of lessening the rights of his adversary") (quotation marks omitted). 
+7 
+ 
+of the Commission.26  Pursuant to Rule 180(c), failure by the Division to file a brief in support of 
+the petition may result in dismissal of this review proceeding.27  Failure by Dahua to file a 
+response brief may result in determination of the proceeding as to Dahua on the basis of only the 
+opening brief and the Commission's consideration of the record or such other sanction as the 
+Commission finds appropriate under Rule 180(c).
+28 
+ 
+We remind the parties that two versions of each document containing information subject 
+to the stipulated protective order must be filed:  (1) a complete version of the document marked 
+"CONFIDENTIAL" for filing under seal and (2) a redacted version of the same document for the 
+public file.   
+ 
+By the Commission. 
+ 
+ 
+      Lynn M. Powalski 
+      Deputy Secretary 
+                                                 
+26  Attention also is called to Rules 150-153, 17 C.F.R. §§ 201.150-153, with respect to form 
+and service, and Rule 450(b) and (c), 17 C.F.R. §§ 201.450(b), 201.450(c), with respect to 
+content and length limitations (except as modified in this order).  Requests for extensions of time 
+to file briefs or for additional words are disfavored. 
+27  17 C.F.R. § 201.180(c). 
+28  Id.; see also Casco Indem. Co. v. R.I. Interlocal Risk Mgmt. Trust, 113 F.3d 2, 3-4 (1st 
+Cir. 1997); United States v. Everett, 700 F.2d 900, 902-03 n.5 (3d Cir. 1983). 

raw/aaer/2014/AAER-3553.txt

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+UNITED STATES OF AMERICA 
+before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 72140 / May 9, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3553 / May 9, 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 
+ADDUCE ADDITIONAL 
+EVIDENCE AND GRANTING THE 
+PETITIONS FOR REVIEW 
+ 
+ 
+These administrative proceedings, instituted pursuant to Rule of Practice 102(e)(1)(iii), 
+center on 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 (Dodd-Frank 
+Act).1  Four of the five respondents, Ernst & Young Hua Ming LLP (E&Y), KPMG Huazhen 
+(Special General Partnership) (KPMG), Deloitte Touche Tohmatsu Certified Public Accountants 
+Ltd. (DTTC), and PricewaterhouseCoopers Zhong Tian CPAs Limited (PwC), have petitioned 
+for review of the initial decision issued by the law judge on January 22, 2014.2  The Division of 
+Enforcement (Division) has filed a petition for review as to the scope of the remedies imposed by 
+the initial decision.  In addition, the same four respondents also filed a motion for leave to 
+adduce additional evidence.  The Division opposes this motion and, in the alternative, seeks 
+leave to adduce its own additional evidence.  We have determined to grant the motions to adduce 
+additional evidence and the petitions for review. 
+                                                 
+1  15 U.S.C. § 7216(b)(1); 17 C.F.R. § 201.102(e)(1)(iii). 
+2  BDO China Dahua CPA Co., Initial Decision Release No. 553, 2014 WL 242879 (Jan. 
+22, 2014).  The remaining respondent, BDO China Dahua CPA Co., Ltd., did not file a petition 
+for review.  Its counsel, DLA Piper LLP, filed a notice of withdrawal of appearance, which the 
+Division has moved to strike.  These matters will be addressed by a separate order, which is 
+being issued concurrently with this one.  
+2 
+ 
+BACKGROUND 
+A. The orders instituting proceedings   
+We issued the orders instituting proceedings in May 2012 and December 2012 and 
+consolidated them for hearing.3  The OIPs alleged that each respondent is a foreign public 
+accounting firm located in China and, within China, supervised and regulated by, inter alia, the 
+China Securities Regulatory Commission (CSRC).  Respondents performed audit work for ten 
+clients—DTTC Client A and Clients A through I—based in China.  The Division had or has 
+ongoing fraud investigations concerning those clients, each of which is a U.S. issuer whose 
+securities were registered with the Commission.  
+According to the OIPs, at various times between March 2011 and April 2012, the 
+Division served requests for audit work papers pertaining to those clients on respondents through 
+respondents' designated U.S. agents.  These requests were made pursuant to Section 106(b) of 
+the Sarbanes-Oxley Act, which provides that a foreign accounting firm that, among other things, 
+"issues an audit report, performs audit work, or conducts interim reviews" is required to "produce 
+the audit work papers . . . and all other documents of the firm related to any such audit work or 
+interim review to the Commission . . . , upon request of the Commission."4  The OIPs alleged 
+that each respondent, after receiving the Commission's requests, informed the staff that it would 
+not produce the documents on the ground that it interpreted Chinese law as preventing firms 
+from giving audit work papers directly to U.S. regulators.  As of the issuance of the OIPs, the 
+Commission did not have possession of any of the requested work papers.   
+The OIPs alleged that respondents violated Section 106(e), which provides that a "willful 
+refusal" of an accounting firm to "comply, in whole or in part, with any request by the 
+Commission . . . shall be deemed a violation" of the Sarbanes-Oxley Act.5  The Division sought 
+to impose remedies under Rule of Practice 102, which provides 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 by the Commission" to have "willfully violated . . . any 
+provision of the Federal securities laws."6  
+                                                 
+3  Deloitte Touche Tohmatsu Certified Pub. Accountants Ltd., Exchange Act Release No. 
+66948, 2012 WL 1612081 (May 9, 2012); BDO China Dahua CPA Co., Exchange Act Release 
+No. 68335, 2012 WL 5994345 (Dec. 3, 2012). 
+4  15 U.S.C. § 7216(b)(1).  Unless otherwise specified, all references to statutory sections 
+will be to the Sarbanes-Oxley Act, as amended by Section 929J of the Dodd-Frank Act. 
+5  Id. § 7216(e).  A violation of the Sarbanes-Oxley Act is "treated for all purposes in the 
+same manner as a violation" of the Securities Exchange Act of 1934.  Id. § 7202(b)(1). 
+6  17 C.F.R. § 201.102. 
+3 
+ 
+B. The law judge's initial decision 
+Before the law judge, respondents argued that they did not "willfully refuse" to comply 
+with the Commission's requests and that they acted in good faith.  They claimed that they were 
+willing to produce the requested work papers, but that Chinese law prevented them from doing 
+so directly.  They argued that they had offered to provide the CSRC with the documents and 
+believed that the Commission would be able to obtain them after discussions with the CSRC.  
+After hearing testimony, the law judge issued an initial decision finding that respondents had 
+willfully violated Section 106 and imposing remedies pursuant to Rule 102(e). 
+In large part, the law judge credited respondents' assertion that their refusal to produce 
+the work papers was "driven by their concerns over potentially draconian Chinese law."7  But he 
+concluded that, as a matter of law, the motive for respondents' refusal was immaterial to whether 
+they had "willfully refused" to comply with the Commission's requests within the meaning of 
+Section 106(e).8  According to the initial decision, "'willful refusal to comply' means 'choosing 
+not to act after receiving notice that action was requested,' without regard to good faith."9  
+Next, the initial decision rejected respondents' reliance on Section 106(f), which provides 
+that "the staff of the Commission . . . may allow a foreign public accounting firm . . . to meet 
+production obligations . . . through alternate means, such as through foreign counterparts of the 
+Commission."10  Respondents argued that the Commission had tried to obtain the work papers 
+for certain clients through the CSRC, and therefore could not sanction them for refusing to 
+directly produce the work papers.  The law judge disagreed.  He concluded that Section 106 
+authorized the Commission to pursue "multiple possible avenues for obtaining documents" and 
+that "[n]othing compels the Commission to use one avenue rather than another."11 
+Turning to the issue of remedies, the initial decision denied, for a period of six months, 
+the privilege of practicing or appearing before the Commission to the four appealing 
+respondents; it also censured respondent Dahua.  The law judge determined, among other things, 
+that remedial measures were warranted on the ground that "future violations [were] virtually 
+certain because Respondents consider themselves unable to produce audit work papers directly to 
+the Commission even under any future Sarbanes-Oxley 106 request."12 
+Finally, the law judge denied respondents' post-hearing motion to supplement the record 
+with exhibits showing, in respondents' view, that the Commission can feasibly obtain work 
+                                                 
+7  BDO China Dahua CPA Co., 2014 WL 242879, at *80. 
+8  Id. at *70. 
+9  Id. at *64. 
+10  15 U.S.C. § 7216(f). 
+11  BDO China Dahua CPA Co., 2014 WL 242879, at *76. 
+12  Id. at *78. 
+4 
+ 
+papers through the CSRC.  According to respondents, several sets of work papers have already 
+been turned over to the Commission and substantial progress has been made with respect to the 
+remainder.  The law judge stated that the evidence, which respondents sought to add after the 
+close of the record, was "potentially exculpatory."13  But he found that there was "no good cause 
+to reopen the record" because the "probative value" of the evidence was "unclear" and because 
+he could not "evaluate the relevance and weight of such evidence without hearing from live 
+witnesses."14  He believed that the "better approach" was for respondents "to petition the 
+Commission to adduce additional evidence" when the matter was appealed.15 
+DISCUSSION 
+We have determined to grant respondents' motion for leave to adduce additional 
+evidence, the Division's cross-motion in the alternative for leave to adduce other additional 
+evidence, and the petitions for review. 
+A. The motion and cross-motion for leave to adduce additional evidence 
+Respondents seek leave to adduce the exhibits that the law judge declined to admit, as 
+well as several other documents reflecting subsequent production activity through the CSRC 
+("Respondents' Additional Evidence").16  They argue that the evidence proves that their 
+production obligations as to many of the requested work papers have already "been satisfied 
+under Section 106(f)."  They also argue that it demonstrates that the "CSRC is an alternative 
+means of production," which both vindicates respondents' good faith and makes the Section 106 
+requests unenforceable.  Respondents further contend that their additional evidence "undermines 
+the sanction proposed by the Initial Decision" by showing that the Commission will be able to 
+obtain work papers through the CSRC in the future. 
+The Division opposes respondents' motion on the ground that Respondents' Additional 
+Evidence is not, in the Division's view, material.  According to the Division, that evidence 
+merely "support[s] legal theories that the Initial Decision and other [law judge] rulings properly 
+rejected."  It argues that the evidence has "no bearing" on whether respondents violated Section 
+106(e) or the remedial measures to be imposed under Rule 102 because the "Initial Decision 
+rejected all of respondents' legal arguments that could conceivably make [Respondents'] 
+Additional Evidence relevant."  Finally, and in the alternative, the Division cross-moves for 
+                                                 
+13  Id. at *83. 
+14  Id. 
+15  Id. 
+16  Respondents' Additional Evidence consists of proposed Exhibits 654 through 677. 
+5 
+ 
+leave to adduce its own evidence (the "Division's Additional Evidence") that provides context as 
+to the extent, completeness, and timeliness of the productions through the CSRC.17 
+We have determined to grant respondents' motion and the Division's cross-motion.  Rule 
+of Practice 452 permits a party to submit additional evidence "at any time prior to issuance of a 
+decision by the Commission" as long as the party can "show with particularity" (1) that such 
+additional evidence is material" and (2) "that there were reasonable grounds for failure to adduce 
+such evidence previously."18  Each of these elements is satisfied here. 
+We find that the materiality element of Rule 452 is satisfied at this juncture of the 
+proceedings.  We appreciate that the parties fundamentally disagree as the correct construction of 
+Section 106 and as to the inferences that should be drawn from the proffered evidence.  At 
+bottom, the Division's opposition is premised on the immateriality of the evidence in light of the 
+Division's own reading of Section 106.  In other words, the Division argues that the evidence 
+could not possibly make a difference under its theory of the case, which prevailed before the law 
+judge.  We are unwilling to deny respondents' motion on this basis, as doing so would be 
+tantamount to summarily affirming the initial decision.19  Instead, we will defer assessment of 
+the probative value that should ultimately be afforded the additional evidence until we have 
+received the benefit of full briefing and argument, reviewed the record in its entirety, and 
+resolved the merits of the petitions for review.20  Like any other ruling on admissibility, our 
+ruling in this regard is by nature subject to revision until issuance of a final decision.21   
+It is undisputed that Rule 452's timeliness element is satisfied, and we so find.  The 
+developments relating to productions through the CSRC did not take place until after the close of 
+                                                 
+17  The Division's Additional Evidence consists of proposed Exhibits 359 through 375.  
+Respondents do not oppose the cross-motion to adduce the Division's Additional Evidence. 
+18  17 C.F.R. § 201.452. 
+19  Cf. Rule 411(e)(2), 17 C.F.R. § 201.411(e)(2) ("The Commission may grant summary 
+affirmance if it finds that no issue raised in the initial decision warrants consideration by the 
+Commission of further oral or written argument."). 
+20  Put another way, we will take into consideration the additional evidence, but we do not in 
+so doing commit ourselves to giving it any particular—or, indeed, any—weight in exculpation or 
+mitigation.  See generally Morris v. Sec'y, Dep't of Corr., 677 F.3d 1117, 1131 (11th Cir. 2012); 
+Time Warner Entm't Co., L.P. v. FCC, 56 F.3d 151, 175 (D.C. Cir. 1995).   
+21  optionsXpress, Inc., Exchange Act Release No. 70698, 2013 WL 5635987, at *3 & n.12 
+(Oct. 16, 2013).  As respondents correctly recognize, the "Commission can resolve the exact 
+legal import" of the additional evidence "in the course of [the] appeal." 
+6 
+ 
+the hearing and the evidence, which reflects those developments, was unavailable earlier.22  We 
+find that there are "reasonable grounds for failure to adduce" the evidence earlier.  
+For the above reasons, we have determined that the requirements of Rule 452 are 
+satisfied as to Respondents' Additional Evidence and the Division's Additional Evidence.  
+Accordingly, it is ORDERED that respondents' motion to adduce additional evidence and the 
+Division's cross-motion to adduce additional evidence are GRANTED.  Respondents' Additional 
+Evidence and the Division's Additional Evidence are hereby received into the record. 
+ B. The petitions for review 
+We turn next to the parties' petitions for review.  Upon due consideration, and pursuant to 
+Rule of Practice 411, the petitions for review of the law judge's initial decision are GRANTED.23  
+Pursuant to Rule of Practice 411(d), the Commission also will determine what sanctions, if any, 
+are appropriate in this matter.24 
+ 
+We designate respondents as the side that will file the opening brief.25  Accordingly, IT 
+IS ORDERED, pursuant to Rule of Practice 450(a), that briefs shall be filed as follows:26 
+ 
+Respondents' opening brief:  E&Y, KMPG, DTTC, and PwC shall 
+file a single consolidated brief, not to exceed 28,000 words, by 
+June 23, 2014.  
+ 
+Division's principal and response brief:  The Division shall file a 
+brief, not to exceed 28,000 words, by August 7, 2014.  This brief 
+must address the issues presented by the Division's petition for 
+review and respond to respondents' opening brief. 
+ 
+  
+ 
+ 
+                                                 
+22  E.g., Citizens Capital Corp., Exchange Act Release No. 67313, 2012 WL 2499350, at *8 
+(June 29, 2012); Vladlen Larry Vindman, Exchange Act Release No. 53654, 2006 WL 985308, 
+at *9 n.51 (Apr. 14, 2006). 
+23  17 C.F.R. § 201.411. 
+24  17 C.F.R. § 201.411(d). 
+25  Adopting Release, Rules of Practice, Exchange Act Release No. 35833, 1995 WL 
+368865, at *91 (June 9, 1995), 60 Fed. Reg. 32738, 32778 (June 23, 1995). 
+26  17 C.F.R. § 201.450(a). 
+7 
+ 
+Respondents' response and reply brief:  E&Y, KMPG, DTTC, and 
+PwC shall file a single consolidated brief, not to exceed 16,000 
+words, by August 27, 2014.  
+ 
+Division's reply brief:  The Division may file a reply brief, not to 
+exceed 2,000 words, by September 8, 2014.  This brief must be 
+limited to the issues presented by the Division's petition for review. 
+ 
+By separate order, the Commission shall provide for briefing on the Division's petition 
+for review insofar as it seeks to challenge the scope of remedies imposed on Dahua.27  As 
+provided by Rule of Practice 450(a), no briefs in addition to those specified in this schedule may 
+be filed without leave of the Commission.28  Pursuant to Rule of Practice 180(c), failure to file a 
+brief in support of the petition may result in dismissal of this review proceeding.29   
+ 
+It is further ORDERED that the parties shall confer and prepare an appendix that 
+reproduces without argument or commentary the foreign law materials in the record upon which 
+they rely (including any applicable orders, regulations, directives, or letters), along with 
+translations of any document in a foreign language.30  The materials shall be set out in 
+chronological order by date of issuance or promulgation and must be consecutively paginated to 
+facilitate citation to the appendix in the parties' briefs.  The appendix must contain a table of 
+contents describing each item included, the original location of that item in the record, and the 
+page of the appendix on which it begins.  Respondents shall file and serve the appendix at the 
+same time that they file and serve their opening brief.  
+ 
+Finally, it is ORDERED that the Stipulated Protective Order entered by the law judge on 
+May 9, 2013, as modified by the Joint Stipulation and Amendment to Stipulated Protective Order 
+entered July 29, 2013, shall remain in effect.  Two versions of each document containing 
+information subject to the protective order must be filed:  (1) a complete version of the document 
+marked "CONFIDENTIAL" for filing under seal and (2) a redacted version of the same 
+document for the public file.  The Commission reserves the authority to reach a different 
+                                                 
+27  See supra note 2. 
+28  Attention also is called to Rules of Practice 150-153, 17 C.F.R. §§ 201.150-153, with 
+respect to form and service, and Rule of Practice 450(b) and (c), 17 C.F.R. §§ 201.450(b), 
+201.450(c), with respect to content and length limitations (except as modified in this order).  
+Requests for extensions of time to file briefs or for additional words are disfavored. 
+29  17 C.F.R. § 201.180(c). 
+30  Where an agreed translation is unavailable, each party shall submit its own preferred 
+version along with any applicable translator's certificate.  See, e.g., Pittway Corp. v. United 
+States, 88 F.3d 501, 503 n.1 (7th Cir. 1996).  
+8 
+ 
+conclusion regarding the confidentiality of the information covered by the May 9 and July 29 
+orders at any time before it finally determines the issues raised in this proceeding.31 
+ 
+By the Commission. 
+ 
+ 
+      Lynn M. Powalski 
+      Deputy Secretary 
+ 
+ 
+                                                 
+31  See, e.g., Kevin Hall, Exchange Act Release No. 60346, 2009 WL 2149222, at *2 (July 
+20, 2009). 

raw/aaer/2014/AAER-3554.txt

@@ -0,0 +1,315 @@
+UNITED STATES OF AMERICA 
+Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 72198 / May 20, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3554 / May 20, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-15876 
+ 
+ 
+In the Matter of 
+ 
+JAMES T. ADAMS, 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  
+  
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate 
+that public administrative and cease-and-desist proceedings be, and hereby are, instituted 
+against James T. Adams, CPA (“Respondent” or “Adams”), 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.  
+                                                 
+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 have engaged in unethical or improper professional conduct. 
+ 
+2  Rule 102(e)(1)(ii) provides, in relevant 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 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
+3 that: 
+ 
+A. SUMMARY  
+ 
+This matter involves issues of auditor independence and improper professional 
+conduct arising from the repeated acceptance of tens of thousands of dollars in casino 
+markers by James T. Adams, CPA in 2009 from a casino gaming issuer (“Casino Gaming 
+Issuer”).  At the time, Adams was the Chief Risk Officer of Deloitte LLP and a partner of 
+Deloitte & Touche LLP (“D&T”).  The Casino Gaming Issuer was an attest client of 
+D&T, and from January 20, 2009 until January 13, 2010, Adams served as the advisory 
+partner on D&T’s audit engagements for that issuer.  During the audit and professional 
+engagement period for D&T’s audit of the Casino Gaming Issuer’s financial statements 
+for its fiscal year ended December 31, 2009, Adams sought and received casino markers 
+from a casino of the Casino Gaming Issuer.  The transactions by which Adams received 
+the casino markers were prohibited “loans” under Rule 2-01(c)(1)(ii) of Regulation S-X.  
+These loans impaired D&T’s independence with regard to its audit client.  Through his 
+actions, Adams caused D&T to violate Rule 2-02(b)(1) of Regulation S-X and caused the 
+Casino Gaming Issuer to violate Section 13(a) of the Exchange Act and Rule 13a-1 
+promulgated thereunder.   
+ 
+B. RESPONDENT 
+ 
+ Adams was the Chief Risk Officer of Deloitte LLP (“Deloitte”) from September 
+2005 through May 29, 2010.  Additionally, Adams was a partner of D&T, a Deloitte 
+subsidiary, from June 1985 through May 29, 2010.  Adams worked for Deloitte and/or 
+D&T and their predecessor entities from June 1974 until he retired in May 2010.  Adams, 
+                                                 
+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 
+age 62, resides in California.  He obtained a license as a Certified Public Accountant 
+(“CPA”) in Georgia in November 1974 and in California in September 2002.  At the time 
+of his actions discussed herein, Adams was a licensed CPA in the States of Georgia and 
+California.  His licenses are currently inactive.  
+ 
+ C. RELEVANT ENTITIES 
+ 
+ 1. Deloitte is a Delaware limited liability partnership.  It is the U.S. member 
+firm of Deloitte Touche Tohmatsu Limited, a U.K. private company limited by guarantee.  
+Deloitte has four main subsidiaries – D&T, Deloitte Tax LLP, Deloitte Consulting LLP, 
+and Deloitte Financial Advisory Services LLP – that provide audit and enterprise risk 
+services, tax, consulting, and financial advisory services, respectively.  Deloitte does not 
+provide client services; services are performed by the subsidiaries. 
+ 
+2. D&T is a Delaware limited liability partnership.  It is a subsidiary of 
+Deloitte that provides audit and other attest services and enterprise risk services to clients.  
+D&T is registered with the Public Company Accounting Oversight Board (“PCAOB”).  At 
+all relevant times, D&T provided auditing and other services to a variety of casino 
+entertainment and hospitality companies, including companies whose securities are 
+registered with the Commission and trade on the U.S. markets.   
+ 
+3. Casino Gaming Issuer is incorporated in Delaware and is a casino 
+entertainment and hospitality provider.  At all times relevant to these proceedings, Casino 
+Gaming Issuer was an attest client of D&T.  At the time of Adams’ conduct described 
+herein, the common stock of the Casino Gaming Issuer was registered with the 
+Commission pursuant to Section 12(g) of the Exchange Act, and the issuer filed periodic 
+reports with the Commission pursuant to Section 13 of the Exchange Act.   
+ 
+D. FACTS  
+ 
+1.  From January 20, 2009 until January 13, 2010, Adams served as the 
+advisory partner on D&T’s attest engagements of Casino Gaming Issuer.  He worked on 
+the firm’s audits of the issuer’s financial statements for its fiscal years ended December 31, 
+2008 and December 31, 2009.  An advisory partner is a senior partner who is part of the 
+audit engagement team.  As the advisory partner on the Casino Gaming Issuer audit 
+engagements, Adams primarily served as a liaison between D&T and the issuer’s 
+management and audit committee. 
+ 
+2.  Adams had regular contact with Casino Gaming Issuer’s management and 
+the audit committee of its board of directors.  Adams was invited to, and attended, certain 
+of the issuer’s audit committee meetings and participated in audit committee conference 
+calls and the review of audit committee materials.   
+ 
+3.  While Adams was serving as the advisory partner on D&T’s 2009 Casino 
+Gaming Issuer audit, he sought and received casino markers from a casino operated by the 
+issuer.  He visited the casino at least five times during this period and signed a number of 
+ 4 
+casino “markers.”  A casino marker is an instrument utilized by a casino customer to 
+receive gaming chips drawn against the customer’s line of credit at the casino.  Adams had 
+opened a line of credit with the casino on June 9, 2004 and increased that line of credit 
+from $100,000 to $110,000 on December 16, 2009. 
+ 
+4. Adams drew down his line of credit by using markers at the Casino 
+Gaming Issuer’s casino while he was the advisory partner for D&T’s Casino Gaming 
+Issuer 2009 audit engagement.  Specifically, on July 29, 2009, Adams drew markers, 
+$85,000 of which remained outstanding for a period of 43 days.  On September 15, 2009, 
+he drew markers, $3,000 of which remained outstanding for a period of 13 days and 
+$70,000 of which remained outstanding for a period of 27 days.  On October 13, 2009, 
+Adams drew markers, $110,000 of which remained outstanding for a period of 38 days.  
+On December 8, 2009, he drew markers, $100,000 of which remained outstanding for 
+seven days.  On December 16, 2009, Adams drew markers, $110,000 of which remained 
+outstanding.   
+ 
+5. On January 13, 2010, D&T removed Adams from the Casino Gaming 
+Issuer 2009 audit engagement, for reasons that were not based on his use of casino 
+markers.  Adams subsequently defaulted on the $110,000 of outstanding markers that he 
+drew on December 16, 2009. 
+ 
+6. Adams concealed from D&T the fact that he had drawn casino markers 
+from Casino Gaming Issuer and in fact lied to a D&T partner when he was asked 
+generally if he had casino markers from attest clients of the firm.  Accordingly, at the 
+time that Adams retired, D&T was not aware of his casino markers from Casino Gaming 
+Issuer.   
+ 
+ 7. On March 9, 2010, Casino Gaming Issuer filed its annual Report on Form 
+10-K for its fiscal year ended December 31, 2009.  The annual report included a D&T 
+audit report that stated that its audit of the financial statements of Casino Gaming Issuer 
+had been conducted in accordance with the standards of the PCAOB.  Because of Adams’ 
+conduct described above, that statement was incorrect. 
+ 
+ 8.  Adams retired from D&T on May 29, 2010. 
+ 
+E. LEGAL ANALYSIS 
+ 
+Basic Principles 
+ 1. “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).   
+ 
+ 2. 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 
+ 5 
+accountant is not, capable of exercising objective and impartial judgment on all issues 
+encompassed within the accountant’s engagement.”  Rule 2-01(b) of Regulation S-X.  
+ 
+3. “In considering this standard, the Commission looks in the first instance to 
+whether a relationship or the provision of a service:  creates a mutual or conflicting 
+interest between the accountant and the audit client . . . .”  Preliminary Note to Rule 2-01 
+of Regulation S-X, ¶ 2.   
+ 
+4. Rule 2-01(c) of Regulation S-X sets forth a “non-exclusive specification 
+of circumstances inconsistent with” the general standard.  Among the listed 
+circumstances is “[a]ny loan . . . to or from an audit client.”  Rule 2-01(c)(1)(ii)(A) of 
+Regulation S-X.   
+ 
+Violations 
+ 
+5. As a result of the conduct described above, Adams caused D&T to violate 
+Rule 2-02(b)(1) of Regulation S-X, which requires that an accountant’s report state 
+whether the audit was conducted 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.  Adams knew or should have 
+known that his conduct would cause the firm to violate the Rule.   
+ 
+6. As a result of the conduct described above, Adams caused Casino Gaming 
+Issuer to violate Section 13(a) of the Exchange Act and Rule 13a-1 promulgated 
+thereunder, which require that financial statements included in annual reports filed with 
+the Commission be audited by an independent accountant.  Adams knew or should have 
+known that his conduct would cause the issuer to violate those provisions.   
+ 
+7. As a result of the conduct described above, Adams engaged in improper 
+professional conduct, as defined by Exchange Act 4C(a)(2) and Rule 102(e)(1)(ii) of the 
+Commission’s Rules of Practice. 
+ 
+F. FINDINGS  
+ 
+ Based on the conduct described above, Adams caused a violation of Rule 2-
+02(b)(1) of Regulation S-X by D&T, caused violations of Exchange Act Section 13(a) 
+and Exchange Act Rule 13a-1 by Casino Gaming Issuer, and 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. 
+ 
+IV. 
+ 
+In view of the foregoing, the Commission deems it appropriate to impose the 
+sanctions agreed to in Respondent Adams’ Offer.   
+ 6 
+ 
+Accordingly, it is hereby ORDERED, effective immediately, that:   
+ 
+A.  Adams shall cease and desist from committing or causing any violations and 
+any future violations of Rule 2-02(b)(1) of Regulation S-X and Section 13(a) of the 
+Exchange Act and Rule 13a-1 promulgated thereunder.   
+ 
+B. Adams is denied the privilege of appearing or practicing before the 
+Commission as an accountant.   
+ 
+ C. 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: 
+      
+           (a) Respondent, 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) Respondent, 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 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 
+PCAOB, and has complied with all terms and conditions of 
+any sanctions imposed by the PCAOB (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 
+ 7 
+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 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. 
+ 
+ 
+ 
+       Jill M. Peterson 
+       Assistant Secretary 
+ 

raw/aaer/2014/AAER-3556.txt

@@ -0,0 +1,82 @@
+ UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 72296 / June 2, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3556 / June 2, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+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 : 
+ : 
+ : EXTENSION ORDER 
+ :     
+ 
+ 
+ 
+ On May 29, 2014, Respondents Ernst & Young Hua Ming LLP, KPMG Huazhen 
+(Special General Partnership), Deloitte Touche Tohmatsu Certified Public Accountants, 
+Ltd., PricewaterhouseCoopers Zhong Tian CPAs Limited (collectively the “Big Four 
+Respondents”), and the Division of Enforcement (“Division”), jointly requested a 90-day 
+extension to the briefing schedules set by the Commission by orders dated May 9, 2014.
+1  
+The Division represents that Respondent BDO China Dahua CPA Co. Ltd. (“Dahua”) 
+agrees with the proposed extension.  
+  
+ In support of their motion, the Division and the Big Four Respondents state that 
+the 90-day extension would facilitate the parties’ continued settlement efforts and 
+                                                 
+1 Order Granting Leave to Adduce Additional Evidence and Granting the Petition for Review, Exchange 
+Act Release No. 72140, 2014 WL 1871078,  at *5 (May 9, 2014);  Order Denying the Division’s Motion to 
+Strike the Notice of Withdrawal of Appearance and Setting a Briefing Schedule , Exchange Act Release No. 
+72134, 2014 WL 1871077,  at * 4 (May 9, 2014). 
+2 
+ 
+because continuing these talks while briefing the appeal would present challenges, given 
+the breadth, complexity, and sensitivity of the issues involved.  The Division further 
+states that although settlement discussions to date have not included Dahua, the 
+resolution of some or all of the proceedings with respect to the Big Four Respondents 
+could affect issues regarding remedies that would be addressed by the Dahua-related 
+briefing. 
+ 
+ Extensions of time are disfavored.  It appears appropriate, however, to grant the 
+requested extension.  Therefore,  
+ 
+ It is ORDERED that the briefing schedule is extended as follows: 
+ 
+September 19, 2014:  Big Four Respondents’ consolidated opening brief; the 
+Division’s opening brief (as to remedies imposed on Dahua). 
+ 
+November 4, 2014:  Division’s principal brief and response to Big Four 
+Respondents’ opening brief; Dahua’s response brief to the Division’s opening 
+brief (as to remedies imposed by Dahua). 
+ 
+November 25, 2014:  Big Four Respondents’ single consolidated response and 
+reply brief. 
+ 
+December 11, 2014:  Division’s reply brief (as to the Division’s Petition for 
+review). 
+ 
+ For the Commission, by its Secretary, pursuant to delegated authority. 
+ 
+ 
+ 
+ 
+       Lynn M. Powalski 
+Deputy Secretary 

raw/aaer/2014/AAER-3557.txt

@@ -0,0 +1,101 @@
+UNITED STATES OF AMERICA  
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No.  72363 / June 11, 2014 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No.  3557 / June 11, 2014 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-12692 
+ 
+In the Matter of  
+Richard R. Hylland, CPA  
+ 
+: 
+: 
+: 
+: 
+: 
+: 
+ORDER GRANTING APPLICATION FOR 
+REINSTATEMENT TO APPEAR AND PRACTICE 
+BEFORE THE COMMISSION AS AN ACCOUNTANT 
+RESPONSIBLE FOR THE PREPARATION OR 
+REVIEW OF FINANCIAL STATEMENTS REQUIRED 
+TO BE FILED WITH THE COMMISSION 
+ 
+On July 16, 2007, Richard R. Hylland, CPA (“Hylland”) 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 Hylland pursuant to Rule 102(e)(3)(i) of the 
+Commission's Rules of Practice.
+1  This order is issued in response to Hylland’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 Hylland had been permanently enjoined by a United States 
+District Court from future violations of Section 17(a) of the Securities Act of 1933, and Sections 
+10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5 
+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-11 and 13a-13 thereunder.  In its 
+complaint in the injunctive action, the Commission alleged, among other things, that during 
+2002, Hylland, in his role as president, chief operating officer and member of the board of 
+directors of NorthWestern Corporation (“NorthWestern”), misled investors about the operating 
+results and financial condition of NorthWestern and its operating segments.  The Commission’s 
+Complaint further alleged that Respondent’s false and misleading statements facilitated more 
+than $800 million in securities offerings by NorthWestern in September and October 2002, 
+including an $87.5 million equity offering that raised badly needed operating capital for the 
+company. 
+                                                 
+1 See Accounting and Auditing Enforcement Release No. 2638 dated July 16, 2007.  Hylland was permitted, 
+pursuant to the order, to apply for reinstatement after five years 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, Hylland 
+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.  Hylland 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, Hylland’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 Hylland, it appears that he has complied with the terms of the July 16, 2007 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 
+Hylland, by undertaking to have his work reviewed by the independent audit committee of any 
+company for which he works, or in some other manner acceptable to the Commission, in his 
+practice before the Commission as a preparer or reviewer of financial statements required to be 
+filed with the Commission, has shown good cause for reinstatement.  Therefore, it is accordingly, 
+ 
+ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that 
+Richard R. Hylland, 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  
+                                                 
+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). 
+ 

raw/aaer/2014/AAER-3559.txt

@@ -0,0 +1,407 @@
+-1- 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES ACT OF 1933 
+Release No. 9605 / June 25, 2014 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 72470 / June 25, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3559 / June 25, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-15945 
+ 
+ 
+In the Matter of 
+ 
+THOMAS A. NEELY, JR.,  
+ 
+Respondent. 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDING PURSUANT TO 
+SECTION 8A OF THE SECURITIES ACT 
+OF 1933 AND SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+  
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that a 
+cease-and-desist proceeding 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 Thomas A. Neely, Jr. (“Respondent” or “Neely”).   
+ 
+II. 
+ 
+After an investigation, the Division of Enforcement alleges that: 
+ 
+SUMMARY 
+ 
+ This proceeding arises from the intentional misconduct of the Respondent while employed 
+by Regions Bank and its parent holding corporation, Regions Financial Corporation (“Regions”).  
+During the quarter ended March 31, 2009, in accordance with Regions’ policies and procedures, 
+personnel within Regions Bank’s Special Asset Department (“SAD”) who reported up to the 
+Respondent, initiated the procedures to place approximately $168 million of certain commercial 
+loans (the “Loans”) into non-accrual status.  In March 2009, the Respondent, arbitrarily and 
+without supporting documentation, took intentional steps to keep the Loans in accrual status.  The 
+deliberate misclassification under its policies prevented Regions from appropriately measuring 
+impairment in accordance with Generally Accepted Accounting Principles (“GAAP”).  Such 
+-2- 
+deliberate misconduct by the Respondent to evade existing policies and procedures constituted a 
+fraudulent scheme that rendered Regions’ financial statements for the quarter ended March 31, 
+2009 materially misstated and not in conformity GAAP, and caused a failure by Regions to 
+maintain a system of internal accounting controls sufficient to provide reasonable assurances that 
+the Loans were recorded as necessary to permit the preparation of financial statements in 
+conformity with GAAP. 
+ 
+ A.  RESPONDENT 
+ 
+1. Thomas A. Neely, Jr., 53, was formerly an Executive Vice President for Regions’ 
+Risk Management Credit Division, where he reported to Michael J. Willoughby.  Neely also 
+oversaw Regions’ Risk Analytics Group and together with Jeffrey C. Kuehr functionally 
+controlled Regions’ SAD.  Neely’s employment with Regions terminated on November 30, 
+2010. 
+ 
+ B. OTHER RELEVANT PERSONS AND ENTITY 
+ 
+2. Jeffrey C. Kuehr, 50, was formerly an Executive Vice President and the head of 
+Regions’ SAD.  During the relevant period, Kuehr reported to Willoughby who at the time was 
+Regions’ Chief Credit Officer (“CCO”).  Kuehr’s employment with Regions terminated on 
+December 29, 2010. 
+ 
+3. Michael J. Willoughby, 68, was formerly a Senior Executive Vice President and 
+Regions’ CCO.  As CCO, Willoughby directly reported to Regions’ Chief Risk Officer.  
+Willoughby’s employment with Regions terminated on November 30, 2010. 
+ 
+4. Regions Financial Corporation is a Delaware financial holding corporation 
+headquartered in Birmingham, Alabama.  Regions conducts its banking operations through its 
+subsidiary Regions Bank, which is a member of the Federal Reserve System.  Regions’ common 
+stock is registered with the Commission pursuant to Section 12(b) of the Securities Act and trades 
+on the New York Stock Exchange under the symbol “RF.”  As of December 31, 2013, Regions had 
+approximately $117 billion in assets. 
+ 
+C. REGIONS’ TRACKING OF NON-ACCRUAL LOANS 
+ 
+5. Throughout the relevant time-period, including the quarter ended March 31, 2009, 
+Region’s tracked and recorded its non-performing loans (“NPLs”) as part of both internal 
+performance metrics and its regular financial reporting.  NPLs at Regions primarily consisted of 
+loans in a non-accrual status.1   
+ 
+6. Regions’ policies and procedures required that loans be placed on non-accrual 
+status when it was determined that payment of all contractual principal and interest was in doubt, 
+or the loan was past due 90 days or more as to principal and interest, unless the loan was well-
+secured and in the process of collection.  When a loan was placed in non-accrual status, 
+uncollected interest that had accrued during the current year would be reversed, reducing Regions’ 
+interest income.  In addition, placing a loan on non-accrual status served as a trigger for Regions to 
+                                                 
+1  GAAP does not provide guidance regarding placing loans on a non-accrual status. 
+-3- 
+consider whether that specific loan was impaired and thus how to determine an allowance for loan 
+and lease losses in accordance with GAAP.  
+ 
+7. Regions’ policies and procedures provided that the decision to place a loan in non-
+accrual status was to be made by Relationship Managers (“RMs”) within SAD.  RMs were 
+responsible for reviewing loan file details, monitoring payments and communicating with 
+borrowers.  Under Regions’ policies and procedures, RMs had the greatest degree of knowledge 
+within SAD of the relevant loan status and a borrower’s ability to make payments of principal and 
+interest. 
+ 
+8. Regions’ policies and procedures required that when RMs initiated an action to 
+place a loan on non-accrual status, they would submit a supporting form to their regional manager 
+that showed their conclusion and justified how they determined a loan should be placed in non-
+accrual status.  Regions’ policies and procedures then provided for the regional manager to conduct 
+a detailed review of the loan with the responsible RM, after which the approval was granted by the 
+regional manager.  
+ 
+9. Once approval for non-accrual classification was granted by the regional manager, 
+Regions’ policies and procedures specified that any subsequent exception to classifying the loan in 
+non-accrual status was required to be fully documented and justified on an approved 
+“Recommendation to Continue Accrual Status” form and a signed “Risk Rating Change” form. 
+  
+10. Once the RM and the regional manager concluded that a loan should be classified 
+in non-accrual status, it was then listed by SAD managers in the Asset Quality Forecast report 
+(“AQF”).  The AQF identified which loans had been approved by the RM and regional manager 
+for being placed on non-accrual status, and it forecasted charge-offs and nonperforming assets for 
+the quarter. 
+ 
+11. The AQF was a principal forecasting tool of SAD that was prepared under the 
+direction of the Respondent.  The AQF was discussed weekly at meetings regularly conducted and 
+attended by the Respondent.  Neely and Willoughby also regularly utilized the AQF in 
+presentations to Regions’ Executive Council, which consisted of, among others, Regions’ Chief 
+Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), in discussing current trends in 
+NPLs. 
+ 
+12. The SAD, under the control of Kuehr and Neely, had authority over the preparation, 
+content, and dissemination of the AQF.  Once a loan recommended for non-accrual status by the 
+RMs and regional managers was included on the AQF, the responsible RMs would complete 
+information required for a processing list and submit it to Regions’ Risk Analytics Group.  The 
+processing list was designed as an electronic record documenting the specific actions for individual 
+loans to be formally taken by Regions and reflected in Regions’ accounting systems.  Neely 
+maintained final authority over the processing list.  Following Neely’s approval, his subordinates 
+would submit the processing list for the identified loans to be recorded as non-accrual in Regions’ 
+accounting systems. 
+ 
+-4- 
+D. NEELY’S INTENTIONAL MISCLASSIFICATION OF THE LOANS AND 
+EVASION OF REGIONS’ POLICIES AND PROCEDURES DURING THE 
+QUARTER ENDED MARCH 31, 2009 
+ 
+13. As of the beginning of March 2009, Regions’ AQF identified NPLs of 
+approximately $1.6 billion.  Neely had discussed with Kuehr and Willoughby the then current 
+AQF and NPLs.  The AQF and related NPLs tracking for the quarter were made available to 
+Regions’ CEO and CFO. 
+ 
+14. On or about March 13, 2009, Kuehr, Neely and Willoughby were informed by a 
+subordinate that an error had resulted in an underreporting of NPLs by an amount approximating 
+$200 million, or 13% as reported in the AQF data made available to Regions’ CEO and CFO. 
+ 
+15. In a March 17, 2009 email to Willoughby and Kuehr, Neely recommended that a 
+$6.8 commercial million loan be recorded as an accruing loan despite being recommended for non-
+accrual status by the assigned RM and regional manager.  Based on Neely’s recommendation, this 
+loan was not placed on the AQF or a processing list and was improperly classified by Regions as 
+being in accrual status as of March 31, 2009.  The failure to document the justification for this 
+action was contrary to Regions’ policies and procedures.   
+ 
+16. On or about March 18, 2009, Neely and Willoughby instructed subordinates to 
+take specific actions to remove from the AQF approximately $150 million of commercial loans 
+that had been recommended by the assigned RMs and regional managers, in accordance with 
+Regions’ policies and procedures, as being classified as non-accrual.  Neely and Willoughby 
+issued such instructions to their subordinates without any documentation or justification 
+supporting the removal of these loans from the AQF.  The failure to provide justification or 
+documentation violated Regions’ policies and procedures.  As a result, Regions improperly 
+classified $168 million of the Loans as being in accrual status.  Had Regions classified the 
+relevant loans on non-accrual status in accordance with its policies, it would have prompted a 
+determination that the identified loans were impaired in accordance with GAAP.  That 
+determination would have resulted in Regions recording a higher allowance for loan and lease 
+losses. 
+ 
+17. On or about March 23, 2009, Willoughby and Neely attended a meeting at which 
+they knowingly provided understated NPL data for the quarter to certain senior executives, 
+including Regions’ CFO. 
+ 
+18. In accordance with Regions’ policies and procedures, the Loans were required to 
+have been classified in non-accrual status at the quarter ended March 31, 2009.  Had Regions 
+classified the relevant loans on non-accrual status in accordance with its policies, it would have 
+prompted a determination that the Loans were impaired in accordance with Statement of Financial 
+Accounting Standard No. 114, Accounting by Creditors for Impairment of a Loan (“SFAS No. 
+114”).2 
+                                                 
+2 See SFAS No. 114, which states that “a loan is impaired when, based on current information and events, it is 
+probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan 
+agreement” and it requires lenders to measure impairment based on the present value of expected cash flows or an 
+observable fair value of the collateral (i.e., an appraisal) if the loan is collateral dependent. 
+-5- 
+19. In taking the undocumented and unjustified steps above, Neely intentionally 
+circumvented Regions’ policies and procedures regarding the classification of loans into non-
+accrual status.  Neely’s intentional scheme directly resulted in the improper classification of the 
+Loans pursuant to Regions’ policies, and further prevented Regions’ from appropriately 
+determining those Loans were impaired in accordance with GAAP at the quarter ended March 31, 
+2009. 
+ 
+E. INTENTIONAL MISCLASSIFICATION OF LOANS HELD FOR SALE 
+ 
+20. As part of his responsibilities at Regions, Neely had final approval to accept bids 
+for loan sales.  On or about March 16, 2009, Neely contacted a third-party in an effort to sell a 
+$24.7 million commercial loan (the “Shopped Loan”), which was one of the Loans.  A potential 
+buyer immediately responded to Neely’s solicitation, offering to buy the Shopped Loan for 
+between 35 and 50 cents-on-the-dollar.  Neely responded to the buyer that the offer was not 
+sufficient.  Neely responded to the potential buyer that Regions was looking for a price closer to 
+65 to 70 cents-on-the-dollar for the Shopped Loan, and asked the potential buyer to reconsider 
+the recent offer to Regions.   
+ 
+21. On or about March 20, 2009, the potential buyer indicated that Neely’s requested 
+sale price for the Shopped Loan was too high. 
+ 
+22. On or about April 6, 2009, the potential buyer submitted an additional offer to 
+purchase the Shopped Loan for 58.5% of the loan value.   
+ 
+23. On or about June 23, 2009, Regions, at Neely’s direction, reclassified the 
+Shopped Loan from loans held for investment to the “Loans Held for Sale” category with a 
+related write-down to fair value.
+3   
+ 
+24. On or about September 2, 2009, the Shopped Loan was sold to a new buyer for 
+60% of its loan value.   
+ 
+25. In accordance with both GAAP and Regions’ policies and procedures, the Shopped 
+Loan was required to have been reclassified to “Loans Held for Sale,” with a corresponding charge 
+to earnings, prior to the close of the quarter ended March 31, 2009 because a decision to sell the 
+loan had been made prior to the quarter end. 
+ 
+E. IMPACT OF NEELY’S INTENTIONAL MISCONDUCT ON REGIONS’ 
+FINANCIAL STATEMENTS 
+ 
+26. Regions’ system of internal accounting controls was insufficient to provide 
+reasonable assurances that the Loans were recorded as necessary to permit preparation of 
+financial statements in conformity with GAAP. 
+ 
+                                                 
+3  See AICPA Statement of Position 01-6, Accounting by Certain Entities (Including Entities With Trade 
+Receivables) That Lend to or Finance the Activities of Others which states that once a decision has been made to 
+sell loans not previously classified as “held for sale,” such loans should be transferred into the “held -for-sale” 
+account and reported at the lower of cost or fair value. 
+-6- 
+27. Neely intentionally circumvented Regions’ existing internal accounting controls 
+through his recording and reporting of the Loans in a manner that was not in accordance with 
+Regions’ policies and procedures. 
+ 
+28. Neely’s intentional misconduct resulted in Regions’ failing to make and keep 
+books, records, and accounts, in reasonable detail, which accurately and fairly reflected the Loans.  
+Further, Regions’ accounts were falsified through the intentional misconduct of the Respondents. 
+ 
+29. The books, records and accounts reflecting the Loans were incorporated into 
+Regions’ consolidated financial statements for the quarter ended March 31, 2009.  As a result of 
+failing to properly account for the Loans in accordance with GAAP, for the quarter ended March 
+31, 2009, Regions’ income before income taxes was overstated by $16 million, its net income 
+applicable to common shareholders was overstated by approximately $11 million, and its earnings 
+per common share was overstated by approximately $.02 per share.  
+ 
+30. Had the Shopped Loan been properly written down to fair value in conformity 
+with GAAP and Regions’ policies and procedures, Regions’ net income available to common 
+shareholders would have been reduced an additional approximately $2.9 million beyond the 
+approximate $11 million overstatement attributable to the Loans. 
+ 
+31. The above misstatements were included in Regions’ April 21, 2009 press release 
+included in its Form 8-K dated April 21, 2009 and filed with the Commission on April 21, 2009, in 
+its exhibits to its Form 8-K dated May 20, 2009 and filed with the Commission on May 20, 2009, 
+in its March 31, 2009 Form 10-Q filed May 11, 2009, and two subsequent amendments to its 
+March 31, 2009 Form 10-Q filed on May 13, 2009 and June 9, 2009, in a Form S-4 filed on May 
+20, 2009 and in three subsequent amendments to this registration statement on May 22, 2009, June 
+4, 2009, and June 9, 2009, and in a Form S-8 filed on August 28, 2009 (collectively, the “Public 
+Filings”). 
+ 
+32. The Public Filings did not include other information as was necessary to ensure that 
+the statements made in the Public Filings were not, under the circumstances, materially misleading. 
+ 
+33. In connection with Regions’ financial reporting for the quarter ended March 31, 
+2009, Neely executed a sub-certification provided to Regions’ Controller and Chief Accounting 
+Officer.  Neely’s knowingly made false statements and/or misleading omissions in the sub-
+certification when he averred that the was “not aware of … [a]ny significant deficiencies in the … 
+internal control over financial reporting … [or] [a]ny fraud, whether or not material.”  Neely knew 
+that the sub-certification would be relied on as part of the financial reporting process for the 
+quarter. 
+ 
+ F. CONDUCT FOLLOWING THE QUARTER ENDED MARCH 31, 2009 
+ 
+34. On or about May 14, 2009, Neely instructed a subordinate to change the name of an 
+internal SAD document to falsely reflect that RMs, and not Neely as in fact occurred, had 
+recommended that the Loans remain in accrual status at March 31, 2009.  Neely took additional 
+actions to conceal his prior conduct regarding the Loans from personnel at Regions as well as 
+Regions Bank’s regulators. 
+-7- 
+ 
+ G. VIOLATIONS 
+ 
+35. As a result of Neely’s intentional scheme to misclassify the Loans as in accrual 
+status and to prevent the Shopped Loan from being classified in “Loans Held for Sale” as of the 
+quarter ended March 31, 2009, Neely violated Section 17(a) of the Securities Act, which prohibits 
+fraudulent conduct in the offer or sale of securities, and Exchange Act Section 10(b) and Rule 10b-
+5 thereunder, which prohibit fraudulent conduct in connection with the purchase or sale of 
+securities. 
+ 
+36. As a result of the conduct described above, Neely acted through Regions to make 
+material misrepresentations in the Public Filings, and as a result, Neely violated Sections 20(b) and 
+10(b) of the Exchange Act, and Rule 10b-5 thereunder. 
+ 
+37. As a result of the conduct described above, Neely aided and abetted and caused 
+Regions’ violations of Section 17(a) of the Securities Act and Section 10(b) and Rule 10b-5 
+thereunder of the Exchange Act. 
+ 
+38. As a result of the conduct described above, Neely caused Regions to violate Section 
+13(a) of the Exchange Act and Rules 13a-11, 13a-13 and 12b-20 thereunder because its financial 
+statements for the quarter ended March 31, 2009 included in current and quarterly reports, failed to 
+record the Loans and the Shopped Loan in conformity with GAAP.  
+ 
+39. As a result of the conduct described above, Neely caused Regions to violate Section 
+13(b)(2)(A) of the Exchange Act because it did not keep books, records or accounts that 
+accurately reflected the Loans and the Shopped Loan. 
+ 
+40. As a result of the conduct described above, Neely caused Regions to violate Section 
+13(b)(2)(B) of the Exchange Act because it failed to maintain a system of internal accounting 
+controls sufficient to provide reasonable assurances that the Loans and the Shopped Loan were 
+recorded as necessary to permit preparation of its financial statements in accordance with GAAP. 
+ 
+41. As a result of the conduct described above, Neely violated Section 13(b)(5) of the 
+Exchange Act when he knowingly circumvented and knowingly falsified Regions’ books, records, 
+and accounts related to the Loans and the Shopped Loan. 
+ 
+42. As a result of the conduct described above, Neely violated Rule 13b2-1 of the 
+Exchange Act by directly or indirectly falsifying or causing to be falsified Regions’ books, 
+records and accounts relating to the Loans and the Shopped Loan which were subject to Section 
+13(b)(2)(A) of the Exchange Act. 
+ 
+43. As a result of the conduct described above, Neely violated Rule 13b2-2 of the 
+Exchange Act when he directly or indirectly made or caused to be made materially false or 
+misleading statements, or omitted to state material facts necessary in order to make statements 
+made, in light of the circumstances under which such statements were made, not misleading to 
+accountants in connection with the preparation or filing of documents and reports which were 
+required to be filed with the Commission. 
+-8- 
+ 
+III. 
+ 
+In view of the allegations made by the Division of Enforcement, the Commission deems it 
+appropriate that a cease-and-desist proceeding be instituted to determine: 
+ 
+A.  Whether the allegations set forth in Section II hereof are true and, in connection 
+therewith, to afford Respondent an opportunity to establish any defenses to such allegations;  
+ 
+B. Whether, pursuant to Section 8A of the Securities Act and Section 21C of the 
+Exchange Act Respondent should be ordered to cease and desist from committing or causing 
+violations of and any future violations of Section 17(a) of the Securities Act, Section 10(b) of the 
+Exchange Act and Rule 10b-5 thereunder, including committing or causing any such violations 
+directly or indirectly through or by means of any other person, as prohibited by Section 20(b) of 
+the Exchange Act, Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and 
+Rules 12b-20, 13a-11, 13a-13, 13b2-1, and 13b2-2 thereunder, whether Respondent should be 
+ordered to pay a civil penalty pursuant to Section 8A(g) of the Securities Act and Section 21B(a) of 
+the Exchange Act, and whether pursuant to Section 21C(f) of the Exchange Act, Respondent should 
+be 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. 
+ 
+IV. 
+ 
+IT IS ORDERED that a public hearing for the purpose 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.  
+ 
+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 Respondent personally or by certified mail. 
+ 
+IT IS FURTHER ORDERED that the Administrative Law Judge shall issue an initial 
+decision no later than 300 days from the date of service of this Order, pursuant to Rule 360(a)(2) of 
+the Commission’s Rules of Practice. 
+ 
+ 
+-9- 
+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. 
+ 
+ 
+ 
+        Jill M. Peterson 
+        Assistant Secretary 
+ 

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@@ -0,0 +1,463 @@
+-1- 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES ACT OF 1933 
+Release No. 9606 / June 25, 2014 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 72471 / June 25, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3560 / June 25, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-15946 
+ 
+ 
+In the Matter of 
+ 
+JEFFREY C. KUEHR AND 
+MICHAEL J. WILLOUGHBY, 
+ 
+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, CEASE-AND-
+DESIST ORDERS, AND PENALTIES 
+  
+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 Jeffrey C. Kuehr (“Kuehr”) and Michael J. Willoughby (“Willoughby) (collectively, 
+the “Respondents”).   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondents have submitted Offers 
+of Settlement (the “Offers”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings  
+herein, except as to the Commission’s jurisdiction over them and the subject matter of these 
+proceedings, which are admitted, Respondents consent to the entry of this Order Instituting Cease-
+And-Desist Proceedings 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, 
+Cease-And-Desist Orders, and Penalties, as set forth below.   
+ 
+III. 
+-2- 
+ 
+ On the basis of this Order and Respondents’ Offers, the Commission finds1 that:  
+ 
+SUMMARY 
+ 
+ This proceeding arises from the misconduct of the Respondents and Thomas A. Neely, Jr., 
+(“Neely”) while employed by Regions Bank and its parent holding corporation, Regions Financial 
+Corporation (“Regions”).  During the quarter ended March 31, 2009, in accordance with Regions’ 
+policies and procedures, personnel within Regions Bank’s Special Asset Department (“SAD”) who 
+reported up to the Respondents, initiated the procedures to place approximately $168 million of 
+certain commercial loans (the “Loans”) into non-accrual status.  In March 2009, the Respondents 
+and Neely, arbitrarily and without supporting documentation, took steps to keep the Loans in 
+accrual status.  Such steps by the Respondents and Neely to evade existing policies and procedures 
+constituted a fraudulent scheme, prevented Regions from appropriately measuring impairment in 
+accordance with Generally Accepted Accounting Principles (“GAAP”), rendered Regions’ 
+financial statements for the quarter ended March 31, 2009 materially misstated and not prepared in 
+conformity with GAAP, and evidenced a failure by Regions to maintain a system of internal 
+accounting controls sufficient to provide reasonable assurances that the Loans were recorded as 
+necessary to permit the preparation of financial statements in conformity with GAAP. 
+ 
+RESPONDENTS 
+ 
+1. Jeffrey C. Kuehr, 50, was formerly an Executive Vice President and the head of  
+Regions’ SAD.  During the relevant period, Kuehr reported to Willoughby who at the time was 
+Regions’ Chief Credit Officer (“CCO”).  Kuehr’s employment with Regions concluded on 
+December 29, 2010.  
+ 
+2. Michael J. Willoughby, 68, was formerly a Senior Executive Vice President and 
+Regions’ CCO.  As CCO, Willoughby directly reported to Regions’ Chief Risk Officer.  
+Willoughby’s employment with Regions concluded on November 30, 2010. 
+ 
+RELATED PERSON AND ENTITY 
+ 
+3. Thomas A. Neely, Jr., 53, was formerly an Executive Vice President for Regions’ 
+Risk Management Credit Division where he reported to Willoughby.  Neely also oversaw 
+Regions’ Risk Analytics Group and together with Kuehr functionally controlled Regions’ SAD.  
+Neely’s employment with Regions concluded on November 30, 2010.  
+ 
+4. Regions Financial Corporation is a Delaware financial holding corporation 
+headquartered in Birmingham, Alabama.  Regions conducts its banking operations through its 
+subsidiary Regions Bank, which is a member of the Federal Reserve System.  Regions’ common 
+stock is registered with the Commission pursuant to Section 12(b) of the Securities Act and trades 
+on the New York Stock Exchange under the symbol “RF.”  As of December 31, 2013, Regions had 
+approximately $117 billion in assets. 
+                                                 
+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- 
+ 
+FACTS 
+ 
+Regions’ Tracking of Non-Accrual Loans 
+ 
+5. Throughout the relevant time-period, including the quarter ended March 31, 2009, 
+Region’s tracked and recorded its non-performing loans (“NPLs”) as part of both internal 
+performance metrics and its regular financial reporting.  NPLs at Regions primarily consisted of 
+loans in a non-accrual status. 2   
+ 
+6. Regions’ policies and procedures required that loans be placed on non-accrual 
+status when it was determined that payment of all contractual principal and interest was in doubt, 
+or the loan was past due 90 days or more as to principal and interest, unless the loan was well-
+secured and in the process of collection.  When a loan was placed in non-accrual status, 
+uncollected interest accrued during the current year would be reversed and reduce Regions’ interest 
+income.  In addition, placing a loan on non-accrual status served as a trigger for Regions to 
+consider whether the specific loan was impaired and thus how to determine an allowance for loan 
+and lease losses in accordance with GAAP. 
+ 
+7. Regions’ policies and procedures provided that the decision to place a loan in non-
+accrual status was to be made by Relationship Managers (“RMs”) within SAD.  RMs were 
+responsible for reviewing loan file details, monitoring payments and communicating with 
+borrowers.  Under Regions’ policies and procedures, RMs had the greatest degree of knowledge 
+within SAD of the relevant loan status and a borrower’s ability to make payments of principal and 
+interest. 
+ 
+8. Regions’ policies and procedures required that when RMs initiated an action to 
+place a loan on non-accrual status, they would submit a supporting form to their regional manager 
+that showed their conclusion and justified how they determined a loan should be placed in non-
+accrual status.  Regions’ policies and procedures then provided for the regional manager to conduct 
+a detailed review of the loan with the responsible RM, after which the approval was granted by the 
+regional manager.    
+ 
+9. Once approval for non-accrual classification was granted by the regional manager, 
+Regions’ policies and procedures specified that any subsequent exception to classifying the loan in 
+non-accrual status was required to be fully documented and justified on an approved 
+“Recommendation to Continue Accrual Status” form. 
+ 
+10. Once the RM and the regional manager recommended that a loan should be 
+classified in non-accrual status, it was then listed by SAD managers in the Asset Quality Forecast 
+report (“AQF”).  The AQF identified which loans had been recommended by the RM and regional 
+manager for being placed on non-accrual status, and it forecasted charge-offs and nonperforming 
+assets for the quarter. 
+ 
+                                                 
+2  GAAP does not provide guidance regarding placing loans on a non-accrual status. 
+-4- 
+11. The AQF was a principal forecasting tool of SAD that was prepared under the 
+direction of the Respondents and Neely.  The AQF was discussed weekly at meetings regularly 
+conducted and attended by the Respondents.  Neely and Willoughby also regularly utilized the 
+AQF in presentations to Regions’ Executive Council, which consisted of, among others, Regions’ 
+Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), in discussing current 
+trends in NPLs. 
+ 
+12. The SAD, under the control of the Respondents and Neely, had authority over the 
+preparation, content, and dissemination of the AQF.  Once a loan recommended for non-accrual 
+status by the RMs and regional managers was included on the AQF, the responsible RMs would 
+complete information required for a processing list and submit it to Regions’ Risk Analytics 
+Group.  The processing list was designed as an electronic record documenting the specific actions 
+for individual loans to be formally taken by Regions and reflected in Regions’ accounting systems.  
+Neely maintained final authority over the processing list.  Following Neely’s approval, his 
+subordinates would submit the processing list for the identified loans to be recorded as non-accrual 
+in Regions’ accounting systems. 
+ 
+Respondents’ Misclassification of Loans and Evasion  
+of Regions’ Policies and Procedures during the Quarter Ended March 31, 2009  
+ 
+13. As of the beginning of March 2009, Regions’ AQF identified NPLs of 
+approximately $1.6 billion.  Kuehr, Neely and Willoughby had discussed between themselves 
+the then current AQF and NPLs.  The AQF and related NPLs tracking for the quarter were made 
+available to Regions’ CEO and CFO. 
+ 
+14. On or about March 13, 2009, Kuehr, Neely and Willoughby were informed by a 
+subordinate that an error had resulted in an underreporting of NPLs by an amount approximating 
+$200 million, or 13% as reported in the AQF data made available to Regions’ CEO and CFO.  
+ 
+15. On or about March 17, 2009, Willoughby was actively tracking and calculating 
+how NPLs could be decreased by approximately $200 million so as to more closely approach the 
+previously identified NPL target. 
+ 
+16. On or about March 17, 2009, Neely suggested to Willoughby and Kuehr that a $6.8 
+commercial million loan be recorded as an accruing loan despite being recommended for non-
+accrual status by the assigned RM and regional manager.  This loan was prevented by Neely, 
+without objection from Willoughby and Kuehr, from being placed on the AQF or a processing list 
+and was classified by Regions as being in accrual status as of March 31, 2009.  Contrary to 
+Regions’ policies and procedures, Respondents prevented the subject loan from being classified as 
+non-accrual without any documentation or justification. 
+ 
+17. On or about March 18, 2009, Neely and Willoughby instructed subordinates to 
+take specific actions to remove from the AQF approximately $150 million of commercial loans 
+that had been recommended by the assigned RMs and regional managers, in accordance with 
+Regions’ policies and procedures, as being classified as non-accrual.  Neely and Willoughby 
+issued such instructions to their subordinates without any documentation or justification 
+supporting the removal of these loans from the AQF, in direct contravention of Regions’ policies 
+-5- 
+and procedures.  Kuehr, then head of SAD, thereafter was made aware of and did not object to 
+this action by Neely and Willoughby.  The ultimate effect of these instructions was the improper 
+classification of the Loans, representing approximately $168 million, as being in accrual status.  
+Had Regions classified the relevant loans on non-accrual status in accordance with its policies, it 
+would have prompted a determination that the identified loans were impaired in accordance with 
+GAAP.  That determination would have resulted in Regions recording a higher allowance for loan 
+and lease losses. 
+ 
+18. On or about March 23, 2009, Willoughby and Neely attended a meeting at which 
+they provided false information regarding NPLs for the quarter to certain senior executives, 
+including Regions’ CFO. 
+ 
+19. In taking the undocumented and unjustified steps above, Respondents and Neely 
+collectively circumvented Regions’ policies and procedures regarding the classification of loans 
+into non-accrual status.  Respondents and Neely’s scheme directly resulted in the improper 
+classification of the Loans pursuant to Regions’ policies, and further prevented Regions from 
+appropriately determining those Loans were impaired in accordance with GAAP at the quarter 
+ended March 31, 2009. 
+ 
+20. In accordance with Regions’ policies and procedures, the Loans were required to 
+have been classified in non-accrual status at the quarter ended March 31, 2009.  Had Regions 
+classified the Loans on non-accrual status with its policies, it would have prompted a determination 
+that the Loans were impaired in accordance with Statement of Financial Accounting Standard No. 
+114, Accounting by Creditors for Impairment of a Loan (“SFAS No. 114”).
+3 
+ 
+Impact of Respondents’ Misconduct on Regions’ Financial Statements 
+ 
+21. Respondents circumvented Regions’ internal accounting controls through their 
+recording and reporting of the Loans in a manner that was not in accordance with Regions’ 
+policies and procedures.  As a result, Regions failed to maintain a system of internal accounting 
+controls sufficient to provide reasonable assurances that the Loans were recorded as necessary to 
+permit preparation of financial statements in conformity with GAAP. 
+ 
+22. Respondents’ misconduct resulted in Regions’ failing to make and keep books, 
+records, and accounts, in reasonable detail, which accurately and fairly reflected the Loans.  
+Further, Regions’ accounts were falsified through the misconduct of the Respondents. 
+ 
+23. The books, records and accounts reflecting the Loans were incorporated into 
+Regions’ consolidated financial statements for the quarter ended March 31, 2009.  As a result of 
+failing to properly account for the Loans in accordance with GAAP, for the quarter ended March 
+31, 2009, Regions’ income before income taxes was overstated by $16 million, its net income 
+                                                 
+3 See SFAS No. 114, which states that “a loan is impaired when, based on current information and events, it is 
+probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan 
+agreement” and it requires lenders to measure impairment based on the present value of expected cash flows or an 
+observable fair value of the collateral (i.e., an appraisal) if the loan is collateral dependent. 
+-6- 
+applicable to common shareholders was overstated by approximately $11 million, and its earnings 
+per common share was overstated by approximately $.02 per share. 
+ 
+24. The above misstatements were included in Regions’ April 21, 2009 press release 
+included in its Form 8-K dated April 21, 2009 and filed with the Commission on April 21, 2009, in 
+its exhibits to its Form 8-K dated May 20, 2009 and filed with the Commission on May 20, 2009, 
+in its March 31, 2009 Form 10-Q filed May 11, 2009, and two subsequent amendments to its 
+March 31, 2009 Form 10-Q filed on May 13, 2009 and June 9, 2009, in a Form S-4 filed on May 
+20, 2009 and in three subsequent amendments to this registration statement on May 22, 2009, June 
+4, 2009, and June 9, 2009, and in a Form S-8 filed on August 28, 2009 (collectively, the “Public 
+Filings”). 
+ 
+25. The Public Filings did not include other information as was necessary to ensure that 
+the statements made in the Public Filings were not, under the circumstances, materially misleading. 
+ 
+26. The Respondents, through false statements and/or misleading omissions in sub-
+certification letters they signed in April 2009 in connection with the preparation of the reports on 
+Form 10-Q above, misled Regions’ Controller and Chief Accounting Officer and its Director of 
+Internal Audit, both accountants, regarding Regions’ books, records, accounts, and internal controls. 
+ 
+VIOLATIONS 
+ 
+27. Section 17(a) of the Securities Act prohibits any person, in the offer or sale of any 
+security, from using the means and instrumentalities of interstate commerce and of the mails, 
+directly or indirectly, to: (a) employ any device, scheme, or artifice to defraud; (b) 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 (c) engage in any transaction, practice, or course of business 
+which operates or would operate as a fraud or deceit upon the purchaser. 
+ 
+28. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit fraudulent 
+conduct in connection with the purchase or sale of securities. 
+ 
+29. Section 20(b) of the Exchange Act makes it unlawful for any person, directly or 
+indirectly, to do any act or thing which it would be unlawful for such person to do under the 
+Exchange Act or any rule or regulation thereunder through or by means of any other person. 
+ 
+30. Section 13(a) of the Exchange Act and Rules 13a-11, 13a-13 and 12b-20 
+thereunder, requires every issuer of a security registered pursuant to Section 12 of the Exchange 
+Act to file with the Commission information, documents, and current and quarterly reports as the 
+Commission may require, and mandate that current and periodic reports contain such further 
+material information as may be necessary to make the required statements not misleading. 
+ 
+31. 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. 
+ 
+-7- 
+32. Section 13(b)(2)(B) of the Exchange Act 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. 
+ 
+33. Section 13(b)(5) of the Exchange Act prohibits any person from knowingly 
+circumventing or knowingly failing to implement a system of internal accounting controls, and from 
+knowingly falsifying any book, record, or account, required under Section 13(b)(2) of the Exchange 
+Act. 
+ 
+34. Rule 13b2-1 of the Exchange Act prohibits any person from directly or indirectly 
+falsifying or causing to be falsified any book, record or account subject to Section 13(b)(2)(A) of 
+the Exchange Act. 
+ 
+35. Rule 13b2-2 of the Exchange Act prohibits, among other things, officers of 
+issuers from directly or indirectly making or causing to be made a materially false or misleading 
+statement, or omitting 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 quarterly review or the preparation or filing of any document 
+or report required to be filed with the Commission. 
+ 
+36. As a result of the Respondents’ scheme to misclassify the Loans as in accrual status 
+as of the quarter ended March 31, 2009, the Respondents violated Section 17(a) of the Securities 
+Act, which prohibits fraudulent conduct in the offer or sale of securities, and Exchange Act Section 
+10(b) and Rule 10b-5 thereunder, which prohibits fraudulent conduct in connection with the 
+purchase or sale of securities. 
+ 
+37. As a result of the conduct described above, the Respondents acted through Regions 
+to make material misrepresentations in the Public Filings, and as a result, violated Sections 20(b) 
+and 10(b) of the Exchange Act, and Rule 10b-5 thereunder.   
+ 
+38. As a result of the conduct described above, the Respondents caused Regions to 
+violate Section 13(a) of the Exchange Act and Rules 13a-11, 13a-13 and 12b-20 thereunder 
+because its financial statements for the quarter ended March 31, 2009, included in current and 
+quarterly reports, failed to record the Loans in conformity with GAAP.  
+ 
+39. As a result of the conduct described above, the Respondents caused Regions to 
+violate Section 13(b)(2)(A) of the Exchange Act because it did not keep books, records or 
+accounts that accurately reflected the Loans. 
+ 
+40. As a result of the conduct described above, the Respondents caused Regions to 
+violate Section 13(b)(2)(B) of the Exchange Act because it failed to maintain a system of internal 
+accounting controls sufficient to provide reasonable assurances that the Loans were recorded as 
+necessary to permit preparation of its financial statements in accordance with GAAP. 
+ 
+41. As a result of the conduct described above, the Respondents violated Section 
+13(b)(5) of the Exchange Act when they knowingly circumvented Regions’ system of internal 
+-8- 
+accounting controls and knowingly falsified Regions’ books, records, and accounts related to the 
+Loans. 
+ 
+42. As a result of the conduct described above, the Respondents violated Rule 13b2-1 
+of the Exchange Act by directly or indirectly falsifying or causing to be falsified Regions’ books, 
+records and accounts relating to the Loans, which were subject to Section 13(b)(2)(A) of the 
+Exchange Act. 
+ 
+43. As a result of the conduct described above, the Respondents violated Rule 13b2-2 
+of the Exchange Act when they directly or indirectly made or caused to be made materially false 
+or misleading statements, or omitted to state material facts necessary in order to make statements 
+made, in light of the circumstances under which such statements were made, not misleading to 
+accountants in connection with the preparation or filing of documents and reports which were 
+required to be filed with the Commission. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in each Respondents’ Offers. 
+ 
+Accordingly, it is hereby ORDERED that: 
+ 
+A. Respondent Kuehr cease and desist from committing or causing any violations and 
+any future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, including 
+committing or causing any such violations directly or indirectly through or by means of any other 
+person, as prohibited by Section 20(b) of the Exchange Act, and cease and desist from committing 
+or causing any violations and any future violations of Section 17(a) of the Securities Act and 
+Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-
+11, 13a-13, 13b2-1, and 13b2-2 thereunder. 
+ 
+B. Respondent Kuehr be, and hereby is prohibited for a period of five (5) years from 
+entry 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. 
+ 
+C. Respondent Kuehr shall pay a civil money penalty in the amount of $70,000 to the 
+Securities and Exchange Commission.  Payment shall be made in the following installments:  
+$5,833.37 is due on the first of the month following entry of this Order, followed by eleven (11) 
+additional payments of $5,833.33 due on the first of each consecutive following month, 
+constituting twelve (12) payments totaling $70,000.  Payment of the entire remaining balance may 
+be made at any point in time on or before it would otherwise be due under the terms of this Order.  
+If any payment is not made by the date the payment is required by this Order, the entire 
+outstanding balance, 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: 
+ 
+-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 
+Jeffrey C. Kuehr 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 Aaron W. Lipson, Division of 
+Enforcement, Securities and Exchange Commission, 950 East Paces Ferry Road, N.E., Atlanta, 
+GA 30326-1382. 
+ 
+D. Respondent Willoughby cease and desist from committing or causing any violations 
+and any future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, 
+including committing or causing any such violations directly or indirectly through or by means of 
+any other person, as prohibited by Section 20(b) of the Exchange Act, and cease and desist from 
+committing or causing any violations and any future violations of Section 17(a) of the Securities 
+Act, Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Rules  12b-20, 
+13a-11, 13a-13, 13b2-1, and 13b2-2 thereunder. 
+ 
+E. Respondent Willoughby be, and hereby is prohibited for a period of five (5) years 
+from entry 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. 
+ 
+F. Respondent Willoughby shall pay a civil money penalty in the amount of $70,000 
+to the Securities and Exchange Commission.  Payment shall be made in the following installments:  
+$5,833.37 is due on the first of the month following entry of this Order, followed by eleven (11) 
+additional payments of $5,833.33 due on the first of each consecutive following month, 
+constituting twelve (12) payments totaling $70,000.  Payment of the entire remaining balance may 
+be made at any point in time on or before it would otherwise be due under the terms of this Order.  
+If any payment is not made by the date the payment is required by this Order, the entire 
+outstanding balance, 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 may transmit payment electronically to the Commission, which 
+will provide detailed ACH transfer/Fedwire instructions upon request;  
+-10- 
+(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 
+Michael J. Willoughby 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 Aaron W. Lipson, 
+Division of Enforcement, Securities and Exchange Commission, 950 East Paces Ferry Road, N.E., 
+Atlanta, GA 30326-1382. 
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Jill M. Peterson 
+       Assistant Secretary 

raw/aaer/2014/AAER-3561.txt

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+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 72494 / June 27, 2014 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3561 / June 27, 2014 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15951 
+       
+      :   
+ :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+ CHRIS CHOI, 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 Chris 
+Choi (“Respondent” or “Choi”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of 
+Practice.
+1   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+                                                 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+ 
+ The Commission, with due regard to the public interest and without preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+ 2 
+proceedings, and the findings contained in Section III.3 below, which are admitted, Respondent 
+consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) 
+of the Commission’s Rules of Practice, 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. Choi, age 45, is and has been a certified public accountant licensed to 
+practice in the State of California.  He held several finance-related positions at Nvidia Corporation 
+(“Nvidia”) from 2005 until his resignation in May 2012. 
+ 
+ 2. Nvidia was, at all relevant times, a Delaware corporation headquartered in 
+Santa Clara, California, that developed and sold graphics processors used in various computing 
+devices.  At all relevant times, Nvidia’s common stock was registered with the Commission 
+pursuant to Section 12(b) of the Securities Exchange Act of 1934 (“Exchange Act”), and was traded 
+on the NASDAQ National Market. 
+ 
+ 3. On April 23, 2014, the Commission filed a complaint against Choi in the 
+United States District Court for the Southern District of New York in SEC v. Choi
+ (Civil Action 
+No. 14-2879-SAS).  On June 3, 2014, the court entered an order permanently enjoining Choi, by 
+consent, from future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of 
+the Exchange Act and Rule 10b-5 thereunder.  Choi was also ordered to pay a $30,000.00 civil 
+money penalty and was barred for five years from acting as an officer or director of any issuer that 
+has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to 
+file reports pursuant to Section 15(d) of the Exchange Act. 
+ 
+4. The Commission’s complaint alleges, among other things, that Choi – 
+while working as an employee of Nvidia in 2009 and 2010 – obtained material nonpublic 
+information about Nvidia’s financial results and relayed that information to his friend Hyung 
+Lim (“Lim”).  By disclosing that information to Lim, Choi breached a fiduciary duty or 
+obligation arising from a similar relationship of trust and confidence.  The complaint further 
+alleges that, in return for payment, Lim relayed Choi’s information to Danny Kuo (“Kuo”), an 
+analyst at Whittier Trust Company (“Whittier Trust”).  Utilizing that information, funds 
+managed by Whittier Trust reaped gains and avoided losses of about $295,000 by trading Nvidia 
+securities in advance of Nvidia’s quarterly earnings announcements on May 7, 2009, November 
+5, 2009, and November 11, 2010.  Kuo also provided Choi’s information to analysts at 
+Diamondback Capital Management LLC, Level Global Investors LP, and Sigma Capital 
+Management LLC, who used this information to generate profits and avoid losses of about $16.2 
+million for hedge funds managed by these three firms. 
+ 
+ 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 Choi’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+A. Choi is suspended from appearing or practicing before the Commission as an 
+accountant.   
+ 
+ B. After five years from the date of this order, Respondent may request that the 
+Commission consider his reinstatement by submitting an application (attention: Office of the 
+Chief Accountant) to resume appearing or practicing before the Commission as: 
+      
+       1. a preparer or reviewer, or a person responsible for the preparation or 
+review, of any public company’s financial statements that are filed with the Commission.  Such 
+an application must satisfy the Commission that Respondent’s work in his practice before the 
+Commission will be reviewed either by the independent audit committee of the public company 
+for which he works or in some other acceptable manner, as long as he practices before the 
+Commission in this capacity; and/or 
+      
+  2.    an independent accountant.  Such an application must satisfy the 
+Commission that: 
+      
+           (a) Respondent, or the public accounting firm with which he is 
+associated, is registered with the Public Company Accounting Oversight Board (“Board”) in 
+accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; 
+ 
+   (b) Respondent, or the registered public accounting firm with which he 
+is associated, has been inspected by the Board and that inspection did not identify any criticisms 
+of or potential defects in the respondent’s or the firm’s quality control system that would indicate 
+that the respondent will not receive appropriate supervision; 
+   (c) Respondent has resolved all disciplinary issues with the Board, and 
+has complied with all terms and conditions of any sanctions imposed by the Board (other than 
+reinstatement by the Commission); and 
+ 
+   (d) Respondent acknowledges his responsibility, as long as 
+Respondent appears or practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the Board, including, but not limited to, all 
+requirements relating to registration, inspections, concurring partner reviews and quality control 
+standards.   
+      
+C. The Commission will consider an application by Respondent to resume 
+appearing or practicing before the Commission provided that his state CPA license is 
+current and he has resolved all other disciplinary issues with the applicable state boards of 
+ 4 
+accountancy.  However, if state licensure is dependent on reinstatement by the 
+Commission, the Commission will consider an application on its other merits.  The 
+Commission’s review may include consideration of, in addition to the matters referenced 
+above, any other matters relating to Respondent’s character, integrity, professional conduct, 
+or qualifications to appear or practice before the Commission. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Jill M. Peterson 
+       Assistant Secretary 
+