diff --git a/raw/aaer/2009/AAER-2915.pdf b/raw/aaer/2009/AAER-2915.pdf new file mode 100644 index 0000000000000000000000000000000000000000..fbd56aa372d1195b90304ef8b4565e3e6193c9ca Binary files /dev/null and b/raw/aaer/2009/AAER-2915.pdf differ diff --git a/raw/aaer/2009/AAER-2915.txt b/raw/aaer/2009/AAER-2915.txt new file mode 100644 index 0000000000000000000000000000000000000000..06f97033ae7aaafd1772bfceff5ab3ca49147d09 --- /dev/null +++ b/raw/aaer/2009/AAER-2915.txt @@ -0,0 +1,81 @@ +UNITED STATES OF AMERICA +BEFORE the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59205 / January 6, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2915 / January 6, 2009 +ADMINISTRATIVE PROCEEDING +FILE NO. 3-13326 +In the Matter of + PAVLOS MELETIOU, CERTIFIED +ACCOUNTANT +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 Pavlos Meletiou (“Respondent” +or “Meletiou”). +II. +The Commission finds that: +A. RESPONDENT +1. Meletiou was a partner of the accounting firm PKF Cyprus while +AremisSoft Corporation (“AremisSoft”) was a public company. He was responsible for the + Rule 102(e)(3)(i) provides, in relevant part, that: The Commission, with due regard to the public interest and +without preliminary hearing, may, by order, … su spend from appearing or practicing before it any … a ccountant … +who has been by name … pe rmanently enjoined by any court of competent jurisdiction, by reason of his or her +misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any +provision of the Federal securities laws or of the rules and regulations thereunder. +1 +audits and reviews of AremisSoft subsidiaries that PKF Cyprus conducted. He was a certified +accountant in Cyprus. He is a citizen of Cyprus, where he currently resides. +B. CIVIL INJUNCTION +2. On September 23, 2008, the U.S. District Court for the Southern District +of New York entered a final default judgment against Meletiou, permanently enjoining him from +future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the +Securities Exchange Act of 1934 (“Exchange Act”) and Exchange Act Rule 10b-5 and from +aiding and abetting future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the +Exchange Act, and Exchange Act Rules 12b-20, 13a-1 and 13b2-1. Securities and Exchange +Commission v. Savvides & Partners/PKF Cyprus, Pavlos Meletiou, et. al., 06 CV 2223 (CSH) +(S.D.N.Y.) +3. The Commission’s complaint, filed March 21, 2006, alleged, among other +things, that Meletiou signed unqualified audit reports on behalf of PKF Cyprus, a Cyprus-based +accounting firm, for AremisSoft subsidiaries in 1999 and 2000 that falsely stated that the audits +were conducted in accordance with U.S. Generally Accepted Auditing Standards (“GAAS”) and +that the AremisSoft subsidiaries’ financial statements were fairly presented in conformity with +U.S. Generally Accepted Accounting Principles (“GAAP”). The complaint further alleged that +Meletiou was responsible for the audits and reviews of the AremisSoft subsidiaries and that he +attended meetings with senior AremisSoft executives in which the AremisSoft financial fraud +was openly discussed. +III. +Based upon the foregoing, the Commission finds that a court of competent jurisdiction +has permanently enjoined Meletiou 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 Meletiou be temporarily +suspended from appearing or practicing before the Commission as an accountant. +IT IS HEREBY ORDERED that Meletiou be, and hereby is, temporarily suspended from +appearing or practicing before the Commission as an accountant. This Order shall be effective +upon service on the Respondent. +IT IS FURTHER ORDERED that Meletiou 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). +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 +2 + +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 Meletiou by registered mail at his last known address. +By the Commission. + Elizabeth M. Murphy + S ecretary +3 diff --git a/raw/aaer/2009/AAER-2916.pdf b/raw/aaer/2009/AAER-2916.pdf new file mode 100644 index 0000000000000000000000000000000000000000..7b153dfc1320f293ada1a68564767eddcd82416d Binary files /dev/null and b/raw/aaer/2009/AAER-2916.pdf differ diff --git a/raw/aaer/2009/AAER-2916.txt b/raw/aaer/2009/AAER-2916.txt new file mode 100644 index 0000000000000000000000000000000000000000..b27f6f3c306341b5427f28dbe5b0488823d35757 --- /dev/null +++ b/raw/aaer/2009/AAER-2916.txt @@ -0,0 +1,84 @@ +UNITED STATES OF AMERICA +BEFORE the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59206 / January 6, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2916 / January 6, 2009 +ADMINISTRATIVE PROCEEDING +FILE NO. 3-13327 +In the Matter of +R.K. DHAWAN & CO. +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 R.K. Dhawan & Co. +(“Respondent” or “Dhawan & Co.”). +II. +The Commission finds that: +A. RESPONDENT +1. Dhawan & Co. is an accounting firm with offices in New Delhi, India and +Bangalore, India. R.K. Dhawan, a chartered accountant in India, is the founding partner of + 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, … su spend from appearing or practicing before it any … a ccountant … +who has been by name … pe rmanently enjoined by any court of competent jurisdiction, by reason of his or her +misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any +provision of the Federal securities laws or of the rules and regulations thereunder. +1 +Dhawan & Co. He was responsible for the reviews and audits of AremisSoft Corporation +subsidiaries conducted by Dhawan & Co. +III. +B. CIVIL INJUNCTION +1. On September 23, 2008, the U.S. District Court for the Southern District +of New York entered a final default judgment against Dhawan & Co., permanently enjoining it +from future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the +Securities Exchange Act of 1934 (“Exchange Act”) and Exchange Act Rule 10b-5 and from +aiding and abetting future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the +Exchange Act, and Exchange Act Rules 12b-20, 13a-1 and 13b2-1. Securities and Exchange +Commission v. Savvides & Partners/PKF Cyprus, Pavlos Meletiou, et. al., 06 CV 2223 (CSH) +(S.D.N.Y.). +2. The Commission’s complaint alleged, among other things, that Dhawan +and Co. issued audit reports on nine AremisSoft subsidiaries in 2000 signed by its partner +Dhawan that falsely stated that the audits were conducted in accordance with U.S. Generally +Accepted Auditing Standards (“GAAS”) and that the AremisSoft subsidiaries’ financial +statements were presented in conformity with U.S. Generally Accepted Accounting Principles +(“GAAP”). The complaint further alleged that the companies’ false financial statements were +included as part of AremisSoft’s consolidated financial statements filed with AremisSoft’s year +2000 Form 10-K. The complaint alleged that five of the nine companies were never in fact +acquired by AremisSoft and four were shells with insignificant assets, revenues, and income. +The complaint also alleged that Dhawan had no training or experience in U.S. GAAS or U.S. +GAAP. +III. +Based upon the foregoing, the Commission finds that a court of competent jurisdiction +has permanently enjoined Dhawan & Co. 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 Dhawan & Co. be +temporarily suspended from appearing or practicing before the Commission as an accountant. +IT IS HEREBY ORDERED that Dhawan & Co. be, and hereby is, temporarily suspended +from appearing or practicing before the Commission as an accountant. This Order shall be +effective upon service on the Respondent. +IT IS FURTHER ORDERED that Dhawan & Co. 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). +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 +2 + +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 Dhawan & Co. by registered mail at its last known +address. +By the Commission. + Elizabeth M. Murphy + S ecretary +3 diff --git a/raw/aaer/2009/AAER-2917.txt b/raw/aaer/2009/AAER-2917.txt new file mode 100644 index 0000000000000000000000000000000000000000..2f2be62d80c1422955e91e30d89d2a7ca97ae7fd --- /dev/null +++ b/raw/aaer/2009/AAER-2917.txt @@ -0,0 +1,1370 @@ + + + + + + + + + + + + + + + + SEC.gov | Savvides & Partners/PKF Cyprus, Pavlos Meletiou, R.K. Dhawan and Co., and R.K. 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Dhawan and Co., and R.K. Dhawan + + + + + + + + + + + + Savvides & Partners/PKF Cyprus, Pavlos Meletiou, R.K. Dhawan and Co., and R.K. Dhawan + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20843 / January 6, 2009 + + Securities and Exchange Commission v. Savvides & Partners/PKF Cyprus, +Pavlos Meletiou, R.K. Dhawan and Co., and R.K. Dhawan , Civil Action No. 06 CV 2223 (S.D.N.Y.) + + FINAL DEFAULT JUDGMENTS ENTERED AGAINST DEFENDANTS PAVLOS MELETIOU, R.K. DHAWAN AND CO. AND R.K. DHAWAN IN CONNECTION WITH THEIR AUDITS OF AREMISSOFT CORPORATION; EACH SUSPENDED FROM PRACTICING OR APPEARING BEFORE THE COMMISSION AS ACCOUNTANTS IN RELATED ADMINISTRATIVE PROCEEDINGS + + On September 23, 2008, the Honorable Charles S. Haight, Jr., of the United States District Court for the Southern District of New York, entered final default judgments against Pavlos Meletiou ("Meletiou") R.K. Dhawan and Co. ("Dhawan and Co."), and R.K. Dhawan ("Dhawan") in connection with their audits of AremisSoft Corporation ("AremisSoft"), a software company that went bankrupt in March 2002. In addition to permanent injunctions entered against each of the three defendants, Meletiou and Dhawan were each ordered to pay a civil penalty of $120,000, and Dhawan and Co. and Dhawan were held jointly liable for disgorgement of $24,488.96 plus prejudgment interest of $14,781.76. On January 6, 2009, based on the entry of the final default judgments entered against Meletiou, Dhawan and Co., and Dhawan, the Commission instituted administrative proceedings against Meletiou, Dhawan and Co., and Dhawan, temporarily suspending each from practicing or appearing before the Commission as accountants pursuant to Rule 102(e)(3) of the Commission's Rules of Practice. + + The Commission's complaint, filed March 21, 2006, alleged, among other things, that Meletiou signed unqualified audit reports on behalf of PKF Cyprus, a Cyprus-based accounting firm, for AremisSoft subsidiaries in 1999 and 2000 that falsely stated that the audits were conducted in accordance with U.S. Generally Accepted Auditing Standards ("GAAS") and that the AremisSoft subsidiaries' financial statements were fairly presented in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). The complaint further alleged that Meletiou was responsible for the audits and reviews of the AremisSoft subsidiaries and that he attended meetings with senior AremisSoft executives in which the AremisSoft financial fraud was openly discussed. + + The complaint further alleged that Dhawan and Co., an Indian-based accounting firm, issued audit reports on nine AremisSoft subsidiaries in 2000 signed by its partner R.K. Dhawan that falsely stated that the audits were conducted in accordance with U.S. GAAS and the financial statements were presented in accordance with U.S. GAAP and that the companies' false financial statements were included as part of AremisSoft's consolidated financial statements filed with AremisSoft's year 2000 Form 10-K. The complaint alleged that five of the nine companies were never in fact acquired by AremisSoft and four were shells with insignificant assets, revenues, and income. + + The final judgments permanently enjoin Meletiou, Dhawan and Co., and Dhawan from future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 10b-5 and from aiding and abetting future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Exchange Act Rules 12b-20, 13a-1 and 13b2-1. + + For additional information, see Litigation Release Nos. 19622 (March 22, 2006) and 20527 (April 15, 2008). + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-2918.txt b/raw/aaer/2009/AAER-2918.txt new file mode 100644 index 0000000000000000000000000000000000000000..ecceb588207f9f168eae9d9a6bdcc98987879b42 --- /dev/null +++ b/raw/aaer/2009/AAER-2918.txt @@ -0,0 +1,84 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59224 / January 9, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2918 / January 9, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-11887 +: ORDER GRANTING APPLICATION FOR +: REINSTATEMENT TO APPEAR AND PRACTICEIn the Matter of : BEFORE THE COMMISSION AS AN ACCOUNTANT +: RESPONSIBLE FOR THE PREPARATION OR Debra McClister, CPA : REVIEW OF FINANCIAL STATEMENTS REQUIRED +: TO BE FILED WITH THE COMMISSION +On April 7, 2005, Debra McClister, CPA (“McClister”) 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 McClister pursuant to Rule +102(e) of the Commission's Rules of Practice.1 McClister consented to the entry of the order +without admitting or denying the findings therein. This order is issued in response to +McClister’s application for reinstatement to appear and practice before the Commission as an +accountant responsible for the preparation or review of financial statements required to be filed +with the Commission. +In 2000, Mail.com, Inc. (“EasyLink”)2 improperly recognized and reported advertising +revenue from barter transactions because it failed to comply with Generally Accepted +Accounting Principles, as set forth in Emerging Issues Task Force Issue No. 99-17, “Accounting +for Advertising Barter Transactions” (“EITF 99-17”), which became effective on January 20, +2000. EITF 99-17 generally permits recognition of revenue and expense from barter transactions +only if the fair value of advertising surrendered in a barter transaction can be determined based +on a company’s comparable cash transactions in the prior six months. In 2000, McClister, who +served as EasyLink’s Executive Vice President and Chief Financial Officer, was unaware of +EITF 99-17, and thus failed to apply it to the company’s barter transactions. By failing to +1 See Accounting and Auditing Enforcement Release No. 2227 dated April 7, 2005. McClister was permitted, +pursuant to the order, to apply for reinstatement after two years upon making certain showings. +2 In April 2001, Mail.com, Inc. changed its name to EasyLink Services Corporation. In order to maintain +consistency with the April 7, 2005 order, the company is referred to as EasyLink herein. + +comply with EITF 99-17, EasyLink overstated its revenue for fiscal 2000 by $4.85 million, or +8.6% of total revenue. EasyLink also overstated its revenue for the third quarter of 2000 by +16.1%. EasyLink reported its overstated revenue figures in its 2000 Form 10-K and its Form 10- +Q for the third quarter of 2000. McClister participated in the payment arrangements for some of +the barter transactions, and failed to account for the barter deals properly. She prepared and/or +signed EasyLink’s Form 10-K and Form 10-Q that included the overstated barter revenue. +In her 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, McClister +attests that she will undertake to have her work reviewed by the independent audit committee of +any company for which she works, or in some other manner acceptable to the Commission, +while practicing before the Commission in this capacity. McClister is not, at this time, seeking +to appear or practice before the Commission as an independent accountant. If she should wish to +resume appearing and practicing before the Commission as an independent accountant, she will +be required to submit an application to the Commission showing that she has complied and will +comply with the terms of the original order, which denied her privilege of appearing and +practicing before the Commission as an accountant, in this regard. Therefore, the denial of +McClister’s privilege of appearing or practicing before the Commission as an independent +accountant continues in effect until the Commission determines that a sufficient showing has +been made in this regard in accordance with the terms of the original 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.”3 This “good cause” determination is +necessarily highly fact specific. +On the basis of information supplied, representations made, and undertakings agreed to +by McClister, it appears that she has complied with the terms of the April 7, 2005 order denying +her 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 her character, integrity, +professional conduct or qualifications to practice before the Commission that would be a basis +for adverse action against her pursuant to Rule 102(e) of the Commission's Rules of Practice, and +that McClister, by undertaking to have her work reviewed by the independent audit committee of +any company for which she works, or in some other manner acceptable to the Commission, in +her 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, +3 Rule 102(e)(5)(i) provides: +“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) +of this section may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a +hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated +by the Commission for good cause shown.” 17 C.F.R. § 201.102(e)(5)(i). +2 + +ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that +Debra McClister, 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. +Elizabeth M. Murphy +Secretary +3 diff --git a/raw/aaer/2009/AAER-2919.txt b/raw/aaer/2009/AAER-2919.txt new file mode 100644 index 0000000000000000000000000000000000000000..9d64ed455b51141c9c09ba4f233bb86ae6bc02e8 --- /dev/null +++ b/raw/aaer/2009/AAER-2919.txt @@ -0,0 +1,1371 @@ + + + + + + + + + + + + + + + + SEC.gov | Urs Kamber, Stephan Husi and Richard Jon May + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/504856","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Urs Kamber, Stephan Husi and Richard Jon May , Civil Action No. 1:07-CV-01867 (JDB) (D.D.C.) + + Former Centerpulse Head of Corporate Planning and Controlling Settles Fraud Charges With SEC + + On January 21, 2009, the Securities and Exchange Commission announced that Stephan Husi, the former Head of Corporate Planning and Controlling of Centerpulse Ltd., agreed to settle the Commission's charges against him arising from his alleged involvement in the fraudulent inflation of Centerpulse's income in the third and fourth quarters of 2002. Without admitting or denying the Commission's allegations against him, Husi has consented to the entry of a final judgment in the Commission's litigation pending in the U.S. District Court for the District of Columbia. The final judgment, which is subject to approval by the Honorable John D. Bates, orders Husi to pay a $30,000 civil penalty, $14,216 in disgorgement, and $5,868 in prejudgment interest. The final judgment also bars Husi for five years from acting as an officer or director of any public company that has securities registered with, or is required to file reports with, the Commission, and permanently enjoins him from violating the antifraud and falsification of books and records provisions of the federal securities laws - Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rules 10b-5 and 13b2-1 - and from aiding and abetting violations of the antifraud, reporting, books and records and internal controls provisions of the federal securities laws - Exchange Act Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B), and Exchange Act Rules 10b-5, 12b-20, 13a-1 and 13a-16. + + As part of this settlement, and following the entry of the proposed final judgment against him, Husi (who holds a certificate as a Swiss Certified Expert for Accounting and Controlling) has consented, without admitting or denying the Commission's allegations against him, to the issuance of an administrative order pursuant to Rule 102(e) of the Commission's Rules of Practice, suspending him from appearing or practicing before the Commission as an accountant, with the right to apply for reinstatement after five years. + + The Commission's complaint alleges that Husi, along with two other former Centerpulse executives, (1) fraudulently inflated Centerpulse's third quarter 2002 income by improperly deferring recognition of a $25 million expense, refusing to write down $3.4 million in costs associated with an impaired asset, and approving $3.6 million in improper reserve adjustments; and (2) fraudulently inflated Centerpulse's fourth quarter and fiscal 2002 income by refusing to increase a reserve to cover at least $18 million in liabilities, improperly using anticipated refund credits to offset another $5 million in expenses, and again refusing to write down $3.4 million in costs associated with an impaired asset. + + The Commission previously reached a settlement in this litigation with Urs Kamber, Centerpulse's former Chief Financial Officer. See Litigation Release No. 20605 (May 30, 2008) / Accounting and Auditing Enforcement Release No. 2835 (May 30, 2008). The Commission also previously reached administrative settlements with Dennis L. Hynson, CPA, Christopher W. Kelford and Paula J. Norbom, CPA, the former vice presidents of finance for Centerpulse's three U.S. divisions, who consented to the entry of cease-and-desist orders relating to improper accounting decisions they made during the third quarter of 2002. See Administrative Proceeding No. 3-13047 / Accounting and Auditing Enforcement Release No. 2832 / Release No. 57889 (May 30, 2008); Administrative Proceeding No. 3-13048 / Accounting and Auditing Enforcement Release No. 2833 / Release No. 57890 (May 30, 2008); and Administrative Proceeding No. 3-13049 / Accounting and Auditing Enforcement Release No. 2834 / Release No. 57891 (May 30, 2008). + + The Commission's litigation against Richard May, the former group vice president of finance, tax counsel and treasurer of Centerpulse USA Holding Company, is ongoing. See Litigation Release No. 20336 (October 17, 2007) / Accounting and Auditing Enforcement Release No. 2741 (October 17, 2007). + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-2920.txt b/raw/aaer/2009/AAER-2920.txt new file mode 100644 index 0000000000000000000000000000000000000000..c526345c055c33f1b301aaaf9d00b302e95295b0 --- /dev/null +++ b/raw/aaer/2009/AAER-2920.txt @@ -0,0 +1,188 @@ +UNITED STATES OF AMERICA + Be fore the + SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59277 / January 22, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2920 January 22, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13347 +In the Matter of + Cablevision Systems Corporation, +Respondent. +ORDER INSTITUTING CEASE-AND-DESIST +PROCEEDINGS PURSUANT TO SECTION +21C OF THE SECURITIES EXCHANGE ACT +OF 1934, MAKING FINDINGS, AND +IMPOSING A CEASE-AND-DESIST ORDER +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate that cease- +and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities +Exchange Act of 1934 (“Exchange Act”), against Cablevision Systems Corporation (“Cablevision” +or “Respondent”). +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over Respondent and the subject matter of these +proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease- +and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making +Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds1 that: +Summary +1. Cablevision Systems Corporation is a Delaware corporation located in Bethpage, +New York. It is a diversified entertainment and telecommunications company with a market +capitalization of approximately $8.05 billion in 2007 and 2007 annual revenues of $6.484 billion. +Cablevision’s stock is registered under Section 12(b) of the Exchange Act and is listed on the New +York Stock Exchange. +2. Rainbow Media Holdings, Inc. (“Rainbow”), during the relevant period, was a +subsidiary of Cablevision that owned interests in and managed national and regional entertainment +programming networks, the Madison Square Garden sports and entertainment business and cable +television advertising sales companies. At all relevant times, the financial statements of Rainbow +and its majority-owned businesses were consolidated into Cablevision’s financial reports. +3. From at least 1999 through mid-2003, contrary to Generally Accepted Accounting +Principles (“GAAP”), Cablevision recognized certain costs as current expenses when, in fact, the +costs should not have been recognized in those periods. These improper “prepays,” as the practice +was referred to, occurred because certain Cablevision managers and employees, most significantly +within Rainbow, falsified invoices and other documents in order to accrue expenses earlier than +when they in fact should have been accrued. These improperly recognized expenses were reflected +in Cablevision’s books, records and accounts and caused Cablevision to overstate expenses in +earlier fiscal periods, and understate expenses in later periods. +4. Separately, from at least 2000 through late 2003, contrary to GAAP, Cablevision +improperly recognized payments known as launch and marketing support (hereinafter collectively +“launch support”), which were paid to Cablevision by television program vendors for advertising +and marketing campaigns to attract viewers to the vendors’ programs. These errors occurred in +and directly affected financial reporting for Cablevision’s cable distribution business. The +improper timing of the recognition of launch support was reflected in Cablevision’s books, records +and accounts and caused Cablevision to reduce expenses in the periods in which launch support +was improperly recognized and correspondingly increase expenses in the periods when the launch +support should have been recognized. +5. The improper recognition of prepays and launch support payments caused +Cablevision’s reports to the Commission to be materially inaccurate. These errors, among others, +The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on +any other person or entity in this or any other proceeding. +2 +1 +caused Cablevision in 2004 to restate its financial statements for the years 2000 through 2002 and +for the nine months ended September 30, 2003. The improper recognition of prepaid expenses and +launch support payments in Cablevision’s books and records was possible because during the +relevant period Respondent lacked sufficiently robust internal controls. +Improper Prepays +6. Cablevision delegated to the corporation’s individual business units the authority to +incur expenses and authorize payments. A corporate, centralized accounting department recorded +expenses in Cablevision’s books and records and issued checks for payments. Cablevision’s +accounting department, however, had little direct knowledge of the type of details discussed below +at a business unit level. Internal accounting procedures merely called for recognition of expenses +and requests for payment of expenses to be reported to the accounting department on a +standardized “authorization for payment” form (“APF”), signed by the appropriate level business +unit manager, with evidence of the expense, such as an invoice, attached. These controls, however, +were not sufficient to prevent the manipulation of expense recognition that occurred. +7. Certain Cablevision employees and managers for years were able to defeat +Cablevision’s internal accounting controls using methods that were neither particularly devious nor +sophisticated. For example, some employees submitted counterfeit invoices to Cablevision’s +accounting department that were of noticeably poor quality, and were different in appearance from +legitimate invoices. Certain Cablevision employees also asked vendors to submit false, vague or +misdated invoices for services not yet provided. These invoices were used to submit fraudulent +APFs to Cablevision’s accounting department in support of early expense recognition and +payments. In addition, Cablevision checks were sometimes sent to the business unit from which a +counterfeit or false invoice originated, ostensibly for delivery to the vendor by an employee of the +business unit. This deficient practice permitted the business unit to hold payment until the +anticipated services were actually rendered. +8. The circumstances described above demonstrate that Cablevision’s internal +controls, including employee training, were inadequate during the relevant period and failed to +provide reasonable assurance that transactions were executed as authorized by management, or that +transactions were properly recorded so that Cablevision’s financial statements could be prepared in +accordance with GAAP and accountability for assets could be maintained. +Improper Launch Support Recognition +9. Beginning in the middle to late 1990s, television program vendors began providing +lump-sum launch support payments to Cablevision in connection with multi-year contracts with +Cablevision to carry their programs. Contract provisions concerning launch support payments +were generally understood to require Cablevision to use the funds for advertising and marketing +campaigns to attract viewers to the vendors’ programs. Contracts providing for large up-front +payments of launch support to Cablevision were not uncommon. These contracts sometimes also +3 + +required that the launch support be refunded by Cablevision if, among other things, it dropped the +program. +10. In some cases during the relevant period, Cablevision properly recognized non- +refundable launch support as a reduction of expenses ratably over the life of the contract with the +vendor and recognized refundable launch support ratably over the life of the refund period. In fact, +in 2002, Cablevision publicly stated that this was how it accounted for launch support. From 2000 +through the third quarter of 2003, however, Cablevision improperly accelerated the recognition of +launch support received from several program vendors, rather than recognizing it ratably over the +life of the contract or the refund period. This early recognition ran contrary to its general practice +and its 2002 public statement, and violated GAAP’s matching principle. +11. For example, after the first two years of an eight-year contract, Cablevision +changed its recognition for $15.16 million of launch support from recognition ratably over the life +of the contract to immediate recognition of the remaining balance. Under the circumstances, +however, Cablevision should have accounted for launch support payments ratably over the life of +the contract where, as here, the contract term was fixed and there was no obligation to refund +launch support. Another example involved a contract with a launch support refund period. After +the first eight months of a 24 month refund period, Cablevision changed its recognition of $5.3 +million in launch support from recognition ratably over the life of the refund period to immediate +recognition of the remaining balance. Under the circumstances, however, Cablevision should have +accounted for launch support ratably over the refund period specified in the contracts. +12. Cablevision also improperly recognized launch support early by treating a 2002 +seven-year agreement to carry certain programs as if it were two agreements – one of three years, +and another of seven years. As two separate agreements, Cablevision recognized $48 million in +launch support over the ‘three year’ agreement (approximately $16 million per year), and +recognized $16 million in launch support over the ‘seven year’ agreement (approximately $2.28 +million per year). Under GAAP, however, the two agreements should have been treated as one +agreement, with the result that the total $64 million in launch support should have been recognized +ratably over seven years, i.e., approximately $9.14 million per year. The purported two agreements +were negotiated simultaneously and dated only five days apart, and the ‘seven year’ agreement also +amended the terms of the ‘three year’ agreement. Cablevision employees improperly cast the +single deal as two agreements to achieve early recognition of the launch support payments. +13. The accelerated recognition of launch support revealed further that Cablevision’s +internal accounting controls were insufficient to permit the preparation of its financial statements in +conformity with GAAP. Cablevision personnel were, but should not have been, able to make +unchecked changes to the scheduled recognition of launch support. +Cablevision Financial Misstatements +14. As a result of the improper expense recognition discussed above, Cablevision’s +financial statements in its annual reports on Form 10-K and its quarterly reports on Forms 10-Q for +4 + +the years 2000 through 2002 and the nine months ended September 30, 2003 were materially +inaccurate. As reported in Cablevision’s 2004 restatement, the sum of the launch support and the +expense recognition errors resulted in a $15.184 million overstatement of expenses in 2000, a +$25.389 million understatement of expenses in 2001, and a $7.581 million understatement of +expenses in 2002. For the first 9 months of 2003, the sum of the errors in expense and launch +support recognition resulted in a $7.895 million understatement of expenses. The combined errors +resulted in (net of estimated tax) a 3.8% understatement of Cablevision’s net income in 2000, a +1.5% overstatement of net income in 2001, a 4.9% overstatement of net income in 2002 and a +5.1% understatement of Cablevision’s net loss in the nine months ended September 30, 2003. +Violations +15. Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require +issuers of securities registered pursuant to Section 12 of the Exchange Act to file periodic reports +with the Commission containing complete and accurate financial information presented in +accordance with GAAP. Exchange Act Rule 12b-20 further requires that periodic reports contain +such further material information, if any, as may be necessary to make the required statements not +misleading. +16. Section 13(b)(2)(A) of the Exchange Act requires issuers of securities registered +pursuant to Exchange Act Section 12 to make and keep books, records, and accounts which, in +reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the +issuer. Section 13(b)(2)(B)(ii) of the Exhange Act requires 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 the preparation of financial statements in +conformity with GAAP. +17. As a result of the conduct described above, Respondent violated Sections 13(a), +13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1 and 13a- +13. +Cablevision’s Remedial Efforts +18. In determining to accept Respondent’s Offer, the Commission considered remedial +acts promptly undertaken by Respondent and cooperation afforded the Commission staff. +5 + +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent’s Offer. +Accordingly, it is hereby ORDERED that, pursuant to Section 21C of the Exchange Act, +Respondent cease and desist from committing or causing any violations and any future violations of +Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, +13a-1 and 13a-13. + By the Commission. +Elizabeth M. Murphy +Secretary +6 diff --git a/raw/aaer/2009/AAER-2921.pdf b/raw/aaer/2009/AAER-2921.pdf new file mode 100644 index 0000000000000000000000000000000000000000..c6a6d536f926e5460d9d960e36122ba96ce5cb5f Binary files /dev/null and b/raw/aaer/2009/AAER-2921.pdf differ diff --git a/raw/aaer/2009/AAER-2921.txt b/raw/aaer/2009/AAER-2921.txt new file mode 100644 index 0000000000000000000000000000000000000000..464cbc4fd720e367af21a9d392b824320db586fe --- /dev/null +++ b/raw/aaer/2009/AAER-2921.txt @@ -0,0 +1,139 @@ +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59278 / January 22, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2921 / January 22, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13348 +In the Matter of +Catherine R. McEnroe, +Noreen O’Loughlin and +Martin R. von Ruden, +Respondents. +ORDER INSTITUTING CEASE-AND-DESIST +PROCEEDINGS PURSUANT TO SECTION +21C OF THE SECURITIES EXCHANGE ACT +OF 1934, MAKING FINDINGS, AND +IMPOSING A CEASE-AND-DESIST ORDER +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate that +cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the +Securities Exchange Act of 1934 (“Exchange Act”), against Catherine R. McEnroe, Noreen +O’Loughlin and Martin R. von Ruden (“Respondents”). +II. +In anticipation of the institution of these proceedings, Respondents have each submitted +an Offer of Settlement (the “Offers”) which the Commission has determined to accept. Solely +for the purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the +findings herein, except as to the Commission’s jurisdiction over Respondents and the subject +matter of these proceedings, which are admitted, Respondents consent to the entry of this Order +Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist +Order Pursuant to Section 21C of the Securities Exchange Act of 1934 (“Order”), as set forth +below. +III. +On the basis of this Order and Respondents’ Offers, the Commission finds1 that: +1. Cablevision Systems Corporation (“Cablevision”) is a Delaware corporation +located in Bethpage, New York. Cablevision is a diversified entertainment and +telecommunications company with a market capitalization of approximately $8.05 billion in +2007 and 2007 annual revenues of $6.484 billion. Cablevision’s stock is registered under +Section 12(b) of the Exchange Act and is listed on the New York Stock Exchange. +2. Rainbow Media Holdings, Inc. (“Rainbow”), during the relevant period, was a +subsidiary of Cablevision that owned interests in and managed national and regional +entertainment programming networks, the Madison Square Garden sports and entertainment +business and cable television advertising sales companies. At all relevant times, the financial +statements of Rainbow and its majority-owned business units were consolidated into +Cablevision’s financial reports. +3. AMC Networks, during the relevant period, was a business unit of Rainbow. It +included at least two sub-units, including the television programming networks known as AMC +(formerly known as American Movie Classics Company) and WE: Women’s Entertainment +(“WE”). +4. Respondent Catherine R. McEnroe served as president of AMC Networks from +April 1996 through June 2003, when she left Cablevision in connection with the matters +described herein. +5. Respondent Noreen O’Loughlin served as Executive Vice President and General +Manager of Marketing of AMC Networks from April 1998 to July 2000, and as Executive Vice +President and General Manager of AMC from January 2002 through June 2003, when she left +Cablevision in connection with the matters described herein. +6. Respondent Martin R. von Ruden served as Senior Vice President and General +Manager of WE from 1998 until late 2000, and as Executive Vice President and General +Manager of WE from late 2000 until June 2003, when he left Cablevision in connection with the +matters described herein. +Improper Prepays +7. From at least 1999 through mid-2003, contrary to Generally Accepted Accounting +Principles (“GAAP”), Cablevision recognized certain costs as current expenses when, in fact, the +costs should not have been recognized in those periods. These improper “prepays,” as the +practice was referred to, occurred because employees prepared and submitted inaccurate and +misleading invoices and other documents in order to accrue expenses earlier than when they in +fact should have been accrued. These improperly recognized expenses were reflected in +Cablevision’s books, records and accounts and caused Cablevision to overstate expenses in +The findings herein are made pursuant to Respondents’ Offers of Settlement and are not binding +on any other person or entity in this or any other proceeding. +2 +1 +earlier fiscal periods and understate expenses in later periods. As a result, Cablevision’s reports +to the public and the Commission for the period 1999 through mid-2003 were inaccurate, +causing Cablevision in 2004 to restate its financial statements for 2000 through the nine months +ended September 30, 2003. +8. A large part of these improper prepays occurred at business units of Cablevision’s +Rainbow subsidiary, namely AMC Networks and its sub-units AMC and WE. AMC Networks +prematurely recognized, and caused Cablevision to improperly recognize, expenses totaling +approximately $12 million in both 1999 and 2000, $10 million in 2001 and $9 million in 2002. +9. While Respondents worked at AMC Networks or its sub-units, their subordinates +used several different improper means to recognize expenses in a current period that properly +should have been recognized in a later period. For example, the subordinates asked vendors to +submit misdated invoices for vaguely defined services, which had not yet been rendered, and +used these invoices to achieve early expense recognition and payment. These invoices were +submitted to Cablevision’s accounting department with Authorization for Payment Forms +(“APF”), in some cases signed by Respondents, that inaccurately identified the expenses as +current expenses. In addition, AMC Networks employees on occasion asked Cablevision’s +accounting department to send checks to the employees, ostensibly for delivery by the employee +to the vendor. This practice permitted AMC Networks employees to hold payment until +anticipated services were actually rendered, in violation of fundamental internal accounting +controls. The purpose of these prepay practices was to provide a “margin of error” each year for +meeting AMC Networks’ internally budgeted allowance for expenses. +10. Respondent McEnroe, while serving as President of AMC Networks, directed and +was aware of improper prepays and signed inaccurate APFs that caused improper prepays. +These prepays resulted in Cablevision overstating expenses in earlier fiscal periods and +understating expenses in later periods and rendered inaccurate Cablevision’s financial reports to +the Commission and the public for the years 1999 through mid-2003. +11. Respondent O’Loughlin, while serving as Executive Vice President and General +Manager of Marketing of AMC Networks and as Executive Vice President and General Manager +of AMC, directed and was aware of improper prepays and signed inaccurate APFs that caused +improper prepays. These prepays resulted in Cablevision overstating expenses in earlier fiscal +periods and understating expenses in later periods and rendered inaccurate Cablevision’s +financial reports to the Commission and the public for the years 1999 through mid-2003. +12. Respondent von Ruden, while serving as Senior Vice President and General +Manager of WE and as Executive Vice President and General Manager of WE, directed and was +aware of improper prepays and signed inaccurate APFs that caused improper prepays. These +prepays resulted in Cablevision overstating expenses in earlier fiscal periods and understating +expenses in later periods and rendered inaccurate Cablevision’s financial reports to the +Commission and the public for the years 1999 through mid-2003. +3 + +Violations +13. Section 13(b)(5) of the Exchange act provides that no person shall knowingly +circumvent or knowingly fail to implement a system of internal accounting controls, or +knowingly falsify any book, record or account described in Section 13(b)(2) of the Exchange +Act. +14. Exchange Act Rule 13b2-1 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. +15. As a result of the conduct as found by the Commission, Respondents violated +Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder.2 +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 pursuant to Section 21C of the Exchange Act, +Respondents cease and desist from committing or causing any violations and any future +violations of Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder. +By the Commission. +Elizabeth M. Murphy +Secretary +This matter is related to a civil action, Securities and Exhange Commission v. Catherine McEnroe, +Noreen O’Loughlin and Martin von Ruden, to be filed in United States District Court for the Eastern +District of New York, in which Respondents have consented to pay civil penalties as follows: Respondent +McEnroe - $30,000, Respondent O’Loughlin - $15,000, and Respondent von Ruden - $15,000. +4 +2 \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2922.txt b/raw/aaer/2009/AAER-2922.txt new file mode 100644 index 0000000000000000000000000000000000000000..377f1f5263fff3d6402d838919f7cb26dc15c759 --- /dev/null +++ b/raw/aaer/2009/AAER-2922.txt @@ -0,0 +1,1387 @@ + + + + + + + + + + + + + + + + SEC.gov | Catherine R. McEnroe, Noreen O'Loughlin and Martin R. von Ruden + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/504866","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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McEnroe, Noreen O'Loughlin and Martin R. von Ruden + + + + + + + + + + + + Catherine R. McEnroe, Noreen O'Loughlin and Martin R. von Ruden + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20862 / January 22, 2009 + + Accounting and Auditing Enforcement Release No. 2922 / January 22, 2009 + + Securities and Exchange Commission v. Catherine R. McEnroe, Noreen O'Loughlin and Martin R. von Ruden , Civil No. CV-09-0249 (LDW) (E.D.N.Y., filed Jan. 22, 2009) + + SEC Files Settled Enforcement Action against Three Former Managers at Cablevision Systems Corporation in Connection with Improper Recognition of Expenses + + The United States Securities and Exchange Commission (Commission) today filed a settled civil action against Catherine R. McEnroe, Noreen O'Loughlin and Martin von Ruden in United States District Court for the Eastern District of New York, alleging they violated provisions of the Federal securities laws prohibiting the falsification of certain books, records or accounts in connection with improper expense recognition at Cablevision Systems Corporation (Cablevision), and seeking civil money penalties. The Commission's complaint alleges that from at least 1999 through mid-2003, contrary to Generally Accepted Accounting Principles, Cablevision recognized certain costs as current expenses when, in fact, the expenses should not have been recognized in those periods. These improper "prepays," as the practice was referred to, occurred because employees prepared and submitted inaccurate invoices and other documents in order to accrue expenses earlier than when they in fact should have been accrued. These improperly recognized expenses were reflected in Cablevision's books, records and accounts and caused Cablevision to overstate expenses in earlier fiscal periods and understate expenses in later periods. As a result, Cablevision's reports to the public and the Commission for the period 1999 through mid-2003 were inaccurate and caused Cablevision to restate its financial statements filed with the Commission for the period 2000 through the first nine months of 2003. + + The Commission's complaint alleges that McEnroe, O'Loughlin and von Ruden, while serving as officers and managers of significant business units of Cablevision, directed or were aware of improper prepays and signed inaccurate payment authorization forms that caused improper prepays, and that they thereby violated Section 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 13b2-1 thereunder. Without admitting or denying the allegations in the Commission's complaint, McEnroe, O'Loughlin and von Ruden consented to final judgments ordering them to pay civil penalties of $30,000, $15,000, and $15,000, respectively. + + In a related settled cease-and-desist proceeding against them, and also without admitting or denying the Commission's factual findings in its 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, McEnroe, O'Loughlin and von Ruden each also consented to an administrative order to cease and desist from committing or causing any violations and any future violations of Exchange Act Section 13(b)(5) and Rule 13b2-1 thereunder. + + Separately, the Commission today announced that it instituted settled cease-and-desist proceedings against Cablevision for improper expense recognition. 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Shovers, Jesus Bonilla-Valdez, Ronald Lee Kolakowski, and HLI Operating Company, Inc., f/k/a Hayes Lemmerz International, Inc. + + + + + + + + + + + + Ranko Cucuz, William D. Shovers, Jesus Bonilla-Valdez, Ronald Lee Kolakowski, and HLI Operating Company, Inc., f/k/a Hayes Lemmerz International, Inc. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20864 / January 23, 2009 + + Accounting and Auditing Enforcement Release No. 2923 / January 23, 2009 + + Securities and Exchange Commission v. Ranko Cucuz, William D. Shovers, Jesus Bonilla-Valdez, Ronald Lee Kolakowski, and HLI Operating Company, Inc., f/k/a Hayes Lemmerz International, Inc. , Civil Action No. 2: 06-CV-11935 + + COURT IMPOSES CIVIL PENALTIES, INJUNCTIONS AND OTHER RELIEF AGAINST FORMER CEO AND CFO OF HAYES LEMMERZ INTERNATIONAL, INC. + + The Securities and Exchange Commission announced today that the U.S. District Court for the Eastern District of Michigan entered final judgments against Ranko Cucuz, former CEO of Hayes Lemmerz International, Inc., and William D. Shovers, former CFO of Hayes, after a jury found that they had violated the securities laws in connection with an accounting scheme at the company. The judgments were entered on December 18 and 22, 2008, following a remedy hearing before the Honorable Arthur J. Tarnow, United States District Judge. + + On December 22, 2008, Judge Tarnow entered final judgment against Shovers that imposed a civil monetary penalty of $50,000, enjoined him from violating the applicable antifraud and other provisions of the federal securities laws, and barred him from acting as an officer or director of a publicly traded company for a period of five years. On December 18, 2008, Judge Tarnow entered final judgment against Cucuz that imposed a $10,000 civil penalty and enjoined him from future violations of the applicable antifraud provision of the Securities Act of 1933. + + Previously, on August 20, 2008, a jury found that Shovers violated: (i) the antifraud provisions of both the Securities Act (Section 17(a)(3)) and the Securities Exchange Act of 1934 (Section 10(b) and Rule 10b-5 thereunder); (ii) the internal controls and books and records provisions of the Exchange Act (Section 13(b)(5) and Exchange Act Rule 13b2-1); and (iii) the lying-to-auditor provision of the Exchange Act (Rule 13b2-2). The jury also found that Shovers aided and abetted violations of the issuer reporting, books and records, and internal control provisions of the Exchange Act (Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Exchange Act Rules 12b-20, 13a-1 and 13a-13). Finally, the jury found Cucuz liable for violations of the antifraud provisions of the Securities Act (Section 17(a)(3)). The jury found Cucuz not liable on other charges. + + Cucuz and Shovers were the last two remaining defendants in this action. On January 14, 2007, the Court entered final judgment by consent against defendant Jesus Bonilla-Valdez (former Vice President of Hayes' Aluminum Wheel Group) that imposed a $30,000 civil penalty, and enjoined him from future violations of the antifraud, reporting, internal controls, and books and records provisions of the federal securities laws. As the Commission previously announced, Hayes and Ronald Kolakowski (former President of Hayes' North American Wheel Group) settled with the Commission at the time the complaint in this action was filed. + + Moreover, in previously settled related administrative proceedings, the Commission issued Orders Instituting Administrative Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions against Allen Buntin, James Jarrett, and Greg Jones, all of whom were former employees of Hayes. + + Additional information concerning this action and Commission actions related to this matter can be found at: + + SEC v. Cucuz, et al., Civil Action No. 2:06 CV 11935 (E.D. Mich.) [Release No. LR-20686 ] (August 21, 2008) + SEC v. Cucuz, et al., Civil Action No. 2:06 CV 11935 (E.D. Mich. April 25, 2006) [Release No. LR-19668 ] (April 25, 2006). + In the Matter of James Jarrett [Release No. 34-53716 ] (April 25, 2006) + In the Matter of Allen Buntin [Release No. 34-53717 ] (April 25, 2006) + In the Matter of Greg Jones [Release No. 34-53718 ] (April 25, 2006) + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-2924.pdf b/raw/aaer/2009/AAER-2924.pdf new file mode 100644 index 0000000000000000000000000000000000000000..8e20713bb36120678fa862c1b6859907ed025783 Binary files /dev/null and b/raw/aaer/2009/AAER-2924.pdf differ diff --git a/raw/aaer/2009/AAER-2924.txt b/raw/aaer/2009/AAER-2924.txt new file mode 100644 index 0000000000000000000000000000000000000000..9f6ff1a23af535bd1088b6c3fdac416b2cd7ec08 --- /dev/null +++ b/raw/aaer/2009/AAER-2924.txt @@ -0,0 +1,114 @@ + + UNITED STATES OF AMERICA + before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59295 / January 26, 2009 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2924 / January 26, 2009 + +ADMINISTRATIVE PROCEEDING +File No. 3-13349 + + + : + : + : +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE + : PROCEEDINGS PURSUANT TO RULE +John V. Cracchiolo, CPA, : 102(e) OF THE COMMISSION’S RULES OF + : PRACTICE, MAKING FINDINGS, AND +Respondent. : IMPO SING REMEDIAL SANCTIONS + : + : +____________________________________ : + +I. + + The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against John V. +Cracchiolo (“Respondent” or “Cracchiolo”) pursuant to Rule 102(e)(3)(i) of the Commission’s +Rules of Practice. +1 +II. + + In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the + + +1 Rule 102(e)(3)(i) provides, in relevant part, that: + + The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. + 2 +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over him and the subject matter of these +proceedings, and the findings contained in Section III below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) +of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. + +III. + + On the basis of this Order and Responde nt’s Offer, the Commission finds that: + + 1. John V. Cracch iolo, age 52, is and has been a certified public accountant +licensed to practice in the State of California. He served as Chief Financial Officer and Chief +Operations Officer of Endocare, Inc. from June 2001 until his resignation on March 3, 2003. + + 2. Endocare was, at all relevant times, a Delaware corporation with its principal +place of business in Irvine, California. Endocare developed and distributed medical devices for use +in the treatment of various types of cancers and urological ailments. At all relevant times, +Endocare’s common stock was registered with the Commission pursuant to Section 12(g) of the +Securities Exchange Act of 1934 (“Exchange Act”), and was listed on the NASDAQ National +Market until January 16, 2003, when it was delisted for Endocare’s failure to file its periodic reports +with the Commission. + + 3. On January 13, 2009, a final judgment was entered against Cracchiolo, +permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933 +(“Securities Act”), and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 +and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and +13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder, in the +civil action entitled Securities and Exchange Commission v. Paul W. Mikus, et al. +, Civil Action +Number SACV06-734 JVS (MLGx), in the United States District Court for the Central District of +California. Cracchiolo was also ordered to pay $60,715 in disgorgement of ill-gotten gains while +participating in the fraud, and $10,378.69 in prejudgment interest, and a $50,000 civil money +penalty. + + 4. The Commission’s complaint alleged, among other things, that Cracchiolo +engaged in a fraudulent scheme which resulted in Endocare filing materially false and +misleading periodic reports for the second and third quarters of 2001, the year end 2001, and the +first and second quarters in 2002, and registration statements filed on November 14, 2001 and +March 26, 2002. As a result of the scheme, Endocare also issued misleading press releases and +Forms 8-K in December 2002 and March 2003. The Complaint alleged that Cracchiolo +overstated Endocare’s revenue and income by booking false sales, engaging in improper revenue +recognition practices, and improperly understating or delaying the recognition of expenses in +order to inflate Endocare’s earnings. The Complaint also alleged that during conference calls +with Wall Street securities analysts, Cracchiolo misled investors about the number of procedures +that were preformed using Endocare-owned boxes. + 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 John V. Cracchiolo’s Offer. + + Accordingly, it is hereby ORDERED, effective immediately, that: + + A. John V. Cracchiolo is suspended fr om appearing or practicing before the +Commission as an accountant. + + By the Commission. + + + + E l i z a b e t h M . M u r p h y + S e c r e t a r y \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2925.txt b/raw/aaer/2009/AAER-2925.txt new file mode 100644 index 0000000000000000000000000000000000000000..cb98dc57c5c412a3de9615adb141b3ce3577a0c9 --- /dev/null +++ b/raw/aaer/2009/AAER-2925.txt @@ -0,0 +1,1375 @@ + + + + + + + + + + + + + + + + SEC.gov | Jordan H. Mintz and Rex R. Rogers + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/504886","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Mintz and Rex R. Rogers + + + + + + + + + + + + Jordan H. Mintz and Rex R. Rogers + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20866 / January 26, 2009 + + Accounting and Auditing Enforcement Release No. 2925 / January 26, 2009 + + SEC v. Jordan H. Mintz and Rex R. Rogers , Civil Action No. H-07-1027 (S.D. Tex.) + + SEC Settles Civil Fraud Charges Against Two Former Enron In-House Attorneys + + The Securities and Exchange Commission announced today that, on January 20, 2009, the U.S. District Court in Houston entered final judgments in the Commission's civil action against Jordan H. Mintz, a former Enron Vice President and General Counsel of Enron's Global Finance group, and Rex R. Rogers, Enron's former Vice President and Associate General Counsel. On March 28, 2007, the Commission charged Mintz and Rogers with, among other things, participating in a fraudulent scheme not to disclose Enron's related-party transactions with partnerships controlled by its Chief Financial Officer, Andrew Fastow, and compensation Fastow had received through those transactions. As part of the alleged scheme, Rogers further failed to disclose Enron's related-party transactions involving insider stock sales by its Chairman, Kenneth Lay. + + The final judgments permanently enjoin Mintz and Rogers from violating Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 14(a) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5 and 14a-9 thereunder, as well as from aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. Mintz is also permanently enjoined from violating Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder, as well as from aiding and abetting violations of Section 13(b)(2)(A) of the Exchange Act. In addition, Rogers is permanently enjoined from aiding and abetting violations of Section 16(a) of the Exchange Act and Rules 16a-2 and 16a-3 thereunder. + + The final judgments also order Mintz and Rogers each to pay $1 in disgorgement and a $25,000 civil money penalty. These amounts, totaling $50,002, will be deposited into the Court Registry Investment System for distribution to injured Enron investors under the "Fair Fund" provisions of the Sarbanes-Oxley Act of 2002. + + Mintz and Rogers further consented to the entry of an Administrative Order, pursuant to Rule 102(e)(3)(i) of the Commission's Rules of Practice, suspending each attorney from appearing or practicing before the Commission for a period of two years. + + In settlement of this action, Mintz and Rogers neither admitted nor denied the allegations of the Commission's complaint. Among other things, the complaint alleged the following: In 1999, Enron sold an interest in a troubled power project in Cuiaba, Brazil to a related party called LJM1, a partnership controlled by Fastow, to deconsolidate the project and recognize related earnings. Under accounting rules, deconsolidation and earnings recognition were inappropriate because Enron did not transfer the risks and rewards of ownership in light of a secret side agreement promising that LJM1 would not lose money on Cuiaba. Satisfying the side agreement, Mintz helped Enron repurchase Cuiaba from LJM1 in 2001. Mintz then delayed signing and closing of the Cuiaba buyback in an effort to avoid reporting related-party transactions in Enron's 2000 Proxy Statement and 2001 Second Quarter Form 10-Q. Moreover, Mintz and Rogers failed to disclose in Enron's 2000 Proxy Statement millions of dollars Fastow received through related-party transactions between LJM and Enron. Rogers further failed to disclose in Enron's 2000 Proxy Statement at least $16 million in insider stock sales by Chairman Kenneth Lay to repay his Enron line of credit during 2000, and aided and abetted Lay's failure to disclose in SEC Form 4 filings an additional $70 million in insider stock sales by Lay during 2001. + + See Rule 102(e) Orders suspending Mintz and Rogers . + + For more information, see Litigation Release No. 20058 (March 28, 2007) + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-2926.pdf b/raw/aaer/2009/AAER-2926.pdf new file mode 100644 index 0000000000000000000000000000000000000000..8260ed00a6383beba21504512afe8f7597c84065 Binary files /dev/null and b/raw/aaer/2009/AAER-2926.pdf differ diff --git a/raw/aaer/2009/AAER-2927.pdf b/raw/aaer/2009/AAER-2927.pdf new file mode 100644 index 0000000000000000000000000000000000000000..b9c469f53debf5b594741a5a112459cd2dd6512b Binary files /dev/null and b/raw/aaer/2009/AAER-2927.pdf differ diff --git a/raw/aaer/2009/AAER-2927.txt b/raw/aaer/2009/AAER-2927.txt new file mode 100644 index 0000000000000000000000000000000000000000..523938109ac8cf26aa62d594fb43636a815f4708 --- /dev/null +++ b/raw/aaer/2009/AAER-2927.txt @@ -0,0 +1,116 @@ + + + + + + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION + + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59297 / January 26, 2009 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2927 / January 26, 2009 + +ADMINISTRATIVE PROCEEDING +File No. 3-13351 + + +In the Matter of + +Rex R. Rogers, + + Respondent. + + +ORDER INSTITUTING PUBLIC +ADMINISTRATIVE PROCEEDINGS +PURSUANT TO RULE 102(e) OF THE +COMMISSION’S RULES OF PRACTICE, +MAKING FINDINGS AND IMPOSING +REMEDIAL SANCTIONS + + + +I. + The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against Rex R. +Rogers (“Respondent” or “Rogers”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of +Practice. +1 + + +1 Rule 102(e)(3)(i) provides, in relevant part, that: + + The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . attorney . . . who has +been by name . . . [p]ermanently enjoined by any court of competent jurisdiction, by reason of +his or her misconduct in an action brought by the Commission, from violating or aiding and +abetting the violation of any provision of the Federal securities laws or of the rules and +regulations thereunder. + 2 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (“Offer”) which the Commission has determined to accept. Solely for the purpose of +these proceedings and any other proceedings brought by or on behalf of the Commission, or to +which the Commission is a party, and without admitting or denying the findings herein, except as +to the Commission’s jurisdiction over him and the subject matter of these proceedings, and the +findings contained in Section III(3) below, which are admitted, Respondent consents to the entry of +this Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the +Commission’s Rules of Practice, Making Findings and Imposing Remedial Sanctions (“Order”), as +set forth below. +III. + On the basis of this Order and Respondent’s Offer, the Co mmission finds that: +1. Respondent Rogers, 59, is and has been an attorney licensed to practice in the State +of Texas. Rogers, a former enforcement attorney for the Commission from 1979 through 1984, was +hired in 1985 by Houston Natural Gas, the predecessor of Enron Corp. (“Enron”). In 1997, Rogers +was promoted to Vice President and Associate General Counsel of Enron with shared responsibility +for the timing and content of Commission filings. Rogers remained in that position until 2003, +following Enron’s bankruptcy, and has not been employed since 2003. +2. Enron was, at all relevant times, an Oregon corporation with its principal place of +business in Houston, Texas. Until its bankruptcy filing in December 2001, Enron was the seventh +largest corporation in the United States based upon reported revenue. In the previous ten years, +Enron had evolved from a regional natural gas provider to a commodity trader of natural gas, +electricity, and other physical commodities with retail operations in energy and other products. +Enron also created and traded financial products. At all relevant times, the common stock of Enron +was registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act of +1934 (“Exchange Act”) and traded on the New York Stock Exchange. +3. On January 20, 2009, the U.S. District Court for the Southern District of Texas, +Houston Division, entered a final judgment by consent against Rogers, permanently enjoining him +from violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 14(a) of the +Exchange Act and Exchange Act Rules 10b-5 and 14a-9, and aiding and abetting violations of +Sections 13(a) and 16(a) of the Exchange Act, and Exchange Act Rules 12b-20, 13a-1, 13a-13, +16a-2 and 16a-3. Securities and Exchange Commission v. Jordan H. Mintz, et al., Civil Action +Number H-07-1027 (S.D. Tex.). Rogers was also ordered to pay $1 in disgorgement and a +$25,000 civil money penalty. +4. Among other things, the Commission’s complaint alleges that Rogers and co- +defendant Jordan H. Mintz, the former General Counsel for Enron Global Finance, intentionally +failed to disclose in Enron’s 2000 proxy statement millions of dollars paid to the former Chief +Financial Officer, Andrew Fastow. The complaint further alleges that Rogers failed to disclose +$16 million realized through insider stock sales by Enron’s former Chairman, Kenneth Lay, in + 3 +Enron’s 2000 Proxy Statement, and aided and abetted Lay’s failure to disclose an additional $70 +million in stock sales in Lay’s Form 4 filings with the Commission. + +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent’s Offer. + Accordingly, IT IS HEREBY ORDERED, effective immediately, that Rogers is suspended +from appearing or practicing before the Commission as an attorney for two years. Before +appearing and resuming practice before the Commission as an attorney, Rogers must submit an +affidavit to the Commission’s Office of the General Counsel truthfully stating, under penalty of +perjury, that he has complied with this Order, that he is not subject to any suspension or disbarment +as an attorney by a court of the United States or of any state, territory, district, commonwealth, or +possession, and that he has not been convicted of a felony or misdemeanor involving moral +turpitude as set forth in Rule 102(e)(2) of the Commission’s Rules of Practice. + + By the Commission. + + + + E l i z a b e t h M . M u r p h y + S e c r e t a r y + + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2928.pdf b/raw/aaer/2009/AAER-2928.pdf new file mode 100644 index 0000000000000000000000000000000000000000..4e9352e00fb0b498a755943e4a530f5fb75fec3c Binary files /dev/null and b/raw/aaer/2009/AAER-2928.pdf differ diff --git a/raw/aaer/2009/AAER-2930.txt b/raw/aaer/2009/AAER-2930.txt new file mode 100644 index 0000000000000000000000000000000000000000..b58e696c628ee139f22f63433eb5f19a78b6b2c8 --- /dev/null +++ b/raw/aaer/2009/AAER-2930.txt @@ -0,0 +1,1389 @@ + + + + + + + + + + + + + + + + SEC.gov | Mark T. Turkcan + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/504966","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Turkcan + + + + + + + + + + + + Mark T. Turkcan + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20882 / February 4, 2009 + + Accounting and Auditing Enforcement Release No. 2930 / February 4, 2009 + + Securities and Exchange Commission v. Mark T. Turkcan , 4:09-CV-00204 (E.D. Mo., filed Feb. 4, 2009) + + Commission Charges Mark T. Turkcan with Fraud + + The Securities and Exchange Commission ("Commission") announced today that it filed a complaint in the United States District Court for the Eastern District of Missouri alleging that Mark T. Turkcan ("Turkcan"), the former President of First Bank Mortgage ("FBM"), defrauded investors by engaging in a scheme to misstate the net income of FBM and its parent First Banks, Inc. from at least 1990 through April 2008. + + The Commission alleges that Turkcan, a resident of Kirkwood, Missouri, carried out his scheme by secretly obtaining money from third-party brokerage firms through the surreptitious use of repurchase transactions, which are essentially collateralized loans, and improperly disguising the money obtained from those transactions as gains from trading mortgage-backed securities. According to the complaint, Turkcan circumvented First Banks, Inc.'s internal controls and concealed his scheme by lying to his staff and his superiors, falsifying and fabricating documents, and providing false and misleading information to First Banks, Inc. and its outside auditor. Specifically, the complaint alleges that Turkcan fabricated trade tickets and confirmations and prepared a handwritten report each month that included fictitious trading gains, which he provided to his staff for entry into FBM's accounting system. The complaint also alleges that Turkcan created a register that included the fictitious trading gains and provided it to First Banks, Inc.'s outside auditor in connection with its annual audits of First Bank, Inc.'s consolidated financial statements. + + The Commission further alleges that as a result of Turkcan's scheme, First Banks, Inc. incurred an undisclosed obligation of approximately $35 million and materially misstated its net income in filings with the Commission. The complaint alleges that as a result of Turkcan's scheme, First Banks, Inc. overstated its net income in its public filings by approximately: $5.3 million (or 10.2%) in 2007; $3.5 million (or 3.2%) in 2006; $1.4 million (or 1.5%) in 2005; and $1.3 million (or 1.6%) in 2004, and understated its net income by approximately $800,000 (or 1.3% in 2003). + + On July 30, 2008, First Banks, Inc. restated its financial results for the years 2005 through 2007 and disclosed that it had discovered material misstatements in its financial statements arising out of the circumvention of established internal controls and material weaknesses in its internal controls over financial reporting. + + The Commission's complaint charges Turkcan with violations of Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder, and seeks a permanent injunction, disgorgement, civil penalties, prejudgment interest, and an officer and director bar. + + + SEC Complaint + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-2931.txt b/raw/aaer/2009/AAER-2931.txt new file mode 100644 index 0000000000000000000000000000000000000000..f27c67d45c5739e9afe81cbaa76193b05359b9fd --- /dev/null +++ b/raw/aaer/2009/AAER-2931.txt @@ -0,0 +1,93 @@ + + + + + + + + + +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59363 / February 5, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2931 / February 5, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-10354 +: +: ORDER GRANTING APPLICATION FOR In the Matter of : REINSTATEMENT TO APPEAR AND PRACTICE +: BEFORE THE COMMISSION AS AN INDEPENDENT Jeffrey M. Yonkers, CPA : ACCOUNTANT +: +On July 27, 2001, Jeffrey M. Yonkers, CPA (“Yonkers”) was denied the privilege of +appearing or practicing as an accountant before the Commission as a result of settled public +administrative proceedings instituted by the Commission against him pursuant to Rule 102(e) of +the Commission's Rules of Practice.1 On February 15, 2008, Yonkers was 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. +2 This order is issued in response +to Yonkers’ application for reinstatement to appear and practice before the Commission as an +independent accountant. +The Commission alleged that the financial statements of Detour Magazine, Inc. +(“Detour”) contained in their filings with the Commission during 1997 and 1998, as audited by +Yonkers and others, materially misrepresented the company’s financial condition and results of +operation. Based upon his conduct dur ing the audits of Detour’s financial statements, the +Commission determined that Yonkers had willfully violated Section 10A of the Securities +Exchange Act of 1934 (“Exchange Act”) and willfully aided and abetted Detour’s violations of +Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder. The Commission +also determined that Yonkers engaged in improper professional conduct under Rule 102(e) of the +Commission’s Rules of Practice. +1 See Accounting and Auditing Enforcement Release No. 1428 dated July 27, 2001. Yonkers was permitted, +pursuant to the order, to apply for reinstatement after one year upon making certain showings. +2 See Accounting and Auditing Enforcement Release No. 2787 dated February 15, 2008. + + + + + + + + + + + + + + + + +Yonkers has met all of the conditions set forth in his suspension 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. +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.” +3 This “good cause” determination is +necessarily highly fact specific. +On the basis of information supplied, representations made, and undertakings agreed to +by Yonkers, it appears that he has complied with the terms of the July 27, 2001 order suspending +him from appearing or practicing before the Commission as an accountant, that no information +has come to the attention of the Commission relating to his character, integrity, professional +conduct or qualifications to practice before the Commission that would be a basis for adverse +action against him pursuant to Rule 102(e) of the Commission's Rules of Practice, and that +Yonkers, by undertaking to comply with all requirements of the Commission and the Public +Company Accounting Oversight Board, including, but not limited to all requirements relating to +registration, inspections, concurring partner reviews and quality control standards in his practice +before the Commission as an independent accountant, has shown good cause for reinstatement. +Therefore, it is accordingly, +ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that +Jeffrey M. Yonkers, CPA is hereby reinstated to appear and practice before the Commission as +an independent accountant. +By the Commission. +Elizabeth M. Murphy +Secretary +3 Rule 102(e)(5)(i) provides: +“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) +of this section may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a +hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated +by the Commission for good cause shown.” 17 C.F.R. § 201.102(e)(5)(i). +2 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2932.txt b/raw/aaer/2009/AAER-2932.txt new file mode 100644 index 0000000000000000000000000000000000000000..dc399ab40872c0c173ea0755063f04cd1fa7a26c --- /dev/null +++ b/raw/aaer/2009/AAER-2932.txt @@ -0,0 +1,1382 @@ + + + + + + + + + + + + + + + + SEC.gov | Thom A. Faria, Stephen J. McLaughlin and William M. 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Faria, Stephen J. McLaughlin and William M. Stickney + + + + + + + + + + + + Thom A. Faria, Stephen J. McLaughlin and William M. Stickney + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20891 / February 10, 2009 + + Accounting and Auditing Enforcement Release No. 2932 / February 10, 2009 + + Securities and Exchange Commission v. Thom A. Faria, Stephen J. McLaughlin and William M. Stickney , (United States District Court for the District of Massachusetts, Civil Action No. 06-10657-WJY) + + Final Judgment Entered Against Former Officer of MetLife, Inc. Subsidiary New England Financal Charged in Fraudulent Scheme to Hide Expenses + + + + + + The Securities and Exchange Commission ("Commission") announced today that on February 9, 2009, the United States District Court for the District of Massachusetts entered a final judgment by consent against Thom A. Faria, of Needham, Massachusetts, the last defendant in a financial fraud case filed in April 2006. Faria is a former officer of MetLife, Inc. and its insurance company subsidiary New England Financial (NEF). The Commission's action charged that Faria and two other defendants engaged in a scheme to improperly hide NEF expenses that led directly to the publication of materially false financial statements by MetLife and NEF. Faria, who was the former president of the NEF distribution channel and a senior vice president of MetLife, settled the matter without admitting or denying the Commission's allegations. He consented to the entry of a final judgment enjoining him from future violations of the federal securities laws, ordering him to pay a total of over $97,000 in disgorgement, prejudgment interest and civil penalties, and barring him from serving as an officer or director of a public company for five years. + + The Commission's complaint, filed on April 13, 2006, alleges that over a period of years, Faria and two other defendants engaged in a scheme to hide certain NEF expenses in an effort to make NEF appear more efficient than it actually was. The complaint alleges that defendants hid certain non-commission expenses by reclassifying them as commission expenses in NEF's internal books and records. The complaint alleged that Faria was aware of and authorized the improper reclassifications. All told, the complaint alleges that the scheme resulted in the improper reclassification of over $100 million in NEF expenses, the direct result of which was the publication of materially false overstatements of MetLife and NEF net income in financial statements filed with the Commission from 2000 to 2003. + + The complaint alleged that through his fraudulent conduct, Faria violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 13b2-1 thereunder, and Section 34(b) of the Investment Company Act of 1940 ("Investment Company Act"), as well as aided and abetted uncharged MetLife violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The complaint also alleged that Faria aided and abetted uncharged MetLife/NEF violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. + + Without admitting or denying the allegations of the complaint, Faria consented to the entry of a final judgment that (1) permanently enjoins him from future violations of Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and Section 34(b) of the Investment Company Act, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder; (2) requires him to pay a civil penalty of $40,000; (3) requires him to disgorge $40,687, plus pre-judgment interest in the amount of $16,652.95; and (4) bars him from serving as an officer and director of a public company for five years. + + Faria's two co-defendants, former NEF employees Stephen McLaughlin and William Stickney, previously agreed to settle the Commission's charges. Judgments by consented were entered against Stickney in July 2007 and McLaughlin in October 2007. + + For further information, please see: Litigation Release No. 19656 (April 13, 2006); Securities Exchange Act Rel. No. 56168 (July 30, 2007); Securities Exchange Act Release No. 56668 (October 17, 2007). + + + + + SEC Complaint in this matter --> + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-2933.pdf b/raw/aaer/2009/AAER-2933.pdf new file mode 100644 index 0000000000000000000000000000000000000000..835a685e284f99a7d42e16315208b24056f8293d Binary files /dev/null and b/raw/aaer/2009/AAER-2933.pdf differ diff --git a/raw/aaer/2009/AAER-2933.txt b/raw/aaer/2009/AAER-2933.txt new file mode 100644 index 0000000000000000000000000000000000000000..fbb55a83149aa57da1c7bfea39ee84ffdbae94c3 --- /dev/null +++ b/raw/aaer/2009/AAER-2933.txt @@ -0,0 +1,95 @@ + + + + + + + + + +______________________________ + + + + + + + + + + + + + + + + + + + + + +UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59390 / February 11, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2933 / February 11, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13369 +: +In the Matter of : + : ORDER OF SUSPENSION PURSUANT +Ronald M. Bandyk, CPA, : 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 Ronald M. Bandyk (“Bandyk”) pursuant to Rule 102(e)(2) of the +Commission’s Rules of Practice [17 C.F.R. §200.102(e)(2)]. +1 +II. +The Commission finds that: +1. Bandyk is a Registered Certified Public Accountant in Illinois. +2. On August 21, 2007, a judgment of conviction was entered against Bandyk in +United States v. Putnam, et al., No. 03-CR-268-5, in the United States District Court for the +Northern District of Illinois, finding him guilty of one count of securities fraud. The conduct +occurred while Bandyk was a vice-president of Anicom, Inc., a publicly traded company. +3. As a result of this conviction, Bandyk was sentenced to 30 days imprisonment in +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.” +1 + + + + + + + + + + + + + + + + + +a federal penitentiary and two years of supervised release, and ordered to pay a fine in the +amount of $10,000. +III. +In view of the foregoing, the Commission finds that Bandyk 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 Ronald M. Bandyk 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 +2 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2934.txt b/raw/aaer/2009/AAER-2934.txt new file mode 100644 index 0000000000000000000000000000000000000000..6bf2e9501b65a2c635e2cc55903cf498af8fbf04 --- /dev/null +++ b/raw/aaer/2009/AAER-2934.txt @@ -0,0 +1,1391 @@ + + + + + + + + + + + + + + + + SEC.gov | ITT Corporation + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/505036","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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ITT Corporation , Civil Action No. 1:09-cv-00272 (RJL) (D.D.C. filed Feb. 11, 2009) + + SEC FILES SETTLED CHARGES AGAINST ITT CORPORATION FOR VIOLATIONS OF THE BOOKS AND RECORDS AND INTERNAL CONTROLS PROVISIONS OF THE FOREIGN CORRUPT PRACTICES ACT + + The Securities and Exchange Commission today filed a settled civil injunctive action in the U.S. District Court for the District of Columbia against ITT Corporation ("ITT"), a New York-based global multi-industry company, alleging violations of Section 13(b)(2)(A) and (B) of the Securities Exchange Act of 1934 ("Exchange Act"). Those provisions are part of the Foreign Corrupt Practices Act books and records and internal controls provisions. The Commission's complaint alleges that ITT's violations of the provisions resulted from payments to Chinese government officials by ITT's wholly-owned Chinese subsidiary, Nanjing Goulds Pumps Ltd. ("NGP"). From 2001 through 2005, NGP's illicit payments to employees of numerous Chinese state-owned entities ("SOEs") totaled approximately $200,000. The customers associated with those illicit payments generated over $4 million in sales to NGP, from which ITT realized improper profits of more than $1 million. + + According to the Commission's Complaint: + + + ITT's subsidiary, NGP, is based in Nanjing, China and is part of ITT's Fluid Technology division. NGP distributes a variety of water pump products that are sold to power plants, building developers, and general contractors throughout China. During the years 2001 through 2005, NGP directly through certain employees, or indirectly through third-party agents, made illicit payments to SOEs to influence the purchase of NGP water pumps for large infrastructure projects in China. The projects were developed, constructed, and owned by SOEs ("project SOEs"). NGP made the payments to employees of Design Institutes, some of which were SOEs, that assisted in the design of the projects to ensure that the Design Institutes recommended NGP water pumps to the project SOEs. In at least one instance, a third-party agent made a payment directly to employees of a project SOE. The payments made by NGP were disguised as increased commissions in NGP's books and records. The improper NGP entries were consolidated and included in ITT's financial statements contained in its filings with the Commission for the company's fiscal years 2001 through 2005. + + ITT did not make or keep books, records, and accounts which, in reasonable detail, accurately and fairly reflected the illicit payments by NGP employees and the related disposition of its assets. ITT also failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions were executed in accordance with management's general or specific authorization; (ii) transactions were recorded as necessary to maintain accountability for its assets; and (iii) access to its assets was permitted only in accordance with management's general or specific authorization. + + + ITT, without admitting or denying the allegations in the Commission's complaint, consented to the entry of a final judgment permanently enjoining it from future violations of Section 13(b)(2)(A) and (B) of the Exchange Act; ordering the company to pay disgorgement of $1,041,112, together with prejudgment interest thereon of $387,538.11; and imposing a $250,000 civil penalty, pursuant to Section 21(d)(3) of the Exchange Act. The Commission considered that ITT self-reported, cooperated with the Commission's investigation, and instituted subsequent remedial measures. + + + SEC Complaint + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Halliburton Company and KBR, Inc. , 4:09-CV-399, S.D. Tex. (Houston) + + SEC Charges KBR, Inc. with Foreign Bribery; Charges Halliburton Co. and KBR, Inc. with Related Accounting Violations â€" Companies to Pay Disgorgement of $177 Million; KBR Subsidiary to Pay Criminal Fines of $402 Million; Total Payments to be $579 Million + + The Securities and Exchange Commission today announced settlements with KBR, Inc. and Halliburton Co. to resolve SEC charges that KBR subsidiary Kellogg Brown & Root LLC bribed Nigerian government officials over a 10-year period, in violation of the Foreign Corrupt Practices Act (FCPA), in order to obtain construction contracts. The SEC also charged that KBR and Halliburton, KBR's former parent company, engaged in books and records violations and internal controls violations related to the bribery. + + KBR and Halliburton have agreed to pay $177 million in disgorgement to settle the SEC's charges. Kellogg Brown & Root LLC has agreed to pay a $402 million fine to settle parallel criminal charges brought today by the U.S. Department of Justice. The sanctions represent the largest combined settlement ever paid by U.S. companies since the FCPA's inception. + + Kellogg Brown & Root LLC's predecessor entities (Kellogg, Brown & Root, Inc. and The M.W. Kellogg Company) were members of a four-company joint venture that won the construction contracts worth more than $6 billion. In September 1998, Halliburton acquired Dresser Industries, Inc., the parent company of The M.W. Kellogg Company. + + The SEC alleges that beginning as early as 1994, members of the joint venture determined that it was necessary to pay bribes to officials within the Nigerian government in order to obtain the construction contracts. The former CEO of the predecessor entities, Albert "Jack" Stanley, and others involved in the joint venture met with high-ranking Nigerian government officials and their representatives on at least four occasions to arrange the bribe payments. To conceal the illicit payments, the joint venture entered into sham contracts with two agents, one based in the United Kingdom and one based in Japan, to funnel money to Nigerian officials. + + The SEC's complaint alleges that the internal controls of Halliburton, the parent company of the KBR predecessor entities from 1998 to 2006, failed to detect or prevent the bribery, and that Halliburton records were falsified as a result of the bribery scheme. In September 2008, Stanley pleaded guilty to bribery and related charges and entered into a settlement with the SEC. + + The SEC alleges that officials of the joint venture formed a "cultural committee" to decide how to carry out the bribery scheme. The committee decided to use the United Kingdom agent to make payments to high-ranking Nigerian officials and to use the Japanese agent to make payments to lower-ranking Nigerian officials. As the joint venture was paid for work on the construction project, the joint venture in turn made payments to the Japanese agent and to the Swiss and Monaco bank accounts of the United Kingdom agent. The total payments to the two agents exceeded $180 million. After receiving the money, the United Kingdom agent made substantial payments to accounts controlled by Nigerian government officials, and beginning in 2002 paid $5 million in cash to a Nigerian political party. + + The SEC's complaint further alleges that, after the Dresser acquisition, Halliburton failed to devise and maintain adequate internal controls to govern the use of foreign sales agents and failed to maintain and enforce the internal controls it had. Halliburton's due diligence investigation of the United Kingdom agent failed to detect or prevent the bribery scheme. Halliburton conducted no due diligence on the Japanese agent. As a result of the scheme, numerous Halliburton records contained false information relating to the payments to the agents. + + Without admitting or denying the SEC's allegations, KBR and Halliburton have consented to the entry of a court order that (i) permanently enjoins KBR from violating the anti-bribery and records falsification provisions in Sections 30A, 13(b)(5) and Rule 13b2-1 of the Securities Exchange Act of 1934, and from aiding and abetting violations of the record-keeping and internal control provisions in Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act; (ii) permanently enjoins Halliburton from violating the record-keeping and internal control provisions of the Exchange Act; (iii) orders the companies to disgorge $177 million in ill-gotten profits derived from the scheme; (iv) imposes an independent monitor for KBR for a period of three years to review its FCPA compliance program, and (v) imposes an independent consultant for Halliburton to review its policies and procedures as they relate to compliance with the FCPA. The proposed settlements are subject to the court's approval. + + In the related criminal proceeding announced today, the U.S. Department of Justice filed a criminal action against Kellogg Brown & Root LLC, charging one count of conspiring to violate the FCPA and four counts of violating the anti-bribery provisions of the FCPA. Kellogg Brown & Root LLC has pled guilty to each of these counts. Under its plea agreement, Kellogg Brown & Root LLC is required to pay a criminal fine of $402 million and to retain a monitor to review and evaluate KBR's policies and procedures as they relate to compliance with the FCPA. + + The Commission acknowledges the assistance of the U.S. Department of Justice, Fraud Section; the Federal Bureau of Investigation; and foreign authorities in Europe, Asia, Africa and the Americas. 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Dike and Michelle V. Nguyen + + + + + + + + + + + + Meridian Holdings, Inc., Anthony C. Dike and Michelle V. Nguyen + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20898 / February 11, 2009 + + Accounting and Auditing Enforcement Release No. 2936 / February 11, 2009 + + Securities and Exchange Commission v. Meridian Holdings, Inc., Anthony C. Dike and Michelle V. Nguyen , Case No. CV 07-06335 DDP (SSx) (C.D. Cal.) + + + + The Securities and Exchange Commission ("Commission") announced today that the Honorable Dean D. Pregerson, United States District Court Judge for the Central District of California, entered final judgments, by consent, permanently enjoining Meridian Holdings, Inc. ("Meridian"), Anthony C. Dike ("Dike") and Michelle V. Nguyen ("Nguyen") from future violations of Sections 10(b), 13(a) and 13(b)(2)(A) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20 and 13a-13 thereunder. In addition, both Meridian and Dike were permanently enjoined from future violations of Section 302(b) of Regulation S-T, and Dike was further permanently enjoined from future violations of Exchange Rule 13a-14. Dike was also ordered to pay a civil penalty in the amount of $25,000, and is prohibited for five years from the date of the judgment from acting as an officer or director of a public company. Nguyen was ordered to pay a civil penalty in the amount of $15,000 and, in a separate administrative proceeding, was suspended from appearing or practicing before the Commission as an accountant, with the right to request reinstatement after three years. + + Meridian, which was located in Culver City, California, owned interests in companies that engage in e-commerce in the medical industry, and provided management services to those companies. The Commission's complaint, filed on September 28, 2007, alleged that the financial statements filed with Meridian's 2004 second and third quarter reports caused Meridian to materially overstate it assets and represent it had significant gains, when, in fact, it should have reported losses. Meridian also backdated officer certifications required by the Sarbanes-Oxley Act, the Commission alleged. + + The Commission's complaint alleged that during the second and third quarters of its 2004 fiscal year, Meridian improperly recognized a $30 million default judgment and interest as assets and income when it had no reasonable basis to believe the judgment was collectible. As a result, Meridian turned quarterly losses of seven cents per share into earnings of $2.12 per share. Similarly, Meridian recognized additional interest on the default judgment during the third quarter of 2004. The complaint alleged that this improper recognition again turned quarterly losses into quarterly gains. + + In addition to Meridian, the complaint alleged that Dike, Meridian's chairman and chief executive officer, and Nguyen, a CPA, and Meridian's former principal financial officer and interim chief financial officer, prepared Meridian's misleading financial statements by booking the $30 million default judgment when neither had any reasonable basis to believe the judgment was collectible. The complaint further alleged that when Dike filed Meridian's second and third quarter reports, he included Nguyen's name on the Sarbanes-Oxley Act certifications filed with the reports even though he knew Nguyen had not signed them. While Nguyen is alleged to have signed the certifications included with Meridian's second quarter report after it had been filed, she never signed the certifications included with Meridian's third quarter report. Meridian also provided the Commission staff with backdated certifications filed with its 2004 annual report. + + On, October 30, 2009, Meridian filed with the Commission a certification and notice of termination of its registration under Section 12(g) of the Exchange Act. + + See also: LR-20318 (October 1, 2007); SEA Release 34-59317 (January 29, 2009); AAER 2928 (January 29, 2009). + + + + + + SEC Complaint in this matter --> + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Research in Motion Limited, Dennis Kavelman, Arcangelo Loberto, James Balsillie and Mihal Lazaridis , 1:09-cv-00301 (RBW) (D.D.C.) + + SEC CHARGES RESEARCH IN MOTION AND FOUR OF ITS SENIOR EXECUTIVES WITH STOCK OPTION BACKDATING + + The Securities and Exchange Commission today charged Ontario, Canada, BlackBerry maker Research in Motion Limited (RIM) and four of its senior executives with stock option backdating. + + The SEC's complaint alleges that RIM, its former Chief Financial Officer Dennis Kavelman, former Vice President of Finance Angelo Loberto, and Co-Chief Executive Officers James Balsillie and Mike Lazaridis illegally granted undisclosed, in-the-money options to RIM executives and employees by backdating millions of stock options over an eight-year period from 1998 through 2006. The complaint alleges that the defendants made false and misleading disclosures about how RIM priced and accounted for options, and that the illicit backdating provided the executives and other employees with millions of dollars in undisclosed compensation. In addition, according to the complaint, the backdating violated the terms of RIM's stock option plan and a listing requirement of the Toronto Stock Exchange. RIM's stock is listed on both the NASDAQ Stock Market and the Toronto Stock Exchange. + + As alleged in the complaint, Kavelman, Loberto, Balsillie and Lazaridis backdated option agreements and offer letters, which concealed the fact that the options were granted in-the-money. The complaint also alleges that Kavelman and Loberto took steps to hide the backdating from regulators, RIM's independent auditor and outside lawyer. The complaint further alleges that after all four executives were aware of backdating issues that had come to light at other companies, they attended RIM's July 2006 annual shareholder meeting where Kavelman misled investors by denying that RIM was backdating options. + + The SEC's complaint, filed in federal court in the District of Columbia, contains the following additional allegations: + + From 1998 through 2006, RIM, Kavelman, Loberto, Balsillie and Lazaridis backdated approximately 1,400 stock option grants for a total of nearly seven million shares, including new hire, group, promotional and periodic grants. + + Balsillie initially ran RIM's stock option program and directed others to backdate his own and other employees' options. Kavelman assumed increasing responsibility for the option program and approved backdating many grants. Loberto helped carry out the backdating and selected prior dates with low prices for a number of grants. Lazaridis requested that options for certain new hires and employees be backdated. + + At times, when RIM's stock price dropped after employees had received options, the four executives re-priced the same options at substantially lower backdated prices. + + To one new hire, Kavelman expressed a concern about an "optics issue" with the regulators if the new hire's start date did not match the grant date for his options. Nevertheless, Kavelman and Balsillie agreed to backdate the options to the lowest price before the new hire's start date. + + Kavelman and Loberto usually picked low strike prices within reporting periods and in some instances avoided the lowest price so regulators would not detect the backdating. In addition, Kavelman asked a manager not to document improper pricing in e-mails. Kavelman wrote, "FYI, it is a major breach of protocol to be discussing (and documenting via email) using option pricing other than that allowable by the Ontario Securities Commission and the SEC in the US." + + Kavelman and Loberto received numerous documents from RIM's outside lawyer, RIM's auditor, the securities industry and RIM's own finance department explaining the accounting for options and options pricing, but they ignored all of the information and advice they received. + + The defendants' misconduct caused RIM, from fiscal year 1999 to the first quarter of fiscal year 2007: (i) to falsely disclose in its annual and other reports, management information circulars and registration statements that RIM's options were granted at exercise prices equal to the fair market value of RIM's common stock at the date of the grants; and (ii) to file materially false and misleading financial statements that understated RIM's compensation expenses and overstated its quarterly and annual net income or understated its net losses. + All defendants have agreed to settle this matter, without admitting or denying the allegations in the SEC's complaint, on the following terms: + + RIM consented to the entry of an order permanently enjoining it from violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5, and the reporting, books and records and internal controls provisions of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1 and 13a-16. The settlement with RIM takes into account RIM's cooperation during the SEC's investigation. + + Kavelman and Loberto consented to an order permanently enjoining them from violating the antifraud provisions of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5, the internal controls and books and records provisions of Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1, the misrepresentations to auditors provision of Exchange Act Rule 13b2-2; and from aiding and abetting RIM's violations of the reporting, books and records and internal controls provisions. Kavelman also consented to an order permanently enjoining him from violating the certification provision of Exchange Act Rule 13a-14. Kavelman and Loberto agreed to be barred for a period of five years from serving as officers or directors of any issuer that has a class of securities registered with the SEC or that is required to file reports with the SEC. In addition, Kavelman and Loberto agreed to resolve an anticipated administrative proceeding by consenting to an SEC order prohibiting them from appearing or practicing before the SEC as accountants for five years. + + Balsillie and Lazaridis consented to the entry of an order permanently enjoining them from violating the antifraud provisions of Sections 17(a)(2) and 17(a)(3) of the Securities Act, and the internal controls and books and records provisions of Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1; and from aiding and abetting RIM's violations of the reporting, books and records and internal controls provisions. + + The individual defendants will pay civil penalties in the following amounts: $500,000 for Kavelman; $425,000 for Loberto; $350,000 for Balsillie; and $150,000 for Lazaridis. The individual defendants also agreed to disgorge the in-the-money value of backdated options they had exercised ($132,914.60 for Kavelman, $47,950.56 for Loberto, $334,250 for Balsillie and $328,300 for Lazaridis) plus interest. Their disgorgement will be deemed satisfied by their previous payment of these amounts to RIM. + + The settlements in the civil injunctive action are subject to the approval of the U.S. District Court for the District of Columbia. + + On February 5, 2009, the Ontario Securities Commission brought a related settled action against RIM, Balsillie, Lazaridis, Kavelman, Loberto and certain other directors which included the total payment in Canadian dollars of $76.85 million and other sanctions. The SEC acknowledges the assistance of the Ontario Securities Commission in this matter. + + + SEC Complaint + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-2938.txt b/raw/aaer/2009/AAER-2938.txt new file mode 100644 index 0000000000000000000000000000000000000000..1acffb5e39b4d1fc237b9e62c13e96c39460f214 --- /dev/null +++ b/raw/aaer/2009/AAER-2938.txt @@ -0,0 +1,96 @@ + + + + + + + + + + +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59422 / February 19, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2938 / February 19, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-9171 +: ORDER GRANTING APPLICATION FOR +: REINSTATEMENT TO APPEAR AND PRACTICEIn the Matter of : BEFORE THE COMMISSION AS AN ACCOUNTANT +: RESPONSIBLE FOR THE PREPARATION OR Greg Steven Kaplan, CPA : REVIEW OF FINANCIAL STATEMENTS REQUIRED +: TO BE FILED WITH THE COMMISSION +On October 21, 1996, Greg Steven Kaplan, CPA (“Kaplan”) 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 Kaplan pursuant to Rule 102(e) +of the Commission's Rules of Practice.1 Kaplan consented to the entry of the order without +admitting or denying the findings therein. This order is issued in response to Kaplan’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 during 1992 and 1993 Kaplan willfully violated Section +10(b) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-2 thereunder in +connection with his conduct as the Chief Financial Officer of Pace American Group, Inc +(“Pace”). Kaplan was reckless in the performa nce of his professional duties, namely in his +failure to account for loss reserves in conformity with Generally Accepted Accounting Principles +in consolidated financial statements filed with the Commission. In addition, Kaplan failed to +disclose material information and signed a misleading management representation letter to +Pace’s auditors. +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, Kaplan +1 See Accounting and Auditing Enforcement Release No. 844 dated October 21, 1996. Kaplan was permitted, +pursuant to the order, to apply for reinstatement after five years upon making certain showings. + + + + + + + + + + + + + + + + + + +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. Kaplan 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, Kaplan’s denial +of the privilege of appearing or practicing before the Commission as an independent accountant +continues in effect until the Commission determines that a sufficient showing has been made in +this regard in accordance with the terms of the original suspension order. +Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for +reinstatement, and provides that the Commission may reinstate the privilege to appear and +practice before the Commission “for good cause shown.” +2 This “good cause” determination is +necessarily highly fact specific. +On the basis of information supplied, representations made, and undertakings agreed to +by Kaplan and 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, Kaplan 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 +Greg Steven Kaplan, 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. +Elizabeth M. Murphy +Secretary +2 Rule 102(e)(5)(i) provides: +“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) +of this section may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a +hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated +by the Commission for good cause shown.” 17 C.F.R. § 201.102(e)(5)(i). +2 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2939.pdf b/raw/aaer/2009/AAER-2939.pdf new file mode 100644 index 0000000000000000000000000000000000000000..cd25dae8ca3f3e49caf5a4f08f24c6ddc7931d84 Binary files /dev/null and b/raw/aaer/2009/AAER-2939.pdf differ diff --git a/raw/aaer/2009/AAER-2939.txt b/raw/aaer/2009/AAER-2939.txt new file mode 100644 index 0000000000000000000000000000000000000000..a95af04927ff88daea5de30ec03d11580cfb6d3e --- /dev/null +++ b/raw/aaer/2009/AAER-2939.txt @@ -0,0 +1,172 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59423 / February 19, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2939 / February 19, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13374 +: +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +DAVID J. LUBBEN, : 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 David J. +Lubben (“Respondent” or “Lubben”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of +Practice. +1 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any attorney . . . 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. + + + + + + + + + + + + + + + + + + + + + + +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over him and the subject matter of these +proceedings, and the findings contained in Section III. 3. below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) +of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Lubben, age fifty-six (56), is and has been an attorney licensed to practice in +the State of Minnesota. From 1996 until late 2006, he served as General Counsel to UnitedHealth +Group Inc. (“UnitedHealth”). +2. UnitedHealth is and was, at all relevant times, a Minnesota corporation with +its principal place of business in Minnetonka, Minnesota. UnitedHealth is a diversified health and +well-being company offering a variety of insurance and other products and services to +approximately 70 million individuals through six operating businesses. UnitedHealth’s securities +are registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act of +1934 (“Exchange Act”) and are listed on the New York Stock Exchange. +3. On January 23, 2009, a final judgment was entered against Respondent in +the civil action entitled Securities and Exchange Commission v. David J. Lubben, 08-cv-6454, in +the United States District Court for the District of Minnesota. The final judgment permanently +enjoined Lubben from future violations of Section 17(a) of the Securities Act of 1933 (“Securities +Act”) and Sections 10(b), 13(b)(5), 14(a) and 16(a) of the Exchange Act and Rules 10b-5, 13b2-1, +14a-9 and 16a-3 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), +13(b)(2)(B) and 16(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, 13a-13 and 16a-3 +thereunder. The final judgment also ordered that Lubben is liable for $1,403,310 in disgorgement, +plus $347,211 in prejudgment interest, and a $575,000 civil money penalty. +4. The Commission’s complaint alleged, among other things, that Lubben +participated in a stock options backdating scheme at UnitedHealth, in which hindsight was used +to pick advantageous grant dates for the Company’s nonqualified stock options, which dates +corresponded to dates of historically low annual or quarterly closing prices for UnitedHealth’s +common stock. The complaint further alleged that various individuals, including Lubben or +others acting at his direction, created false or misleading Company records indicating that the +grants had occurred on the earlier dates when the Company’s stock price had been at a low. +According to the complaint, because of the undisclosed backdating, for fiscal years 1996 through +2 + + + + + + + + + + + + + + + + + + + + + +2005, UnitedHealth filed with the Commission and disseminated to investors quarterly and +annual reports, proxy statements and registration statements that Lubben knew, or was reckless +in not knowing, contained or incorporated by reference materially false and misleading +statements pertaining to the true grant dates of UnitedHealth options and materially false and +misleading financial statements, which underreported compensation expenses. +In addition, the +complaint alleged that Lubben received and exercised backdated options on shares of UnitedHealth +stock, and thus personally benefited from the backdating. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Lubben’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +Lubben is suspended from appearing or practicing before the Commission as +an attorney for three (3) years. Furthermore, before appearing and resuming practice before +the Commission, Lubben must submit an affidavit to the Commission’s Office of General +Counsel truthfully stating, under penalty of perjury, that he has complied with the Order; that +he is not the subject of any suspension or disbarment as an attorney by a court of the United +States or of any state, territory, district, commonwealth, or possession; and that he has not +been convicted of a felony or misdemeanor involving moral turpitude as set forth in Rule +102(e)(2) of the Commission’s Rules of Practice. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +3 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2940.txt b/raw/aaer/2009/AAER-2940.txt new file mode 100644 index 0000000000000000000000000000000000000000..5a196abb5dfb37e2f7b20671c3f601055c599548 --- /dev/null +++ b/raw/aaer/2009/AAER-2940.txt @@ -0,0 +1,1371 @@ + + + + + + + + + + + + + + + + SEC.gov | Lawrence B. 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Evans et al. + + + + + + + + + + + + Lawrence B. Evans et al. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20916 / February 26, 2009 + + Accounting and Auditing Enforcement Release No. 2940 / February 26, 2009 + + Securities and Exchange Commission v. Lawrence B. Evans et al. , Civil Action No. 07-CV-10027-JLT (D. Mass) (January 8, 2007) + + FINAL JUDGMENT ENTERED AGAINST FORMER ASPEN TECHNOLOGY CFO CHARGED IN CORPORATE ACCOUNTING FRAUD + + The Securities and Exchange Commission ("Commission") announced today that on February 25, 2009, the United States District Court for the District of Massachusetts entered a final judgment by consent against former Aspen Technology, Inc. ("Aspen") Chief Financial Officer Lisa W. Zappala, the last remaining defendant in a case filed by the Commission in January 2007. The Commission's action charged Zappala with, among other things, securities fraud in connection with her participation in a revenue inflation scheme with two other senior officers of Aspen, a Cambridge, Massachusetts software company. Without admitting or denying the allegations in the Commission's complaint, Zappala consented to the entry of a final judgment enjoining her from violating the anti-fraud and other provisions of the securities laws and ordering her to pay a total of $145,000 in disgorgement of ill-gotten gains, prejudgment interest, and civil penalties. + + According to the Commission's complaint, Zappala and two other defendants caused Aspen to report inflated revenue in the company's publicly-filed financial statements and in press releases on at least six software transactions during fiscal years 1999 through 2002. The Complaint alleged that the three defendants caused Aspen to recognize revenue during the relevant period despite knowing that Aspen was prohibited from doing so under Generally Accepted Accounting Principles because contracts were not signed within the appropriate quarter and/or the earnings process was incomplete due to contingency arrangements which changed the terms of the customers' payment commitments under the contracts. The Complaint alleged that, as a result of the fraudulent scheme, Aspen overstated license revenue for its fiscal year ended June 30, 2000 by 5.5% and for the fiscal year ended June 30, 2001 by 9.3%. The Complaint further alleged that, as a result of prematurely recognized revenue from those earlier periods, license revenue for the fiscal years ended June 30, 2002, 2003, and 2004 was understated by 1.8%, 13.9%, and 4.0% respectively. + + The final judgment imposed permanent injunctions prohibiting Zappala from violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934, and Exchange Act Rules 10b-5, 13b2-1 and 13b2-2; and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Exchange Act Rules 12b-20, 13a-1, 13a-11 and 13a-13. In addition, the final judgment ordered Zappala to pay a $75,000 civil penalty, $49,653 in disgorgement, and $20,347 in prejudgment interest, and barred Zappala from serving as an officer or director of any public company for two years. Zappala has also consented to the suspension of her privilege of appearing or practicing before the Commission as an accountant, with the right to apply for reinstatement after two years, in related administrative proceedings to be instituted after entry of the permanent injunctions. + + The Commission acknowledges the assistance of the U.S. Attorney's Office for the Southern District of New York and the FBI. + + For further information, please see: Litigation Release No. 19960 (January 8, 2007), Litigation Release No. 20059 (March 29, 2007), Administrative Proceeding Release No. 33-8827 (July 31, 2007), and Litigation Release No. 20803 (November 13, 2008). + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-2941.pdf b/raw/aaer/2009/AAER-2941.pdf new file mode 100644 index 0000000000000000000000000000000000000000..554f5a2159a431ceb0cb82e4f93e83fb925843fc Binary files /dev/null and b/raw/aaer/2009/AAER-2941.pdf differ diff --git a/raw/aaer/2009/AAER-2942.pdf b/raw/aaer/2009/AAER-2942.pdf new file mode 100644 index 0000000000000000000000000000000000000000..1e186f2df92ddbe8218006acfbcbdf12c2486023 Binary files /dev/null and b/raw/aaer/2009/AAER-2942.pdf differ diff --git a/raw/aaer/2009/AAER-2942.txt b/raw/aaer/2009/AAER-2942.txt new file mode 100644 index 0000000000000000000000000000000000000000..f52f784d802fed39c06b8a98a6fabf20897f4033 --- /dev/null +++ b/raw/aaer/2009/AAER-2942.txt @@ -0,0 +1,175 @@ + + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59500 / March 4, 2009 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2942 / March 4, 2009 + +ADMINISTRATIVE PROCEEDING +File No. 3-13389 + + +In the Matter of + +Sherry J. Polonsky + +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 Sherry J. Polonsky (“Polonsky” or +“Respondent”). +II. + + In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over her and the subject matter of these +proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease- +and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making +Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below. + +III. + + 2 + On the basis of this Order and Res pondent’s Offer, the Commission finds1 that: + + +Respondent + +1. Polonsky, 47 and a resident of Winston-Salem, North Carolina, was Vice President +of Finance and then Senior Vice President of Finance for Krispy Kreme Doughnuts, Inc. (“Krispy +Kreme” or the “Company”) between January 2002 when she joined the Company and her +resignation on June 17, 2005. Krispy Kreme is a public issuer and doughnut retailer and franchisor +based in North Carolina. Polonsky’s responsibilities at Krispy Kreme included overseeing +segments of the Company’s accounting, financial reporting, and tax functions. +Overview +2. In the third and fourth quarters of Krispy Kreme’s 2004 fiscal year, Polonsky +caused Krispy Kreme to record improperly two round-trip transactions in connection with the +acquisition of Company franchises located in Michigan and California. In both transactions, +Krispy Kreme paid money to the franchisee with the understanding that the franchisee would pay +the money back to Krispy Kreme. In each instance, Krispy Kreme recognized additional income in +an amount roughly equal to the funds that were paid back to it. +3. As a result, Krispy Kreme filed annual, quarterly, and current reports with the +Commission that contained misstated financial results, failed to have books and records that +accurately and fairly reflected its transactions and disposition of assets, and failed to devise and +maintain internal accounting controls sufficient to provide reasonable assurances that its accounts +were accurately stated in accordance with generally accepted accounting principles. +First Round Trip Transaction +4. The first round trip transaction occurred at the end of October 2003, four days +before the closing of Krispy Kreme’s third quarter of its fiscal year 2004, in connection with the +acquisition of a franchise located in Michigan. +5. Specifically, as part of the acquisition transaction, the Company agreed to increase +the price it paid for the franchise by $535,463, which represented an approximation of the total of +two amounts that Krispy Kreme claimed it was owed by the franchisee, with the understanding that +the franchisee would pay the disputed amounts to Krispy Kreme as part of the acquisition’s +closing. The Michigan franchisee had refused to pay these amounts and only agreed to pay them +after Krispy Kreme offered to increase the purchase price in an amount intended to cover the +disputed items. +6. Polonsky was told in an e-mail that the purchase price for the franchise would be +increased by the approximate total of the two disputed amounts so that those amounts would be +paid to Krispy Kreme as part of the acquisition’s closing. In addition, a coworker discussed with +Polonsky increasing the purchase price to resolve remaining issues. Despite the email and this + +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 +conversation with the coworker, Polonsky directed that Krispy Kreme recognize income and +reclassify expenses in an amount equal to the total of the two disputed items. +7. As a result, when the acquisition closed, Krispy Kreme paid an increased purchase +price of $535,463, and recorded the transaction on its books and records as if it had been paid for +the two disputed amounts. This overstated the Company’s net income in the third quarter by +approximately $310,000 after taxes. + +Second Round Trip Transaction +8. The second round-trip transaction occurred in January 2004, in the fourth quarter of +Krispy Kreme’s 2004 fiscal year, in connection with Krispy Kreme’s acquisition of the remaining +interests in a franchise located in California, in which Krispy Kreme already owned a majority +interest. +9. Specifically, beginning in or about October 2003, Krispy Kreme initiated +negotiations with the remaining interest holders for acquisition of their interests. During those +negotiations, the franchise manager of the California franchise, who individually owned 25% of +the franchise, ceased to manage the California franchise and Krispy Kreme, through its employees, +assumed his management responsibility. +10. During the course of negotiations, Krispy Kreme sought from the former franchise +manager a “management fee” as compensation to Krispy Kreme for the handling of his previous +management duties after October 2003. Krispy Kreme suggested that such a fee be subtracted +from any amounts due the former franchise manager at closing for his 25% interest in the +franchise. +11. The former franchise manager refused to agree that any amount should be deducted +from the proceeds of the sale of his interest to Krispy Kreme. +12. A few days before the scheduled closing of the transaction and only about a week +before the end of the fourth quarter of Krispy Kreme’s 2004 fiscal year, Polonsky communicated +to the former franchise manager a proposal by Krispy Kreme that he accept a distribution from his +capital account in the franchise, that he could then pay back to Krispy Kreme as a management fee. +The former franchise manager was further told that at closing he would still receive the full amount +of the previously negotiated consideration for his 25% interest in the franchise. +13. By offering a non-pro rata distribution from the former franchise manager’s capital +account while at the same time assuring the former franchise manager that he would receive the +full amount of the previously agreed upon consideration for his 25% interest, Krispy Kreme was +orchestrating a round-trip transaction that lacked economic substance. +14. Krispy Kreme made a distribution to the former franchise manager from his capital +account in the amount of $597,415, which he immediately transferred back to Krispy Kreme as +payment of the management fee. Polonsky caused Krispy Kreme to book this fee as income, +thereby overstating Krispy Kreme’s net income in the fourth quarter by approximately $361,000 +after taxes. + 4 +Respondent’s Violations +15. As a result of the conduct described above, Polonsky caused Krispy Kreme to +violate Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13, +thereunder, which require every issuer of a security registered pursuant to Section 12 of the +Exchange Act file with the Commission information, documents, and annual, quarterly, and +current reports as the Commission may require, and mandate that periodic reports contain such +further material information as may be necessary to make the required statements not misleading. +16. As a result of Polonsky’s actions, Krispy Kreme’s books, records and accounts did +not, in reasonable detail, accurately and fairly reflect its transactions and dispositions of assets. +17. In addition, as a further result of Polonsky’s actions, Krispy Kreme failed to devise +and maintain a system of internal accounting controls relating to its franchise acquisitions that were +sufficient to provide reasonable assurances that its accounts were accurately stated in accordance +with generally accepted accounting principles. +18. As a result of the conduct described above, Polonsky caused Krispy Kreme to +violate Section 13(b)(2)(A) of the Exchange Act, which requires reporting companies to make and +keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect their +transactions and dispositions of their assets. +19. Lastly, as a result of the conduct described above, Polonsky caused Krispy Kreme +to violate Section 13(b)(2)(B) of the Exchange Act, which requires all reporting companies to +devise and maintain a system of internal accounting controls sufficient to provide reasonable +assurances that transactions are recorded as necessary to permit preparation of financial statements +in accordance with generally accepted accounting principles. +IV. + + In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Polonsky’s Offer. + + Accordingly, it is hereby ORDERED that: + + Pursuant to Section 21C of th e Exchange Act, Respondent Polonsky cease and desist from +causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), of +the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. + + + By the Commission. + + + + E l i z a b e t h M . M u r p h y + S e c r e t a r y \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2944.pdf b/raw/aaer/2009/AAER-2944.pdf new file mode 100644 index 0000000000000000000000000000000000000000..2e3515456f1250d095b11016abbaf311ac3f67cc Binary files /dev/null and b/raw/aaer/2009/AAER-2944.pdf differ diff --git a/raw/aaer/2009/AAER-2944.txt b/raw/aaer/2009/AAER-2944.txt new file mode 100644 index 0000000000000000000000000000000000000000..ff529f8f0204258bc912b9b3ab135f2a4601fd77 --- /dev/null +++ b/raw/aaer/2009/AAER-2944.txt @@ -0,0 +1,194 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59530 / March 6, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2944 / March 6, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13400 +In the Matter of +STEPHAN HUSI +Respondent. +ORDER INSTITUTING PUBLIC +ADMINISTRATIVE PROCEEDINGS +PURSUANT TO RULE 102(e) OF THE +COMMISSION’S RULES OF PRACTICE, +MAKING FINDINGS, AND IMPOSING +REMEDIAL SANCTIONS +I. +The Securities and Exchange Commission (the “Commission”) deems it appropriate and in +the public interest that public administrative proceedings be, and hereby are, instituted against +Stephan Husi (the “Respondent” or “Husi”) pursuant to Rule 102(e)(3)(i) of the Commission’s +Rules of Practice. +1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over him and the subject matter of these +proceedings, and the findings contained in Section III.2. below, which are admitted, Respondent +consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule +Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . +suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently +enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the +Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of +the rules and regulations thereunder. +1 + + + + + + + + + + + + + + + + + + + + +102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial +Sanctions (the “Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Husi, age 48, has held a certificate as a “Swiss Certified Expert for +Accounting and Controlling” since 1996. From April 2002 through October 2003, he was the Head +of Corporate Planning & Controlling of Centerpulse Ltd., a Swiss public company that +manufactured and marketed various medical devices. From January 2001 through October 2003, +Centerpulse’s American Depositary Shares were registered in the United States pursuant to Section +12(b) of the Securities Exchange Act of 1934 (t he “Exchange Act”) and were traded on the New +York Stock Exchange under the symbol “CEP.” +2. On January 23, 2009, a final judgment was entered against Husi, +permanently enjoining him from future violations of Sections 10(b) and 13(b)(5) of the Exchange +Act and Rules 10b-5 and 13b2-1 th ereunder, and from aiding and ab etting future violations of +Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, +13a-1 and 13a-16 thereunder, in the civil action entitled United States Se curities and Exchange +Commission v. Urs Kamber et al., Civil Action Number 1:07-cv-01867 (JDB), in the United States +District Court for the District of Columbia. Husi was also ordered to pay $14,216 in disgorgement +of ill-gotten gains, $5,868 in prejudgment interest, and a $30,000 civil money penalty. +3. The Commission’s complaint alleged that Husi and others engaged in a +fraudulent scheme to infl ate Centerpulse’s reported earnings during the second half of 2002 by +manipulating reserves and refusing to recognize expenses and liabilities. The complaint also +alleged that, as a result of the scheme, Centerpuls e issued and furnished to the Commission false +and misleading earnings releases for the third and fourth quarters of 2002, and issued and filed +with the Commission a false and misleading annual report for fiscal 2002, which materially +overstated Centerpulse’s third quarter 2002 reported pretax income by approximately $32 million, +and its fourth quarter 2002 and fiscal year 2002 reported pretax income by at least $26.4 million. +-2- + + + + + + + + + + + + + + + + + + + + + + + + +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Husi’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Husi is suspended from appearing or practicing before the Commission as an +accountant. +B. After 5 years from the date of this order, Respondent may request that the +Commission consider his reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a 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 status as an accountant is +-3- + + + + + + + + +current and he has resolved all other disciplinary issues with the applicable boards of +accountancy. However, if resolution of any disciplinary action by a board of accountancy +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. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +-4- \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2945.pdf b/raw/aaer/2009/AAER-2945.pdf new file mode 100644 index 0000000000000000000000000000000000000000..d56ed6a8b87cc340c396400cd86a5b233fe18011 Binary files /dev/null and b/raw/aaer/2009/AAER-2945.pdf differ diff --git a/raw/aaer/2009/AAER-2945.txt b/raw/aaer/2009/AAER-2945.txt new file mode 100644 index 0000000000000000000000000000000000000000..6843f5f65851db6dafe34434716fa31de7b35c90 --- /dev/null +++ b/raw/aaer/2009/AAER-2945.txt @@ -0,0 +1,221 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59541 / March 9, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2945 / March 9, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13399 +: +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE + LISA W. ZAPPALA (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 Lisa W. +Zappala (CPA) (“Respondent” or “Zappala”) pursuant to Rule 102(e)(3)(i) of the Commission’s +Rules of Practice. +1 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. + + + + + + + + + + + + + + + + + + + + + + + +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over her and the subject matter of these +proceedings, and the findings contained in 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. Zappala, age 49, served as Senior Vice President and Chief Financial Officer +(“CFO”) at Aspen Technology, Inc. from at least September 1998 until she resigned as CFO in +approximately July 2003. Thereafter, she took on an advisory role at Aspen until she resigned in +approximately December 2004. Zappala was previously a certified public accountant (“CPA”) +licensed to practice in the State of Massachusetts; her CPA license lapsed in or about 1994. +2. Aspen was, at all relevant times, a Delaware corporation with its principal +place of business in Cambridge, Massachusetts. During the relevant period, Aspen was engaged in +the business of selling computer software and related services to industries such as petroleum, +chemicals, and pharmaceuticals. At all relevant times, Aspen’s common stock was registered with +the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 (“Exchange +Act”), and traded on the NASDAQ National Market system. +3. On January 8, 2007, the Commission filed a complaint against Zappala in +SEC v. Evans, et al. (Civil Action No. 1:07-cv-10027-JLT). On February 26, 2009, the court +entered an order permanently enjoining Zappala, by consent, from future violations of Section +17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules +10b-5, 13b2-1 and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a), +13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 +thereunder. Zappala was also ordered to pay $49,653 in disgorgement of ill-gotten gains from her +sales of stock during the period of the alleged fraud, together with prejudgment interest thereon in +the amount of $20,347 and a $75,000 civil money penalty, and was barred from serving as an +officer and director of a public company for two years. +4. The Commission’s complaint alleged, among other things, that between at +least 1999 and 2002, Zappala and two other former senior executives at Aspen engaged in a +fraudulent scheme which resulted in Aspen improperly recognizing revenue on at least six +different transactions involving at least five different customers worldwide and the filing of +materially false and misleading statements in various Form 10-K annual reports, Form 10-Q +2 + + + + + + + + + + + + + + + + + + + + + + + + +quarterly reports, and Form 8-K current reports during periods including fiscal years 2000 +through 2004. The Complaint further alleged that Zappala engaged in a number of improper +accounting practices that materially overstated Aspen’s net income and revenue in fiscal years +2000 and 2001 and that materially understated Aspen’s net income and revenue in fiscal years +2002, 2003, and 2004, in a departure from generally accepted accounting principles. According +to the complaint, these practices included, among other things, prematurely and improperly +recognizing revenue on contracts that had not been signed within the appropriate fiscal period or +for earnings that had not been completed due to side letters or other contingency arrangements +which changed the terms of the customers’ contractual payment obligations. In addition, the +complaint alleged that Zappala provided numerous false management representation letters to +Aspen’s outside auditors between August 1999 and April 2002. The complaint also alleged that +Zappala obtained proceeds from exercising stock options and selling artificially inflated Aspen +stock into the marketplace. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Zappala’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Zappala is suspended from appearing or practicing before the Commission as an +accountant. +B. After two years from the date of this order, Respondent may request that the +Commission consider her reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that Respondent’s work in her practice before the +Commission will be reviewed either by the independent audit committee of the public company +for which she works or in some other acceptable manner, as long as she practices before the +Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which she is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; +(b) Respondent, or the registered public accounting firm with which +she is associated, has been inspected by the Board and that inspection did not identify any +3 + + + + + + + + + + + + +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 her responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not limited to, all +requirements relating to registration, inspections, concurring partner reviews and quality control +standards. +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that her state CPA license is +current and she has resolved all other disciplinary issues with the applicable state boards of +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. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +4 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2946.txt b/raw/aaer/2009/AAER-2946.txt new file mode 100644 index 0000000000000000000000000000000000000000..b3fa548cda5b5d73f4c08c4199183916abaad789 --- /dev/null +++ b/raw/aaer/2009/AAER-2946.txt @@ -0,0 +1,1385 @@ + + + + + + + + + + + + + + + + SEC.gov | Allen Barnett, et al. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/505246","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Allen Barnett, et al. , Civil Action No. 1:09-cv-00457 (D. D.C.) (EGS) (filed March 9, 2009) + + SEC BRINGS SETTLED ACTIONS AGAINST FORMER CEO AND CFO OF ASTROPOWER, INC. FOR THEIR ROLES IN FINANCIAL FRAUD + + On March 9, 2009, the Commission filed a settled civil fraud action in the United States District Court for the District of Columbia against Allen Barnett, the former CEO, and Thomas Stiner, the former CFO, of AstroPower, Inc., a Delaware manufacturer of solar electric power products. AstroPower is no longer an operating company as its common stock was cancelled and its assets liquidated via bankruptcy in 2004. Barnett and Stiner agreed to permanent injunctions; payment of civil penalties in the amount of $65,000 and $40,000, respectively; and other sanctions. + + According to the Complaint, Barnett and Stiner made material misstatements, engaged in fraudulent accounting practices, and signed filings made with the Commission that they knew, or were reckless in not knowing, contained materially false and misleading financial statements. The Commission alleged that at the direction of Barnett and Stiner, and in contravention of Generally Accepted Accounting Principles, AstroPower improperly recognized approximately $4 million in revenues from four transactions executed over the course of the second and third quarters of 2002. According to the Complaint, as a result of improperly recognizing revenue from these transactions, AstroPower's net income was overstated by approximately $160,000 or 80% for the second quarter of 2002, and approximately $440,000 or 113% for the third quarter of 2002. The Commission alleged that these material misstatements of revenue and net income were included in Commission filings that Barnett and Stiner signed. + + The Commission alleged that Barnett and Stiner violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Exchange Act Rules 10b-5, 13a-14, and 13b2-1 thereunder, and aided and abetted AstroPower's violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20 and 13a-13 thereunder. The Commission further alleged that Stiner violated Exchange Act Rule 13b2-2. Without admitting or denying the allegations in the Complaint, Barnett and Stiner consented to the entry of final judgments enjoining them from future violations of these provisions of the federal securities laws, prohibiting them from acting as officers or directors of any public company, and imposing civil penalties. Stiner, without admitting or denying the Commission's findings, also consented to the institution of settled administrative proceedings pursuant to Rule 102(e)(3) of the Commission's Rules of Practice suspending him from appearing or practicing before the Commission as an accountant, based on the anticipated entry of an injunction against him. + + + SEC Complaint + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Gardner, et al. + + + + + + + + + + + + Stephen P. Gardner, et al. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20942 / March 11, 2009 + + Accounting and Auditing Enforcement Release No. 2947 / March 11, 2009 + + Securities and Exchange Commission v. Stephen P. Gardner, et al. , Civil Action No. 04 CV 2002 JAH (RBB) (S.D. Cal.) (October 5, 2004) + + SEC SETTLES WITH TWO DEFENDANTS IN PEREGRINE SYSTEMS ACCOUNTING FRAUD CASE + + The Securities and Exchange Commission ("SEC" or "Commission") today announced settlements with two defendants in connection with the accounting fraud at Peregrine Systems, Inc. ("Peregrine"). On March 4, 2009, United States District Judge John A. Houston entered an Amended Final Judgment by consent against Michael D. Whitt, the former president of Barnhill Associates, Inc. ("Barnhill"), a reseller of Peregrine's software. The Court's Judgment enjoined Whitt from violating Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and ordered Whitt to pay a civil penalty of $60,000. On January 5, 2009, Judge Houston entered a Final Judgment by consent against former Peregrine Director of Strategic Alliances Peter J. O'Brien, enjoining him from violating the anti-fraud and other provisions of the federal securities laws, and ordering him to disgorge $124,792 in ill-gotten gains from unlawful sales of Peregrine stock and from a bonus he received from Peregrine during the fraud. Whitt and O'Brien settled the Commission's claims without admitting or denying the allegations in the Commission's complaint. + + According to the Commission's complaint, beginning in 1999, Whitt caused Barnhill to enter into a series of sham transactions with Peregrine, which Peregrine used to artificially inflate its revenue. For several fiscal quarters, Whitt signed contracts-some of which were backdated to the prior quarter-that appeared to bind Barnhill to purchase Peregrine software licenses when, in fact, Barnhill had no obligation to pay Peregrine. Peregrine improperly recorded revenue on the sham contracts in contravention of U.S. Generally Accepted Accounting Principles ("GAAP"). + + With respect to O'Brien, the Commission's complaint alleged that in December 2000, O'Brien and another Peregrine executive persuaded an executive at a re-seller to sign two contingent sales agreements with Peregrine. The agreements related to software licenses that Peregrine was trying unsuccessfully to sell to two customers. O'Brien understood that Peregrine would only seek payment from the re-seller if the two Peregrine customers bought the licenses from the re-seller. Despite the contingent nature of the sale to the re-seller, Peregrine nevertheless recorded revenue on the two agreements in contravention of GAAP. Additionally, the complaint alleged that O'Brien was involved in a September 2001 contingent sale to a re-seller, for which Peregrine improperly recorded revenue. While participating in the fraud, O'Brien sold Peregrine stock. + + In September 2006, Whitt entered a guilty plea in a related criminal case brought by the U.S. Attorney's Office for the Southern District of California. He pleaded guilty to obstructing justice by making false statements to Commission attorneys investigating the Peregrine fraud. Whitt was sentenced to six months of incarceration followed by six months of residency in a community confinement center, and he was ordered to pay $1 million in restitution. + + In October 2004, O'Brien entered a guilty plea in the related criminal case. He pleaded guilty to obstructing justice by withholding relevant information and providing inaccurate information about his and others' knowledge and conduct to government investigators. O'Brien was sentenced to one year of probation. + + In addition to the disgorgement order in the SEC action, O'Brien agreed to be enjoined from violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5, and 13b2-1; and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Exchange Act Rules 12b-20, 13a-1 and 13a-13. + + The Commission also announced that, on January 7, 2009, Judge Houston issued an order granting the parties' Joint Motion of Dismissal for Defendant Joseph G. Reichner. The Commission had filed its action against Reichner in October 2004. + + The Commission acknowledges the assistance of the U.S. Attorney's Office for the Southern District of California and the FBI. + + Additional materials: Litigation Release Nos. 18919 , 20449 , and 20788 . + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Hofer + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/505281","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Simola, Joseph C. Cahill, and Grayling R. Hofer + + + + + + + + + + + + PowerCold Corporation, Francis L. Simola, Joseph C. Cahill, and Grayling R. Hofer + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20945 / March 11, 2009 + + Accounting and Auditing Enforcement Release No. 2948 / March 11, 2009 + + Securities and Exchange Commission v. PowerCold Corporation, Francis L. Simola, Joseph C. Cahill, and Grayling R. Hofer , Civil Action No. SA-09-CV-185-FB, U.S.D.C./Western District of Texas (San Antonio Division) + + PowerCold Corporation and Its Executives Francis L. Simola, Joseph C. Cahill and Grayling R. Hofer Agree To Settle SEC Actions Charging Them With Fraudulent Revenue Recognition; Relief Includes Deregistration, Officer-and-Director Bars, Penalties, and a Bar From Practicing Before the Commission + + + + On March 11, 2009, the United States Securities and Exchange Commission filed a civil action against PowerCold Corporation, Francis L. Simola (chairman and CEO), Joseph C. Cahill (former CFO), and Grayling R. Hofer (controller and chief accounting officer). In its complaint, the Commission alleged that PowerCold materially overstated its financial results from 2003 through the third quarter of 2005 by recognizing revenue from fictitious contracts, and inflating and prematurely recognizing revenue from actual contracts. The Commission also alleged that Simola, Cahill and Hofer participated in the scheme to misstate PowerCold's revenue. To conceal the scheme, the Commission alleged, Simola, Hofer, and Cahill made materially false or misleading statements to PowerCold's auditor. + + The Commission also announced that all defendants, without admitting or denying the Commission's allegations, have agreed to settle. PowerCold has consented to a permanent injunction prohibiting violations of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. Simola, Cahill, and Hofer have consented to permanent injunctions prohibiting violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. Simola and Cahill are also enjoined from violating Exchange Act Rule 13a-14, and Simola is enjoined from aiding and abetting violations of Exchange Act Rule 13a-11. + + Simola, Cahill, and Hofer also consented to five-year officer-and-director bars. Simola consented to the entry of an order to pay a $75,000 civil money penalty. The Commission determined not to seek civil penalties against PowerCold, Cahill, or Hofer based on their financial condition. + + In addition, PowerCold consented to the entry of an order, under Section 12(j) of the Exchange Act, revoking the registration of its securities. Hofer also consented to entry of an order under Commission Rule of Practice 102(e)(3), barring him from practicing or appearing before the Commission as an accountant. + + + + + SEC Complaint + +   + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Smith, John J. Laskey, and Kevin E. Brooks + + + + + + + + + + + + Quest Software, Inc., Vincent C. Smith, John J. Laskey, and Kevin E. Brooks + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20950 / March 12, 2009 + + Accounting and Auditing Enforcement Release No. 2949 / March 12, 2009 + + Securities and Exchange Commission v. Quest Software, Inc., Vincent C. Smith, John J. Laskey, and Kevin E. Brooks , United States District Court for the Central District of California, Civil Action No. SACV 09-0315 (AG) + + SEC Charges Quest Software and Three Executives With Stock Option Backdating + + + + The Securities and Exchange Commission today filed a complaint in the United States District Court for the Central District of California against Quest Software, Inc., an Aliso Viejo, California-based software manufacturer, and three current or former officers: Vincent C. Smith, John J. Laskey, and Kevin E. Brooks. + + The SEC's complaint alleges that Quest, its executive chairman Smith, its former chief financial officer Laskey, and its former controller and principal accounting officer Brooks, improperly granted undisclosed in-the-money stock options to executives and employees by backdating millions of options from 1999 through 2002. As a result of this misconduct, in September 2007, Quest reported a $113.6 million restatement of its operating income. + + According to the SEC's complaint, Quest failed to accurately describe its stock option practices in its public filings and failed to properly account for the backdated options in its financial statements, resulting in false and misleading disclosures to Quest's shareholders in filings with the SEC from 1999 through 2005. + + The complaint further alleges that Quest backdated 28 separate grants involving over 11 million shares of common stock. Quest's failure to properly record compensation expenses in connection with the backdated options resulted in the overstatement of Quest's operating income by 4 percent to 963.1 percent, and the understatement of its operating loss by 26.12 percent to 154 percent from 1999 through 2005. + + Specifically, the SEC's complaint alleges that Smith and Laskey approved a policy by which Quest would pool stock option grants each month and backdate the grants to coincide with the lowest stock price of the month. The complaint alleges that the backdated grant dates bore no relation to when the grant was actually approved, resulting in artificially low exercise prices for the stock options. According to the complaint, although he knew about the use of hindsight to date stock option grants, Brooks failed to ensure the accuracy of Quest's financial statements and disclosures. The complaint also alleges that Smith, Laskey, and Brooks took steps to prevent Quest's independent auditors from discovering the backdating, including the use of false written consents by Quest's board of directors. + + All defendants have agreed to settle this matter, without admitting or denying the allegations in the SEC's complaint, on the following terms: + + Quest consented to an order permanently enjoining it from violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 (Securities Act) and Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 12b-20, 13a-1, 13a-13, and 14a-9 thereunder. + + Smith consented to an order permanently enjoining him from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act, and Sections 13(b)(5), 14(a), and 16(a) of the Exchange Act and Rules 13a-14, 13b2-1, 13b2-2, 14a-9, and 16a-3 thereunder, and from aiding and abetting Quest's violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. Smith also agreed to pay a $150,000 civil penalty. + + Laskey and Brooks, a certified public accountant, consented to orders permanently enjoining them from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act, and Sections 13(b)(5) and 16(a) of the Exchange Act and Rules 13b2-1, 13b2-2, and 16a-3 thereunder, and from aiding and abetting Quest's violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. Laskey and Brooks agreed to pay civil penalties of $50,000 and $60,000 respectively. Brooks also agreed to pay disgorgement of $34,775, representing half of the in-the-money value of backdated options he had exercised (the other half had previously been repaid to the company), and prejudgment interest of $5,808.29. In addition, Brooks agreed to a five-year suspension from appearing or practicing as an accountant before the SEC. + + All settlements in the civil injunctive action are subject to the approval of the United States District for the Central District of California. + + + + + SEC Complaint + +   + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-2950.txt b/raw/aaer/2009/AAER-2950.txt new file mode 100644 index 0000000000000000000000000000000000000000..c5a7f71c984b896def9a8e2a86eff89eae48164d --- /dev/null +++ b/raw/aaer/2009/AAER-2950.txt @@ -0,0 +1,406 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + +UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59584 / March 17, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2950 / March 17, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13410 +In the Matter of +ANDREW SIMS, CPA, +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 against Andrew +Sims, CPA (“Sims” or “Respondent”) pursuant to Sections 4C +1 and 21C of the Securities +1 Section 4C provides, in relevant part, that “[t]he 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 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.” + + + + + + + + + + + + + + + + + + + + + + + + + +Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) and 102(e)(1)(iii) of the +Commission’s Rules of Practice.2 +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 +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 Respondent’s Offer, the Commission finds3 that: +Summary +This matter involves a violation of the auditor independence rules by an auditor seeking +employment with his audit client. Between November 2004 and June 2005, Andrew Sims, an +audit partner at Mazars LLP, engaged in employment discussions with his audit client Publicis +Groupe, S.A. (“Publicis”) to become the chief accounting officer of Re:Sources, a U.S. back-office +organization owned by Publicis that was to become responsible for the financial reporting of +Publicis’ U.S. operations. During this period, Sims was responsible for auditing the financial +statements of Publicis’ U.S. operations for Mazars LLP, a U.S. audit firm and an affiliate of +Mazars & Guerard, S.A (“M&G”). M&G, a French auditing firm, was one of Publicis’ two joint +auditors (the other being Ernst & Young). Contrary to auditor independence rules that required +Sims to report the employment discussions to his firm and remove himself from the Publicis audit, +Sims continued working on the engagement and concealed his employment discussions with +Publicis from his firm until the employment negotiations were almost complete in early June 2005. +2 Rule 102(e)(1)(ii) provides, in pertinent part, that “[t]he 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.” Rule 102(e)(1)(iii) provides, in pertinent part, that “[t]he 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 an d abetted the violation of any provision of the Federal +securities laws or the rules and regulations thereunder.” +3 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any +other person or entity in this or any other proceeding. +2 + + + + + + + + + + + + + + + + + + + + + + + + + + + +Respondent +Andrew Sims, CPA, age 36, of New York, New York, is a certified public accountant +licensed in New York and Maine. Sims was the Mazars LLP audit partner responsible for auditing +the financial statements of Publicis’ U.S. operations for the fiscal year ended December 31, 2004. +During all times relevant to this case, Sims was also a partner with Mazars SCRL and Weiser LLP. +Other Relevant Entities +1. Publicis Groupe S.A., based in Paris, France, is an international advertising and +media services conglomerate with offices throughout the world. During the relevant period, +Publicis was a foreign private issuer whose American Depository Receipts were registered with the +Commission pursuant to Exchange Act Section 12(g), and were listed on the NYSE. In September +2007, Publicis voluntarily terminated its registration with the Commission. +2. Mazars SCRL, is an international audit and advisory organization based in Paris, +France, and incorporated in Belgium. It has a worldwide network of member firms and joint +venture partnerships. Its member firms include M&G and Mazars LLP. One of its joint venture +partners is Weiser LLP. +3. Mazars and Guerard, S.A. is an accounting firm based in Paris, France. It is a +member firm of the Mazars SCRL international network. M&G and Ernst &Young (“E&Y”) were +joint auditors responsible for the audit of Publicis’ financial statements for the fiscal year ended +December 31, 2004 and issued a joint audit opinion. M&G is registered with the Public Company +Accounting Oversight Board (“PCAOB”). +4. Mazars LLP, is an accounting firm based in New York, New York, that is a +member of the Mazars SCRL network. It was responsible for auditing the financial statements of +Publicis’ U.S. operations for the fiscal year ended December 31, 2004. It has few employees and +relies on employees of Weiser LLP to perform most of the audit work on its engagements. Mazars +LLP is registered with the PCAOB. +5. Weiser LLP, is an accounting firm based in New York, New York. As a joint +venture partner of Mazars SCRL, its employees perform most of the audit work on Mazars LLP +engagements. Consequently, while Mazars LLP was responsible for auditing Publicis’ U.S. +operations on behalf of M&G, it was Weiser LLP employees who actually performed the audit. +Weiser LLP is registered with the PCAOB. +Facts +1. Between November 2004 and June 2005, Sims engaged in employment discussions +with his audit client Publicis to become the chief accounting officer (“CAO”) of Re:Sources, a U.S. +back-office organization Publicis owned. Re:Sources was to become responsible for the financial +reporting of Publicis’ U.S. operations. +3 + + + + + + + + + + + + + + + + + + + +2. Between January and March 2005, Sims had multiple discussions with the +managing director of Re:Sources regarding Sims’ potential employment as the CAO of +Re:Sources. The managing director was leading the employment discussions on behalf of Publicis. +These employment discussions occurred while Sims was overseeing the Mazars LLP audit work +for the fiscal 2004 audit of Publicis’ U.S. operations. On February 7, 2005, Sims informed the +managing director that he wanted to complete the year-end audit work before informing his +supervisors about his interest in joining Publicis in order to avoid the perception that his audit +objectivity had been impaired. +3. In early June 2005, Sims learned that Publicis would be sending him an +employment contract shortly. On or about June 8, 2005, Sims disclosed his employment +discussions with Publicis to M&G, Mazars LLP, and Weiser LLP, and asked to be removed from +the Publicis audit. By June 9, 2005, Sims had informed the managing director that he intended to +accept the offer to become Re:Sources’ CAO. +4. Sims concealed his employment discussions with Publicis from M&G, Mazars +LLP, and Weiser LLP, including through affirmative misstatements to the partners responsible for +the Publicis engagement, until he received an employment offer from Re:Sources. During his +employment discussions with Publicis, Sims twice signed confirmations required by M&G and +Weiser LLP attesting that he had complied with the auditor independence rules. +5. Sims continued to make misrepresentations about his employment discussions with +Publicis even after he disclosed to M&G, Mazars LLP, and Weiser LLP his intention to become a +Publicis employee. On June 29, 2005, in anticipation of a quality control review by Weiser LLP +regarding his expected employment by Publicis, Sims prepared a memorandum falsely claiming +that Publicis first approached him about possible employment in early June 2005 and that he +promptly stopped working on the Publicis audit at that time. After speaking with the Weiser LLP +quality control partner, Sims prepared another memorandum correctly stating that Publicis first +approached him about possible employment in November 2004. +6. On June 24, 2005, Publicis filed its Form 20-F for its fiscal year ended December +31, 2004. The audit report included in the Form 20-F, which M&G and E&Y issued jointly,4 states +that M&G was independent and had conducted its audit in accordance with PCAOB standards. +7. After Publicis filed its Form 20-F in June 2005, concerns were raised about M&G’s +lack of independence as a result of Sims’ employment discussions with Publicis. Consequently, +Publicis self-reported the matter to the Commission and instructed E&Y to perform additional +audit procedures so that E&Y could issue a new audit opinion on Publicis’ fiscal year 2004 +financial statements as the company’s sole auditor. On December 23, 2005, Publicis filed an +amended Form 20-F for the year ended December 31, 2004, with an audit opinion from E&Y as +the sole auditor. The additional audit procedures conducted by E&Y did not detect any errors from +work that Sims previously performed. +The date of the audit report was March 10, 2005, except as to footnote 31 to the financial statements +(“Summary of differences between generally accepted accounting principles in France and the U.S.”), which was +dated June 24, 2005. +4 + +4 + + + + + + + + + + + + + + + + + + + + + + + + + + + + +Violations +1. Professional independence standards for auditors, as set forth in PCAOB Rule +3600T, AICPA Code of Professional Conduct ET Section 101, and Independence Standards Board +Independence Standard No. 3, require an auditor who is considering employment by an audit client +promptly to notify his audit firm and remove himself from the audit of that client. +5 These +standards further require that upon removal of the auditor from the audit, the audit firm should +consider what additional procedures may be necessary to provide reasonable assurance that any +work performed for the client by that person was performed with objectivity and integrity. +2. Sims lacked independence under the aforementioned professional standards due to +his employment discussions with Re:Sources. As a result, Publicis violated Exchange Act Section +13(a) and Rule 13a-1, which require issuers to file annual reports containing financial statements +certified by independent public accountants. +3. As a result of the conduct described above, Sims caused and willfully aided and +abetted Publicis’ violations of Exchange Act Section 13(a) and Rule 13a-1 thereunder. +4. As a result of the conduct described above, M&G violated Regulation S-X Rule 2- +02(b)(1). This provision requires accountants’ reports to state “whether the audit was made in +accordance with generally accepted auditing standards.” “[R]eferences in Commission rules and +staff guidance and in the federal securities laws to GAAS or to specific standards under GAAS, as +they relate to issuers, should be understood to mean the standards of the PCAOB . . . .” SEC +Release No. 34-49708. 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. +M&G did not conduct its audit in accordance with PCAOB standards because Sims lacked +independence. +5. As a result of the conduct described above, Sims caused and willfully aided and +abetted M&G’s violation of Regulation S-X Rule 2-02(b)(1). +6. As a result of the conduct described above, Sims engaged in improper professional +conduct. For accountants, improper professional conduct includes “intentional or knowing +conduct, including reckless conduct, that results in a violation of applicable professional +standards.” Rule 102(e)(1)(iv)(A). Sims’ actions – negotiating employment with his audit client +while conducting an audit and failing promptly to remove himself from the Publicis audit – +violated PCAOB Rule 3600T, AICPA ET Rule 101.04, and ISB Standard No. 3 and were, at a +minimum, reckless. +Findings +1. Based on the foregoing, the Commission finds that Sims caused and willfully aided +and abetted Publicis’ violations of Exchange Act Section 13(a) and Rule 13a-1 thereunder. +Although the ISB no longer exists, its rules were in force at all times relevant to this matter. +5 + +5 + + + + + + + + + + + + + + + + + + + + + + + + + + +2. Based on the foregoing, the Commission finds that Sims caused and willfully aided +and abetted M&G’s violation of Regulation S-X Rule 2-02(b)(1). +3. Based on the foregoing, the Commission finds that Sims engaged in improper +professional conduct within the meaning of Rule 102(e)(1)(ii) of the Commission’s Rules of +Practice, as defined by Rule 102(e)(1)(iv)(A), and willfully aided and abetted the violation of +provisions of the federal securities laws and rules thereunder within the meaning of Rule +102(e)(1)(iii) of the Commission’s Rules of Practice. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Sims’ Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +1. Sims shall cease and desist from causing any violations and any future violations of +Exchange Act Section 13(a) and Rule 13a-1 thereunder and Regulation S-X Rule 2-02(b)(1). +2. Sims is denied the privilege of appearing or practicing before the Commission as an +accountant. +3. After three years from the date of this Order, Respondent may request that the +Commission consider his reinstatement by submitting an application (attention: Office of the Chief +Accountant) to resume appearing or practicing before the Commission as: +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 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 +B. an independent accountant. Such an application must satisfy the +Commission that: +(1) 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; +(2) 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; +6 + + + + + + + + + + + + + + (3) 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 +(4) Respondent acknowledges his responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not limited to, all +requirements relating to registration, inspections, concurring partner reviews and quality control +standards. +4. 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. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +7 diff --git a/raw/aaer/2009/AAER-2951.txt b/raw/aaer/2009/AAER-2951.txt new file mode 100644 index 0000000000000000000000000000000000000000..7c0821a862ac89f39bbf99ff19d7c04e147ad46f --- /dev/null +++ b/raw/aaer/2009/AAER-2951.txt @@ -0,0 +1,532 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59594 / March 18, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2951 / March 18, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13411 +In the Matter of +Allion Healthcare, Inc. and +James G. Spencer, +Respondents. +ORDER INSTITUTING CEASE-AND- +DESIST PROCEEDINGS PURSUANT TO +SECTION 21C OF THE SECURITIES +EXCHANGE ACT OF 1934, MAKING +FINDINGS, AND IMPOSING A CEASE- +AND-DESIST ORDER +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate that cease- +and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities +Exchange Act of 1934 (“Exchange Act”), against Allion Healthcare, Inc. (“Allion”) and James G. +Spencer (“Spencer”) (collectively, “Respondents”). +II. +In anticipation of the institution of these proceedings, Respondents have submitted Offers +of Settlement (the “Offers”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over them and the subject matter of these +proceedings, which are admitted, Respondents consent to the entry of this Order Instituting Cease- +and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making +Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below. + + + + + + + + + + + + + + + + + + + + + + +III. +On the basis of this Order and Respondents’ Offers, the Commission finds1 that: +Summary +1. This matter concerns Allion’s failure to properly record and report two significant +warrant grants made during the second quarter of 2005. Because Allion failed to recognize interest +expense for the warrants in conformity with Generally Accepted Accounting Principles (“GAAP”), +the company materially overstated its net income and understated its loss per share when reporting +results for the second quarter of 2005 and the nine months ended September 30, 2005. Allion +restated its results in March 2006 after the company’s independent auditor inquired about the +errors. In its restatement, the company reduced its net income by 1372% for the second quarter of +2005, from net income of $70,431 to a net loss of $895,569, and increased its loss per share for this +period by 77%, from $0.31 to $0.55 per share. Allion also reduced its net income for the nine +months ended September 30, 2005 by 97%, from $932,517 to $26,517, and increased its loss per +share for this period by 233%, from $0.06 to $0.20 per share. Allion violated the federal securities +laws by filing materially inaccurate periodic reports with the Commission, failing to make and +keep accurate books and records, and failing to devise and maintain an adequate system of +accounting controls. +2. Allion’s former chief financial officer, James G. Spencer, was a cause of the +company’s violations and certified the company’s inaccurate Form 10-Qs for the second and third +quarters of 2005. Spencer knew the warrants had potentially significant value, and was aware of +the potential impact on the company’s earnings associated with the larger of the two grants. +Nevertheless, he failed to ensure that the company properly recorded and reported the warrant +transactions. +Respondents +3. Allion, a Delaware corporation with its headquarters in Melville, New York, is a +national provider of specialty pharmacy and disease management services focused on HIV/AIDS +patients. During all relevant times, Allion’s common stock has been registered with the +Commission pursuant to Section 12(g) of the Exchange Act and traded on the NASDAQ National +Market under the symbol “ALLI.” +4. Spencer, 40, a resident of Baltimore, Maryland, served as Allion’s chief financial +officer (“CFO”) from May 2004 to July 2007. Spencer worked for Allion as an independent +consultant for approximately seven months before becoming CFO. Since July 2007, Spencer has +been senior vice president and CFO for a privately-held company. Spencer has never been a +certified public accountant (“CPA”). +Facts +Director’s Personal Guarantee of Allion’s Line of Credit +5. In late 1999 or early 2000, an Allion director agreed to personally guarantee a $1.5 +million line of credit for Allion and Allion granted the director a warrant to purchase 375,000 +1 The findings herein are made pursuant to Respondents’ Offers of Settlement and are not binding on any other +person or entity in this or any other proceeding. +- 2 - + + + + + + + + + + + + + + + + + + + + + + + + + + +shares of common stock as consideration for his guarantee. The warrant expires in March 2010 +and the shares are exercisable at $1.00 per share. In June 2002, Allion issued another warrant to +purchase 150,000 shares of common stock to the director as consideration for extending his +guarantee of the loan. This warrant had a ten year life and an exercise price of $3.50 per share.2 +Allion issued these warrants prior to the time Spencer began working at the company. +Allion’s Second Quarter 2005 Warrant Grants +6. Allion’s line of credit was due to expire in March 2005, by which time the company +was preparing to file a registration statement for its initial public offering (“IPO”). Because Allion +did not have sufficient cash available to repay the line of credit, it needed to extend it to continue +operating until the company could raise funds through the IPO. The bank that had issued the line +of credit agreed to extend it for six months contingent upon, among other things, the director +maintaining his personal guarantee. +7. The director asked Allion for a warrant to purchase additional shares of Allion +stock in return for extending his guarantee. Allion’s board had numerous discussions regarding the +value of the warrant grant. During these discussions, Spencer told Allion’s chief executive officer +(“CEO”) and two members of the board that the estimated value of such a warrant grant would be +$1.75 to $2 per share, based on the calculations performed by an independent valuation firm that +Allion had used when valuing warrants issued in connection with two acquisitions it made during +early 2005. +8. On April 13, 2005, Allion’s board of directors held a special meeting to grant the +director a warrant to purchase 100,000 shares of Allion common stock at an exercise price equal to +the IPO price or, if no IPO were to occur by April 20, 2006, at $6.26 per share (the “Director +Warrant”). As anticipated at the time the Director Warrant was granted, Allion publicly filed its +registration statement for the IPO with the Commission two days later, and the IPO took place +approximately two months later at a price of $13 per share. Consequently, the exercise price of the +Director Warrant became $13 per share. The Director Warrant has never been exercised, and +expires on April 15, 2015. +9. During the evening of April 14, Spencer received an e-mail from an assistant to the +director who had been granted the Director Warrant, asking “what is earnings hit for these +warrants??” Spencer replied that the value of warrants recently issued by the company in +connection with a March 2005 acquisition had been approximately $1.65 per share; however, he +also noted that if the company were to go public there was a “good chance” the company’s auditor +would want to reassess the volatility factor used in the Black-Scholes model.3 +2 At the time of the grants, Allion recognized an insufficient expense for the 2000 grant and disclosed, but did not +recognize any expense for, the 2002 grant. In 2006, Allion calculated the expense for these grants and determined +the associated increases were immaterial when recognized over the term of the loan. The director exercised the +2002 warrant and sold the shares at $12.83 in Allion’s January 2006 secondary offering. +3 Although GAAP does not require its use, the Black-Scholes model is commonly used to estimate the fair value of +stock options and other equity instruments, including warrants. The inputs to the Black-Scholes model include: (a) +the exercise price of the warrant; (b) the expected life of the warrant; (c) the current price of the underlying stock; +(d) its expected volatility; (e) expected dividends; and (f) the risk-free interest rate for the expected term of the +warrant. +- 3 - + + + + + + + + + + + + + + + + + + + + +10. In response, the director’s assistant asked Spencer for a Black-Scholes model to +estimate the value of the Director Warrant. Later that evening, Spencer e-mailed the assistant and +Allion’s CEO the results of his Black-Scholes model, which showed that a ten-year warrant with +an exercise price of $10 would be valued at $3.74 per share and a ten-year warrant with an exercise +price of $12 would be valued at $4.49 per share.4 The valuations produced by Spencer’s model +were higher than the estimates he previously had communicated to Allion’s CEO and two directors +during the board of directors’ discussions regarding the grant. Furthermore, Spencer did not +consult the company’s auditor or the independent valuation firm Allion previously had used +regarding the correct volatility factor or any other aspect of the Black-Scholes model he used to +produce these valuations. +11. Allion disclosed the issuance of the Director Warrant in its IPO registration +statement filed with the Commission on April 15, 2005. A few days later, on April 21, Allion +again disclosed the issuance of the Director Warrant in a Form 8-K filing that attached the warrant +agreement as an exhibit. Also on April 21, the director himself filed a Form 4 disclosing his +receipt of the Director Warrant. +12. In mid-May 2005, Allion issued a $2 million note to an investor. As partial +consideration for the note, Allion granted the investor a warrant to purchase 40,000 shares of +Allion common stock at an exercise price equal to the price per share of a successful IPO (the +“Investor Warrant”), which as noted above turned out to be $13.00 per share. The Investor +Warrant has never been exercised, and expires on May 15, 2010. +13. On May 18, 2005, Allion disclosed the issuance of the Investor Warrant in its Form +10-Q for the first quarter of 2005, and attached the warrant agreement as an exhibit to that filing. +Allion also disclosed the issuance of the Director Warrant in the same Form 10-Q. +Allion’s June 22, 2005 IPO +14. On June 22, 2005, Allion conducted its IPO, selling four million shares of common +stock at $13 per share. Allion disclosed the issuance of the Director and Investor Warrants in its +registration statements and prospectus for the IPO. Allion used proceeds from the offering to repay +the bank line of credit and the $2 million note prior to June 30, 2005. +Allion Failed to Properly Record and Report the +Director and Investor Warrants in its Second Quarter Form 10-Q + +15. GAAP provides that when a company grants warrants in connection with the +issuance of debt, it should value the warrants and generally record a non-cash interest expense for +these warrants over the life of the debt. Allion, however, failed to record any expense for the +Director or Investor Warrants in its Form 10-Q for the second quarter of 2005. +16. Neither the Director Warrant nor the Investor Warrant was properly recorded in the +company’s books and records for the second quarter of 2005. At the time, Allion had no written +procedures in place for recording equity-based transactions. As CFO, Spencer was responsible for +ensuring that the warrants were properly recorded in Allion’s financial statements, yet failed to do +so. Spencer did not verify that the warrants were recorded in the company’s accounting records, +nor did he provide his valuation model to anyone else to enable them to properly record the +4 Spencer’s Black-Scholes models assumed the exercise price of the warrant equaled the market price of Allion’s +common stock, which Spencer’s models assumed would be the IPO price per share. +- 4 - + + + + + + + + + + + + + + + + + + + + + +expense. In addition, notwithstanding his lack of experience accounting for equity issued in +connection with debt, Spencer did not consult with the company’s auditor, other accountants, or +any other specialist regarding how properly to value or record the Director or Investor Warrants. +17. Allion was scheduled to release its second quarter results and host an investor +conference call after the market closed on August 11, 2005. Prior to that date and after reviewing +the Investor Warrant disclosure in the company’s draft Form 10-Q, Allion’s auditor had asked +Spencer whether an expense for the Investor Warrant had been recorded in the company’s financial +statements. On the morning of August 11, Spencer informed the auditor that the company had not +recorded an expense for the Investor Warrant. One of the auditors responded by e-mail that “if +there was no accounting for these warrants, which there should have been, we just need to know +what was/should be the value attached to those warrants.” +18. Spencer subsequently used the Black-Scholes model and valued the Investor +Warrant at $60,000. He e-mailed the model to the auditor early in the afternoon on August 11. +However, Spencer’s calculation underestimated the fair value of the Investor Warrant by more than +$150,000 because he incorrectly used an estimated term of exercise that was only half of the +warrant’s life, rather than the full term, and he used a stock price volatility that was too low +because it did not reflect the increased volatility of Allion’s stock price after the stock became +publicly traded. +19. Later that day, Allion’s auditor advised the chairman of the company’s Audit +Committee and Spencer that it was proposing an adjustment of $60,000 to the company’s second +quarter interest expense, an amount the auditor and the company collectively deemed to be +immaterial to the second quarter results. Allion recorded the $60,000 interest expense in its third +quarter financial statements. +20. Notwithstanding his multiple communications regarding the accounting for the +Investor Warrant, Spencer did not alert Allion’s auditor to the possibility that the company +similarly might have failed to recognize an expense for the much larger Director Warrant grant. +21. Allion’s second quarter Form 10-Q, which was certified by Spencer and filed on +August 15, 2005, included financial statements that were materially incorrect because they did not +reflect any interest expense for the Director Warrant or Investor Warrant. +Allion Failed to Properly Record and Report the Director or Investor Warrants in +Its Form 10-Q for the Third Quarter of 2005 and January 2006 Secondary Offering Documents + +22. Allion’s third quarter Form 10-Q, which was filed on November 14, 2005 and +certified by Spencer, included financial statements that materially overstated Allion’s net income +and earnings per share for the first nine months of 2005 because they understated the interest +expense for the Investor Warrant and did not reflect any interest expense for the Director Warrant.5 +23. Allion conducted a follow-on offering of common stock on January 26, 2006. The +company sold 1.8 million shares and selling stockholders sold an additional 2,636,454 shares at +$12.83 per share. The company’s registration statements and final prospectus for the offering +included the company’s financial results through the first nine months of 2005, and thus contained +the same warrant-related inaccuracies as the third quarter Form 10-Q described above. These +5 As noted above, Allion recorded $60,000 of interest expense for the Investor Warrant in its third quarter financial +statements. +- 5 - + + + + + + + + + + + + + +filings, however, did contain disclosures concerning the issuance of the Director Warrant and +Investor Warrant. +Allion’s March 2006 Restatement +24. Allion was scheduled to release its 2005 annual results and conduct an earnings call +after the market closed on March 9, 2006. On March 8, Allion’s auditor, after reviewing the +disclosure regarding the Director Warrant grant in the draft Form 10-K, asked Spencer whether the +company had recognized an expense for that warrant. After checking the company’s accounting +books and records, Spencer informed the auditor that Allion had not recorded an expense for the +Director Warrant, and Spencer and the auditor agreed that the company needed to do so. Spencer +then prepared a Black-Scholes model valuing the Director Warrant at approximately $150,000. +Allion’s auditor, however, independently prepared a Black-Scholes model that valued the Director +Warrant at approximately $700,000 - $900,000. +25. The discrepancy prompted Allion’s auditor to review Spencer’s Black-Scholes +calculation. Based on this review, the auditor determined that Spencer incorrectly had used an +expected term of half of the Director Warrant’s life, rather than the full life, and used a volatility +factor that was too low. +26. Following the market close on March 9, Allion filed a Form 8-K and issued a +related press release announcing its intention to restate results for the three and six months ended +June 30, 2005 and the nine months ended September 30, 2005 to correct the failure to record a +non-cash interest expense for the Director Warrant. The press release stated that Allion expected +the non-cash interest expense to be approximately $700,000 - $900,000 recorded in the second +quarter of 2005. Prior to issuing its press release, Allion self-reported the matter to the +Commission staff. +27. The following day, Allion’s auditor sent an e-mail to Spencer questioning whether +the company had “the same issues” with respect to its accounting for the Investor Warrant. +Spencer subsequently recalculated the fair value of both the Director and Investor Warrant. Based +on advice from Allion’s auditor and an independent valuation expert, Spencer used the full +contractual term of the warrants as the expected term of exercise and a volatility factor of 40%, +which was based on the closing prices of Allion’s stock and other health care companies’ stocks +during the eight and a half months since Allion’s June 2005 IPO. Using these revised inputs to the +Black-Scholes model, Spencer valued the Director Warrant at $752,563 and the Investor Warrant +at $213,747. +- 6 - + + + + + + + + + + + + + + + + + + + + + + + +28. On March 15, Allion filed a Form 8-K disclosing its prior failure to record the +correct non-cash interest expense for the Investor Warrant and stating that the total non-cash +interest expense to be recorded in the second quarter of 2005 for both warrants would be restated to +$966,000. The effect of the restatement is summarized in the charts below: +THREE MONTHS ENDED JUNE 30, 2005 DOLLAR +CHANGE +PERCENT +CHANGEOriginal Restated +Interest income (expense) ($451,634) ($1,417,634) ($966,000) 214% +Net income (loss) $70,431 ($895,569) ($966,000) 1372% +Net income (loss) available +to common shareholders +($1,267,616) ($2,233,616) ($966,000) 76% +Earnings (loss) per share ($0.31) ($0.55) ($0.24) 77% +NINE MONTHS ENDED SEPT. 30, 2005 DOLLAR +CHANGE +PERCENT +CHANGEOriginal Restated +Interest income (expense) ($359,419) ($1,265,419) ($906,000)6 252% +Net income (loss) $932,517 $26,517 ($906,000) 97% +Net income (loss) available +to common shareholders +($405,530) ($1,311,530) ($906,000) 223% +Earnings (loss) per share ($0.06) ($0.20) ($0.14) 233% +Allion Stated that a Material Weakness Existed in its Internal Controls +29. Allion’s 2005 Form 10-K, filed on March 16, 2006, stated that, after consultation +with its auditor, the company’s management had concluded that a material weakness existed in the +company’s internal controls over financial reporting relating to its failure to properly record non- +cash interest expense for the Director Warrant and Investor Warrant. +30. Allion has since taken steps to address this material weakness, including retaining +an independent consultant to review and improve its internal procedures and controls relating to the +recording of equity-based and related party transactions, adding two certified public accountants to +its board of directors and audit committee, one of whom was appointed chairman of the audit +committee and later became the company’s CFO after Spencer voluntarily left Allion in July 2007. +The company also sent its controller for additional training. +Spencer was Responsible for Allion’s Improper Accounting and Internal Controls +31. Spencer, as CFO, was responsible for Allion’s false financial statements and +inadequate internal controls described above. Spencer knew that the Director Warrant had +potentially significant value, and was aware of the potential “earnings hit” associated with the +warrant. Nevertheless, he failed to ensure that the Director or Investor Warrants were recorded +6 Allion’s restated interest expense for the nine months ended September 30, 2005 was $60,000 less than its +restated interest expense for the three months ended June 30, 2005 because the company recognized $60,000 of +interest expense for the Investor Warrant in its Form 10-Q originally filed for the third quarter of 2005. +- 7 - + + + + + + + + + + + + + + + + + + + + +properly in the company’s accounting records. He did not verify that the warrants were recorded, +nor did he provide his valuation model to anyone else to enable them to properly record the +expense. In addition, notwithstanding his lack of experience accounting for equity issued in +connection with debt, Spencer did not consult with the company’s auditor, other accountants, or +any other specialist regarding how properly to value or record the Director or Investor Warrants. +Instead, Spencer unreasonably relied upon Allion’s auditor to detect and remedy the company’s +accounting errors. Even after the company’s auditor inquired about the omission of the Investor +Warrant from the company’s financial statements shortly before Allion filed its second quarter +Form 10-Q, Spencer failed to inquire whether the company’s accounting for the Director Warrant +raised a similar issue or raise the issue with the auditor. +Spencer Made Inaccurate Certifications Under Section 302 of the Sarbanes-Oxley Act +32. As Allion’s CFO, Spencer signed certifications for Allion’s Forms 10-Q for the +second and third quarters of 2005 stating that, among other things, he had evaluated the +effectiveness of the company’s internal controls over financial reporting, and had disclosed to the +company’s auditor and audit committee all significant deficiencies and material weaknesses in the +design or operation of these internal controls. Spencer should have known that the company’s +internal controls relating to the recording of warrant transactions were deficient, and that these +certifications therefore were inaccurate. +Violations +33. Section 13(a) of the Exchange Act and Rule 13a-13 thereunder require issuers with +securities registered under Section 12 of the Exchange Act to file quarterly reports with the +Commission. Exchange Act Rule 12b-20 requires that an issuer’s periodic reports contain such +further material information as may be necessary to ensure that the required statements made in +them are not misleading. It is implicit in these requirements that the information in the reports be +accurate. See SEC v. IMC International, Inc., 384 F. Supp. 889, 893 (N.D. Texas), aff’d mem., +505 F.2d 733 (5th Cir. 1974), cert. denied sub nom., Evans v. SEC, 420 U.S. 930 (1975). +34. 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 controls sufficient to provide reasonable assurances +that, among other things, transactions are recorded as necessary to permit preparation of financial +statements in conformity with GAAP. +35. Exchange Act Rule 13a-14 requires principal executive and financial officers to +certify in quarterly Commission filings that, among other things, the certifying officers have +reviewed the filing and, based on their most recent evaluation of the company’s internal controls +over financial reporting, have disclosed to the audit committee and auditors all significant +deficiencies and material weaknesses in these internal controls. +36. As a result of the conduct described above, Allion violated Sections 13(a), +13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder. +37. As a result of the conduct described above, Spencer was a cause of Allion’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, and violated Exchange Act Rule 13a-14. +- 8 - + + + + + + + + + + + + + + + + + + + +Allion’s Remedial Efforts +38. In determining to accept the Offers, the Commission considered remedial acts +undertaken by Allion and cooperation afforded the Commission staff. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the cease-and- +desist order agreed to in Respondents’ Offers. +Accordingly, it is hereby ORDERED that: +A. Pursuant to Section 21C of the Exchange Act, Respondent Allion 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 and 13a-13 thereunder; and +B. Pursuant to Section 21C of the Exchange Act, Respondent Spencer cease and desist +from causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), and +13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder, and cease and desist +from committing or causing any violation and any future violation of Exchange Act Rule 13a-14. + By the Commission. + E l i z a b e t h M . M u r p h y + Secretary +- 9 - diff --git a/raw/aaer/2009/AAER-2952.pdf b/raw/aaer/2009/AAER-2952.pdf new file mode 100644 index 0000000000000000000000000000000000000000..b7efabab6a8dbdade00d324de2becfb6cc491796 Binary files /dev/null and b/raw/aaer/2009/AAER-2952.pdf differ diff --git a/raw/aaer/2009/AAER-2952.txt b/raw/aaer/2009/AAER-2952.txt new file mode 100644 index 0000000000000000000000000000000000000000..36ba245dc74c652df1250a5c5fe870d97eb3ed78 --- /dev/null +++ b/raw/aaer/2009/AAER-2952.txt @@ -0,0 +1,189 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +1 +UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59596 / March 18, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2952 / March 18, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13412 +In the Matter of +William D. Shovers, 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 William D. Shovers (“Respondent” +or “Shovers”). +Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. + + + + + + + + + + + + + + + + + +II. +The Commission finds that: +A. RESPONDENT +1. Shovers, age 54, is and has been a certified public accountant (“CPA”). He +was first licensed as a CPA in Wisconsin in 1980; his license has been expired since 1995. He +served as Chief Financial Officer of Hayes-Lemmerz International, Inc. (“Hayes”) from +approximately 1999 until October 2001. He also was Chief Accounting Officer at least during the +period of October 2000 through October 2001. From October 2001 until mid-2003, Shovers +remained an officer with Hayes Lemmerz. + B. CIVIL INJUNCTION +2. On December 18, 2008, the U.S. District Court for the Eastern District of +Michigan entered a final judgment against Shovers. The Final Judgment followed a jury trial in +which the jury found that Shovers had violated the following provisions of the securities laws and +rules and regulations promulgated thereunder: (1) Section 10(b) of the Securities Exchange Act of +1934) (“Exchange Act”) [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 204.10b-5] thereunder; +(2) Section 17(a)(3) of the Securities Act of 1933 (the “Securities Act”) [15 U.S.C. § 77q(a)(3)]; +and (3) Section 13(b)(5) of the Exchange Act [15 U.S.C. § 78m(b)(5)], and Rules 13b2-1 [17 +C.F.R. § 240.13b2-1] and 13b2-2 [17 C.F.R. § 240.13b2-2] thereunder. The jury also found that he +aided and abetted certain of Hayes’ violations of the federal securities laws. +3. The Final Judgment permanently enjoined Shovers from violating Section +10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 204.10b-5] +thereunder; Section 17(a)(3) of the Securities Act [15 U.S.C. § 77q(a)(3)]; Section 13(b)(5) of the +Exchange Act [15 U.S.C. § 78m(b)(5)], and Rules 13b2-1 [17 C.F.R. § 240.13b2-1] and 13b2-2 +[17 C.F.R. § 240.13b2-2] thereunder; and from aiding and abetting violations of Section 13(a), +Section 13(b)(2)(A), and Section 13(b)(2)(B) of the Exchange Act [15 U.S.C. §78m(a), +§78m(b)(2)(A), and §78m(b)(2)(B)], and Rules 12b-20, 13a-1, and 13a-13 [17 CFR §240.12b-20, +17 CFR § 240.13a-1, and 17 CFR § 240.13a-13] thereunder. The Final Judgment also barred +Shovers, for a period of five (5) 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 [15 U.S.C. § 78l] or that is +required to file reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C. § 78o(d)], and +ordered him to pay a civil money penalty of $50,000. +4. The Commission's complaint in this matter alleged that, from fiscal year +1999 through the first quarter of 2001, senior officers and employees of Hayes engaged in a +fraudulent scheme to achieve corporate earnings targets and mask declining operating results. +The complaint alleged that Hayes personnel used several mechanisms to increase income and +revenue fraudulently, including: (1) inappropriately deferring operating expenses to balance +sheet accounts, (2) failing to process vendor invoices, (3) understating employee fringe benefits +2 + + + + + + + + + + + + + + + + + + +and (4) improperly recording certain customer discounts to balance sheet accounts. As a result, +the complaint alleged, Hayes made materially false filings with the Commission in fiscal years +1999 and 2000 and for the first quarter of 2001, including the company's annual report on Form +10-K for the fiscal year ending January 31, 2001, and the quarterly reports on Forms 10-Q for the +quarterly periods ended April 30, 2000, July 31, 2000, October 31, 2000 and April 30, 2001. +5. The complaint alleged that after Shovers learned about the ongoing +financial fraud at the company, he made affirmative misrepresentations to the company's outside +independent auditor about Hayes' financial statements and caused Hayes to make Commission +filings containing material misrepresentations. The complaint also alleged that Shovers took +affirmative steps to conceal information about the improper accounting practices from Hayes' +outside independent auditor and Hayes' Audit Committee and Board of Directors. +III. +Based upon the foregoing, the Commission finds that a court of competent jurisdiction has +permanently enjoined Shovers, 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 Shovers be temporarily +suspended from appearing or practicing before the Commission. +IT IS HEREBY ORDERED that Shovers 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 Shovers 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 Shovers personally or by certified mail at his last known +address. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +4 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2954.pdf b/raw/aaer/2009/AAER-2954.pdf new file mode 100644 index 0000000000000000000000000000000000000000..28fd6c53f8880cf0a41fbc504d1bc41e4c8d08d9 Binary files /dev/null and b/raw/aaer/2009/AAER-2954.pdf differ diff --git a/raw/aaer/2009/AAER-2957.txt b/raw/aaer/2009/AAER-2957.txt new file mode 100644 index 0000000000000000000000000000000000000000..34ef40745376ee7eedb23afea28b8ccf3d765708 --- /dev/null +++ b/raw/aaer/2009/AAER-2957.txt @@ -0,0 +1,1393 @@ + + + + + + + + + + + + + + + + SEC.gov | Take-Two Interactive Software, Inc. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/505466","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Take-Two Interactive Software, Inc. , United States District Court for the Southern District of New York, Civil Action No. 1:09-CV-03113 (S.D.N.Y. April 1, 2009) + + Take-Two Pays $3 Million Civil Penalty to Settle Fraud Charges in Stock Options Backdating Scheme + + The Securities and Exchange Commission ("Commission") today announced the filing of a civil action against video and computer game publisher and distributor Take-Two Interactive Software, Inc. ("Take-Two"), alleging that during a seven year period, Take-Two defrauded investors by granting backdated, undisclosed "in the money" stock options to officers, directors, and key employees while failing to record required non-cash charges for option-related compensation expenses. + + The Complaint alleges that on over 100 occasions from 1997 through September 2003, Take-Two looked back and picked grant dates for the Company's incentive stock options, resulting in grants of "in-the-money" options. According to the Complaint, Take-Two used several means to backdate options, including pre-priced option pools, backdating of employment agreements, and "pick-a-date" backdating, whereby a set exercise price for the grants was chosen, and then a past grant date was selected when Take-Two's stock price most closely corresponded to the set exercise price. On at least 26 occasions, the backdated grant dates coincided with dates of historically low annual and quarterly closing prices for Take-Two's common stock. These "fortuitous" grant dates, the complaint alleges, could not have been selected so consistently without the benefit of hindsight. According to the Complaint, Take-Two granted these options without complying with its own stock option plans and, generally, without the Board or a Committee thereof approving the grant dates or exercise prices. The Complaint alleges that Take-Two officers and employees prepared documents falsely indicating that the option grants had been made on earlier dates when Take-Two's stock price had closed lower. + + The Complaint alleges that because of the undisclosed backdating scheme, Take Two filed with the Commission and disseminated to investors current, quarterly and annual reports, proxy statements and registration statements that contained materially false and misleading statements concerning the true grant dates and proper exercise prices of stock options. In doing so, Take-Two created the false and misleading impression that stock options were granted in accordance with the terms of the applicable stock option plans. According to the Complaint, Take-Two materially understated its compensation expenses and materially overstated its quarterly and annual pre-tax earnings and earnings per share in its financial statements. On February 28, 2007, Take-Two restated historical financial results for multiple years to record additional non-cash charges for option-related compensation expenses totaling $42.1 million net of tax. + + Without admitting or denying the allegations of the Commission's Complaint, Take-Two consented to the entry of an order: (1) permanently enjoining it from violating Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13 and 14a-9; and (2) requiring it to pay a $3 million civil penalty. The settlement is subject to the approval of the United States District Court for the Southern District of New York. + + The Commission previously settled with former Chief Executive Officer and Chairman Ryan Brant for his alleged role as the architect of the fraudulent options backdating scheme. SEC v. Ryan Ashley Brant , Civil Action No. 1:07 CV 1075 (DLC) (S.D.N.Y. 2007) (filed February 14, 2007), Litigation Release No. 20003. In that action, Brant was permanently enjoined from violating and/or aiding and abetting violations of the antifraud, reporting, record-keeping, internal controls and securities ownership reporting provisions of the federal securities laws; permanently barred from serving as an officer or director of any public company; and ordered to pay disgorgement of $4,118,093, prejudgment interest of $1,143,000, and a civil penalty of $1 million. Brant also pled guilty to felony criminal charges of Falsifying Business Records in the First Degree and paid $1 million in lieu of fines and forfeiture to state and local New York authorities. + + The Commission acknowledges the assistance of the New York County District Attorney's Office, which conducted a separate, parallel investigation. + + The Commission's investigation is continuing. + + + SEC Complaint + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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(“Kavelman”) and Arcangelo Loberto, C.A. (commonly known as Angelo +Loberto) (“Loberto”) (collectively “Respondents”) pursuant to Rule 102(e)(3)(i) of the +Commission’s Rules of Practice.1 +II. +In anticipation of the institution of these proceedings, Respondents have each submitted an +Offer of Settlement (the “Offers”) that the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over them and the subject matter of 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. + + + + + + + + + + + + + + + + + + + + +proceedings, and the findings contained in Section III.4 below, which are admitted, Respondents +consent to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of +the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions (the +“Order”), as set forth below. +III. +On the basis of this Order and Respondents’ Offers, the Commission finds that: +1. Kavelman, age 38, is a chartered accountant and worked as an auditor at KPMG in +Canada before joining Research in Motion Limited (“RIM” or the “Company”). He was RIM’s +Vice President of Finance from 1995 through 1997 and its Chief Financial Officer (“CFO”) from +1997 through March 2007. Kavelman also was RIM’s Corporate Secretary since 2004. He +currently serves as RIM’s Chief Operating Officer, Administration and Operations. +2. Loberto, age 37, is a chartered accountant and worked as an auditor at KPMG in +Canada before joining RIM in 1997. He was RIM’s Director of Finance from 1997 until 2001, +when he was given the title of Vice President of Finance. He was Vice President of Finance until +March 2007. He currently serves as RIM’s Vice President, Corporate Operations. +3. Research in Motion Limited was, at all relevant times, an Ontario, Canada +corporation headquartered in Waterloo, Ontario, Canada, and the designer, manufacturer, and +marketer of the BlackBerry and other wireless handheld devices sold worldwide. RIM’s stock is +traded on the NASDAQ National Market under the symbol “RIMM” and the Toronto Stock +Exchange under the symbol “RIM.” Before July 31, 2006, RIM’s common shares were registered +with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 +(“Exchange Act”) [15 U.S.C. § 78l(g)]. Since then, RIM’s common shares have been registered +with the Commission pursuant to Section 12(b) of the Exchange Act [15 U.S.C. § 78l(b)]. +4. On March 25, 2009, a final judgment was entered against Kavelman and Loberto, +permanently enjoining them from future violations of Section 17(a) of the Securities Act of 1933, +Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13a-14 (Kavelman only), +13b2-1, and 13b2-2 thereunder, and from aiding and abetting any violation of Sections 13(a), +13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-16 thereunder, +in the civil action entitled Securities and Exchange Commission v. Research in Motion Limited, +Civil Action No. 09-00301, in the United States District Court for the District of Columbia. +Kavelman and Loberto were ordered to pay disgorgement of their ill-gotten gains plus prejudgment +interest, which was deemed satisfied based on the prior payments to the Company made by +Kavelman ($141,146.54, which included $132,914.60 in disgorgement plus $8,231.94 in +prejudgment interest) and Loberto ($52,638.56, which included $47,950.56 in disgorgement plus +$4,688 in prejudgment interest). In addition, Kavelman was ordered to pay a $500,000 civil +money penalty and Loberto was ordered to pay a $425,000 civil money penalty. Kavelman and +Loberto each were prohibited from acting as an officer or director for five years. +5. The Commission’s Complaint alleged, among other things, that RIM, Kavelman, +Loberto and RIM’s two co-Chief Executive Officers illegally granted undisclosed, in-the-money +2 + + + + + + + + + + + + + + + + + + + + + +options to RIM executives and employees by backdating approximately 1,400 stock option grants, +of nearly seven million shares, to coincide with historically low closing prices for the Company’s +stock. The Complaint alleged that Kavelman and Loberto received numerous documents +explaining that the Company was required to record compensation expenses for in-the-money +options, but ignored the information they received and failed to record compensation expenses for +the millions of backdated in-the-money options RIM granted. The Complaint alleged that from +fiscal year 1999 to the first quarter of fiscal year 2007, RIM: (i) falsely disclosed in its periodic +reports, management information circulars, and registration statements that RIM’s options were +granted at exercise prices equal to the fair market value of RIM’s common stock at the date of the +grants; and (ii) filed materially false and misleading financial statements that understated RIM’s +compensation expenses and overstated its quarterly and annual net income or understated its net +losses. The Complaint alleged that Kavelman and Loberto knew, or were reckless in not knowing, +that the options disclosures and financial statements in RIM’s filings, which Kavelman and +Loberto prepared, reviewed and/or signed and Kavelman certified, were materially false and +misleading. The Complaint alleged that Kavelman made false representations in letters to RIM’s +independent auditors and that both men took steps to hide the backdating from the Company’s +auditors, U.S. and Canadian regulators and RIM’s outside lawyer. The Complaint further alleged +that at RIM’s July 2006 annual general meeting, Kavelman denied that RIM was backdating +options. The Complaint alleged that Kavelman and Loberto circumvented internal accounting +controls and falsified books and records with regard to the backdated option grants. Finally, the +Complaint alleged that as a result of the Company's internal review, Kavelman and Loberto +stepped down from their positions in RIM’s finance department. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanctions agreed to in Respondents’ Offers. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Kavelman and Loberto are suspended from appearing or practicing before the +Commission as accountants. +B. After five years from the date of this Order, Kavelman and/or Loberto each +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 +3 + + + + + + + + + + + + + + + + + + + 2. an independent accountant. Such an application must satisfy the Commission +that: +(a) Respondent, or the public accounting firm with which he is associated, is +registered with the Public Company Accounting Oversight Board (the “Board”) in accordance +with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; +(b) Respondent, or the registered public accounting firm with which he is +associated, has been inspected by the Board and that inspection did not identify any criticisms of +or potential defects in the Respondent’s or the firm’s quality control system that would indicate +that the Respondent will not receive appropriate supervision; +(c) Respondent has resolved all disciplinary issues with the Board and has +complied with all terms and conditions of any sanctions imposed (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 status as an accountant is +current and he has resolved all other issues with the applicable board of accountancy. +However, if his 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. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +4 diff --git a/raw/aaer/2009/AAER-2959.txt b/raw/aaer/2009/AAER-2959.txt new file mode 100644 index 0000000000000000000000000000000000000000..b876620c30e353686c8c0a1f3fd2130911b49508 --- /dev/null +++ b/raw/aaer/2009/AAER-2959.txt @@ -0,0 +1,82 @@ + + + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION + + + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59703 / April 3, 2009 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2959 / April 3, 2009 + +ADMINISTRATIVE PROCEEDING +File No. 3-13430 +______________________________ +: +In the Matter of : + : ORDER OF SUSPENSION PURSUANT +DAN WISE, CPA, : TO RULE 102(e)(2) OF THE +a/k/a DANNY WISE, CPA, : COMMISSION’S RULES OF PRACTICE +: +Respondent. : +______________________________: + + + I. + +The Securities and Exchange Commission deems it appropriate to issue an order of +forthwith suspension of Dan Wise, CPA (“Wise”) pursuant to Rule 102(e)(2) of the +Commission=s Rules of Practice [17 C.F.R. ' 200.102(e)(2)]. +1 + + II. + +The Commission finds that: + +1. Wise has been licensed as a certifie d public accountant in California since 1983 +and in Arizona since 1994. + + +1 Rule 102(e)(2) provides in pertinent part: “any person whose license to practice as an accountant . . . has +been revoked or suspended in any State . . . shall be forthwith suspended from appearing or practicing before the +Commission.” + + + + +2 + +2. On December 10, 2008, the Arizona Stat e Board of Accountancy issued a +decision and order, by consent, against Wise, finding that Wise committed ethical violations and +failed to respond to client allegations regarding misappropriation of client funds intended as +payments to the Internal Revenue Service. + +3. As a result of this decision and order, Wise’s Arizona license as a certified public +accountant was revoked. + + +III. + +In view of the foregoing, the Commission finds that Wise’s license as a certified public +accountant has been revoked within the meaning of Rule 102(e)(2) of the Commission’s Rules of +Practice. + +Accordingly, it is ORDERED that Dan Wise 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 + + + + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2960.txt b/raw/aaer/2009/AAER-2960.txt new file mode 100644 index 0000000000000000000000000000000000000000..ed19cfdde48cc35ed56b0946aa7df77cdae2d361 --- /dev/null +++ b/raw/aaer/2009/AAER-2960.txt @@ -0,0 +1,411 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59751 / April 13, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2960 / April 13, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13439 +In the Matter of +Jesus A. Lago, CPA, +Respondent. +ORDER INSTITUTING PUBLIC +ADMINISTRATIVE PROCEEDINGS +PURSUANT TO RULE 102(e) OF THE +COMMISSION’S RULES OF PRACTICE, +MAKING FINDINGS, AND IMPOSING +REMEDIAL SANCTIONS +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate that public +administrative proceedings be, and hereby are, instituted against Jesus A. Lago, CPA +(“Respondent” or “Lago”) pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. +1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over him and the subject matter of these +1 Rule 102(e)(1)(ii) provides, in pertinent part, that: +The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before +it . . . to any person who is found . . . to have engaged in unethical or improper professional conduct. + + + + + + + + + + + + + + + + + + + + + + + + + +proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Public +Administrative Proceedings Pursuant to Rule 102(e) of the Commission’s Rules of Practice, +Making Findings, and Imposing Remedial Sanctions (“Order”) as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds2 that: +A. SUMMARY +VoIP Inc. (“VoIP” or “the Company”) is a telecommunications company based in +Altamonte Springs, Florida. Among other things, VoIP fraudulently overstated its revenues and +understated its net losses for the year ended December 31, 2004, through a series of phony sales and +sham transactions, in violation of generally accepted accounting principles (“GAAP”). As +engagement partner for Berkovits & Co. LLP f/k/a Berkovits, Lago & Co. (“BLC”), Lago +supervised BLC’s annual audit of VoIP’s 2004 financial statements. In March 2005, BLC issued +an audit report, signed by Lago, containing an unqualified audit opinion on VoIP’s 2004 financial +statements. In supervising the audit, Lago did not adequately perform his work in accordance with +the auditing standards of the Public Company Accounting Oversight Board (“PCAOB”). With +regard to certain audit items in the 2004 audit, he did not adequately plan and supervise the audits, +did not obtain sufficient competent evidential matter, did not maintain an attitude of professional +skepticism, and did not ensure adequate work paper documentation. Lago thereby engaged in +improper professional conduct in connection with BLC’s audit of VoIP’s 2004 financial statements +within the meaning of Rule 102(e)(ii). +B. RESPONDENT +Lago, 47, is a resident of Aventura, Florida. Until September 2007, Lago was a partner of +a Fort Lauderdale, Florida firm, BLC, and, from 2004 to September 2007, served as the +engagement partner for the firm’s annual audits of VoIP. In September 2007, Lago left BLC to +become a partner for another accounting firm. Lago is a certified public accountant and has been +licensed to practice in the state of Florida since 1983. +C. OTHER RELEVANT ENTITY +VoIP is a Texas corporation with principle executive offices in Altamonte Springs, Florida. +VoIP provided voice-over-Internet telecommunication services to retail and wholesale customers. +VoIP’s common stock has been registered pursuant to Section 12(g) of the Securities Exchange +Act of 1934 (“Exchange Act”) since January 19, 2000. From April 2004 through July 2007, +VoIP’s stock traded on the Over-The-Counter Bulletin Board. It is currently quoted on the Pink +Sheets disseminated by Pink OTC Markets, Inc. VoIP closed its offices in Altamonte Springs and +ceased the majority of its operations in February 2008. +2 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other +person or entity in this or any other proceeding. +2 + + + + + + + + + + + + + + + + + + + + + + + +D. FACTS +1. VoIP’s False Financial Statements + a. VoIP engaged in fraudulent accounting practices that resulted in inflated +revenues and understated net losses in its annual financial statements for 2004, among other +quarters. These practices involved the recording of fictitious sales and sham transactions on the +books of a VoIP subsidiary, DTNet Technologies, Inc. (“DTNet”), by the Company’s former CFO, +and the former General Manager of DTNet. As part of this scheme, VoIP overstated its revenues +by recording phony sales to five companies owned and operated by the former owner of DTNet. +The purported products and services, however, were not actually provided to these companies. +VoIP also overstated its revenues by reporting sham sales transactions with a plumbing supply +company owned and operated by long-time friends of the DTNet General Manager. Under these +arrangements, DTNet agreed to ship inventory to the plumbing supply company with the +agreement that it would be repurchased at a later date. VoIP improperly recorded the phony sales +and sham transactions as revenue and accounts receivable. +b. As a result, VoIP filed a Form 10-K for the year ended December 31, 2004 +that materially overstated VoIP’s revenues and understated its losses. In May 2006, VoIP restated +its financial statements for the year ended December 31, 2004. The restatements establish that +VoIP’s revenues and net loss for the year ended December 31, 2004 were misstated by 43% +($791,200) and 8% ($462,618), respectively. +2. Lago’s 2004 Audit of VoIP +a. In March 2005, Lago issued an unqualified audit report on behalf of BLC +stating that VoIP’s 2004 financial statements were presented fairly, in all material respects, in +conformity with GAAP. However, Lago did not adequately conduct the 2004 Audit in accordance +with the auditing standards of the PCAOB (hereinafter referred to as the “Auditing Standards”). +Among other things, Lago did not properly plan and supervise the audit, exercise due professional +care and skepticism, obtain sufficient competent evidential matter to afford a reasonable basis for +an opinion regarding the financial statements, and prepare appropriate audit documentation. +Lago Did Not Adequately Plan the 2004 Audit +b. As the engagement partner, Lago was responsible for VoIP’s audit +planning. Proper audit planni ng under the Auditing Standards requires, among other things, (1) +the identification of areas requiring special attention or of special concern; (2) the consideration of +conditions that may require the extension or modification of audit tests, such as the risk of material +error or fraud; (3) the incorporation of identified risks into both audit planning and audit execution; +and (4) adequate communication of identified risks to the audit team. As discussed below, Lago’s +planning for VoIP’s 2004 Audit did not comply with these Auditing Standards. +c. Lago did not comply with the Auditing Standards because he did not +incorporate, or confirm that the BLC audit team incorporated, known risks into the BLC audit plan +3 + + + + + + + + + + + + + + + + +for VoIP. During an initial planning meeting, the BLC audit team identified several potential risks, +including VoIP’s small and inexperienced accounting staff, the pressures on VoIP to meet budget +expectations, and the potential for VoIP’s management to manipulate information and improperly +recognize revenue. Despite identifying potential fraud risk factors during the initial planning +meeting, Lago did not further address these risks in the planning of the audit, or require that the +BLC audit team document these risks or otherwise address them in their audit planning. Lago +further did not incorporate appropriate audit procedures that would require the audit team to +heighten their overall awareness or levels of professional skepticism as they related to the +identified risks. +d. Lago also did not require that the BLC audit team perform the most basic +preliminary and analytical procedures necessary for audit planning and fraud consideration, +including the assessment and documentation of the risk of material misstatement, the assessment +and risk of management override of internal controls, and the assessment and identification of +potential related parties and related transactions. Lago’s failure to require the BLC audit team to +perform these basic planning procedures during VoIP’s 2004 audit represented a significant +departure from the Auditing Standards. +Lago Did Not Obtain Sufficient Competent Evidence +and Maintain an Attitude of Professional Skepticism +e. Although the Auditing Standards presume there to be a material risk of +misstatement due to fraud in the recognition of revenue, the 2004 VoIP audit work papers reveal +that Lago’s audit team performed limited procedures regarding the existence and accuracy of +VoIP’s recorded revenues. While Lago’s audit identified this Auditing Standard requirement, he +did not incorporate the risk into audit procedures and did not maintain the required heightened +sense of skepticism in this area. BLC’s own audit program, included in the audit work papers, +included procedures for testing revenue, including, but not limited to, basic audit steps such as +sales cutoff testing and the investigation of revenue transactions with related parties. However, the +overwhelming majority of these audit steps were either ignored, initialed as “not considered +necessary,” or initialed as “done” without any supporting documentation. +f. For example, one of the steps in BLC’s audit program required the audit +team to scan VoIP’s sales journals and investigate large or unusual transactions near year end. The +BLC audit program reflected the step as done and it was initialed and dated by a member of the +audit team. There was no further explanation or supporting documentation evidencing this audit +step. However, on the last day of 2004 (i.e., December 31st) $250,000 in revenues from sales to +only two customers had been record on DTNet’s sale journal, representing more than 8% of +VoIP’s consolidated revenues for the entire year. Given the size and timing of these transactions, +the audit team’s failure to review or obtain supporting documentation constituted a clear departure +from the Auditing Standards. +g. Lago also did not obtain sufficient evidence and did not maintain an +attitude of professional skepticism while performing the audit procedures related to VoIP’s +accounts receivable. Because he did not perform any planning procedures with respect to related +4 + + + + + + + + + + + + + + + + +parties, he could not ensure that he would respond appropriately to suspicious receivables. For +example, as part of the accounts receivable confirmation process, the audit team received a +confirmation response related to amounts due to VoIP from entities that the team noted should be +considered related parties. The confirmed balance represented almost 17% of VoIP’s receivable +balance at the end of 2004 (or approximately $254,000). Nonetheless, the audit team did not +perform additional audit procedures to understand the nature or purpose of these related party +transactions as required under the Auditing Standards. Although BLC’s audit program required +certain procedures to be performed with respect to accounts receivable and related party +transactions, the steps were either documented as “done,” without any supporting evidence, or “not +considered necessary” in BLC’s audit program. These same transactions were found to be +fictitious and were reversed when VoIP restated its 2004 financial statements. +Lago Did Not Obtain Adequate Work Paper Documentation +h. The Auditing Standards require that the auditors’ work papers clearly +demonstrate the work that was, in fact, performed. They must also contain sufficient information +to enable an experienced auditor, having no previous connection to the engagement, to: (1) +understand the nature, timing, extent, and results of the procedures performed, evidence obtained, +and conclusions reached and (2) 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. +i. Certain documentation of substantive procedures in many of the BLC audit +work papers was inadequate, with little evidence of analysis, tests performed, or information +obtained. In numerous instances, the work paper documentation simply consisted of the auditor +initialing or stating “done” on the audit program, without further explanation or supporting work +papers. By not directing the BLC audit team to get, and to confirm that they obtained, the +appropriate documentation, Lago violated the Auditing Standards. This also impeded BLC’s +ability to adequately test and determine whether VoIP’s financial statements were prepared in +conformity with GAAP. +Lago Did Not Adequately Supervise the 2004 Audit +j. The Auditing Standards require that audits be adequately staffed and audit +assistants be properly supervised, and that the auditor with final responsibility (generally, the audit +partner) assign tasks to, and supervise, any assistants. As noted above, the Auditing Standards +relating to documentation also require that work papers contain enough information to be able to +determine the person who reviewed the work and the date of such review. +k. Lago, as engagement partner, was responsible for ensuring that the 2004 +VoIP audit was properly staffed and supervised. He was also responsible for reviewing the work +of the senior member of the audit staff. However, certain of the audit work papers prepared by the +senior staff, including planning areas and areas considered to be high risk such as accounts +receivable and revenue, were not reviewed. This constituted a violation of the Auditing Standards +and added to the audit team’s inability to respond to “red flags” and other significant matters +identified during the VoIP audit. +5 + + + + + + + + + + + + + + + + + + + + + + + + + + +3. Violations +a. Rule 102(e)(1)(ii) provides that the Commission may temporarily or +permanently deny an accountant the privilege of appearing or practicing before it if it finds, after +notice and opportunity for hearing, that the accountant engaged in “improper professional +conduct.” Such improper professional conduct includes, as applicable here, negligent conduct, +defined as “repeated instances of unreasonable conduct, each resulting in a violation of +applicable professional standards that indicate a lack of competence to practice before the +Commission.” Rule 102(e)(1)(iv)(A)-(B). +b. Lago failed (i) to exercise due professional care in the planning and +performance of the audit, Auditing Standards § AU 230, (ii) to properly plan and supervise the +audit, Auditing Standards §AU 311, (iii) to appropriately consider fraud, risk and materiality in +conducting the audit, Auditing Standards § AU 312 and § AU 316, (iv) to obtain sufficient +competent evidential matter to afford a reasonable basis for the opinion rendered, Auditing +Standards §AU 326, (v) to appropriately consider related parties, Auditing Standards § AU 334, +and (vi) failed to adequately prepare audit documentation, Auditing Standards No. 3. As a result +of the actions detailed above, Lago engaged in improper professional conduct with respect to +BLC’s audit of VoIP’s 2004 financial statements. +4. Findings +a. Based on the foregoing, the Commission finds that Lago engaged in +improper professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of +Practice. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Lago’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Lago is denied the privilege of appearing or practicing before the Commission as an +accountant. +B. After one year from the date of this Order, Respondent may request that the +Commission consider his reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +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 +6 + + + + + + + + + + + + + + + + + + +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 Board, 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 of the Commission and the PCAOB, including, but not limited to, +all requirements relating to registration, inspections, concurring partner reviews and quality +control standards. +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that 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. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +7 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2961.pdf b/raw/aaer/2009/AAER-2961.pdf new file mode 100644 index 0000000000000000000000000000000000000000..9c1f1379019839e66674ab6c7043afb0665eadda Binary files /dev/null and b/raw/aaer/2009/AAER-2961.pdf differ diff --git a/raw/aaer/2009/AAER-2961.txt b/raw/aaer/2009/AAER-2961.txt new file mode 100644 index 0000000000000000000000000000000000000000..b37eb1588360ec66cccb53d2ba1ab0a9c6ea679a --- /dev/null +++ b/raw/aaer/2009/AAER-2961.txt @@ -0,0 +1,209 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59758 / April 13, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2961 / April 13, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13441 +In the Matter of +ANTONIO CANOV A (CPA), +Respondent. +ORDER INSTITUTING +ADMINISTRATIVE PROCEEDINGS +PURSUANT TO RULE 102(e) OF THE +COMMISSION’S RULES OF PRACTICE, +MAKING FINDINGS, AND IMPOSING +REMEDIAL SANCTIONS +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in +the public interest that public administrative proceedings be, and hereby are, instituted pursuant +to Rule 102(e) of the Commission’s Rules of Practice against Antonio Canova, CPA (“Canova” +or “Respondent”). +1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the + Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. +1 + + + + + + + + + + + + + + + + + + + + + + + +Commission, or to which the Commission is a party, and without admitting or denying the +findings herein, except as to the Commission’s jurisdiction over him and the subject matter of +these proceedings, and the findings contained in Section III.3 below, which are admitted, +Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant to +Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial +Sanctions (“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Canova, age 46, is and has been a certified public accountant licensed to +practice in the State of California. He served as Chief Financial Officer of Brocade +Communications Systems, Inc. (“Brocade”) beginning in 2001 through 2005. +2. Brocade was, at all relevant times, a Delaware corporation with its principal +place of business in San Jose, California. Brocade develops and sells computer storage networking +products. Since May 1999 when it completed its initial public offering of stock, Brocade’s +securities have been traded on the Nasdaq National Market, and the company has had common +stock registered with the Commission under Section 12(g) of the Securities Exchange Act of 1934 +(“Exchange Act”). +3. On April 6, 2009, a final judgment was entered by consent against Canova, +permanently enjoining him from future violations of Sections 17(a)(2) and (3) of the Securities Act +of 1933 (“Securities Act”) and Section 13(b)(5) of the Exchange Act and Rules 13b2-1, 13b2-2, +and 13a-14 thereunder, and from aiding and abetting future violations of Sections 13(a), +13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, +in the civil action entitled Securities and Exchange Commission v. Gregory L. Reyes, et al., No. +3:06-cv-04435-CRB, in the United States District Court for the Northern District of California. +4. The Commission’s complaint alleged that, during his tenure as CFO, +Canova received information calling into question the integrity of Brocade’s financial statements +based on its options granting process carried out by Brocade’s then chief executive officer. +Canova received emails and other information suggesting that Reyes was backdating options +grants to executives and others so that the grantees would receive in-the-money options that +appeared to be granted at-the-money. The complaint further alleged that Canova did not, in a +timely manner, investigate or review the impact of certain options grants on Brocade’s financial +statements, and that, as a consequence, Brocade issued materially misleading financial statements +included in annual and quarterly reports filed on Forms 10-K and 10-Q with the Commission +during the company’s fiscal years 2001 through 2004, which Canova certified and which should +have recorded a compensation expense for the in-the-money options grants but did not. +2 + + + + + + + + + + + + + + + + + + + + + + + + +IV . +In view of the foregoing, the Commission deems it appropriate and in the public interest +to impose the sanction agreed to in Respondent’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Canova is suspended from appearing or practicing before the Commission as an +accountant. +B. After three years from the date of this Order, Respondent may request that the +Commission consider his reinstatement by submitting an application (Attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that Respondent’s work in his practice before the +Commission will be reviewed either by the independent audit committee of the public company +for which he works or in some other acceptable manner, as long as he practices before the +Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which he is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; +(b) Respondent, or the registered public accounting firm with which he +is associated, has been inspected by the Board and that inspection did not identify any criticisms +of or potential defects in the Respondent’s or the firm’s quality control system that would +indicate that the Respondent will not receive appropriate supervision; + (c) Respondent has resolved all disciplinary issues with the Board, and +has complied with all terms and conditions of any sanctions imposed by the Board (other than +reinstatement by the Commission); and +(d) Respondent acknowledges his responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not limited to, all +requirements relating to registration, inspections, concurring partner reviews and quality control +standards. +C. The Commission will consider an application by Respondent to resume appearing +or practicing before the Commission provided that his state CPA license is current and he has +resolved all other disciplinary issues with the applicable state boards of accountancy. However, +3 + + + + + + + + + + +if state licensure is dependent on reinstatement by the Commission, the Commission will +consider an application on its other merits. The Commission’s review may include consideration +of, in addition to the matters referenced above, any other matters relating to Respondent’s +character, integrity, professional conduct, or qualifications to appear or practice before the +Commission. +By the Commission. +Elizabeth M. Murphy + S e c r e t a r y +4 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2962.pdf b/raw/aaer/2009/AAER-2962.pdf new file mode 100644 index 0000000000000000000000000000000000000000..b927cacbc57a1f2a5a4e7db4ead06e76732d130e Binary files /dev/null and b/raw/aaer/2009/AAER-2962.pdf differ diff --git a/raw/aaer/2009/AAER-2962.txt b/raw/aaer/2009/AAER-2962.txt new file mode 100644 index 0000000000000000000000000000000000000000..2af93f55d57e47cbf085d16492920ac6942692d0 --- /dev/null +++ b/raw/aaer/2009/AAER-2962.txt @@ -0,0 +1,87 @@ + + + + + + + + + + +__________________________________ + + + + + + + + + + + + + + + + + +UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59766 / April 14, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2962 / April 14, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13444 +: +In the Matter of : ORDER OF FORTHWITH +: SUSPENSION PURSUANT +STEPHEN P. CORSO, JR., CPA : TO RULE 102(e)(2) OF THE + : COMMISSION’S RULES OF +Respondent. : PRACTICE +_________________________________ : +I. +The Securities and Exchange Commission deems it appropriate to issue an order +of forthwith suspension of Stephen P. Corso, Jr., CPA (“Corso”) pursuant to Rule +102(e)(2) of the Commission’s Rules of Practice [17 C.F.R. § 200.102(e)(2)]. +1 +II. +The Commission finds that: +1. From April 1992 to June 2005, Corso was licensed as a certified public +accountant in New Jersey, from June 1993 to July 2007, Corso was licensed as a certified +public accountant in New York, and from November 1995 to July 2005, Corso was +licensed as a certified public accountant in California. +2. On February 20, 2009, a judgment was entered convicting Corso of one count of +wire fraud in violation of Title 18 United States Code, section 1343, and one count of +1 Rule 102(e)(2) provides, in pertinent part, “[A]ny 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.” + + + + + + + + + + + +attempted income tax evasion in violation of Title 26 United States Code, section 7201, +before the United States District Court for the District of Connecticut, in United States v. +Stephen P. Corso, 3:05-cr-00105-JCH. +3. As a result of his conviction, Corso was sentenced to 12 months and one day in +prison to be followed by three years of supervised release. Corso also was ordered to pay +$5,446,735 in restitution and a special assessment of $200. +III. +In view of the foregoing, the Commission finds that Corso 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 Stephen P. Corso, Jr. 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 + S e c r e t a r y \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2964.pdf b/raw/aaer/2009/AAER-2964.pdf new file mode 100644 index 0000000000000000000000000000000000000000..c991504bbf1cb687674186ef0c57689cbd16c217 Binary files /dev/null and b/raw/aaer/2009/AAER-2964.pdf differ diff --git a/raw/aaer/2009/AAER-2964.txt b/raw/aaer/2009/AAER-2964.txt new file mode 100644 index 0000000000000000000000000000000000000000..3ca613f6763c222c40d4e16c707d5ad325bd2b97 --- /dev/null +++ b/raw/aaer/2009/AAER-2964.txt @@ -0,0 +1,177 @@ + + + + + + +____________________________________ + + + + + + + + + + + + + + +UNITED STATES OF AMERICA +before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59785 / April 17, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2964 / April 17, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13447 +: +In the Matter of : ORDER INSTITUTING +: ADMINISTRATIVE PROCEEDINGS +KEVIN E. BROOKS, CPA, : PURSUANT TO RULE 102(e) OF THE +: COMMISSION’S RULES OF PRACTICE, +Respondent. : MAKING FINDINGS, AND IMPOSING +: REMEDIAL SANCTIONS +____________________________________ : +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against Kevin +E. Brooks (“Respondent” or “Brooks”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of +Practice.1 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without +preliminary hearing, may, by order, . . . suspend from appearing or +practicing before it any . . . accountant . . . who has been by name . . . +permanently enjoined by any court of competent jurisdiction, by reason of +his or her misconduct in an action brought by the Commission, from +violating or aiding and abetting the violation of any provision of the +Federal securities laws or of the rules and regulations thereunder. + + + + + + + + + + + + + + + +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over him and the subject matter of these +proceedings and the findings contained in Section III.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. Brooks, age 39, is a vice-president of sales programs at Quest Software, Inc. +(“Quest”). He previously served as Quest’s controller and principal accounting officer from 1999 +until October 26, 2006. Brooks is a certified public accountant licensed in the State of California +whose license was obtained in 1992, but is currently inactive. +2. Quest is a California corporation headquartered in Aliso Viejo, California. +Since its initial public offering on August 13, 1999, Quest’s common stock has been registered +pursuant to Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”) and listed on +the Nasdaq National Market under the symbol “QSFT.” Quest develops and markets, among other +things, database management software. +3. On April 1, 2009, a final judgment was entered against Brooks permanently +enjoining him from future violations of Section 17(a)(2) and (3) of the Securities Act of 1933 and +Sections 13(b)(5) and 16(a) of the Exchange Act and Rules 13b2-1, 13b2-2, and 16a-3 thereunder, +and aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange +Act and Rules 12b-20, 13a-1, and 13a-13 thereunder, in the civil action entitled SEC v. Quest +Software, Inc., et al., Civil Action Number SA CV 09-315 AG (MLGx), in the United States +District Court for the Central District of California. The final judgment also ordered Brooks to pay +a civil penalty of $60,000, disgorgement of $34,775, and prejudgment interest of $5,808.29. +Brooks consented to the entry of the judgment without admitting or denying any of the allegations +in the complaint. +4. The Commission’s complaint alleged, among other things, that Quest, in +part through the misconduct of Brooks, misstated its financial statements by failing to report +compensation expense associated with stock options granted in-the-money through undisclosed +backdating of grant dates from 1999 through 2001. The complaint also alleged that Brooks failed +to ensure that the stock option grants at Quest were properly accounted for and disclosed. The +complaint further alleged that Brooks caused misrepresentations to be made to Quest’s auditors by +stating in management representation letters that all stock options were made with an exercise price +equal to the fair market value of Quest stock on the date of grant. +2 + + + + + + + + + + + + + + + + +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Brooks’ Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Brooks 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 Respondent’s or the firm’s quality control system that +would indicate that Respondent will not receive appropriate supervision; +c) Respondent has resolved all disciplinary issues with the +Board, and has complied with all terms and conditions of any sanctions imposed by the +Board (other than reinstatement by the Commission); and +d) Respondent acknowledges his responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not limited +to, all requirements relating to registration, inspections, concurring partner reviews and +quality control standards. +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that his state CPA license is +3 + + + + + + + + +current and he has resolved all other disciplinary issues with the applicable state boards of +accountancy. However, if state licensure is dependent on reinstatement by the +Commission, the Commission will consider an application on its other merits. The +Commission’s review may include consideration of, in addition to the matters referenced +above, any other matters relating to Respondent’s character, integrity, professional conduct, +or qualifications to appear or practice before the Commission. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +4 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2965.pdf b/raw/aaer/2009/AAER-2965.pdf new file mode 100644 index 0000000000000000000000000000000000000000..a2365b01ddc2dda101fd88c2d1087e0903bd1c09 Binary files /dev/null and b/raw/aaer/2009/AAER-2965.pdf differ diff --git a/raw/aaer/2009/AAER-2965.txt b/raw/aaer/2009/AAER-2965.txt new file mode 100644 index 0000000000000000000000000000000000000000..415181e44e164806199b7c146385a83b60b5b9a2 --- /dev/null +++ b/raw/aaer/2009/AAER-2965.txt @@ -0,0 +1,211 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59803 / April 21, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2965 / April 21, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13453 +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +RANDY S. CASSTEVENS (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 Randy +S. Casstevens (“Respondent” or “Casstevens”) pursuant to Rule 102(e)(3)(i) of the Commission’s +Rules of Practice. +1 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. + + + + + + + + + + + + + + + + + + + + + + + + +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over him and the subject matter of these +proceedings, and the findings contained in Section III.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. Casstevens, age 43, is a certified public accountant licensed to practice in +the State of North Carolina, who is currently on inactive status. Casstevens was employed by +Krispy Kreme Doughnuts, Inc. (“Krispy Kreme” or the “Company”) between May 1993 and +January 31, 2004. During that time period, he held a variety of increasingly senior finance +positions, including being made the Company’s Chief Financial Officer in January 2002, a position +he held until December 23, 2003. +2. Krispy Kreme was, at all relevant times, a North Carolina corporation with +its principal place of business in Winston-Salem, North Carolina. Krispy Kreme was engaged in +the business of making and selling doughnuts through stores owned either by Krispy Kreme or +franchisees. At all relevant times, Krispy Kreme’s common stock was registered with the +Commission pursuant to Section 12(b) of the Securities Exchange Act of 1934 (“Exchange Act”) +and listed on the New York Stock Exchange. +3. On March 4, 2009, the Commission filed a complaint against Casstevens in +SEC v. Randy S. Casstevens, et al. (Civil Action No. 1:09cv159). On April 1, 2009, the court +entered an order permanently enjoining Casstevens, by consent, from future violations of Section +17(a)(3) of the Securities Act of 1933 (“Securities Act”) and Section 13(b)(5) of the Exchange Act +and Rules 13a-14 and 13b2-1 thereunder and from aiding and abetting violations of Sections 13(a), +13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 +thereunder. Casstevens was also ordered on consent to pay $50,000 in disgorgement of ill-gotten +gains plus $18,964.05 in prejudgment interest and a $25,000 civil monetary penalty. +4. The Commission’s complaint alleged, among other things, that between +approximately February 2003 and December 2003, Casstevens, in a departure from Generally +Accepted Accounting Principles, improperly accounted for Krispy Kreme’s Senior Executive +Incentive Compensation Plan by improperly under-accruing or reversing amounts for the + +Company’s quarterly incentive compensation expense, thereby misrepresenting the Company’s +earnings. In addition, the Complaint alleges that, in Company filings and analyst conference +2 + + + + + + + + + + + + + + + + + + + + + + + + + +calls, Casstevens misrepresented the Company’s financial performance and failed to disclose +that but for these under-accruals and reversals, the Company would have failed to exceed its +previously announced quarterly earnings per share guidance by one penny in the affected +quarters. As a result of his actions, Krispy Kreme filed materially false and misleading financial +information for the fourth quarter of the Company’s 2003 fiscal year in the Company’s Form 10- +K for the year ended February 2, 2003, in various current reports filed during the relevant +periods, and in the Company’s quarterly reports on Form 10-Q for the first three quarters of the +Company’s 2004 fiscal year. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Casstevens is suspended from appearing or practicing before the Commission as an +accountant. +B. After two years from the date of this Order, Respondent may request that the +Commission consider his reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that Respondent’s work in his practice before the +Commission will be reviewed either by the independent audit committee of the public company +for which he works or in some other acceptable manner, as long as he practices before the +Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(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 +3 + + + + + + + + + + + (d) Respondent acknowledges his responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not limited to, all +requirements relating to registration, inspections, concurring partner reviews and quality control +standards. +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that his state CPA license is +current and he has resolved all other disciplinary issues with the applicable state boards of +accountancy. However, if state licensure is dependent on reinstatement by the +Commission, the Commission will consider an application on its other merits. The +Commission’s review may include consideration of, in addition to the matters referenced +above, any other matters relating to Respondent’s character, integrity, professional conduct, +or qualifications to appear or practice before the Commission. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +4 diff --git a/raw/aaer/2009/AAER-2966.pdf b/raw/aaer/2009/AAER-2966.pdf new file mode 100644 index 0000000000000000000000000000000000000000..d6d06c55056667b21d6d57092e304fdfacaf59ab Binary files /dev/null and b/raw/aaer/2009/AAER-2966.pdf differ diff --git a/raw/aaer/2009/AAER-2968.txt b/raw/aaer/2009/AAER-2968.txt new file mode 100644 index 0000000000000000000000000000000000000000..c96c350c21784a2a3ca28c9042e469376507384e --- /dev/null +++ b/raw/aaer/2009/AAER-2968.txt @@ -0,0 +1,457 @@ + + + + + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59903 / May 12, 2009 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2968 / May 12, 2009 + +ADMINISTRATIVE PROCEEDING +File No. 3-13466 + + +In the Matter of + +INGRAM MICRO 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 Ingram Micro Inc. (“Ingram Micro” or +“Respondent”). + +II. + + In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over it and the subject matter of these +proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease- +and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making +Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below. + + + 2 + +III. + + On the basis of this Order and Res pondent’s Offer, the Commission finds1 that: + +Summary + + These proceedings arise out of the business dealings between Ingram Micro and McAfee, +Inc., formerly known as Network Associates, Inc. (referred to herein as “McAfee”) during the +period from the second quarter of 1998 through the third quarter of 2000 when McAfee was +engaged in a massive financial fraud. During that period, McAfee overstated its revenues and +earnings by stuffing its distribution channel at Ingram Micro with levels of inventory far in excess +of any reasonable expectation of sales to end users while misreporting its revenues from these sales +to their distributors.2 For its part, Ingram Micro, McAfee’s largest customer and greatest single +source of revenue, engaged in a variety of highly irregular transactions with McAfee, many of +them lacking in economic substance, which enabled McAfee to continue overselling its products to +Ingram Micro. In the course of its business dealings with McAfee, Ingram Micro failed to keep +accurate books and records and failed to devise and maintain an adequate system of internal +controls. Ingram Micro was compensated by McAfee for engaging in these irregular transactions +through the payment of millions of dollars of unearned profits, cash payments, and improperly +recorded excess inventory fees. + +Respondent + +1. Respondent Ingram Micro Inc. is a Delawa re corporation with its principal office in +Santa Ana, California. Ingram Micro is a technology distribution company. Ingram Micro’s +common stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act +and is listed on the New York Stock Exchange under the symbol “IM.” + +Other Relevant Entity + + 2. McAfee, Inc. is a Delawa re corporation with its principal office in Santa Clara, +California. McAfee is a manufacturer of computer programs focusing on network security, anti- +virus, and network management products. McAfee’s common stock is registered with the +Commission pursuant to Section 12(b) of the Exchange Act and is listed on the New York Stock +Exchange under the symbol “MFE.” Prior to June 30, 2004, McAfee was known as Network +Associates, Inc. + + + +1 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding +on any other person or entity in this or any other proceeding. +2 On January 4, 2006, the Commission filed a settled civil injunctive action against McAfee, Inc., in which +McAfee agreed to be permanently enjoined from violations of the anti-fraud, books and records, and internal +controls provisions of the Exchange Act. McAfee also consented to the entry of a permanent injunction and the +payment of a $50 million civil penalty. SEC v. McAfee, Inc., Civil Action No. 06-009 (PJH) (N.D. Cal.); Lit. Rel. +No. 19520 (Jan. 4, 2006). + 3 +Facts + +Background + +3. Between 1998 and 2000, Mc Afee overstated its revenues by $622 million in order +to meet revenue and earnings targets, and understated its cumulative net losses by $353 million. +As the Commission alleged in its January 2006 complaint: + +McAfee stuffed its distribution channel and improperly recorded hundreds of +millions of dollars of revenue on sales transactions with distributors in violation of +the antifraud and other provisions of the federal securities laws. In a fraudulent +scheme to oversell its products and immediately record the revenue from those +transactions, McAfee secretly gave its distributors substantial cash payments, price +discounts, rebates, and other concessions as inducements to continue buying, as +well as to not return, McAfee products that the distributors had no reasonable +expectation of selling to customers. + +In addition, the Commission’s complaint alleged that McAfee concealed its scheme by “falsely +record[ing] in its books and records certain of the payments and concessions to distributors,” and +that McAfee “misled investors by filing with the Commission materially false and misleading +annual and quarterly reports and securities registration statements.” As a result, McAfee violated +antifraud, issuer reporting, books and records, and internal controls provisions of the securities +laws. In settlement, McAfee agreed to a permanent injunction and paid a $50 million civil penalty. + +4. During the period of McAfee’s misconduc t, Ingram Micro was McAfee’s largest +distributor and single most significant source of sales. +3 In 1998, McAfee changed its accounting +method to the “sell-in” model, which allowed it to recognize revenue upon the sale of products to +distributors like Ingram Micro, instead of deferring revenue recognition until its products had been +sold to end-users. Taking advantage of the change to sell-in accounting, McAfee embarked on a +scheme to meet quarterly revenue targets through “channel stuffing” – that is, by pushing excessive +amounts of products to its distributors, particularly Ingram Micro. End-of-quarter sales to Ingram +Micro (memorialized in so-called “buy-in agreements” that were negotiated quarterly between the +two companies), in particular, had a significant impact on McAfee’s reported revenues and its +ability to meet market expectations. + +5. Ingram Micro’s written c ontract with McAfee expressly limited Ingram Micro’s +ability to return products. However, McAfee and Ingram Micro had an unwritten understanding +that Ingram Micro had an unlimited right to return unsold products to McAfee. During this period, +few vendors extended unlimited return rights to their distributors, but McAfee offered unlimited +return rights to Ingram Micro in order to induce Ingram Micro to purchase additional product. + + + +3 In the year 2000, for example, sales to Ingram Micro accounted for approximately twenty percent +of McAfee’s net revenue. + + 4 +6. Starting in the second quarter of 1998, Ingram Micro’s Product Management Group +realized that McAfee was willing to provide deep discounts and off-contract enhancements to +Ingram Micro in the quarterly “buy-in agreements.” As a result, Ingram Micro altered its buying +practices and began ordering extraordinarily large amounts of McAfee products, far in excess of +the amounts that Ingram Micro reasonably expected to sell. Ingram Micro began to realize +significantly higher profit margins in return for taking on excess inventory from McAfee, which +consisted mainly of software licenses. In return for Ingram Micro’s increased purchases, McAfee +provided various forms of compensation – in the form of cash payments, price concessions, and +allowances for unlimited returns – that made Ingram Micro’s role in McAfee’s channel-stuffing +scheme highly profitable and low-risk. + +7. The McAfee account rapidly became one of Ingram Micro’s most profitable vendor +relationships, despite the fact that McAfee represented a small percentage of Ingram Micro’s total +sales. Ingram Micro obtained extraordinary profit margins on its business with McAfee compared +to its other vendors because, unlike other vendors, McAfee routinely provided Ingram Micro with +nonrefundable discounts on Ingram Micro’s orders of McAfee products. Ingram Micro retained +these discounts regardless of whether it later sold or returned the purchased products. In addition, +McAfee even paid Ingram Micro a profit margin on products that McAfee itself later re-sold +through a McAfee subsidiary. Consequently, McAfee paid Ingram Micro millions of dollars to +take and hold products that Ingram Micro did not need and was not selling. The combination of an +unlimited right of return and payment of nonrefundable discounts created a mutually beneficial and +profitable relationship between the companies. Ingram Micro gave McAfee a ready outlet for large +volumes of its products, a substantial portion of which ultimately were not sold and were returned +to McAfee, and McAfee used these sales to inflate its reported revenue. For its part, Ingram Micro +had a cash-rich vendor willing to make extraordinary payments and concessions that enabled +Ingram Micro’s Product Management Group to post greater profit margins for its software +segment, and thereby boost the company’s overall performance. + +Ingram Micro Ignored Its Internal Inventory Goals and Held Excess McAfee Product + + + 8. During the relevant period, Ingram Micro’s internal inventory management goal +was to carry no more than eight weeks worth of inventory from any vendor. Ingram Micro +monitored its levels of owned inventory on a monthly basis. From the second quarter of 1998 +through 2000, in order to take advantage of McAfee’s willingness to pay Ingram Micro to buy +ever-increasing levels of unneeded products, Ingram Micro disregarded its inventory goals and +held excessive amounts of unneeded McAfee products, maintaining inventory levels far in excess +of the amount it reasonably expected to sell. By early 2000, Ingram Micro carried as much as +twenty-two months worth of inventory of McAfee software licenses (that is, the amount of +inventory that Ingram Micro ordinarily would expect to sell over the course of twenty-two +months). Instead of exercising its unwritten right to return products to McAfee in order to reduce +the inventory, Ingram Micro continued purchasing McAfee product in 2000 in order to take +advantage of the extraordinary discounts and cash payments offered to Ingram Micro by McAfee +as an inducement to purchase additional products. + + + 5 +Ingram Micro Misrecorded on its Books and Records Round-Trip Transactions +With McAfee That Were Not Detected by Ingram Micro’s Internal Controls + + 9. During the relevant period, Ingram Micro and McAfee also engaged in various +circular transactions that were lacking in economic substance and were designed solely to inflate +McAfee’s reported revenues. Ingram Micro profited from these transactions by receiving unearned +compensation on sales that it did not originate. + + 10. From June 1998 through June 2000, McAfee bought back tens of millions of dollars +worth of its own products from Ingram Micro – while granting Ingram Micro a significantly higher +than normal profit margin – in order to avoid costly direct returns that would have negatively +impacted McAfee’s revenues. McAfee carried out this subterfuge by using a subsidiary called +“Net Tools” to repurchase approximately $45.5 million of inventory it had sold to Ingram Micro. +In order to avoid accepting returns directly from Ingram Micro, McAfee acted as a reseller and +instructed Ingram Micro to ship the products to buyers identified by McAfee. McAfee reimbursed +Ingram Micro for the shipping costs and paid an inflated profit margin to Ingram Micro, even +though Ingram Micro had done nothing to bring about the sale of the products. These transactions +reduced Ingram Micro’s inventory and enabled Ingram Micro to dispose of excess McAfee +products at a profit, without directly returning the product to McAfee. McAfee’s use of Net Tools +as a means for reducing excess inventory held by Ingram Micro was a subject of quarterly buy-in +negotiations between McAfee and Ingram Micro concerning the amount of additional McAfee +products that Ingram Micro would agree to buy and the terms of those quarterly buy-in +transactions. Ingram Micro knew or should have known that McAfee was buying back its own +products through Net Tools. Ingram Micro dedicated no selling efforts to these transactions – no +sales executive was ever assigned by Ingram Micro to the Net Tools account. Nonetheless, Ingram +Micro earned a high profit margin of approximately thirteen percent on its sales to Net Tools, far in +excess of its average profit margin of two to three percent during that period. + + 11. In seven consecutive quarters beginni ng in 1998, Ingram Micro and McAfee took +advantage of asymmetries in the dates on which the companies’ respective quarters ended. +4 Before +the end of McAfee’s quarter, Ingram Micro would agree to purchase millions of dollars of McAfee +products that it did not need to meet its inventory requirements or sales goals. Within days, +however, after McAfee’s quarter closed, but before Ingram Micro’s quarter had ended, Ingram +Micro returned equivalent product to McAfee to avoid reporting the inventory on its quarter-end +financial statements. McAfee exploited the timing of the product sales and returns that occurred +during the gaps between the companies’ quarter-ends (“gap days”) to record revenues in one +quarter while deferring recording the related returns until the following quarter. McAfee +compensated Ingram Micro for participating in these patently-irregular and nonsubstantive gap day +transactions by paying Ingram Micro non-refundable volume-based discounts on the purchases. +McAfee, in turn, engaged in the sham gap day transactions and deferred accounting for the product + + + 4 Ingram Micro’s fiscal calendar was organized into four quarters of thirteen weeks, while +McAfee’s fiscal calendar used the more traditional quarters that ended on the last day of every third month. +Consequently, McAfee’s fiscal quarter would, at times, end one or more days before Ingram Micro’s fiscal quarter +ended. + + 6 + +returns until the following quarter, in order to create the appearance that it had met its quarterly +sales goals and to inflate its revenue. In total, more than $115 million worth of McAfee products +was purchased and returned by Ingram Micro in such gap day transactions.5 + + 12. Ingram Micro’s participation in the quarter-end transactions was attributable, in +part, to a failure to devise and maintain an adequate system of internal controls. Although Ingram +Micro’s Product Management Group approved the amount and timing of the purchases from and +returns to McAfee, properly functioning internal accounting controls would have alerted senior +management to the nature, timing, and extent of the nonsubstantive purchase-and-return +transactions. Ingram Micro’s books and records did not fairly and accurately reflect the true nature +of these transactions. + +13. In the second quarter of 1999, McAfee arranged sham sales of approximately $11 +million worth of products by Ingram Micro to certain customers as another means of bolstering +McAfee’s reported revenues. To execute these transactions, Ingram Micro needed to make a +special purchase of McAfee product, which it then delivered to the customers that had been +identified by McAfee. McAfee recorded revenue immediately upon sale of the additional product +to Ingram Micro. The products later were returned to Ingram Micro by the customers. McAfee +paid Ingram Micro more than $600,000 as a purported profit on the sales, even though Ingram +Micro was merely the conduit for the delivery and subsequent return of the products. When +Ingram Micro sought to deduct from its accounts payable to McAfee the cost of the goods that it +had specially purchased for these transactions, which would have lowered McAfee’s revenues in +the quarter, McAfee sent Ingram Micro a cash payment equal to the cost of the goods and a profit + +5 Ingram Micro and McAfee also engaged in other similar transactions that were designed to +enable McAfee to record revenue from additional sales to Ingram Micro prior to the end of its quarter, while +deferring when Ingram Micro would receive the product and, ultimately, allowing Ingram Micro to return to +McAfee in a subsequent quarter a substantial portion of the product that Ingram Micro purchased in such +transactions. Ingram Micro and McAfee structured certain quarterly buy-in deals so that McAfee could +record revenue from such sales during its quarter, but the purchased product would not “arrive” in Ingram +Micro’s inventory until after Ingram Micro’s quarter had ended. At various times during the relevant +period, Ingram Micro insisted on such “slow-boating” arrangements as a condition of its agreement to +purchase product from McAfee. McAfee’s agreement not to ship the product until after Ingram Micro’s +quarter had ended enabled Ingram Micro to avoid recording the product in its inventory for its quarterly +reports. However, the agreements were contrivances because the products at issue were, for the most part, +software licenses and not tangible inventory that needed to be shipped or otherwise physically delivered. +McAfee made rebate payments and other concessions in order to induce Ingram Micro to participate in such +transactions. + + Between the first quarter of 1999 and the fourth quarter of 2000, Ingram Micro placed at +least $188.5 million in purchase orders that were designated for shipment after the close of Ingram +Micro’s quarter. Of this amount, Ingram Micro received about $172 million in McAfee products after the +quarter in which the buy-in deal was made. Of the $172 million in products that were received after the +quarter of the buy-in deal, Ingram Micro returned approximately $145 million worth to McAfee. These +returns effectively completed round-trip transactions that enabled McAfee to inflate its reported financial +results. For its part, Ingram Micro received millions of dollars in payments and other concessions from +McAfee that, as discussed above, were not contingent on Ingram Micro actually selling the products. + 7 +margin of more than $600,000, in order to avoid having to accept a return. Ingram Micro +inaccurately recorded the transaction as a sale in its own financial records. + +Ingram Micro Was Paid To Not Return McAfee Products + + 14. McAfee made disguised payments to induce Ingram Micro to refrain from +exercising its unlimited right to return unsold inventory to McAfee. On at least four occasions, +Ingram Micro requested and received payments for holding “excess inventory,” even though the +inventory consisted mainly of electronic software licenses represented by bar codes kept in binders +that occupied little warehouse space and, as a result, entailed virtually no storage expense for +Ingram Micro. The excess inventory fees were calculated as a percentage of the value of Ingram +Micro’s owned inventory of McAfee products. + + 15. As Ingram Micro’s inventory of McAfee products increased, so did the size of its +requests for excess inventory payments, resulting in Ingram Micro obtaining both volume-based +discounts at the time of the buy-in agreements, and additional holding fees on the same unsold +products for agreeing not to return them to McAfee. Near the end of the first quarter of 2000, +Ingram Micro determined that it held $54 million worth of excess McAfee inventory. To forestall +a return of some or all of this inventory, senior McAfee officials offered to discount the amount +that Ingram Micro owed McAfee by two percent of the value of the excess inventory – or +approximately $1.1 million -- as a further inducement for Ingram Micro to continue holding the +excess inventory and purchasing additional inventory in the following quarter. This discount was +memorialized in a side letter dated March 8, 2000. Subsequently, Ingram Micro not only did not +return the excess McAfee inventory, but, on March 24, 2000, entered into a new agreement to +purchase approximately $31.4 million worth of additional McAfee products. Ingram Micro also +requested excess inventory fees in the second and third quarters of 2000, similarly calculated as a +percentage of the value of the excess stock that Ingram Micro held in its inventory. In June 2000, +Ingram Micro received approximately $2.5 million to continue holding excess inventory, and in the +third quarter, Ingram Micro was paid approximately $3.8 million in excess inventory payments. + +Ingram Micro Misrecorded Excess Inventory Payments as Early Pay Discounts + + +16. The excess inventory fees negotiated by Ingram Micro for the second and third +quarters of 2000 were characterized on Ingram Micro’s books in a manner designed to meet +quarterly financial targets. In both quarters, Ingram Micro asked McAfee to recharacterize the +excess inventory payments as “early pay” discounts, or discounts that would have been earned if +Ingram Micro had paid on its account with McAfee earlier than required under their contract. +These recharacterizations did not accurately reflect the substance of the McAfee payments. Under +Ingram Micro’s accounting policies, had the $6.3 million of fees been associated with its +inventory, such as an “excess inventory” payment, then Ingram Micro would have been unable to +recognize the full amount of the fees in the quarters in which they were received, pending the +disposition of the inventory associated with the fees. After McAfee agreed to recharacterize the +fees as “early pay discounts,” Ingram Micro recognized the fees into income in the quarters they +were received, and did not amortize them over time, as required by its accounting policies. In +these transactions, Ingram Micro solicited and obtained documentation from McAfee that did not + 8 +accurately reflect the substance of the McAfee payments. As a result, Ingram Micro inaccurately +recorded those transactions on its books and records as “early pay” discounts, rather than +inventory-related payments. + +Ingram Micro Accepted and Misrecorded Mischaracterized Payments From McAfee + + 17. McAfee often mischaracterized in its communications with Ingram Micro the +purpose and nature of the payments that it was making to Ingram Micro as inducements for Ingram +Micro to hold excess inventory and purchase additional inventory. From September 1999 through +October 2000, McAfee mischaracterized in correspondence and communications with Ingram +Micro the actual purpose of payments totaling at least $59.5 million. McAfee relied upon the +misleading descriptions to disguise and justify its own improper accounting for the discounts and +concessions it paid to Ingram Micro. Although Ingram Micro was aware of the +mischaracterizations as well as the actual purpose for the payments from McAfee, Ingram Micro +accepted the payments and typically recorded them on its books and records with different +explanations or designations that comported with Ingram Micro’s understanding of the actual +purpose of the payments, and not the explanation that had been made by McAfee in its +correspondence. A properly functioning system of internal controls would have alerted senior +management to these discrepancies. + + 18. In one instance, on September 30, 19 99, McAfee wired a $16 million cash payment +to Ingram Micro in order to keep Ingram Micro from reducing its payment on a pending invoice by +a corresponding amount. Ingram Micro initially classified the payment as an “unapplied amount +for future amounts due,” but later, Ingram Micro applied the $16 million cash payment to offset +nearly $16 million in planned returns, rather than deducting that amount from a payment to +McAfee for product purchases. At the end of the quarter, Ingram Micro paid McAfee in full the +invoiced amounts for purchased product, in effect returning the $16 million to McAfee. Ingram +Micro’s books and records, and internal controls, never properly reflected the purpose of the $16 +million payment, which was to prevent Ingram Micro from returning products and reducing its +accounts payable to McAfee. + + 19. Similarly, in Novemb er 1999, McAfee sent Ingram Micro a memorandum in which +it outlined a plan to pay Ingram Micro $21 million for discounts, fees, and concessions that had +been negotiated in prior quarterly buy-in transactions. On November 17, 1999, McAfee delivered +eight payments totaling over $21 million to Ingram Micro in eight separate wire transfers. At the +same time, McAfee also sent Ingram Micro eight cover letters, each dated November 17, 1999, +characterizing the payments as reimbursement for expenses such as “marketing fund rebates and +other promotional programs” rather than discounts, fees, and concessions, and attributing the +payments to quarters other than those for which the payments actually were being made. + + 20. McAfee’s November 1999 memorandum also revealed that one purpose of the +payments was to create a misleading accounts receivable balance that Ingram Micro could confirm +to McAfee’s outside accountants. In the memorandum, McAfee asked Ingram Micro to confirm to +McAfee’s outside accountants that Ingram Micro owed McAfee approximately $40 million. +However, at the time, Ingram Micro could not truthfully confirm a $40 million balance because + 9 +Ingram Micro’s records reflected an account payable of only about $19 million, after deducting the +$21 million in discounts and other amounts that McAfee previously had agreed to pay to Ingram +Micro for purchasing additional products. In the memorandum, McAfee proposed that it would +pay Ingram Micro $21 million in order to offset the $21 million in discounts and concessions that +Ingram Micro claimed it was owed, and that, Ingram Micro, in turn, would confirm to McAfee’s +outside auditors that it owed McAfee an undiscounted total of $40 million. McAfee’s outside +auditors never received the confirmation in question from Ingram Micro. Ingram Micro +nevertheless retained the $21 million, canceled the outstanding discounts and reductions on its +records, and later sent McAfee a check for approximately $38 million as payment in full under the +invoices in question.6 By participating in this round-tripping of cash payments with McAfee, +Ingram Micro helped to create the false impression that McAfee had been paid in full on the +outstanding invoices to Ingram Micro. As a result, Ingram Micro overstated its accounts payable +for the quarter and its internal controls failed to alert Ingram Micro’s senior management that the +company was engaging in a highly irregular transaction that lacked economic substance. + +Violations + +21. A result of the conduct described above, Ingram Micro violated Exchange Act +Section 13(b)(2)(A), which required Ingram Micro to make and keep books, records and accounts +which, in reasonable detail, accurately and fairly reflect its transactions. + +22. As a further result of th e conduct described above, Ingram Micro violated Exchange +Act Section 13(b)(2)(B), which required Ingram Micro to devise and maintain a system of internal +controls sufficient to provide reasonable assurance that transactions are executed in accordance +with management’s general or specific authorization. + +Ingram Micro’s Remedial Efforts + + +23. In determining to accept the Offer, the Commission considered remedial +acts promptly undertaken by Respondent and cooperation afforded the Commission staff. +IV. + + In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Ingram Micro’s Offer. + + Accordingly, pursuant to Section 21C of the Exchange Act, it is hereby ORDERED that: + + A. Respondent Ingram Micr o Inc. cease and desist from committing or causing any +violations and any future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. + +B. IT IS FURTHER ORDERED that Respondent shall, within thirty (30) days of the +entry of this Order, pay disgorgement of $15,000,000 to the Clerk of the United States District + + + 6 McAfee’s auditors relied on the fact that Ingram Micro had paid the invoiced amount in +full as proof that Ingram Micro, in fact, owed that amount to McAfee. + 10 +Court for the Northern District of California to be added to the Distribution Fund established in +SEC v. McAfee, Inc., Case Number C06-0009 (PJH). Respondent shall provide proof of payment, +in a form acceptable to the staff of the Commission, to Yuri B. Zelinsky, Division of Enforcement, +Securities and Exchange Commission, 100 F St., N.E., Washington, D.C. 20549. In the event the +Court disallows such payment to the Distribution Fund then Respondent shall pay within ten (10) +days after the Court disallows said payment $15,000,000 to the United States Securities and +Exchange Commission. If timely payment is not made, additional interest shall accrue pursuant to +SEC Rule of Practice 600. Payment shall be: (A) made by United States postal money order, +certified check, bank cashier's check or bank money order; (B) made payable to the Securities and +Exchange Commission; (C) hand-delivered or mailed to the Office of Financial Management, +Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, +Alexandria, VA 22312; and (D) submitted under cover letter that identifies Ingram Micro Inc. as a +Respondent in these proceedings, the file number of these proceedings, a copy of which cover +letter and money order or check shall be sent to Yuri B. Zelinsky, Division of Enforcement, +Securities and Exchange Commission, 100 F St., N.E., Washington, D.C. 20549. + + By the Commission. + + + + E l i z a b e t h M . M u r p h y + S e c r e t a r y \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2970.txt b/raw/aaer/2009/AAER-2970.txt new file mode 100644 index 0000000000000000000000000000000000000000..a81446f98a55337e2635db1548626b5566cd97d3 --- /dev/null +++ b/raw/aaer/2009/AAER-2970.txt @@ -0,0 +1,1385 @@ + + + + + + + + + + + + + + + + SEC.gov | Monster Worldwide, Inc. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/505766","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Monster Worldwide, Inc. , United States District Court for the Southern District of New York, Civil Action No. 09 CV 4641 (S.D.N.Y. May 18, 2009) + + SEC CHARGES MONSTER WORLDWIDE INC. FOR OPTIONS BACKDATING SCHEME + + The Securities and Exchange Commission (the "SEC") today charged Monster Worldwide, Inc., for its multi-year scheme to secretly backdate stock options granted to thousands of Monster officers, directors and employees. Monster agreed to pay a $2.5 million penalty to settle the SEC's charges that the company defrauded investors by granting backdated, undisclosed "in-the-money" stock options while failing to record required non-cash charges for option-related compensation expenses. + + The SEC's complaint, filed in the District Court for Southern District of New York, alleges that in connection with this scheme, Monster filed false and materially misleading statements concerning the true grant date and exercise price of stock options in its annual, quarterly and current reports, proxy statements and registration statements. Many of these documents also falsely represented that stock options were being granted at fair market value. Further, Monster failed to record and disclose the compensation expense associated with the "in-the-money" portion of stock option grants. As a result, Monster materially overstated its quarterly and annual earnings in its financial statements and was required to restate its historical financial results for 1997-2005 in a cumulative pre-tax amount of approximately $339.5 million to record additional non-cash charges for option related compensation expenses. + + Without admitting or denying liability, Monster agreed to be permanently enjoined from violations of Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act, and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, and 14a-9 thereunder. Monster also agreed to pay a $2.5 million penalty. The Commission took into account the cooperation that Monster provided Commission staff during the course of the investigation. + + + SEC Complaint + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Meyers and Annette Jaynes + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/505796","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Share sensitive information only on official, secure websites. + + + + + + + + + + + + + + + + + SEC homepage + + + + + + + Menu + + + + + + + + + + + + + + Close + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + Search Filings + + + + + + + + + Search Filings + + + + + + + + + Full Text Search + + + + + + Latest Filings + + + + + + Mutual Fund Search + + + + + + Variable Insurance Products Search + + + + + + SIC Codes + + + + + + CIK Lookup + + + + + + Public Dissemination Service (PDS) + + + + + + Search Assistance + + + + + + + + + + + + + Submit Filings + + + + + + + + + Submit Filings + + + + + + + + + EDGAR Filer Management Portal + + + + + + EDGAR Filing Portal + + + + + + Online Forms Management Portal + + + + + + EDGAR Next + + + + + + Forms Index + + + + + + Filer Support & Resources + + + + + + + + + + + + + Data & Research + + + + + + + + + Data & Research + + + + + + + + + Data Library + + + + + + Statistics & Data Visualizations + + + + + + Structured Data + + + + + + Investment Management Data + + + + + + Open Data at the SEC + + + + + + + + + + + + + Rules, Enforcement, & Compliance + + + + + + + + + + + + + + + + + + + + Rules & Regulations + + + + + + + + + Rulemaking Activity + + + + + + Submit Public Comments + + + + + + Staff Guidance + + + + + + No-Action, Interpretive, and Exemptive Letters + + + + + + Self-Regulatory Organization Rulemaking + + + + + + Public Petitions for Rulemaking + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + + + Litigation Releases + + + + + + Administrative Proceedings + + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + + Trading Suspensions + + + + + + Distributions to Harmed Investors + + + + + + Receiverships + + + + + + + + + + + + + + + + + Compliance + + + + + + + + + Examination Priorities + + + + + + Risk Alerts + + + + + + Compliance Outreach Program + + + + + + + + + + + + + + + + + + + + + + + Proposed Rules + + + + + + What's New + + + + + + Whistleblower Program + + + + + + + + + + + + + + + + + + + Featured Topics + + + + + + + + + Featured Topics + + + + + + + + + Crypto Task Force + + + + + + Cybersecurity + + + + + + Market Structure Analytics + + + + + + Saving and Investing for Military Personnel + + + + + + Saving and Investing for Teachers + + + + + + SEC-CFTC Harmonization Initiative + + + + + + Treasury Clearing Implementation + + + + + + + + + + + + + About + + + + + + + + + About + + + + + + + + + Mission + + + + + + Commissioners + + + + + + Divisions & Offices + + + + + + Division & Office Directors + + + + + + Advisory Committees + + + + + + Budget & Performance + + + + + + Reports & Publications + + + + + + Commission Votes + + + + + + Contact the SEC + + + + + + Careers + + + + + + + + + + + + + Submit a Tip or Complaint + + + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + More in this Section + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + Apogee Technology, Inc., David B. Meyers and Annette Jaynes + + + + + + + + + + + + Apogee Technology, Inc., David B. Meyers and Annette Jaynes + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21048 / May 19, 2009 + + Accounting and Auditing Enforcement Release No. 2972 / May 19, 2009 + + Securities and Exchange Commission v. Apogee Technology, Inc., David B. Meyers and Annette Jaynes , Civil Action No. 09 cv 10286 (D. Mass.) + + SEC Charges Massachusetts Company, Former Chief Operating Officer, and Controller in Scheme to Inflate Reported Revenue + + + + + The Securities and Exchange Commission ("Commission") today filed a settled enforcement action against Apogee Technology, Inc., a publicly traded company based in Norwood, Massachusetts, David B. Meyers of Walpole, Massachusetts, Apogee's former Chief Operating Officer, and Annette Jaynes of Sharon, Massachusetts, Apogee's controller, in connection with a scheme to inflate Apogee's earnings in 2003 and 2004. + + The Commission's complaint, filed in federal district court in Massachusetts, alleges that in connection with the scheme, Apogee filed materially misleading financial statements with the Commission that misstated its revenue by including sales transactions that contained terms making revenue recognition improper. According to the complaint, Meyers, as Apogee's COO, entered into arrangements with purchasers of Apogee's products containing terms hidden from the company's outside auditors that made it improper for Apogee to recognize revenue from the transactions at the time that it did, such as agreements allowing customers to return goods or pay nothing to Apogee unless they sold the products to end users. For example, the complaint alleges that when Apogee could not finalize a sale to one customer at the end of a quarter, Meyers approved a sham sale of the same product to a second customer. This second customer was simply holding the product until the sale to the first customer could be finalized later, and the second customer could return the product to Apogee and had no obligation to pay for the product until it was actually resold to the first customer. According to the complaint, Jaynes recorded transactions as revenue despite receiving documents containing the sales terms that precluded revenue recognition. As a result, Apogee materially overstated its quarterly and annual earnings by between 7% and 45% in its financial statements in the second and fourth quarters of 2003 and the first three quarters of 2004. Apogee restated these results in 2005. + + Each of the defendants has agreed to settle this matter, without admitting or denying the allegations of the Commission's complaint. Apogee, Meyers and Jaynes agreed to the entry of a final judgment permanently enjoining them from variously violating or aiding and abetting violations of 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 Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder. Meyers and Jaynes will also be enjoined from violating Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder. The final judgment as to Meyers will hold him liable for disgorgement of $9,365 plus prejudgment interest of $3,701.91, representing his ill gotten gains from the sale of Apogee stock during the period of the fraud. However, under the terms of the judgment, disgorgement and prejudgment interest will be waived, and no penalty will be imposed as to Meyers, based on his financial condition. The final judgment as to Meyers will bar him from serving as an officer or director of a public company for five years. The final judgment as to Jaynes orders her to pay a penalty of $30,000. + + + + + SEC Complaint + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-2973.txt b/raw/aaer/2009/AAER-2973.txt new file mode 100644 index 0000000000000000000000000000000000000000..aa48d0d8470442837f7613ba981172e2dc375589 --- /dev/null +++ b/raw/aaer/2009/AAER-2973.txt @@ -0,0 +1,86 @@ + + + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59959 / May 21, 2009 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2973 / May 21, 2009 + +ADMINISTRATIVE PROCEEDING +File No. 3-13479 + + +In the Matter of + +TMT Capital Corporation, + +Respondent. + + +ORDER INSTITUTING CEASE-AND-DESIST +PROCEEDINGS PURSUANT TO SECTION 21C +OF THE SECURITIES EXCHANGE ACT OF +1934, MAKING FINDINGS, AND IMPOSING A +CEASE-AND-DESIST ORDER + +I. + + The Securities and Exchange Commission (“Commission”) deems it appropriate that cease- +and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities +Exchange Act of 1934 (“Exchange Act”), against TMT Capital Corporation (“TMT” or +“Respondent”). + +II. + + In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over it and the subject matter of these +proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease- +and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making +Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below. + + 2 +III. + + On the basis of this Order and Responde nt’s Offer, the Commission finds that: + +1. TMT is a Florida corporation based in Winter Park, Florida. TMT is a holding +company with two subsidiaries, Freedom Wireless Corporation (“Freedom”) and Bootie Beer +Company “Bootie Beer.” Bootie Beer marketed beer produced under contract by City Brewing +Company in La Crosse, Wisconsin, and has filed for Chaper 7 bankruptcy. Freedom is a wireless +reseller of cellular service and branded cellular phones. TMT stock is registered under Section +12(g) of the Exchange Act. TMT stock is quoted on the Pink Sheets operated by Pink OTC +Markets Inc. + + 2. TMT failed to comply with Items 307 and 308T of Regulation S-B in its Form 10- +KSB/A reports for the fiscal year ended December 31, 2007, which were filed with the +Commission on June 18, 2008 and November 13, 2008, respectively, as a result of which the +Respondent violated Exchange Act Section 13(a) and Rules 13a-1 and 13a-15 thereunder. + + 3. TMT failed to comply wi th Item 601(b)(31) of Regulation S-B in its Form 10- +KSB/A reports for the fiscal year ended December 31, 2007, which were filed with the +Commission on June 18, 2008 and November 13, 2008, respectively, as a result of which the +Respondent violated Exchange Act Section 13(a) and Rules 13a-1 and 13a-14 thereunder. + +IV. + + In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent TMT’s Offer. + + Accordingly, it is hereby ORDERED that: + + Pursuant to Section 21C of the Exchange Act, Respondent TMT cease and desist from +committing or causing any violations and any future violations of Section 13(a) of the Exchange +Act and Rules 13a-1, 13a-14, and 13a-15 thereunder. + + + By the Commission. + + E l i z a b e t h M . M u r p h y + S e c r e t a r y \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2974.txt b/raw/aaer/2009/AAER-2974.txt new file mode 100644 index 0000000000000000000000000000000000000000..bce274d158bf9fc299f04d41b7f9b33229644af4 --- /dev/null +++ b/raw/aaer/2009/AAER-2974.txt @@ -0,0 +1,230 @@ + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION + + +SECURITIES ACT OF 1933 +Release No. 9032 / May 26, 2009 + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59973 / May 26, 2009 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2974 / May 26, 2009 + +ADMINISTRATIVE PROCEEDING +File No. 3-13485 + +In the Matter of + +CSK AUTO CORPORATION, + +Respondent. + + + + +ORDER INSTITUTING CEASE-AND-DESIST +PROCEEDINGS PURSUANT TO SECTION +8A OF THE SECURITIES ACT OF 1933 AND +SECTION 21C OF THE SECURITIES +EXCHANGE ACT OF 1934, MAKING +FINDINGS, AND IMPOSING A CEASE-AND- +DESIST ORDER + + +I. + + The Securities and Exchange Commission (“Commission”) deems it appropriate that cease- +and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act +of 1933 (“Securities Act”) and Section 21C of the Securities Exchange Act of 1934 (“Exchange +Act”), against CSK Auto Corporation (“CSK” or “Respondent”). + +II. + + In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over it and the subject matter of these +proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease- +and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of +the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order +(“Order”), as set forth below. + 2 +III. + +On the basis of this Order and Respondent’s Offer, the Commission finds1 that: + +Summary + + This case involves a financial reporting fraud at CSK during the company’s fiscal years +2002, 2003, and 2004. Specifically, CSK, through its former chief operating officer, former chief +financial officer, former controller, and former director of credits and receivables (all of whom +left CSK in 2006), materially overstated the company’s income by (i) failing to write off vendor +allowance receivables when they knew, or should have known, the receivables were +uncollectible, and (ii) improperly recognizing certain vendor allowances during fiscal year 2003. +CSK’s failure to write off vendor allowances and improper recognition of vendor allowances in +2003 were contrary to Generally Accepted Accounting Principles (“GAAP”). As a result of its +failure to write off uncollectible vendor allowance receivables and over recognition of vendor +allowances, CSK filed false financial statements materially overstating its pre-tax income for +fiscal year 2002 by approximately 47%, or $11 million, fiscal year 2003 by approximately $34 +million, thereby reporting pre-tax income instead of a pre-tax loss, and fiscal year 2004 by +approximately 65%, or $21 million. + + Respondent + + +1. CSK Auto Corporation is a Delaware corporation with its principal executive +offices in Phoenix, Arizona. CSK’s common stock was registered with the Commission +pursuant to Section 12(b) of the Exchange Act and listed on the New York Stock Exchange. On +July 11, 2008, CSK was acquired by another publicly traded company, O’Reilly Automotive Inc. +On July 15, 2008, the NYSE filed a Form 25 delisting and deregistering from Section 12(b) +CSK’s common stock. On July 31, 2008, CSK filed a Form 15 deregistering its common stock +from Section 12(g) of the Securities Act. CSK is currently a wholly owned subsidiary of +O’Reilly.2 +Background + +2. As a retailer of automotive products, CSK purchased products from vendors that +manufacture automotive parts and accessories. During CSK’s fiscal years 2002, 2003, and 2004, +CSK received vendor allowances from most of its vendors. Vendor allowances are a form of +financial support that a vendor provides CSK, either by paying CSK or allowing CSK to deduct +vendor allowance amounts from amounts CSK pays the vendor for goods, to support CSK’s efforts +to promote and advertise the vendor’s products. Although CSK had various vendor allowance + + +1 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not +binding on any other person or entity in this or any other proceeding. + +2 All of the conduct that gave rise to this proceeding took place before O’Reilly acquired CSK. +The conduct described in this Order occurred before 2006. O’Reilly acquired CSK in 2008. + 3 +programs, its largest and most important was its Let’s Work Together program (“LWT”). +Typically, the LWT allowance agreements covered a one-year period, which CSK referred to as +the “program year.” The LWT allowance agreements varied from vendor to vendor, but in general +CSK earned allowances as a (i) set dollar amount, (ii) percentage of the amount CSK spent to +purchase the vendor’s product, or (iii) certain number of cents per item CSK purchased from the +vendor. + +3. CSK recognized LWT allowances ratably, on a monthly basis, based on its estimate +of the total allowances it expected to receive for the entire program year. CSK purported to base +its estimate on the LWT agreement’s terms and CSK’s expected total purchases from each vendor +during the program year. + +4. Each LWT program year had its own account receivable. When CSK recognized +LWT allowances during a program year, it increased the corresponding program year’s account +receivable. In general, CSK recognized vendor allowances as a reduction to cost of sales, thereby +increasing the company’s pre-tax income. When CSK collected vendor allowances for a particular +program year, GAAP required that CSK reduce the outstanding receivable for that same program +year. + +5. During fiscal years 2002, 2003, and 2004, CSK knew that it could not collect all +of the vendor allowances it had previously recognized. GAAP required CSK to write off an +outstanding receivable once it is probable it will not be collected and the amount of the loss can +be reasonably estimated. Statement of Financial Accounting Standards No. 5 (“SFAS No. 5”), +Accounting for Contingencies Paragraph 8. Contrary to GAAP, CSK failed to write off its +uncollectible vendor allowances receivables. + +6. As a result, large unpaid amounts, or accounts receivable, built up on CSK’s +books. Instead of writing off these uncollectible amounts and taking the requisite reduction to +earnings as required by GAAP, CSK hid the deficiencies by (i) improperly moving vendor +allowances earned and collected for later program years to the prior program year’s accounts +receivable, referred to within CSK as “filling the bucket,” and (ii) incorrectly accounting for +amounts paid back to vendors. Through this conduct, CSK avoided writing off tens of millions +of dollars in uncollectible receivables. CSK “filled the bucket” by (i) making baseless journal +entries reducing the account receivable for the earlier LWT program year with an offsetting +increase to the account receivable for a later program year, and (ii) applying vendor allowances +earned and collected during a later LWT program year to an earlier LWT program year’s +receivable. + + +7. CSK also failed to write off vendor allo wances it had to pay back to its vendors +because the company had over-collected for prior periods. Instead of writing off amounts CSK +had to pay back, which would reduce its pre-tax income, the company increased a later LWT +program year’s account receivable, making it appear to have collected an older account +receivable when all CSK had done was move the outstanding receivable balance to a more recent +year. + + 4 +8. CSK failed to write off approximately $11 million of uncollectible receivables +during fiscal 2002, approximately $24 million of uncollectible receivables during fiscal year 2003, +and approximately $21 million of uncollectible receivables during fiscal year 2004. + +9. In addition, during fiscal year 2003, CSK improperly recognized approximately $10 +million in vendor allowances that either had not been earned or should have been applied to an +outstanding account receivable. + +10. During the summer of 20 05, CSK issued approximately $15 million in debit memos +to its vendors to collect LWT allowances that CSK knew it had already collected. When the +vendors complained and CSK had to pay them back, some of the credit memos CSK issued +intentionally misrepresented the reasons for the paybacks. + +11. Throughout this time, CS K failed to implement internal accounting controls relating +to its inventory, cost of sales, and revenue accounts that were sufficient to provide reasonable +assurances that these accounts were accurately stated in accordance with GAAP. + +12. Because of the vendor allowance scheme , CSK filed false financial statements +materially overstating its pre-tax income for fiscal year 2002 by approximately 47%, or $11 +million, fiscal year 2003 by approximately $34 million, thereby reporting pre-tax income instead of +a pre-tax loss, and fiscal year 2004 by approximately 65%, or $21 million. + +13. While the false financial statements were outstanding, CSK engaged in several +private debt offerings. In January 2004, CSK issued $225 million of 7% Senior Subordinated +Notes. In August 2005, CSK completed a $125 million issuance of 3 3/8% senior exchangeable +notes. In December 2005, CSK issued $100 million of 4 5/8% senior exchangeable notes. CSK’s +materially false financial statements filed with its Forms 10-K for fiscal years 2003 and 2004 were +incorporated by reference in the Form S-3 and Form S-4 Registration Statements filed with the +Commission during fiscal years 2004 and 2005. + + +14. As a result of the conduct described a bove, CSK violated Section 17(a) of the +Securities Act, which prohibits fraudulent conduct in the offer or sale of securities, and Section +10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct in +connection with the purchase or sale of securities. + +15. As a result of the conduct described above , CSK also violated Section 13(a) of the +Exchange Act and Rules 13a-1 and 12b-20 thereunder, which require every issuer of a security +registered pursuant to Section 12 of the Exchange Act file with the Commission information, +documents, and annual reports as the Commission may require, and mandate that periodic reports +contain such further material information as may be necessary to make the required statements not +misleading. + +16. As a result of the conduct described a bove, CSK also violated Section 13(b)(2)(A) +of the Exchange Act, which requires reporting companies to make and keep books, records, and + 5 +accounts which, in reasonable detail, accurately and fairly reflect their transactions and dispositions +of their assets. + +17. Lastly, as a result of the conduct desc ribed above, CSK also violated Section +13(b)(2)(B), which requires all reporting companies to devise and maintain a system of internal +accounting controls sufficient to provide reasonable assurances that transactions are recorded as +necessary to permit preparation of financial statements in accordance with generally accepted +accounting principles. + +CSK’s Remedial Efforts + +In determining to accept the Offer, the Commission considered remedial acts +promptly undertaken by Respondent and cooperation afforded the Commission staff. + +IV. + + In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent’s Offer. + + Accordingly, it is hereby ORDERED that: + + A. Pursuant to Section 8A of the Securities Act, Respondent cease and desist from +committing or causing any violations and any future violations of Section 17(a) of the Securities +Act. + + B. Pursuant to Section 21C of the Exchange Act, Respondent cease and desist from +committing or causing any violations and any future violations of Sections 10(b), 13(a), +13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, and 13a-1 thereunder. + + + By the Commission. + + + + E l i z a b e t h M . M u r p h y + S e c r e t a r y \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2975.pdf b/raw/aaer/2009/AAER-2975.pdf new file mode 100644 index 0000000000000000000000000000000000000000..8118112ededdc4698f524d780c6de7bdea925512 Binary files /dev/null and b/raw/aaer/2009/AAER-2975.pdf differ diff --git a/raw/aaer/2009/AAER-2975.txt b/raw/aaer/2009/AAER-2975.txt new file mode 100644 index 0000000000000000000000000000000000000000..23b78d10aedfe6226cb108e6188f86e5debd6490 --- /dev/null +++ b/raw/aaer/2009/AAER-2975.txt @@ -0,0 +1,151 @@ + + + UNITED STATES OF AMERICA + before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59977 / May 27, 2009 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2975 / May 27, 2009 + +ADMINISTRATIVE PROCEEDING +File No. 3-13486 + + + : + : + : +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE + : PROCEEDINGS PURSUANT TO RULE + JOHN T. McDONALD : 102(e) OF THE COMMISSION’S RULES OF + (CPA) : PRACTICE , MAKING FINDINGS, AND + : IMPOSING REMEDIAL SANCTIONS + Respondent. : + : + : +____________________________________ : + + +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 John T. +McDonald (“McDonald”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of Practice. +1 + +1 Rule 102(e)(3)(i) provides, in relevant part, that: + + The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. + + 2 +II. + + In anticipation of the institution of these pr oceedings, McDonald has submitted an Offer of +Settlement (the “Offer”) which the Commission has determined to accept. Solely for the purpose +of these proceedings and any other proceedings brought by or on behalf of the Commission, or to +which the Commission is a party, and without admitting or denying the findings herein, except as +to the Commission’s jurisdiction over him and the subject matter of these proceedings, and the +findings contained in Section III.3 below, which are admitted, McDonald consents to the entry of +this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission’s +Rules of Practice, Making Findings, and Imposing Remedial Sanctions (“Order”), as set forth +below. + +III. + + On the basis of this Order and Responde nt’s Offer, the Commission finds that: + +1. McDonald, age 44, is and has been a certified public accountant licensed to practice +by the Commonwealth of Massachusetts. McDonald was Vice President and Treasurer of Kmart +Corporation at all relevant times through November 9, 2001, when he was promoted to Chief +Financial Officer (“CFO”). McDonald remained CFO through March 11, 2002, when he was +terminated. McDonald is currently CFO of a private scrap metal company. + +2. Kmart Corporation (“Kmart” or the “company”) was a Michigan Corporation +headquartered in Troy, Michigan, during the relevant period. On January 22, 2002, Kmart filed a +voluntary petition for reorganization under Chapter 11 of the Bankruptcy code. The company’s +common stock was registered with the Commission pursuant to 12(b) of the Exchange Act [15 +U.S.C. § 78l(b)] and traded on the New York Stock Exchange until December 19, 2002, when +trading was suspended. + +3. On May 1, 2009, a final judgment was entered against McDonald, permanently +enjoining him from future violations of Section 10(b) of the Exchange Act and Rule 10b-5 +thereunder and aiding and abetting violations of Sections 13(a) and Rules 12b-20 and 13a-13 +thereunder, in the civil action entitled Securities and Exchange Commission v. Charles C. +Conaway and John T. McDonald, Case No. 2:05-CV-40263 in the United States District Court for +the Eastern District of Michigan. McDonald was ordered to pay a $120,000 civil penalty and +barred from serving as an officer or director of a publicly traded company for five years. + +4. The Commission’s complaint alleged, among other things, that McDonald was +responsible for materially false and misleading disclosure about the financial condition of Kmart in +the Management’s Discussion and Analysis section of the company’s Form 10-Q for the quarter +and nine months ended October 31, 2001 and in a conference call with analysts and investors on +November 27, 2001. + + + + 3 +IV. + + In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in McDonald’s Offer. + + Accordingly, it is hereby ORDERED, effective immediately, that: + + A. McDonald is suspended from appearing or practicing before the Commission as an +accountant. + + B. After three (3) years fr om the date of this order, McDonald 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 McDonald’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) McDonald, or th e public accounting firm with which he is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; + + (b) McDonald, 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 he will not receive appropriate supervision; + (c) McDonald 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) McDonald acknowledges his re sponsibility, as long as he appears +or practices before the Commission as an independent accountant, to comply with all +requirements of the Commission and the Board, including, but not limited to, all requirements +relating to registration, inspections, concurring partner reviews and quality control standards. + +C. The Commission will consider an application by McDonald to resume +appearing or practicing before the Commission provided that his CPA license is current and +he has resolved all other disciplinary issues with the applicable boards of accountancy. + + 4 +However, if licensure is dependent on reinstatement by the Commission, the Commission +will consider an application on its other merits. The Commission’s review may include +consideration of, in addition to the matters referenced above, any other matters relating to +McDonald’s character, integrity, professional conduct, or qualifications to appear or +practice before the Commission. + + By the Commission. + + + + E l i z a b e t h M . M u r p h y + S e c r e t a r y \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2976.pdf b/raw/aaer/2009/AAER-2976.pdf new file mode 100644 index 0000000000000000000000000000000000000000..75965aec801d69a19e66862e09ca8707da82feb7 Binary files /dev/null and b/raw/aaer/2009/AAER-2976.pdf differ diff --git a/raw/aaer/2009/AAER-2976.txt b/raw/aaer/2009/AAER-2976.txt new file mode 100644 index 0000000000000000000000000000000000000000..09f41be82c540654276d05bf42724796c22d1004 --- /dev/null +++ b/raw/aaer/2009/AAER-2976.txt @@ -0,0 +1,102 @@ + +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59980 / May 27, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2976 / May 27, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-12810 + +In the Matter of +Brian R. Spires, CPA + +: +: +: +: +: +: +ORDER GRANTING APPLICATION FOR +REINSTATEMENT TO APPEAR AND PRACTICE +BEFORE THE COMMISSION AS AN ACCOUNTANT +RESPONSIBLE FOR THE PREPARATION OR +REVIEW OF FINANCIAL STATEMENTS REQUIRED +TO BE FILED WITH THE COMMISSION + +On September 19, 2007, Brian R. Spires (“Spires”) 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 Spires pursuant to Rule 102(e)(1)(ii) of the +Commission's Rules of Practice. +1 This order is issued in response to Spires’ 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, as the engagement manager, Spires participated in the +planning and execution of Deloitte & Touche LLP’s audit of National Century Financial +Enterprises, Inc.’s (“NCFE”) 2000 consolidated financial statements. Spires failed to plan and +execute the 2000 audit in accordance with generally accepted auditing standards (“GAAS”). He +failed to obtain sufficient competent evidential matter to corroborate that NCFE’s receivables +portfolio consisted of permitted receivables or to properly evaluate the adequacy of NCFE’s +allowance for losses relating to those receivables. Spires also did not properly evaluate red flags +during the audit which should have alerted him to NCFE’s non-permitted advances and its +borrowers’ inability to repay those advances. Additionally, Spires failed to obtain sufficient +competent evidential matter with regard to the nature and substance of material related party +transactions. Many of these transactions with related parties were non-permitted advances. + + +1 See Accounting and Auditing Enforcement Release No. 2720 dated September 19, 2007. Spires was permitted, +pursuant to the order, to apply for reinstatement after one year upon making certain showings. + + 2 + +In his capacity as a preparer or reviewer, or as a person responsible for the preparation or +review, of financial statements of a public company to be filed with the Commission, Spires +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. Spires 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, Spires’ +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 Spires, it appears that he has complied with the terms of the September 19, 2007 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 Spires, 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 +Brian R. Spires, 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. + + +Elizabeth M. Murphy +Secretary + +2 Rule 102(e)(5)(i) provides: + +“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) +of this section may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a +hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated +by the Commission for good cause shown.” 17 C.F.R. § 201.102(e)(5)(i). + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2977.txt b/raw/aaer/2009/AAER-2977.txt new file mode 100644 index 0000000000000000000000000000000000000000..164d51d073fdb206c5b947d54f1552df7b4bbc60 --- /dev/null +++ b/raw/aaer/2009/AAER-2977.txt @@ -0,0 +1,1397 @@ + + + + + + + + + + + + + + + + SEC.gov | Richard J. Miller, Gary S. Jensen, and Michael E. Beaulieu + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/505846","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Miller, Gary S. Jensen, and Michael E. Beaulieu + + + + + + + + + + + + Richard J. Miller, Gary S. Jensen, and Michael E. Beaulieu + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21058 / May 27, 2009 + + Accounting and Auditing Release No. 2977 / May 27, 2009 + + Securities and Exchange Commission v. Richard J. Miller, Gary S. Jensen, and Michael E. Beaulieu , United States District Court for the Southern District of New York, Civil Action No. 09-CV-4945 (S.D.N.Y. May 27, 2009) + + SEC CHARGES THREE FORMER SENIOR FINANCE EXECUTIVES OF CARDINAL HEALTH, INC. FOR FRAUDULENT EARNINGS AND REVENUE MANAGEMENT SCHEME + + The Securities and Exchange Commission today filed a civil action against three former finance executives of Cardinal Health, Inc. (Cardinal), a pharmaceutical distribution company based in Dublin, Ohio, in which the former Cardinal executives agreed to settle charges that they engaged in a fraudulent revenue and earnings management scheme. Cardinal's former chief financial officer, Richard J. Miller, former controller and principal accounting officer, Gary S. Jensen, and former senior vice president of finance, Michael E. Beaulieu, without admitting or denying the allegations, consented to the entry of an injunction and agreed to pay a total of $245,000 in civil penalties. + + The Commission's Complaint alleges that, at different times from September 2000 through March 2004, the former Cardinal executives engaged in the misconduct in order to present a false picture of Cardinal's operational results to the financial community and the investing public â€" one that matched Cardinal's publicly disseminated earnings guidance and analysts' expectations, rather than its true economic performance. The Complaint alleges that as a result of these actions, Cardinal materially overstated its operating revenue, earnings, and growth trends in public earnings releases and filings with the Commission. + + According to the Complaint, the Defendants and other members of Cardinal's management closely monitored Cardinal's financial performance to assess whether it met internal expectations and external guidance to analysts. Miller, Jensen, and Beaulieu, as the Complaint describes, engaged in the management of Cardinal's reported revenue and earnings through a variety of undisclosed and improper actions. The Complaint alleges that their actions had the effect of inflating reported operating revenue through the improper misclassification of more than $5 billion of bulk sales as operating revenue. As detailed in the Complaint, Cardinal classified its revenue from drug distribution as either "bulk" revenue or operating revenue. Bulk revenue consisted primarily of certain full case quantities of pharmaceutical products delivered to customer warehouses and had virtually no profit margin. Operating revenue consisted primarily of customized orders delivered to pharmacies and other provider customers. The Complaint alleges that in November 2001, with Miller's approval and Beaulieu's knowledge, Cardinal implemented an undisclosed internal practice, under which it reclassified any revenue from the sale of bulk product held on its premises for 24 hours or longer as operating revenue. The Complaint alleges that Jensen became aware of this undisclosed practice and its impact on operating revenue after becoming Cardinal's controller in August 2002. Shortly after implementing this practice, as the Complaint describes, Cardinal began to intentionally hold bulk inventory orders on its premises for longer than 24 hours in certain quarters, in order to convert the sale of this product from bulk revenue to operating revenue (the 24-Hour Lever). The Complaint alleges that Miller decided when to use the 24-Hour Lever and that Beaulieu and Jensen participated in deciding to activate the 24-Hour Lever, based on the strength or weakness of Cardinal's quarterly sales. Miller, Jensen, and Beaulieu used the 24-Hour Lever, along with other revenue and earnings management practices, to fraudulently overstate Cardinal's reported operating revenue and earnings. + + According to the Complaint, Miller, Jensen, and Beaulieu manipulated Cardinal's reported earnings by selectively accelerating, without disclosure, the payment of vendor invoices in order to prematurely record a cumulative gross total of $133 million in cash discount income. The Complaint further alleges that, at different times, and to varying degrees, Miller, Jensen, and Beaulieu also boosted Cardinal's reported earnings by improperly creating and using a general reserve account and approving improper adjustments to other reserve accounts. The Complaint alleges that these improper reserve practices contributed to Cardinal's approximately $65.9 million overstatement of its net earnings from fiscal years 2000 through 2004. According to the Complaint, Miller also advocated for and approved the improper classification of $22 million in anticipated litigation settlement proceeds, which enabled Cardinal to meet its earnings targets in two quarters. + + The Complaint alleges that Miller, Jensen, and Beaulieu each: violated the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rule 10b-5; violated the falsification of accounting records and circumvention of internal controls provision of the Exchange Act, Section 13(b)(5), and Exchange Act Rule 13b2-1; and aided and abetted Cardinal's violations of the reporting, record-keeping, and internal controls provisions of the Exchange Act, Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13. The Complaint also alleges that Miller and Jensen each signed one or more materially false and misleading management representation letters to Cardinal's auditor in violation of Exchange Act Rule 13b2-2 and that Miller signed officer certifications to Cardinal's periodic filings in violation of Exchange Act Rule 13a-14. + + Without admitting or denying the allegations set forth in the Commission's Complaint, Miller, Jensen, and Beaulieu have consented to the entry of orders permanently enjoining them from engaging in the violations set forth above. Miller agreed to an order imposing a $120,000 civil penalty against him and prohibiting him from acting as an officer or director of a public company for a period of five years. Jensen agreed to an order imposing a $75,000 civil penalty and prohibiting him from acting as an officer and director of a public company for three years. Beaulieu agreed to an order imposing a $50,000 civil penalty and prohibiting him from acting as an officer or director of a public company for three years. The settlements are subject to the approval of the United States District Court for the Southern District of New York. + + In addition, separately, without admitting or denying the Commission's findings, Miller has consented to the institution of administrative proceedings pursuant to Rule 102(e)(3) of the Commission's Rules of Practice, suspending him from appearing or practicing before the Commission as an accountant, with a right to re-apply after five years, based on the anticipated entry of the injunction. Without admitting or denying the Commission's findings, Jensen and Beaulieu also have consented to the institution of administrative proceedings pursuant to Rule 102(e)(3), suspending them from appearing or practicing before the Commission as accountants, with a right to re-apply after three years, based on the anticipated entry of the injunctions. + + On July 26, 2007, the Commission filed a related action against Cardinal, in which it consented to the entry of an order enjoining it from violating the antifraud, reporting, record-keeping, and internal controls provisions of the federal securities laws and agreed to pay a $35 million penalty. For more information about that action, see Commission Litigation Release Number 20212 (July 26, 2007). + + SEC Complaint in this matter + +   + + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-2978.pdf b/raw/aaer/2009/AAER-2978.pdf new file mode 100644 index 0000000000000000000000000000000000000000..87c0061ba175554a40af95ed30fb19100e5774dc Binary files /dev/null and b/raw/aaer/2009/AAER-2978.pdf differ diff --git a/raw/aaer/2009/AAER-2978.txt b/raw/aaer/2009/AAER-2978.txt new file mode 100644 index 0000000000000000000000000000000000000000..c67780ff8e47d58343167f9d6e5aeb3ad3370d46 --- /dev/null +++ b/raw/aaer/2009/AAER-2978.txt @@ -0,0 +1,49 @@ +U.S. SECURITIES AND EXCHANGE COMMISSION +Washington, D.C. + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 59986 / May 27, 2009 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2978 / May 27, 2009 + +ADMINISTRATIVE PROCEEDING +File No. 3-13489 + +IN THE MATTER OF POLLARD KELLEY AUDITING SERVICES, INC. AND TERANCE +KELLEY, CPA + +The U.S. Securities and Exchange Commission today issued an Order Instituting Public +Administrative Proceedings Pursuant to Rule 102(e) of the Commission’s Rules of Practice +against Pollard Kelley Auditing Services, Inc., a public accounting firm, and Terance Kelley, +CPA. + +In the Order, the Division of Enforcement and the Office of the Chief Accountant allege that +Respondents tampered with workpapers to conceal multiple deficiencies in their audit of Pegasus +Wireless Corporation’s 2006 financial statements. During the 2006 audit, Respondents violated +numerous professional standards by failing to obtain written representations from Pegasus’ +management and failing to exercise due care and professional skepticism. In early 2008, nearly one +year after completing the audit and after being sued by Pegasus investors for securities fraud, +Respondents added additional workpapers to their audit documentation in an attempt to mask +deficiencies in the audit. By creating workpapers after the fact and adding them to their audit +documentation, without identifying the date they were added or the reason for adding them, +Respondents violated Public Company Accounting Oversight Board Auditing Standard No. 3. + +The Division of Enforcement and Office of the Chief Accountant further allege that, as a result, +Respondents engaged in improper professional conduct as defined in Rules 102(e)(1)(ii) and (iv) +in that their conduct (A) constituted intentional or knowing conduct, including reckless conduct, +that resulted in violation of applicable professional standards, or in the alternative, (B) +constituted negligent conduct, consisting of (1) a single instance of highly unreasonable conduct +that resulted in a violation of applicable professional standards in circumstances in which +Respondents knew, or should have known, that heightened scrutiny was warranted, or (2) +repeated instances of unreasonable conduct by Respondents, each resulting in a violation of +applicable professional standards, that indicate a lack of competence to practice before the +Commission. + +The Order directs that a public administrative hearing be scheduled to determine whether the +allegations in the Order are true, to afford Respondents an opportunity to establish any defenses, +and to determine what, if any, remedial action is appropriate against Respondents, including, but +not limited to, censure and/or the temporary or permanent denial of the privilege of appearing or +practicing before the Commission. The Order requires that an Administrative Law Judge issue +an initial decision no later than 300 days from the date of service of the Order, pursuant to Rule +360(a)(2) of the Commission’s Rules of Practice. \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2984.txt b/raw/aaer/2009/AAER-2984.txt new file mode 100644 index 0000000000000000000000000000000000000000..89db1280fcbb268932f2b440241f238ab81da735 --- /dev/null +++ b/raw/aaer/2009/AAER-2984.txt @@ -0,0 +1,244 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60047 / June 4, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2984 / June 4, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13504 +ORDER INSTITUTING CEASE-AND- +In the Matter of DESIST PROCEEDINGS PURSUANT TO +SECTION 21C OF THE SECURITIES +DYADIC INTERNATIONAL, INC. EXCHANGE ACT OF 1934, MAKING +FINDINGS AND IMPOSING A CEASE- +Respondent. 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 Dyadic International, Inc. (“Dyadic” or +“Respondent”). +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over it and the subject matter of these +proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease- +And-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making +Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below. + + + + + + + + + + + + + + + + + + + + + + + + + + + +III. +On the basis of this Order and Respondent’s Offer, the Commission finds1 that: +Respondent +1. Dyadic is a biotechnology company incorporated in Delaware and based in Jupiter, +Florida. Dyadic became a public company in October 2004 through a reverse merger, and on May +26, 2005, it registered its common stock with the Commission pursuant to Section 12(b) of the +Exchange Act. From May 2005 through January 2008, Dyadic’s common stock was listed on the +American Stock Exchange (“AMEX”). In January 2008, the AMEX delisted and deregistered +Dyadic’s common stock. Since its delisting through the present, Dyadic’s common stock has been +quoted on the “Pink Sheets” disseminated by Pink OTC Markets, Inc. but has not been registered +pursuant to Section 12 of the Exchange Act. +Summary +2. For fiscal years ended December 31, 2005 and 2006, Dyadic filed periodic reports +with the Commission incorporating financial statements that materially misstated its revenues and +accounts receivable balances. Specially, in contravention of Generally Accepted Accounting +Principles (“GAAP”), Dyadic improperly recognized revenue from sales made by its wholly- +owned subsidiary, Puridet (Asia) Limited (“Puridet”), overstated Puridet’s accounts receivable +balances and failed to disclose material related party transactions by Puridet with members of +Puridet’s management. During this time period, Dyadic did not maintain accurate books and +records and had deficient internal accounting controls. As a result of these deficiencies, Dyadic +has been unable to restate its prior quarterly and annual financial statements for the periods ended +June 30, 2005 through December 31, 2006. +Dyadic Improperly Recognized Sales by its Asian Subsidiary +3. Dyadic acquired a majority voting interest in Puridet in 2003. Puridet, which +manufactures and distributes textile enzymes in Asia, is based in Hong Kong. In April 2006, +Puridet became a wholly-owned subsidiary of Dyadic. Puridet’s sales in 2005 and 2006 +represented approximately 40% of Dyadic’s consolidated revenues as reflected in its financial +statements filed with the Commission during that time period. +4. In April 2007, Dyadic’s management became aware of potential material +operational and financial improprieties at Puridet through an anonymous whistle-blower +complaint following the death of Puridet’s managing director. An internal investigation +conducted by Dyadic determined that the subsidiary’s largest customer, an entity named Pui +Shing Detergent Company and a predecessor entity, South Dragon Detergent Company +1 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding +on any other person or entity in this or any other proceeding. +2 + + + + + + + + + + + + + + + + + + + + + +(collectively “Pui Shing”), was secretly controlled by Puridet’s management, including the +deceased managing director. According to the internal investigation, Puridet’s management +created Pui Shing as a customer on Puridet’s books and records. In reality, Pui Shing was only +used as a vehicle for Puridet to recognize revenue from product it sold on a cash basis to local +businesses throughout mainland China. As such, sa les to Pui Shing were not bona fide. These +cash transactions may have also allowed Puridet’s management to possibly misappropriate funds +and certain of these Chinese businesses to avoid their local reporting and sales tax requirements. +The effect of these transactions on Puridet’s financial statements could not be quantified by +Dyadic because the underlying transactions were in cash, not properly documented and Pui +Shing’s books and records could not be obtained from Puridet’s management. +5. Puridet conducted approximately 25% of its business through Pui Shing with the +intent to conceal the true nature of its relationship to that entity and its customers. For the year +ended December 31, 2006, sales to Pui Shing alone represented almost 10% of Dyadic’s net sales +on a consolidated basis and over 20% of Dyadic’s consolidated net receivable balance. +6. As a result, Dyadic materially misstated figures reported for its revenue and +accounts receivable and failed to disclose material related-party transactions in its financial +statements for the years ended December 31, 2005 and 2006 and the quarters ended June and +September of 2005 and March, June and September of 2006. Dyadic included its misleading +financial results in press releases and its filings with the Commission relating to these periods. +Dyadic has been unable to fully quantify the financial impact of these Puridet transactions, or +restate its financial statements for this time period, because the necessary records did not exist or +could not be obtained. +7. In May 2007, Dyadic abandoned its Asian operations because of its concerns over +these material operational and financial improprieties at Puridet. +Dyadic Failed to File Periodic Reports with the Commission +8. Dyadic has not filed an Annual Report on Form 10-KSB with the Commission +since December 31, 2006 or periodic or quarterly reports on Form 10-QSB for any fiscal period +subsequent to its fiscal quarter ending September 30, 2006 up through its delisting and +deregistration by AMEX in January 2008. Dyadic’s failure to file these reports stems from its +violations of GAAP, as well as certain record keeping and internal control deficiencies. +Dyadic’s Violations +Dyadic’s Violations of the Books and Records and Internal Control Provisions +9. Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20 thereunder, +require every issuer of a security registered pursuant to Section 12 of the Exchange Act file with +the Commission information, documents, and annual and quarterly reports as the Commission may +require, and mandate that periodic reports contain such further material information as may be +necessary to make the required statements not misleading. Section 13(b)(2)(A) of the Exchange +3 + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +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. +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. +10. Because Dyadic improperly recorded its revenue, accounts receivable, and related- +party transactions, its books, records and accounts did not, in reasonable detail, accurately and +fairly reflect its transactions and dispositions of assets. In addition, Dyadic failed to implement +internal accounting controls relating to its revenue, accounts receivable and related party +transactions which were sufficient to provide reasonable assurances that these accounts were +accurately stated in accordance with GAAP. +Dyadic’s Violations of the Reporting Provisions +11. Dyadic has also failed to comply with Section 13(a) of the Exchange Act and +Rules 13a-1 and 13a-13 thereunder, while its common stock was registered with the Commission +in that it has not filed an Annual Report on Form 10-KSB since December 31, 2006 or periodic +or quarterly reports on Form 10-QSB for any fiscal period subsequent to its fiscal quarter ending +September 30, 2006 up through its delisting and deregistration by AMEX in January 2008. +Dyadic’s Remedial Efforts +In determining to accept the Offer, the Commission considered remedial acts undertaken by +Respondent and cooperation afforded the Commission staff. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Dyadic’s Offer. +Accordingly, it is hereby ORDERED that: +Pursuant to Section 21C of the Exchange Act, Respondent Dyadic cease and desist from +committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), and +13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +4 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2985.pdf b/raw/aaer/2009/AAER-2985.pdf new file mode 100644 index 0000000000000000000000000000000000000000..d3d3f2b2b76669df67d0f24959928255d150037c Binary files /dev/null and b/raw/aaer/2009/AAER-2985.pdf differ diff --git a/raw/aaer/2009/AAER-2985.txt b/raw/aaer/2009/AAER-2985.txt new file mode 100644 index 0000000000000000000000000000000000000000..8c2549393815f8794b7aae88d90f580435247f24 --- /dev/null +++ b/raw/aaer/2009/AAER-2985.txt @@ -0,0 +1,144 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60052 / June 5, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2985 / June 5, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13506 +: +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +GRAYLING R. HOFER, : 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 +Grayling R. Hofer (“Respondent” or “Hofer”) pursuant to Rule 102(e)(3)(i) of the Commission’s +Rules of Practice. +1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. + + + + + + + + + + + + + + + + + + +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over him and the subject matter of these +proceedings, and the findings contained in Section III.3 below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) +of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Hofer, age 51, served as chief accounting officer, corporate controller, +treasurer, and a director of PowerCold Corporation (“PowerCold”) from March 2002 through +November 2006. Hofer was also PowerCold’s Chief Financial Officer from January 2006 to +November 2006. Hofer currently serves as PowerCold’s Vice President of Operations. +2. PowerCold was, at all relevant times, a Nevada corporation with its principal +place of business in LaVernia, Texas. PowerCold is engaged in the business of designing and +building heating, ventilation, and air conditioning systems. At all relevant times, PowerCold’s +common stock was registered with the Commission pursuant to Section 12(g) of the Securities +Exchange Act of 1934 (“Exchange Act”), and traded on the Pink OTC Markets. +3. On April 6, 2009, a final judgment was entered against Hofer, permanently +enjoining him from future violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules +10b-5, 13b2-1, and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a), +13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 +thereunder, in the civil action entitled Securities and Exchange Commission v. Grayling R. Hofer +et. al, Civil Action Number SA09CA0185-FB, in the United States District Court for the Western +District of Texas. Hofer was also barred 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 for a period of five years. +4. The Commission’s complaint alleged, among other things, that PowerCold +engaged in a fraudulent scheme that resulted in the company filing materially false and +misleading financial statements in the company’s annual reports on Forms 10-K for the fiscal +years ended December 31, 2003 and 2004, and in the company’s quarterly reports on Forms 10- +Q for the first three quarters of fiscal years 2003, 2004, and 2005. The Complaint further alleged +that Hofer engaged in a number of improper accounting practices that constituted a departure +from generally accepted accounting principles. In addition, the complaint alleged that Hofer +failed to disclose information in response to questions by PowerCold’s independent auditors +about certain of the company's fraudulent revenue recognition practices. +2 + + + + + + + + + + + + + +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Hofer’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that Hofer is suspended from +appearing or practicing before the Commission as an accountant. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +3 diff --git a/raw/aaer/2009/AAER-2986.pdf b/raw/aaer/2009/AAER-2986.pdf new file mode 100644 index 0000000000000000000000000000000000000000..b5338c85634257260c317494a33772cedc10b3a1 Binary files /dev/null and b/raw/aaer/2009/AAER-2986.pdf differ diff --git a/raw/aaer/2009/AAER-2986.txt b/raw/aaer/2009/AAER-2986.txt new file mode 100644 index 0000000000000000000000000000000000000000..29010b39b659ffe7a7b076dd8aa29d0177813500 --- /dev/null +++ b/raw/aaer/2009/AAER-2986.txt @@ -0,0 +1,224 @@ + + + +_____________________________________ + + + + + + + + + + + + + + + + + + + + + + + + + + +UNITED STATES OF AMERICA +before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60074 / June 9, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2986 / June 9, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13508 +: +: + : ORDER INSTITUTING +In the Matter of : ADMINISTRATIVE +: P R O C E E D I N G S P U R S U A N T T O + MICHAEL BEAULIEU (CPA), : RULE 102(e) OF THE +: C O M M I S S I O N ’ S R U L E S O F + Respondent. : PRACTICE, MAKING +: FINDINGS, AND IMPOSING +: R E M E D I A L S A N C T I O N S +_____________________________________: +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate +and in the public interest that public administrative proceedings be, and hereby are, +instituted against Michael Beaulieu (“Respondent” or “Beaulieu”) pursuant to Rule +102(e)(3)(i) of the Commission’s Rules of Practice. +1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted +an Offer of Settlement (the “Offer”) which the Commission has determined to accept. +Solely for the purpose of these proceedings and any other proceedings brought by or on +behalf of the Commission, or to which the Commission is a party, and without admitting +or denying the findings herein, except as to the Commission’s jurisdiction over him and +the subject matter of these proceedings, and the findings contained in Section III, +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. + + + + + + + + + + + + + + + +paragraph 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. Beaulieu, age 51, is a certified public accountant and was licensed to +practice in the State of Massachusetts. He served as controller of Cardinal Health, Inc. +(“Cardinal”) from 1998 until January 2001, as the senior vice president of finance for +Cardinal’s Pharmaceutical Distribution and Provider Services and Medical Products and +Services segments from January 2001 through January 2003, as Cardinal’s chief financial +officer of Healthcare Products and Services from January 2003 to January 2004, and as +senior vice president of finance for Pharmaceutical Distribution and Provider Services +from February 2004 until his resignation in March 2006. +2. Cardinal was, at all relevant times, an Ohio corporation with its principal +place of business in Dublin, Ohio. Cardinal was, and continues to be, engaged in the +business of developing and distributing health care and pharmaceutical products and +services. At all relevant times, Cardinal’s common stock was registered with the +Commission pursuant to Section 12(b) of the Securities Exchange Act of 1934 +(“Exchange Act”), and traded on the New York Stock Exchange. +3. On May 27, 2009, the Commission filed a complaint against Beaulieu +in SEC v. Michael Beaulieu, et al., Civil Action No. 09-CV-4945, in the United States +District Court for the Southern District of New York. On May 29, 2009, the court +entered an order permanently enjoining Beaulieu, by consent, from future violations of +Section 17(a) of the Securities Act of 1933 (“Securities Act”), Sections 10(b) and +13(b)(5) of the Exchange Act, and Rules 10b-5 and 13b2-1 thereunder, and aiding and +abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act +and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. Beaulieu was also ordered to +pay a $50,000 civil money penalty. +4. The Commission’s complaint alleged, among other things, that, at +different times from at least September 2000 through at least March 2004, Beaulieu and +other former senior accounting and finance officers of Cardinal engaged in a fraudulent +earnings and revenue management scheme to inflate Cardinal’s publicly reported +operating revenue, earnings and growth trends. The Complaint alleged that Beaulieu +engaged in a number of improper accounting and disclosure practices that materially +misrepresented Cardinal’s publicly reported revenue, earnings, and growth trends. These +practices included, among other things: misclassifying bulk sales as operating revenue to +overstate reported operating revenue; overstating quarterly earnings by selectively +accelerating the recognition of cash discount income; and improperly establishing and/or +2 + + + + + + + + + + + + + + + + + + + + + + +using a general reserve account and directing or approving the adjustment of various +reserve accounts in a departure from generally accepted accounting principles (“GAAP”). +On October 26, 2004, as described in the Complaint, Cardinal restated its financial +results for fiscal years 2000 to 2003 and for the first three quarters of fiscal year 2004. In its +restatement, Cardinal disclosed, among other things, that it had improperly classified $1.2 +billion of bulk revenue as operating revenue and that Cardinal had an undisclosed practice of +accelerating payment of vendor invoices at the end of certain reporting periods, which +improved operating results for those periods. The restatement (as subsequently corrected) +also reduced Cardinal’s net earnings by a cumulative total of $65.9 million, due to +Cardinal’s adjustments to reserves and other accruals, which were restated as a result of +misapplications of GAAP, other errors or an absence of substantiation. In addition, Cardinal +reversed, reclassified and recognized in a later period the $22 million of expected litigation +settlement proceeds it had previously recognized during the second quarter of fiscal year +2001 and the first quarter of fiscal year 2002. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public +interest to accept Respondent Beaulieu’s Offer. +Accordingly, it is hereby ORDERED, effective immediately that: +A. Beaulieu is suspended from appearing or practicing before the +Commission as an accountant. +B. After three years from the date of this order, Respondent may request that +the Commission consider his reinstatement by submitting an application (attention: +Office of the Chief Accountant) to resume appearing or practicing before the +Commission as: +1. a preparer or reviewer, or a person responsible for the preparation +or review, of any public company’s financial statements that are filed with the +Commission. Such an application must satisfy the Commission that Respondent’s work +in his practice before the Commission will be reviewed either by the independent audit +committee of the public company for which he works or in some other acceptable +manner, as long as he practices before the Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which he +is associated, is registered with the Public Company Accounting Oversight Board +(“Board”) in accordance with the Sarbanes-Oxley Act of 2002, and such registration +continues to be effective; +3 + + + + + + + + + + + + + + + +(b) Respondent, or the registered public accounting firm with +which he is associated, has been inspected by the Board and that inspection did not +identify any criticisms of or potential defects in the Respondent’s or the firm’s quality +control system that would indicate that the Respondent will not receive appropriate +supervision; +(c) Respondent has resolved all disciplinary issues with the +Board, and has complied with all terms and conditions of any sanctions imposed by the +Board (other than reinstatement by the Commission); and +(d) Respondent acknowledges his responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not +limited to, all requirements relating to registration, inspections, concurring partner +reviews and quality control standards. +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that his state CPA license is +current and he has resolved all other disciplinary issues with the applicable state boards +of accountancy. However, if state licensu re is dependent on reinstatement by the +Commission, the Commission will consider an application on its other merits. The +Commission’s review may include consideration of, in addition to the matters referenced +above, any other matters relating to Respondent’s character, integrity, professional +conduct, or qualifications to appear or practice before the Commission. +By the Commission. + Elizabeth M. Murphy + S e c r e t a r y +4 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2987.pdf b/raw/aaer/2009/AAER-2987.pdf new file mode 100644 index 0000000000000000000000000000000000000000..34315d6518658f484cc4a9cfa2c06e8d2fc77115 Binary files /dev/null and b/raw/aaer/2009/AAER-2987.pdf differ diff --git a/raw/aaer/2009/AAER-2987.txt b/raw/aaer/2009/AAER-2987.txt new file mode 100644 index 0000000000000000000000000000000000000000..80742ebfea734ca890bbc02c69c7301eda8c4d3c --- /dev/null +++ b/raw/aaer/2009/AAER-2987.txt @@ -0,0 +1,225 @@ + + + + +_____________________________________ + + + + + + + + + + + + + + + + + + + + + + + + + + + +UNITED STATES OF AMERICA +before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60075 / June 9, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2987 / June 9, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13509 +: +: + : ORDER INSTITUTING +In the Matter of : ADMINISTRATIVE +: P R O C E E D I N G S P U R S U A N T T O +GARY JENSEN (CPA), : RULE 102(e) OF THE +: C O M M I S S I O N ’ S R U L E S O F + Respondent. : PRACTICE, MAKING +: FINDINGS, AND IMPOSING +: R E M E D I A L S A N C T I O N S +_____________________________________: +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate +and in the public interest that public administrative proceedings be, and hereby are, +instituted against Gary Jensen (“Respondent” or “Jensen”) pursuant to Rule 102(e)(3)(i) +of the Commission’s Rules of Practice. +1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted +an Offer of Settlement (the “Offer”) which the Commission has determined to accept. +Solely for the purpose of these proceedings and any other proceedings brought by or on +behalf of the Commission, or to which the Commission is a party, and without admitting +or denying the findings herein, except as to the Commission’s jurisdiction over him and +the subject matter of these proceedings, and the findings contained in Section III, +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. + + + + + + + + + + + + + + +paragraph 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. Jensen, age 54, is a certified public accountant and was licensed to +practice in the State of Missouri. He serv ed as senior vice president and corporate +controller of Cardinal Health, Inc. (“Cardinal”) from August 2002 until his resignation in +February 2005. From January 2003 until October 2004, Jensen also served as Cardinal’s +principal accounting officer. +2. Cardinal was, at all relevant times, an Ohio corporation with its principal +place of business in Dublin, Ohio. Cardinal was, and continues to be, engaged in the +business of developing and distributing health care and pharmaceutical products and +services. At all relevant times, Cardinal’s common stock was registered with the +Commission pursuant to Section 12(b) of the Securities Exchange Act of 1934 +(“Exchange Act”), and traded on the New York Stock Exchange. +3. On May 27, 2009, the Commission filed a complaint against Jensen in +SEC v. Gary Jensen, et al., Civil Action No. 09-CV-4945, in the United States District +Court for the Southern District of New York. On May 29, 2009, the court entered an +order permanently enjoining Jensen, by consent, from future violations of Section 17(a) +of the Securities Act of 1933 (“Securities Act”), Sections 10(b) and 13(b)(5) of the +Exchange Act, and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and aiding and abetting +violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules +12b-20, 13a-1, 13a-11, and 13a-13 thereunder. Jensen was also ordered to pay a $75,000 +civil money penalty. +4. The Commission’s complaint alleged, among other things, that, at +different times from at least September 2000 through at least March 2004, Jensen and +other former senior accounting and finance officers of Cardinal engaged in a fraudulent +earnings and revenue management scheme to inflate Cardinal’s publicly reported +operating revenue, earnings and growth trends. The Complaint alleged that Jensen +engaged in a number of improper accounting and disclosure practices that materially +misrepresented Cardinal’s publicly reported revenue, earnings, and growth trends. These +practices included, among other things: misclassifying bulk sales as operating revenue to +overstate reported operating revenue; overstating quarterly earnings by selectively +accelerating the recognition of cash discount income; and improperly establishing and/or +using a general reserve account and directing or approving the adjustment of various +reserve accounts in a departure from generally accepted accounting principles (“GAAP”). +In addition, the Complaint alleged that Jensen signed at least one materially false and +misleading management representation letter to Cardinal’s external auditor. +2 + + + + + + + + + + + + + + + + + + + + + + + + +On October 26, 2004, as described in the Complaint, Cardinal restated its financial +results for fiscal years 2000 to 2003 and for the first three quarters of fiscal year 2004. In its +restatement, Cardinal disclosed, among other things, that it had improperly classified $1.2 +billion of bulk revenue as operating revenue and that Cardinal had an undisclosed practice of +accelerating payment of vendor invoices at the end of certain reporting periods, which +improved operating results for those periods. The restatement (as subsequently corrected) +also reduced Cardinal’s net earnings by a cumulative total of $65.9 million, due to +Cardinal’s adjustments to reserves and other accruals, which were restated as a result of +misapplications of GAAP, other errors or an absence of substantiation. In addition, Cardinal +reversed, reclassified and recognized in a later period the $22 million of expected litigation +settlement proceeds it had previously recognized during the second quarter of fiscal year +2001 and the first quarter of fiscal year 2002. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public +interest to accept Respondent Jensen’s Offer. +Accordingly, it is hereby ORDERED, effective immediately that: +A. Jensen is suspended from appearing or practicing before the Commission +as an accountant. +B. After three years from the date of this order, Respondent may request that +the Commission consider his reinstatement by submitting an application (attention: +Office of the Chief Accountant) to resume appearing or practicing before the +Commission as: +1. a preparer or reviewer, or a person responsible for the preparation +or review, of any public company’s financial statements that are filed with the +Commission. Such an application must satisfy the Commission that Respondent’s work +in his practice before the Commission will be reviewed either by the independent audit +committee of the public company for which he works or in some other acceptable +manner, as long as he practices before the Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which he +is associated, is registered with the Public Company Accounting Oversight Board +(“Board”) in accordance with the Sarbanes-Oxley Act of 2002, and such registration +continues to be effective; +(b) Respondent, or the registered public accounting firm with +3 + + + + + + + + + + + + + + +which he is associated, has been inspected by the Board and that inspection did not +identify any criticisms of or potential defects in the Respondent’s or the firm’s quality +control system that would indicate that the Respondent will not receive appropriate +supervision; +(c) Respondent has resolved all disciplinary issues with the +Board, and has complied with all terms and conditions of any sanctions imposed by the +Board (other than reinstatement by the Commission); and +(d) Respondent acknowledges his responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not +limited to, all requirements relating to registration, inspections, concurring partner +reviews and quality control standards. +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that his state CPA license is +current and he has resolved all other disciplinary issues with the applicable state boards +of accountancy. However, if state licensu re is dependent on reinstatement by the +Commission, the Commission will consider an application on its other merits. The +Commission’s review may include consideration of, in addition to the matters referenced +above, any other matters relating to Respondent’s character, integrity, professional +conduct, or qualifications to appear or practice before the Commission. +By the Commission. + Elizabeth M. Murphy + S e c r e t a r y +4 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2988.pdf b/raw/aaer/2009/AAER-2988.pdf new file mode 100644 index 0000000000000000000000000000000000000000..cf90d925059cdfc131c5867aedb55a3c0e4bb402 Binary files /dev/null and b/raw/aaer/2009/AAER-2988.pdf differ diff --git a/raw/aaer/2009/AAER-2988.txt b/raw/aaer/2009/AAER-2988.txt new file mode 100644 index 0000000000000000000000000000000000000000..86980e836cb3fe3452e27b5348839b9c2c02226e --- /dev/null +++ b/raw/aaer/2009/AAER-2988.txt @@ -0,0 +1,225 @@ + + + +_____________________________________ + + + + + + + + + + + + + + + + + + + + + + + + + + +UNITED STATES OF AMERICA +before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60076 / June 9, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2988 / June 9, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13510 +: +: + : ORDER INSTITUTING +In the Matter of : ADMINISTRATIVE +: P R O C E E D I N G S P U R S U A N T T O + RICHARD MILLER (CPA), : RULE 102(e) OF THE +: C O M M I S S I O N ’ S R U L E S O F + Respondent. : PRACTICE, MAKING +: FINDINGS, AND IMPOSING +: R E M E D I A L S A N C T I O N S +_____________________________________: +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate +and in the public interest that public administrative proceedings be, and hereby are, +instituted against Richard Miller (“Respondent” or “Miller”) pursuant to Rule +102(e)(3)(i) of the Commission’s Rules of Practice. +1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted +an Offer of Settlement (the “Offer”) which the Commission has determined to accept. +Solely for the purpose of these proceedings and any other proceedings brought by or on +behalf of the Commission, or to which the Commission is a party, and without admitting +or denying the findings herein, except as to the Commission’s jurisdiction over him and +the subject matter of these proceedings, and the findings contained in Section III, +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. + + + + + + + + + + + + + + +paragraph 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. Miller, age 52, is and has been a certified public accountant +licensed to practice in the State of Ohio. He served as Chief Financial Officer of +Cardinal Health, Inc. (“Cardinal”) from 1998 until his resignation in July 2004. +2. Cardinal was, at all relevant times, an Ohio corporation with its principal +place of business in Dublin, Ohio. Cardinal was, and continues to be, engaged in the +business of developing and distributing health care and pharmaceutical products and +services. At all relevant times, Cardinal’s common stock was registered with the +Commission pursuant to Section 12(b) of the Securities Exchange Act of 1934 +(“Exchange Act”), and traded on the New York Stock Exchange. +3. On May 27, 2009, the Commission filed a complaint against Miller in +SEC v. Richard Miller, et al., Civil Action No. 09-CV-4945, in the United States District +Court for the Southern District of New York. On May 29, 2009, the court entered an +order permanently enjoining Miller, by consent, from future violations of Section 17(a) of +the Securities Act of 1933 (“Securities Act”), Sections 10(b) and 13(b)(5) of the +Exchange Act, and Rules 10b-5, 13b2-1, 13b2-2, and 13a-14 thereunder, and aiding and +abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act +and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. Miller was also ordered to pay +a $120,000 civil money penalty. +4. The Commission’s complaint alleged, among other things, that, at +different times from at least September 2000 through at least March 2004, Miller and +other former senior accounting and finance officers of Cardinal engaged in a fraudulent +earnings and revenue management scheme to inflate Cardinal’s publicly reported +operating revenue, earnings and growth trends. The Complaint alleged that Miller +engaged in a number of improper accounting and disclosure practices that materially +misrepresented Cardinal’s publicly reported revenue, earnings, and growth trends. These +practices included, among other things: misclassifying bulk sales as operating revenue to +overstate reported operating revenue; overstating quarterly earnings by selectively +accelerating the recognition of cash discount income; improperly establishing and/or +using a general reserve account and directing or approving the adjustment of various +reserve accounts to meet earnings projections in a departure from generally accepted +accounting principles (“GAAP”); and improperly classifying expected litigation +settlement proceeds to inflate earnings, in a further departure from GAAP. In addition, +the Complaint alleged that Miller signed at least one materially false and misleading +management representation letter to Cardinal’s external auditor and signed certifications +2 + + + + + + + + + + + + + + + + + + + + + + + +falsely certifying the accuracy of the financial statements and disclosures in Cardinal’s +periodic filings. +On October 26, 2004, as described in the Complaint, Cardinal restated its financial +results for fiscal years 2000 to 2003 and for the first three quarters of fiscal year 2004. In its +restatement, Cardinal disclosed, among other things, that it had improperly classified $1.2 +billion of bulk revenue as operating revenue and that Cardinal had an undisclosed practice of +accelerating payment of vendor invoices at the end of certain reporting periods, which +improved operating results for those periods. The restatement (as subsequently corrected) +also reduced Cardinal’s net earnings by a cumulative total of $65.9 million, due to +Cardinal’s adjustments to reserves and other accruals, which were restated as a result of +misapplications of GAAP, other errors or an absence of substantiation. In addition, Cardinal +reversed, reclassified and recognized in a later period the $22 million of expected litigation +settlement proceeds it had previously recognized during the second quarter of fiscal year +2001 and the first quarter of fiscal year 2002. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public +interest to accept Respondent Miller’s Offer. +Accordingly, it is hereby ORDERED, effective immediately that: +A. Miller 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; +3 + + + + + + + + + + + + + + + +(b) Respondent, or the registered public accounting firm with +which he is associated, has been inspected by the Board and that inspection did not +identify any criticisms of or potential defects in the Respondent’s or the firm’s quality +control system that would indicate that the Respondent will not receive appropriate +supervision; +(c) Respondent has resolved all disciplinary issues with the +Board, and has complied with all terms and conditions of any sanctions imposed by the +Board (other than reinstatement by the Commission); and +(d) Respondent acknowledges his responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not +limited to, all requirements relating to registration, inspections, concurring partner +reviews and quality control standards. +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that his state CPA license is +current and he has resolved all other disciplinary issues with the applicable state boards +of accountancy. However, if state licensu re is dependent on reinstatement by the +Commission, the Commission will consider an application on its other merits. The +Commission’s review may include consideration of, in addition to the matters referenced +above, any other matters relating to Respondent’s character, integrity, professional +conduct, or qualifications to appear or practice before the Commission. +By the Commission. + Elizabeth M. Murphy + S e c r e t a r y +4 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2989.pdf b/raw/aaer/2009/AAER-2989.pdf new file mode 100644 index 0000000000000000000000000000000000000000..435dc9c26fa958ec5782cb4a02d5a82cf763fbd0 Binary files /dev/null and b/raw/aaer/2009/AAER-2989.pdf differ diff --git a/raw/aaer/2009/AAER-2989.txt b/raw/aaer/2009/AAER-2989.txt new file mode 100644 index 0000000000000000000000000000000000000000..bbc4638bf8724c67a41f6e202efa6e6f8ec8b436 --- /dev/null +++ b/raw/aaer/2009/AAER-2989.txt @@ -0,0 +1,106 @@ + + + + + + + +______________________________ + + + + + + + + + + + + + + + + + + + + + + +UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60098 / June 11, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2989 / June 11, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13515 +: +In the Matter of : + : ORDER OF FORTHWITH SUSPENSION +ELIZABETH MONRAD, CPA, : 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 Elizabeth Monrad (“Monrad”) 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. Monrad was licensed as a certified public accountant in Massachusetts from 1983 +to June 30, 1993, when her licensed expired. She was the chief financial officer of General Re +Corporation (“Gen Re”) from June 2000 until July 2003 when she left Gen Re to become the +chief financial officer of another company. From May 2002 through July 2003, Monrad also +was a member of the executive committee of Gen Re’s board of directors. From 1997, Monrad +was the chief financial officer of Gen Re’s North American Operations. +2. On April 14, 2009, a judgment of conviction was entered against Monrad in +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.” +1 + + + + + + + + + + + + + + + + + + + +United States v. Elizabeth Monrad, et al, No. 06 CR 137 (CFI), in the United States District +Court for the District of Connecticut, finding her guilty of sixteen felony counts, including 1 +count of conspiracy to violate the Federal securities laws and to commit mail fraud, 7 counts of +securities fraud, 5 counts of making false statements to the Commission, and 3 counts of mail +fraud. The criminal indictment against Monrad re sulted from her participation in a scheme to +help American International Group, Inc. (“AIG”) structure two sham reinsurance transactions. +These sham transactions were a fraudulent device by which AIG added a total of $500 million in +phony loss reserves to its balance sheet, $250 million in the fourth quarter of 2000 and another +$250 million in the first quarter of 2001. +3. The court sentenced Monrad to 18 months imprisonment followed by 24 months +of supervised release and ordered her to pay a fine of $250,000. +III. +In view of the foregoing, the Commission finds that Monrad 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 Elizabeth Monrad 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 +2 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2990.txt b/raw/aaer/2009/AAER-2990.txt new file mode 100644 index 0000000000000000000000000000000000000000..0eff97753cbbffb019e8b23c75e91dbae17519eb --- /dev/null +++ b/raw/aaer/2009/AAER-2990.txt @@ -0,0 +1,1393 @@ + + + + + + + + + + + + + + + + SEC.gov | Blackout Media Corporation and Sandy Winick + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/505971","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Blackout Media Corporation and Sandy Winick , United States District Court for the Southern District of New York, Civil Action No. 09 CV 5454 (GBD) + + SEC CHARGES PENNY STOCK COMPANY AND CANADIAN CITIZEN WITH ILLEGAL STOCK DISTRIBUTION THROUGH CORPORATE SPINOFFS + + The Securities and Exchange Commission today filed a complaint in the United States District Court for the Southern District of New York against penny stock company Blackout Media Corporation, formerly known as First Canadian American Holding Corporation ("First Canadian"), and its former principal Sandy Winick, a resident of Toronto, Canada. The SEC alleges that First Canadian and Winick engaged in a scheme to create publicly traded companies through illegal distribution of the securities of more than 50 First Canadian subsidiaries. + + The SEC's complaint alleges that from April 2002 to May 2004, First Canadian spun off 59 subsidiaries through unregistered distribution of their securities to shareholders. As alleged in the complaint, these spinoffs had no legitimate business purpose and were instead a means to create publicly traded companies without providing the disclosure required by registration. According to the complaint, while conducting the spinoffs, First Canadian never filed periodic reports with the Commission, and made no meaningful disclosure about the financial and business operations of First Canadian or any of the subsidiaries. The complaint alleges that while First Canadian "reported" the spinoffs on Forms 8-K and proxy statements on Schedule 14A, these filings failed to disclose the true nature of the spinoff transactions and that Winick had control over 16.5% of First Canadian's stock through his wife, his friends, and affiliated entities. + + The complaint further alleges that, as a result of the spinoffs, Winick assembled an inventory of public company shells for sale and later sold many of them. In addition, the complaint alleges that Winick traded in the shares of some of these companies and profited by at least $3.2 million from 2004 through 2007. + + The SEC's complaint charges Blackout Media and Winick with violating Sections 5(a) and 5(c) of the Securities Act of 1933 and Section 14(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 14a-9 thereunder. The complaint also charges Blackout Media with violating, and Winick with aiding and abetting violations of, Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder; and Winick with violating Sections 13(d) and 16(a) of the Exchange Act and Rules 13d-1 and 16a-3 thereunder. + + The Commission seeks permanent injunctions and civil penalties against Blackout Media and Winick, and seeks from Winick an accounting, disgorgement, a penny stock bar, and the surrender of all stock he owns or controls in the companies spun off by First Canadian or their successors. + + Also today, the Commission filed an action in the Northern District of California alleging fraud and registration violations against one of the companies First Canadian spun off, Pearl Asian Mining Industries, Inc. (now known as ZNext Mining Corporation), and its principal, Elvira Gamboa (also known as Pearl Asian). SEC v. ZNext Mining Corporation, Inc. and Elvira G. Gamboa , Civil Action No. CV 09-2611 (VRW) (N.D. Cal.); LR-21084 (June 12, 2009). + + The Commission acknowledges the assistance of the Financial Industry Regulatory Authority (FINRA) and the Ontario Securities Commission. + + + SEC Complaint + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Friehling, C.P.A and Friehling & Horowitz, CPA's, P.C. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/505351","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Friehling, C.P.A and Friehling & Horowitz, CPA's, P.C. + + + + + + + + + + + + David G. Friehling, C.P.A and Friehling & Horowitz, CPA's, P.C. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20959 / March 18, 2009 + + Accounting and Auditing Enforcement Release No. 2992 / March 18, 2009 + + SECURITIES AND EXCHANGE COMMISSION V. DAVID G. FRIEHLING, C.P.A AND FRIEHLING & HOROWITZ, CPA'S, P.C. , (S.D.N.Y. Civ. 09 CV 2467) + + SEC CHARGES MADOFF AUDITORS WITH FRAUD + + The Securities and Exchange Commission today charged the auditors of Bernard Madoff's broker-dealer firm with committing securities fraud by falsely representing that they had conducted legitimate audits, when in fact they had not. + + In its complaint filed today in federal court in Manhattan, the SEC alleges that from 1991 through 2008, certified public accountant David G. Friehling and his firm, Friehling & Horowitz, CPAs, P.C. (F&H), purported to audit financial statements and disclosures of Bernard L. Madoff Investment Securities LLC (BMIS). The SEC previously charged Madoff and BMIS with committing securities fraud through a multi-billion dollar Ponzi scheme perpetrated on advisory and brokerage customers of his firm. + + The SEC's complaint alleges that Friehling enabled Madoff's Ponzi scheme by falsely stating, in annual audit reports, that F&H audited BMIS financial statements pursuant to Generally Accepted Auditing Standards (GAAS), including the requirements to maintain auditor independence and perform audit procedures regarding custody of securities. + + F&H also made representations that BMIS financial statements were presented in conformity with Generally Accepted Accounting Principles (GAAP) and that Friehling reviewed internal controls at BMIS, including controls over the custody of assets, and found no material inadequacies. According to the SEC's complaint, Friehling knew that BMIS regularly distributed the annual audit reports to Madoff customers and that the reports were filed with the SEC and other regulators. + + The SEC's complaint alleges that all of these statements were materially false because Friehling and F&H did not perform a meaningful audit of BMIS, and did not perform procedures to confirm that the securities BMIS purportedly held on behalf of its customers even existed. + + Instead, the SEC alleges that Friehling merely pretended to conduct minimal audit procedures of certain accounts to make it seem like he was conducting an audit, and then failed to document his purported findings and conclusions as required under GAAS. If properly stated, those financial statements, along with BMIS related disclosures regarding reserve requirements, would have shown that BMIS owed tens of billions of dollars in additional liabilities to its customers and was therefore insolvent. + + According to the SEC's complaint, Friehling similarly did not conduct any audit procedures with respect to BMIS internal controls, and had no basis to represent that BMIS had no material inadequacies. Afraid that his work for BMIS would be subject to peer review, as required of accountants who conduct audits, Friehling lied to the American Institute of Certified Public Accountants for years and denied that he conducted any audit work. + + The SEC further alleges that Friehling and F&H obtained ill-gotten gains through compensation from Madoff and BMIS, and also from withdrawing returns from accounts held at BMIS in the name of Friehling and his family members. + + The SEC's complaint specifically alleges that Friehling and F&H violated Section 17(a) of the Securities Act, violated and aided and abetted violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and aided and abetted violations of Sections 206(1) and 206(2) of the Advisers Act, Section 15(c) of the Exchange Act and Rule 10b-3 thereunder, and Section 17 of the Exchange Act and Rule 17a-5 thereunder. Among other things, the SEC's complaint seeks permanent injunctions, civil penalties and a court order requiring both Friehling and F&H to disgorge their ill-gotten gains. + + The SEC acknowledges the assistance of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation. The SEC's investigation is continuing. + + For more information see prior litigation release nos. 20834 & 20889 . + + + SEC Complaint + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Share sensitive information only on official, secure websites. + + + + + + + + + + + + + + + + + SEC homepage + + + + + + + Menu + + + + + + + + + + + + + + Close + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + Search Filings + + + + + + + + + Search Filings + + + + + + + + + Full Text Search + + + + + + Latest Filings + + + + + + Mutual Fund Search + + + + + + Variable Insurance Products Search + + + + + + SIC Codes + + + + + + CIK Lookup + + + + + + Public Dissemination Service (PDS) + + + + + + Search Assistance + + + + + + + + + + + + + Submit Filings + + + + + + + + + Submit Filings + + + + + + + + + EDGAR Filer Management Portal + + + + + + EDGAR Filing Portal + + + + + + Online Forms Management Portal + + + + + + EDGAR Next + + + + + + Forms Index + + + + + + Filer Support & Resources + + + + + + + + + + + + + Data & Research + + + + + + + + + Data & Research + + + + + + + + + Data Library + + + + + + Statistics & Data Visualizations + + + + + + Structured Data + + + + + + Investment Management Data + + + + + + Open Data at the SEC + + + + + + + + + + + + + Rules, Enforcement, & Compliance + + + + + + + + + + + + + + + + + + + + Rules & Regulations + + + + + + + + + Rulemaking Activity + + + + + + Submit Public Comments + + + + + + Staff Guidance + + + + + + No-Action, Interpretive, and Exemptive Letters + + + + + + Self-Regulatory Organization Rulemaking + + + + + + Public Petitions for Rulemaking + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + + + Litigation Releases + + + + + + Administrative Proceedings + + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + + Trading Suspensions + + + + + + Distributions to Harmed Investors + + + + + + Receiverships + + + + + + + + + + + + + + + + + Compliance + + + + + + + + + Examination Priorities + + + + + + Risk Alerts + + + + + + Compliance Outreach Program + + + + + + + + + + + + + + + + + + + + + + + Proposed Rules + + + + + + What's New + + + + + + Whistleblower Program + + + + + + + + + + + + + + + + + + + Featured Topics + + + + + + + + + Featured Topics + + + + + + + + + Crypto Task Force + + + + + + Cybersecurity + + + + + + Market Structure Analytics + + + + + + Saving and Investing for Military Personnel + + + + + + Saving and Investing for Teachers + + + + + + SEC-CFTC Harmonization Initiative + + + + + + Treasury Clearing Implementation + + + + + + + + + + + + + About + + + + + + + + + About + + + + + + + + + Mission + + + + + + Commissioners + + + + + + Divisions & Offices + + + + + + Division & Office Directors + + + + + + Advisory Committees + + + + + + Budget & Performance + + + + + + Reports & Publications + + + + + + Commission Votes + + + + + + Contact the SEC + + + + + + Careers + + + + + + + + + + + + + Submit a Tip or Complaint + + + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + More in this Section + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + Joseph Hirko, et al. + + + + + + + + + + + + Joseph Hirko, et al. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21089 / June 18, 2009 + + Accounting and Auditing Enforcement Release No. 2993 / June 18, 2009 + + Securities and Exchange Commission v. Joseph Hirko, et al. , Civil Action No. H-03-0905 (S.D. Tex.) + + SEC SETTLES PENDING CIVIL FRAUD CHARGES AGAINST JOSEPH HIRKO, FORMER CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF ENRON BROADBAND SERVICES + + The Securities and Exchange Commission ("Commission") announced today that, on June 15, 2009, the U.S. District Court in Houston entered a final judgment in the Commission's pending civil action against Joseph Hirko, former Chairman and Chief Executive Officer of Enron Broadband Services ("EBS"). On May 1, 2003, the Commission charged Hirko and other EBS executives with securities fraud and insider trading. Without admitting or denying the allegations in the Commission's complaint, Hirko has now agreed to be permanently enjoined from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, to be permanently barred from serving as an officer or director of a public company, and to pay a $1 million civil money penalty. + + The Commission settled this action in coordination with the Department of Justice, which entered into a plea agreement with Hirko on related charges in October 2008. In the criminal action, Hirko agreed to forfeit $7 million that, along with the Commission's disgorgement and civil penalties, will contribute over $8 million for the benefit of injured investors through the Commission's Enron Fair Fund. + + As alleged in the Commission's complaint, Hirko and other EBS executives engaged in a fraudulent scheme to, among other things, make false or misleading statements about the technological prospects, performance, and financial condition of EBS. These statements were made at Enron's annual analyst conference and in multiple press releases during 2000. While aware of material non-public information concerning the true nature of EBS' technological and commercial condition, Hirko sold large amounts of Enron stock at inflated values and avoided substantial losses. + + Hirko is scheduled to be sentenced in the U.S. District Court in Houston on September 28, 2009. + + The Commission acknowledges the assistance of the U.S. Department of Justice. + + For more information, see Litigation Release No. 18122 (May 1, 2003). + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Comverse Technology, Inc. , United States District Court for the Eastern District of New York, Civil Action No. 09-CV-02588-DRH-AKT (E.D.N.Y. June 18, 2009) + + SEC SUES COMVERSE TECHNOLOGY, INC. FOR FRAUDULENT OPTIONS BACKDATING AND EARNINGS MANAGEMENT SCHEMES + + The Securities and Exchange Commission ("Commission") today filed a settled civil action in the United States District Court for the Eastern District of New York against Comverse Technology, Inc. ("Comverse") alleging that it engaged in two separate fraudulent schemes, during the course of more than a decade, to materially misstate its financial condition and performance metrics. According to the Complaint, as a result of its improper conduct, Comverse was able to portray itself as a company with steady, but measured growth, which regularly met analysts' earnings targets. + + According to the Commission's Complaint, the first scheme involved improper backdating of Comverse stock options granted between 1991 and 2001. With respect to the backdating scheme, the Complaint alleges: + + Comverse routinely backdated grants of stock options made to the Company's employees, officers, and others to coincide with historically low closing prices for the Company's common stock, distributing options from at least 26 backdated grants. Six out of seven company-wide grants made by Comverse during the relevant period were granted at, or near, the lowest stock price for the fiscal quarter or year. + + Comverse awarded employees these disguised in-the-money options without recording a corresponding compensation expense for the in-the-money portion of the option grant. The failure to record the expense did not conform to U.S. Generally Accepted Accounting Principles. + + Comverse also made grants to fictitious employees in order to establish an illegal pool of options thereby creating a slush fund of "in-the-money" stock options to later use in circumvention of the approved stock option grant process. + Comverse's second fraudulent scheme involved several improper accounting practices. According to the Complaint: + + Comverse improperly built up, and subsequently improperly released, certain reserves to meet earnings targets, improperly reclassified certain expenses to manipulate other performance metrics, and made false disclosures about its backlog of sales orders. + + The manipulation of earnings allowed Comverse to meet or exceed Wall Street analysts' consensus earnings estimates in every quarter between 1996 and the first quarter of 2001. + + As a result of the accounting fraud, Comverse understated its pre-tax income in fiscal years 1996 through 1999, overstated its pre-tax income in fiscal years 2000 to 2003, and made materially false and misleading disclosures about its operating margins and sales backlog. + The Complaint also alleges that Comverse published materially false and misleading financial information about its quarterly and annual pre-tax earnings, net income, operating income, liabilities, cost of goods sold, research and development expense, and sales order backlog in reports filed with the Commission, including its annual and quarterly reports for fiscal years 1995 through 2005. + + Without admitting or denying the allegations of the Commission's Complaint, Comverse has consented to the entry of a final judgment permanently enjoining it from violating the antifraud, reporting, record-keeping, and internal controls provisions of the federal securities laws. Specifically, the proposed final judgment would permanently enjoin Comverse from violating Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, and 14a-9. In accepting the company's settlement offer, the Commission considered, among other things, Comverse's extensive cooperation in the Commission's investigation. + + The settlement is subject to the approval of the United States District Court for the Eastern District of New York. + + The Commission previously charged former Comverse Chairman and CEO Jacob "Kobi" Alexander, former Comverse Chief Financial Officer David Kreinberg, and former Comverse General Counsel William F. Sorin. Kreinberg and Sorin each settled with the Commission. The Commission today also announced the filing of settled civil charges against Ulticom, Inc., a majority owned subsidiary of Comverse whose stock is also publicly traded, for fraudulent options backdating and earnings management practices. For further information, see Litigation Release Nos. 19796 (August 9, 2006), 19878 (October 24, 2006), 19964 (January 10, 2007), and 21090 (June 18, 2009). + + + SEC Complaint + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-2996.pdf b/raw/aaer/2009/AAER-2996.pdf new file mode 100644 index 0000000000000000000000000000000000000000..2b11b6d0b7b081c2731948dcb94ec7e71e126be3 Binary files /dev/null and b/raw/aaer/2009/AAER-2996.pdf differ diff --git a/raw/aaer/2009/AAER-2996.txt b/raw/aaer/2009/AAER-2996.txt new file mode 100644 index 0000000000000000000000000000000000000000..83be3284d70d650d7804230d2db86cb49ea8ed7c --- /dev/null +++ b/raw/aaer/2009/AAER-2996.txt @@ -0,0 +1,139 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60155 / June 22, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 2996 / June 22, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13525 +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE + ANTHONY R. RUSSO, CPA : 102(e)(3)(i) OF THE COMMISSION’S +: RULES OF PRACTICE, MAKING +: FINDINGS, AND IMPOSING +Respondent. : 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 +Anthony R. Russo, CPA (“Respondent” or “Russo”) pursuant to Rule 102(e)(3)(i) of the +Commission’s Rules of Practice. +1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) whic h the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisd iction over him and the subject matter of these +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . +who has been by name . . . permanently enjoin ed 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 violati on of any provision of the Federal securities +laws or of the rules and regulations thereunder. + + + + + + + + + + + + + + + + + + + + + + + + + + + +proceedings, and the findings contained in S ection III.2 below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) +of the Commission’s Rules of Practice, Maki ng 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. Russo, age 66, was a certified public accountant licensed to practice in the State of +New York until his license became inactiv e during 2006. From August 2002 through +approximately December 2003, Russo was Certified Services, Inc.’s (“Certified”) Chief Executive +Officer and Chief Financial Officer. +2. On March 6, 2008, the Commission filed a complaint against Russo and others in +the United States District Court, Southern District of Florida. [SEC v. Anthony R. Ru sso, et al., +Civil Action No. 08-60315-Zloch] . On May 15, 2009, the court entered an order permanently +enjoining Russo, by consent, from future violations of Sections 10(b) and 13(b)(5) of the Securities +Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 13a-14, 13b2-1 and 13b2-2 thereunder, +and aiding and abetting violations of Sections13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange +Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. The Court also required Russo to pay +disgorgement, prejudgment interest thereon and a civil money penalty and barred him from +participating in an offering of penny stock. +3. The Commission’s complaint alle ged, among other things, that from +approximately August 2002 through at least December 2003, Respondent and others violated the +anti-fraud and the books and records provisions of the federal securities laws. These violations +allowed Certified and others to overstate Certified’s financial condition in filings made with the +Commission. In addition, Certified and others failed to disclose related party transactions. +Moreover, the Commission’s complaint alleged that this scheme allowed tens of millions of +dollars of Certified’s funds to be siphoned into shells, which were controlled by related parties. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Russo’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +Respondent Russo is suspended from appearing or practicing before the Commission as an +accountant. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +2 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-2997.txt b/raw/aaer/2009/AAER-2997.txt new file mode 100644 index 0000000000000000000000000000000000000000..fe8a744fa2d3557f4e7d743ee0cde87121ca926f --- /dev/null +++ b/raw/aaer/2009/AAER-2997.txt @@ -0,0 +1,1371 @@ + + + + + + + + + + + + + + + + SEC.gov | Warren B. Schmidgall and David E. 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Schmidgall and David E. Watson + + + + + + + + + + + + Warren B. Schmidgall and David E. Watson + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21097 / June 22, 2009 + + Accounting and Auditing Enforcement Release No. 2997 + + SEC v. Warren B. Schmidgall and David E. Watson , Civil Action No. 4:08-cv-00677 (W.D. Mo.) + + WARREN B. SCHMIDGALL, FORMER AMERICAN ITALIAN PASTA COMPANY EXECUTIVE, SETTLES FRAUD CHARGES + + The Securities and Exchange Commission ("Commission") announced today that on June 22, 2009, the United States District Court for the Western District of Missouri entered a final judgment against Warren B. Schmidgall, former chief financial officer of American Italian Pasta Company ("AIPC"). The final judgment settles the Commission's claims against Schmidgall that were asserted in a civil action filed on September 15, 2008 against Schmidgall and AIPC's former executive vice president of corporate development and strategy, David E. Watson, alleging securities fraud and other violations of the federal securities laws. The Commission's case against Watson is ongoing. + + In its complaint, the Commission alleged that from AIPC's fiscal year 2002 through the second quarter of its fiscal year 2004, Schmidgall engaged in a fraudulent accounting scheme to mislead the investing public about the growth of the company's earnings and to increase artificially the company's stock price. According to the complaint, the fraudulent accounting, and other errors arising from inadequate internal controls, resulted in the overstatement of AIPC's pre-tax income for the relevant period by approximately $59 million, or 66 percent. + + Without admitting or denying the allegations in the Commission's complaint, Schmidgall consented to a final judgment enjoining him from violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. Further, Schmidgall agreed to pay disgorgement of $28,500, prejudgment interest of $9,788, and a $100,000 civil penalty. Also, the final judgment bars Schmidgall from serving as an officer or director of a public company. + + In a related criminal action, Schmidgall pled guilty to one count of conspiracy to commit wire fraud for his role in concealing AIPC's true financial condition and filing materially false reports with the Commission. [United States v. Warren B. Schmidgall, No. 08-00260-01-Cr-W-DW.] Schmidgall has not yet been sentenced. The Commission acknowledges the assistance and cooperation of the U.S. Attorney's Office for the Western District of Missouri and the Kansas City Field Office of the Federal Bureau of Investigation. + + For more information on earlier actions in this case, see LR-20715 (Sept. 15, 2008). + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Schroeder + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/506046","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Schroeder + + + + + + + + + + + + Horst W. Schroeder + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21098 / June 22, 2009 + + Accounting and Enforcement Release No. 2998 / June 22, 2009 + + SEC v. Horst W. Schroeder , Civil Action No. 4:09-CV-00470-DW (W.D. Mo.) + + FORMER CHAIRMAN OF THE BOARD OF AMERICAN ITALIAN PASTA COMPANY SETTLES SEC CHARGES + + The Securities and Exchange Commission ("Commission") today filed a settled civil injunctive action against Horst W. Schroeder, former chairman of the board of directors of Kansas-City based American Italian Pasta Company ("AIPC"). + + According to the Commission's complaint, from its fiscal year 2002 through the second quarter of its fiscal year 2004, AIPC inflated its reported income and earnings per share. As alleged in the complaint, during AIPC's 2004 fiscal year, Schroeder was provided with information showing that a $3.4 million receivable recorded at the end of AIPC's 2003 fiscal year was not valid and collectible. The Commission's complaint alleges that in May 2004, Schroeder signed AIPC's Form S-8 registration, which specifically incorporated by reference AIPC's fiscal year 2003 Form 10-K, which Schroeder also signed and which Schroeder should have known was materially misstated in part because of the invalid and uncollectible $3.4 million receivable. + + Without admitting or denying the allegations in the Commission's complaint, Schroeder has consented to the entry of a final judgment enjoining him from violations Section 17(a)(3) of the Securities Act of 1933 ("Securities Act") and Rule 13b2-1 under the Securities Exchange Act of 1934 ("Exchange Act"), and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. Further, Schroeder has agreed to pay a $50,000 civil penalty. + + For more information on earlier actions in this case, see LR-20715 (Sept. 15, 2008). + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-2999.txt b/raw/aaer/2009/AAER-2999.txt new file mode 100644 index 0000000000000000000000000000000000000000..0d53584f5c5ef8856493b5dc46f4b5865fa8e449 --- /dev/null +++ b/raw/aaer/2009/AAER-2999.txt @@ -0,0 +1,1373 @@ + + + + + + + + + + + + + + + + SEC.gov | Steven R. Garfinkel and Michael O'Hanlon + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/506086","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Garfinkel and Michael O'Hanlon + + + + + + + + + + + + Steven R. Garfinkel and Michael O'Hanlon + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21106 / June 25, 2009 + + Accounting and Auditing Enforcement No. 2999 / June 25, 2009 + + Securities and Exchange Commission v. Steven R. Garfinkel and Michael O'Hanlon , Civil Action No. 09-CV-2851 (E.D.Pa. June 25, 2009) + + SEC CHARGES FORMER DVI, INC. EXECUTIVES WITH FINANCIAL FRAUD + + The United States Securities and Exchange Commission announced that it has filed a settled civil action in the United States District Court for the Eastern District of Pennsylvania against Steven R. Garfinkel (Garfinkel) and Michael O'Hanlon (O'Hanlon) for their participation in a financial fraud. This caused the collapse of DVI, Inc. (DVI), a specialty finance company that loaned money to small healthcare service providers for the purchase of high-end medical equipment. The Commission's complaint alleges that over a period of four years, Garfinkel, DVI's former Chief Financial Officer, and O'Hanlon, DVI's former Chief Executive Officer and President, used fraudulent means to conceal the company's liquidity crisis from investors and to fraudulently obtain additional funding from its commercial lenders. Without admitting or denying the Commission's allegations, Garfinkel and O'Hanlon consented to settle the action. + + According to the Commission's complaint, Garfinkel and O'Hanlon engaged in a fraudulent scheme to obtain additional funding from DVI's commercial lenders by pledging collateral that did not meet the quality-related criteria specified in the loan covenants. In addition, Garfinkel and O'Hanlon manipulated paperwork to enable DVI to double pledge collateral and sent DVI's commercial lenders false monthly reports to make it appear that there was adequate and appropriate collateral securing DVI's lines-of-credit. Garfinkel and O'Hanlon concealed the fraudulent scheme from investors by knowingly filing false and materially misleading Commission reports and issuing false and materially misleading press releases. In furtherance of their scheme, Garfinkel and O'Hanlon also aided and abetted DVI's filing violations by knowingly falsifying or causing others to falsify certain books and records, circumventing internal controls and misleading DVI's auditors. + + By engaging in the conduct described in this Complaint, Garfinkel and O'Hanlon violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13b2-1, 13b2-2 and 13a-14 thereunder and aided and abetted DVI's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. Garfinkel and O'Hanlon have agreed to the entry of a Final Judgment that permanently enjoins them from further violations of the relevant provisions of the Exchange Act and prohibits them from acting as officers or directors of a public company. + + On November 17, 2006, the United States Attorney's Office for the Eastern District of Pennsylvania filed an Information against Garfinkel charging him with violations of 18 U.S.C. §§ 1341 (mail fraud) and 1350 (false certification of financial reporting) of the Sarbanes Oxley Act. On March 28, 2007, Garfinkel pled guilty to violations of these provisions, was sentenced to 30 months incarceration and was ordered to pay restitution of $51 million. Garfinkel is currently incarcerated. + +   + + + +  + + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Garfinkel and Michael O'Hanlon + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/506086","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Garfinkel and Michael O'Hanlon + + + + + + + + + + + + Steven R. Garfinkel and Michael O'Hanlon + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21106 / June 25, 2009 + + Accounting and Auditing Enforcement No. 2999 / June 25, 2009 + + Securities and Exchange Commission v. Steven R. Garfinkel and Michael O'Hanlon , Civil Action No. 09-CV-2851 (E.D.Pa. June 25, 2009) + + SEC CHARGES FORMER DVI, INC. EXECUTIVES WITH FINANCIAL FRAUD + + The United States Securities and Exchange Commission announced that it has filed a settled civil action in the United States District Court for the Eastern District of Pennsylvania against Steven R. Garfinkel (Garfinkel) and Michael O'Hanlon (O'Hanlon) for their participation in a financial fraud. This caused the collapse of DVI, Inc. (DVI), a specialty finance company that loaned money to small healthcare service providers for the purchase of high-end medical equipment. The Commission's complaint alleges that over a period of four years, Garfinkel, DVI's former Chief Financial Officer, and O'Hanlon, DVI's former Chief Executive Officer and President, used fraudulent means to conceal the company's liquidity crisis from investors and to fraudulently obtain additional funding from its commercial lenders. Without admitting or denying the Commission's allegations, Garfinkel and O'Hanlon consented to settle the action. + + According to the Commission's complaint, Garfinkel and O'Hanlon engaged in a fraudulent scheme to obtain additional funding from DVI's commercial lenders by pledging collateral that did not meet the quality-related criteria specified in the loan covenants. In addition, Garfinkel and O'Hanlon manipulated paperwork to enable DVI to double pledge collateral and sent DVI's commercial lenders false monthly reports to make it appear that there was adequate and appropriate collateral securing DVI's lines-of-credit. Garfinkel and O'Hanlon concealed the fraudulent scheme from investors by knowingly filing false and materially misleading Commission reports and issuing false and materially misleading press releases. In furtherance of their scheme, Garfinkel and O'Hanlon also aided and abetted DVI's filing violations by knowingly falsifying or causing others to falsify certain books and records, circumventing internal controls and misleading DVI's auditors. + + By engaging in the conduct described in this Complaint, Garfinkel and O'Hanlon violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13b2-1, 13b2-2 and 13a-14 thereunder and aided and abetted DVI's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. Garfinkel and O'Hanlon have agreed to the entry of a Final Judgment that permanently enjoins them from further violations of the relevant provisions of the Exchange Act and prohibits them from acting as officers or directors of a public company. + + On November 17, 2006, the United States Attorney's Office for the Eastern District of Pennsylvania filed an Information against Garfinkel charging him with violations of 18 U.S.C. §§ 1341 (mail fraud) and 1350 (false certification of financial reporting) of the Sarbanes Oxley Act. On March 28, 2007, Garfinkel pled guilty to violations of these provisions, was sentenced to 30 months incarceration and was ordered to pay restitution of $51 million. Garfinkel is currently incarcerated. + +   + + + +  + + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Jack Gaglio; and Robert Quattrone, et al. + + + + + + + + + + + + Mark Cocchiola and Steven Venechanos; Jack Gaglio; and Robert Quattrone, et al. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21107 / June 25, 2009 + + Accounting and Auditing Enforcement Release No. 3001 / June 25, 2009 + + Securities and Exchange Commission v. Mark Cocchiola and Steven Venechanos , Civil Action No. 05-CV-3450-SRC (D.N.J.) + + Securities and Exchange Commission v. Jack Gaglio , Civil Action No. 05-CV-1195-SRC (D.N.J.) + + Securities and Exchange Commission v. Robert Quattrone, et al. , Civil Action No. 04-CV-33-SRC (D.N.J.) + + SEC RESOLVES FRAUD ACTION AGAINST MARK COCCHIOLA AND STEVEN VENECHANOS, FORMER CEO AND CFO OF SUPREMA SPECIALTIES, AND 11 OTHER DEFENDANTS, IN CONNECTION WITH $700 MILLION ROUND-TRIPPING SCHEME + + The Securities and Exchange Commission announced today that on June 3, 2009, the Honorable Stanley R. Chesler, of the United States District Court for the District of New Jersey, entered Final Judgments against Mark Cocchiola, former CEO, president, and chairman of the board of directors of New Jersey-based Suprema Specialties, Inc. ("Suprema"), and Steven Venechanos, former CFO, secretary, and director of the company. The Commission's complaint against Cocchiola and Venechanos alleged that they violated the antifraud and other provisions of the federal securities laws through their participation in a multi-year financial fraud orchestrated by Suprema's management. Without admitting or denying the allegations in the complaint, Cocchiola and Venechanos each consented to the entry of final judgments imposing full injunctive relief and permanent officer and director bars. The final judgments ordered Venechanos to pay $1,484,202 in disgorgement and $732,126.45 in prejudgment interest and Cocchiola to pay $4,834,565 and prejudgment interest in the amount of $2,446,852.74, which obligations were deemed satisfied by the prior entry of restitution orders against each defendant in the parallel criminal action captioned U.S. v. Cocchiola and Venechanos , No. CR05-533-SRC. + + The Commission also announced today that on June 4, 2009, the Commission brought to a close related civil injunctive proceedings against eleven other defendants, listed below, whom the Commission alleged had participated in the Suprema financial fraud: + + Arthur Christensen, the former controller of Suprema;   + + John Van Sickell, the former operations manager of Suprema's Paterson, New Jersey plant;   + + Five entities that purported to buy from or sell products to Suprema in the round-tripping scheme: Battaglia & Company, Inc. ("Battaglia"), California Milk Market ("CMM"), LNN Enterprises, Inc. ("LNN"), Packing Products, Inc. ("Packing Products"), and West Coast Commodities, Inc. ("WCC"); and   + + Four persons who owned or operated these and other participating entities: Lawrence Fransen, Jack Gaglio, Robert Quattrone, and George Vieira. + + Each of the eleven above-listed individuals and entities had previously consented to the entry of judgments imposing full permanent injunctive relief and, in the case of the individuals, officer and director bars. These judgments had reserved the Commission's right to apply to the court at a later time to determine disgorgement and civil penalties. In view of the restitution orders and other criminal sanctions subsequently imposed on these defendants in the parallel criminal case, the Commission has withdrawn its claims for additional disgorgement and civil penalties from these defendants. The Commission has also withdrawn its claims for additional relief against Van Sickell, who died in June 2008. + + As detailed in prior releases, the Commission's complaints in this matter alleged that Suprema engaged in fraudulent "round-tripping" transactions that resulted in total misstatements of Suprema's reported revenue of between approximately 35% and over 60% in each of the 1999, 2000 and 2001 fiscal years, and in the first quarter of fiscal year 2002. The complaints further alleged that the scheme resulted in total misstatements of Suprema's reported accounts receivable of 60% or more in each of the 1999, 2000 and 2001 fiscal years. + + According to the complaints, the "round-tripping" transactions were effectuated through "circles" of entities, each of which included Suprema, a third-party "customer," and a related "vendor." As the complaints alleged, the customer and vendor in each circle tended to have a common owner. The complaints alleged that false paperwork was created documenting the fictitious transactions, and checks were circulated in purported payment for the transactions. Participants allegedly received a kick-back or "commission" on each transaction, the funds for which were generally drawn from Suprema's line of credit, which increased as Suprema's accounts receivable grew. With rare exceptions, the complaint alleged, no goods were actually sold, purchased, or exchanged in these transactions. + + The Commission alleged that Cocchiola and Venechanos were aware of, approved of, and participated in the fraud from at least in or around February 2000. The Commission further alleged that Christensen was aware of improprieties in Suprema's cheese transactions from at least 1998 and that, from August 2001 through his resignation in December 2001, he assumed responsibility for coordinating the flow of false invoices and checks in the round-tripping scheme. The Commission further alleged that, from December 2001 through February 2002, Vieira assumed responsibility for coordinating the flow of false invoices and checks in the round-tripping scheme. Finally, the Commission further alleged that Battaglia, CMM, LNN, Packing Products, and WCC participated as customers and vendors in the round-tripping transactions and that Fransen, Gaglio, Quattrone, and Vieira controlled these entities and received commissions in return for their participation. + + In related proceedings, Christensen, Fransen, Gaglio, Quattrone, Van Sickell, and Vieira pled guilty to criminal informations filed by the United States Attorney for the District of New Jersey, including counts of securities fraud and conspiracy to commit securities fraud. All of these defendants (except Van Sickell, who died prior to sentencing) were sentenced to terms of probation or imprisonment and were ordered jointly and severally to pay varying amounts of restitution that totaled in excess of $100 million. ( U.S. v. Arthur Christensen , CR07-32 (D.N.J.); U.S. v. Lawrence Fransen , CR04-10 (D.N.J.); U.S. v. Jack Gaglio , CR05-141 (D.N.J.); U.S. v. Robert Quattrone , CR04-13 (D.N.J.); U.S. v. John Van Sickell , CR04-12 (D.N.J.); and U.S. v. George Vieira , CR04-11 (D.N.J.)). Also in related proceedings, Cocchiola and Venechanos were convicted by a jury on 38 felony counts of conspiracy, bank fraud, false statements to the Commission, mail fraud and wire fraud prosecuted by the United States Attorney for the District of New Jersey. Cocchiola and Venechanos were sentenced to 15 and 8 years of imprisonment, respectively, and were ordered joint and severally to pay over $115 million in restitution. ( U.S. v. Mark Cocchiola and Steven Venechanos , CR05-533 (D.N.J.)). + + The Commission acknowledges the assistance of the United States Attorney's Office for the District of New Jersey, the Federal Bureau of Investigation, and the U.S. Food and Drug Administration in its investigation. The Commission's investigation of this matter is now concluded. +   + + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-3002.txt b/raw/aaer/2009/AAER-3002.txt new file mode 100644 index 0000000000000000000000000000000000000000..53792b9e93f556e87c8e55122d69372c274b0165 --- /dev/null +++ b/raw/aaer/2009/AAER-3002.txt @@ -0,0 +1,168 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60181 / June 26, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3002 / June 26, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13529 +: +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +WARREN B. SCHMIDGALL, : 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 Warren +B. Schmidgall (“Respondent” or “Schmidgall”) pursuant to Rule 102(e)(3)(i) of the Commission’s +Rules of Practice. +1 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. + + + + + + + + + + + + + + + + + + + + +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over him and the subject matter of these +proceedings, and the findings contained in Section III.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. Schmidgall, age 58, is a resident of Oakbrook Terrace, IL 60181. +Schmidgall served as chief financial officer of American Italian Pasta Company (“AIPC”) from +November 1998 until August 2004. Schmidgall also served as an executive vice president of AIPC +from September 2004 until September 2005, when he left the company. Schmidgall passed the +Uniform Certified Public Accountant (“CPA”) exam and has held a CPA certificate from Illinois +since 1980, but has never held a CPA license. +2. At all relevant times, AIPC was a Delaware corporation with its principal +place of business in Kansas City, Missouri. AIPC is a producer and marketer of dry pasta. At all +relevant times, AIPC’s common stock was registered pursuant to Section 12(b) of the Securities +Exchange Act of 1934 (“Exchange Act”). The company filed annual, quarterly, and current reports +with the Commission on Forms 10-K, 10-Q, and 8-K, respectively. AIPC stock was traded on the +New York Stock Exchange (“NYSE”) until December 20, 2006, when the NYSE suspended +trading based on AIPC’s failure to keep current its Commission filings. The NYSE filed a Form +25 on April 23, 2007 and, as a result, AIPC’s common stock was deregistered from Section 12(b) +effective April 23, 2007. In June 2008, AIPC filed the quarterly and annual reports that it had +failed to timely file and has been current in its filings with the Commission since that time. +3. On October 22, 2008, the Commission filed its amended complaint against +Schmidgall in United States District Court for the Western District of Missouri (Civil Action No. +4:08-cv-0067). On June 22, 2009, the court entered an order permanently enjoining Schmidgall, +by consent, from future violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules +10b-5, 13a-14, 13b2-1, and 13b2-2 thereunder, and from aiding and abetting violations of Sections +13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. +The court further ordered that Schmidgall pay $28,500 in disgorgement; $9,788 in prejudgment +interest; and a $100,000 civil money penalty. The court further ordered that Schmidgall be barred +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. +2 + + + + + + + + + + + + + + + + + + + + +4. The Commission’s amended complaint alleged, among other things, that +Schmidgall and others at AIPC engaged in a fraudulent scheme that hid from the investing public +the true financial state of the company by filing materially false and misleading statements in the +company’s annual reports on Forms 10-K, quarterly reports on Forms 10-Q, and current reports on +Forms 8-K for AIPC’s fiscal years 2002, 2003, and 2004. The complaint alleged that to meet +aggressive external targets, Schmidgall and others engaged in numerous fraudulent accounting +practices that departed from generally accepted accounting principles (“GAAP”), including, among +other things, capitalizing improperly millions of dollars of normal operating costs; understating +improperly millions of dollars of trade promotion expenses; overstating improperly by millions of +dollars the company’s spare parts inventory; recognizing improperly millions of dollars of current +period revenue on sales of products that were not shipped until after the end of the current periods; +structuring round-trip cash transactions; eliminating improperly the company’s vacation and paid +time off liability; failing improperly to expense operating costs; and failing improperly to expense +manufacturing variances. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Schmidgall’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that Schmidgall is +suspended from appearing or practicing before the Commission as an accountant. +By the Commission. + Elizabeth M. Murphy + S e c r e t a r y +3 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3003.txt b/raw/aaer/2009/AAER-3003.txt new file mode 100644 index 0000000000000000000000000000000000000000..97ff3a927ff5510c5258a3a85b8048515cce7864 --- /dev/null +++ b/raw/aaer/2009/AAER-3003.txt @@ -0,0 +1,1393 @@ + + + + + + + + + + + + + + + + SEC.gov | Michael T. 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Rand + + + + + + + + + + + + Michael T. Rand + + + + + + + + + + + + + + + + + + + U. S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21114 / July 1, 2009 + + Accounting and Auditing Enforcement Release No. 3003 / July 1, 2009 + + Securities and Exchange Commission v. Michael T. Rand , Civil Action No. 1:09-CV-1780 (NDGA, July 1, 2009) + + The Securities and Exchange Commission (Commission) announced that on July 1, 2009, it filed a civil complaint against Michael T. Rand, of Sandy Springs, Georgia. The Commission charged Rand, the former chief accounting officer of Atlanta-based home builder Beazer Homes, USA, Inc., for conducting a multi-year fraudulent earnings management scheme and misleading Beazer's outside auditors and internal Beazer accountants in order to conceal his wrongdoing. + + The Commission alleges that Rand fraudulently decreased Beazer's reported net income by recording improper accounting reserves during certain periods between 2000 and 2005 in order to meet or exceed analysts' expectations for Beazer's diluted earnings per share (EPS) and maximize yearly officer and senior employee bonuses. Rand began reversing these improper reserves beginning in the first quarter of fiscal year 2006 in order to offset Beazer's declining financial performance. + + The Commission's Complaint also alleges that in fiscal year 2006 and the first two quarters of fiscal year 2007, Rand improperly recognized revenue from the sale and leaseback of certain model homes on Beazer's financial statements and used secret side agreements in order to hide his misconduct from Beazer's outside auditors. Cumulatively, Rand's actions caused Beazer to understate its income in SEC filings by approximately $63 million during fiscal years 2000 to 2005, representing approximately 7 percent of Beazer's cumulative actual restated net income of $955 million for the period. Rand's fraudulent actions caused Beazer to overstate its income and understate its loss by a total of $47 million during fiscal 2006 and the first two quarters of fiscal 2007, representing 20 percent of Beazer's cumulative actual restated net income of $232 million for the period. + + The Commission's complaint charges Rand with violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and, with aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder, and seeks a permanent injunction, disgorgement of Rand's ill-gotten gains plus prejudgment interest, and a financial penalty. + + The SEC also seeks a court order barring Rand from acting as an officer or director of any public issuer. + + See also, Exchange Act Release No. 58633 / September 24, 2008. + + SEC Complaint in this matter + +   + + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-3004.pdf b/raw/aaer/2009/AAER-3004.pdf new file mode 100644 index 0000000000000000000000000000000000000000..80f1ba91813396447ad7c2c69f9568f6cbbd096a Binary files /dev/null and b/raw/aaer/2009/AAER-3004.pdf differ diff --git a/raw/aaer/2009/AAER-3004.txt b/raw/aaer/2009/AAER-3004.txt new file mode 100644 index 0000000000000000000000000000000000000000..fa705c63835d4ef285b4c94db35268dfddc2092b --- /dev/null +++ b/raw/aaer/2009/AAER-3004.txt @@ -0,0 +1,103 @@ + + + + + + + +______________________________ + + + + + + + + + + + + + + + + + + + + + +UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60219 / July 1, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3004 / July 1, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13533 +: +In the Matter of : + : ORDER OF FORTHWITH SUSPENSION +ROBERT D. GRAHAM, 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 Robert D. Graham (“Graham”) 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. Graham was a senior vice president and assistant general counsel at General Re +Corporation (“Gen Re”), which he joined in 1986. Graham has been a member of the Delaware +Bar since 1973, but his license has been suspended since April 18, 2008, pending the results of +the criminal action against him. Graham also has been a member of the Connecticut Bar since +1988, but his license has been on administrative suspension since May 22, 2007 for failure to pay +that State’s client security fund fee. +2. On May 7, 2009, a judgment of conviction was entered against Graham in United +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.” +1 + + + + + + + + + + + + + + + + + + +States v. Robert D. Graham, et al, No. 06 CR 137 (CFD), in the United States District Court for +the District of Connecticut, finding him guilty of sixteen felony counts, including 1 count of +conspiracy to violate the Federal securities laws and to commit mail fraud, 7 counts of securities +fraud, 5 counts of making false statements to the Commission, and 3 counts of mail fraud. The +indictment charged Graham with engaging in a fraudulent scheme to help American International +Group, Inc. (“AIG”) structure a sham reinsurance transaction in order to make it appear as if AIG +had increased its loss reserves by $250 million in the fourth quarter of 2000 and by an additional +$250 million in the first quarter of 2001. +3. The court sentenced Graham to 12 months and 1 day imprisonment followed by +24 months of supervised release and ordered him to pay a fine of $100,000. +III. +In view of the foregoing, the Commission finds that Graham 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 Robert D. Graham, Esq. 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 +2 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3005.txt b/raw/aaer/2009/AAER-3005.txt new file mode 100644 index 0000000000000000000000000000000000000000..4d9bd2723f60773bc0235273fd17bbe89f8f2faa --- /dev/null +++ b/raw/aaer/2009/AAER-3005.txt @@ -0,0 +1,261 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60238 / July 2, 2009 +INVESTMENT COMPANY ACT OF 1940 +Release No. 28809 / July 2, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3005 / July 2, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13537 +In the Matter of +DAVID LLOYD PELLS, +Respondent. +ORDER INSTITUTING CEASE-AND- +DESIST PROCEEDINGS PURSUANT TO +SECTION 21C OF THE SECURITIES +EXCHANGE ACT OF 1934 AND SECTION +9(f) OF THE INVESTMENT COMPANY +ACT OF 1940, 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 he reby are, instituted pursuant to Section 21C of the Securities +Exchange Act of 1934 (“Exchange Act”), and Section 9(f) of the Investment Company Act of 1940 +(“Company Act”) against David Lloyd Pells (“Pells” or “Respondent”). +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) whic h the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisd iction over him and the subject matter of these +proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease- +and-Desist Proceedings Pursuant to Section 21C of the Securities Exch ange Act of 1934 and +Section 9(f) of the Investment Company Act of 1940, Making Findings and Imposing a Cease-and- +Desist Order (“Order”), as set forth below. + + + + + + + + + + + + + + + + + + + + + + + + +III. +On the basis of this Order and Respondent’s Offer, the Commission finds1 that: +RESPONDENT +1. David L. Pells, age 58, served in 2004 as president of a private Florida corporation +called iWorld Projects & Systems, Inc. (“iWorld Florida”), and President and COO of iWorld +Projects & Systems, Inc. (“iWorld”) during 2005. During that time, Pells was also on iWorld’s +board and served as the chairman of its investment committee. He became iWorld’s CEO after the +prior CEO resigned and remained in that position until February 2008. +OTHER RELEVANT ENTITY +2. iWorld is a now-defunct closed-end management investment company that elected +in December 2004 to be regulated as a business development company (“BDC”) under Section 54 +of the Company Act. iWorld has not filed periodic reports with the Commission since its third +quarter 2005 Form 10-Q in November 2005. Its corporate charter was revoked by the Nevada +Secretary of State on January 1, 2006 due to failure to pay franchise taxes. iWorld was in a +voluntary Chapter 7 bankruptcy proceeding, but that case was closed because iWorld had no +assets. iWorld’s common stock is registered under Section 12(g) of the Exchange Act and is listed +for quotation on the Pink OTC Markets. +FACTS +3. In May 2004, a business associate of Pells' formed iWorld Florida, a private Florida +corporation. The business associate became iWorld Florida’s CEO ( “iWorld Florida’s CEO”) and +Pells became the company’s president and COO. iWorld Florida’s CEO envisioned iWorld +Florida as a holding company that would acquire operating companies and then be acquired by or +merged with a publicly-traded company. +4. During the summer and fall of 2004, iWorld Florida purchased two operating +companies in exchange for $285,000 in working capital payments, $200,000 in assumed liabilities, +and 1.1 million shares of iWorld Florida common stock, which was not publicly traded. iWorld +Florida did not obtain independent valuations of these operating companies or their assets. +5. iWorld Florida’s CEO introduced Pells to the concept of a BDC and advocated it as +a suitable vehicle for iWorld Florida’s business. During late 2004, iWorld Florida’s CEO +orchestrated a series of transactions, including reverse mergers with public shell companies, that +resulted in iWorld’s creation as a publicly-traded BDC. Pells was unaware of the full extent to +which iWorld Florida’s CEO controlled iWorld’s formation process. +The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any +other person or entity in this or any other proceeding. +2 + +1 + + + + + + + + + + + + + + + + + + + + + + +6. Shortly after iWorld’s formation, it acquired iWorld Florida in a transaction that +made iWorld Florida and its subsidiaries the sole portfolio companies of iWorld. As a result of +that transaction, iWorld Florida’s CEO became the CEO and CFO of iWorld and Pells became its +president and COO. +7. Pursuant to Company Act Section 2(a)(41), a BDC’s board of directors must +determine in good faith the fair value of the BDC’s portfolio securities for which market quotations +are not readily available.2 Under generally accepted accounting principles, the fair value of such +securities is “the amount at which they could be exchanged in a current transaction between willing +parties, other than in a forced or liquidation sale.”3 Because there were no market quotations for +the portfolio companies’ shares, iWorld’s board was required to determine in good faith the fair +value of those shares each quarter when it prepared its quarterly reports under the Exchange Act. +8. iWorld’s board did not conduct the requisite good-faith fair valuation of its +portfolio companies. iWorld filed quarterly reports with the Commission on Form 10-Q for the +quarters ended March 31, 2005, June 30, 2005 and September 30, 2005, each of which included +the financial statements purporting to value iWorld’s portfolio companies at $10 million and +forecasting portfolio company revenues in the tens of millions of dollars for 2005 and 2006. +iWorld’s second and third quarter filings further stated that the “the Company’s Investment +Committee [has] determine[ed] that the portfolio investments should be valued at $10 million.” +9. iWorld’s investment committee had not conducted any valuation of iWorld’s +portfolio companies and iWorld did not have written records showing the companies were worth +the stated $10 million value. In fact, the portfolio companies had been purchased for much less +than $10 million, were losing money at the time they were purchased, and continued to rapidly lose +money and repeatedly fall far short of projected revenues or earnings. Consequently, the +representations that the portfolio companies were worth $10 million, that they were expected to +produce millions in revenues, and that iWorld had conducted the requisite valuation were all +materially misleading. +10. Pells was aware that iWorld’s portfolio companies were losing money. Although +Pells did not sign iWorld’s public filings or certify them pursuant to Section 302 of the Sarbanes- +Oxley Act of 2002, he reviewed them and certified them pursuant to Sarbanes-Oxley Act Section +906. +2 See Section 59 of the Company Act (applying Section 2 of the Act, among others, to a BDC to the same +extent as if it were a registered closed-end fund). +3 AICPA Audit and Accounting Guide: Investment Companies, Section 2.36. See also, Regulation S-X, Rule 1- +01(a), under which Section 404.03.b.iv of the Commission’s Codification of Financial Reporting Releases is made +applicable to BDCs. Section 404.03.b.iv states, “As a general principle, the current ‘fair value’ of an issue of securities +being valued by the Board of Directors would appear to be the amount which the owner might reasonably expect to +receive for them upon their current sale.” It further states, “To comply with Section 2(a)(41) of the Investment +Company Act, it is incumbent upon the board of directors to satisfy themselves that all appropriate factors relevant to +the value of securities for which market quotations are not readily available have been considered and to determine the +method of arriving at the fair value of each such security.” +3 + + + + + + + + + + + + + + + +11. By April 2006, iWorld’s portfolio companies had effectively ceased operations, and +iWorld had no revenues, significant assets or employees. At that point, Pells became iWorld’s +CEO and sole officer and he remained in that position until February 2008. During that period, the +company failed to devise and maintain a system of internal accounting controls, and failed to make +and keep books and records required of a BDC, including, among other things, ledgers of assets +and liabilities. iWorld has not made required periodic reports on Forms 10-Q or 10-K since +November 15, 2005, when it filed its third quarter 2005 Form 10-Q. +VIOLATIONS +12. As a result of Pells’ foregoing conduct, iWorld violated and Pells caused iWorld’s +violations of Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20 thereunder, +which require every issuer of a security registered pursuant to Section 12 of the Exchange Act +file with the Commission information, documents, and annual and quarterly reports as the +Commission may require, and mandate that periodic reports contain such further material +information as may be necessary to make the required statements not misleading. +13. iWorld violated and Pells also caused iWorld’s violations of Sections 13(b)(2)(A) +and 13(b)(2)(B) of the Exchange Act, which require reporting companies to make and keep books, +records, and accounts which, in reasonable detail, accurately and fairly reflect their transactions +and dispositions of their assets, and require all reporting companies to devise and maintain a +system of internal accounting controls sufficient to provide reasonable assurances that transactions +are recorded as necessary to permit preparation of financial statements in accordance with +generally accepted accounting principles. +14. Section 31(a) of the Company Act, made applicable to BDCs by Company Act +Section 64, requires a BDC to make and keep current certain books and records as the Commission +may require pursuant to rule and regulation. Rule 31a-1 under the Company Act sets forth the +records a BDC must keep including, among other things, ledgers of all assets, liabilities, reserve +capital, income and expense accounts reflecting account balances on each day, and corporate +documents such as minutes from meetings of the BDC’s shareholders and board of directors. +iWorld violated and Pells also caused iWorld’s violations of Section 31(a) of the Company Act and +Rule 31a-1 thereunder. +VI. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Pells’ Offer. Accordingly, pursuant to Section 21C of the Exchange Act +and Section 9(f) of the Company Act it is hereby ORDERED that: +4 + + + + + + + + + + + +Respondent cease and desist from causing any violations and any future violations of +Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 13a-1, 13a-13 and +12b-20 thereunder, and Section 31(a) of the Company Act and Rule 31a-1 thereunder. +By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +5 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3006.txt b/raw/aaer/2009/AAER-3006.txt new file mode 100644 index 0000000000000000000000000000000000000000..43f6f785837c275bbe077b14648c0294770886e6 --- /dev/null +++ b/raw/aaer/2009/AAER-3006.txt @@ -0,0 +1,160 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +1 + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60242 / July 2, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3006 / July 2, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13540 +In the Matter of ORDER INSTITUTING PUBLIC +ADMINISTRATIVE PROCEEDINGS AND +Vernon Jeffrey Harrell, IMPOSING TEMPORARY SUSPENSION +PURSUANT TO RULE 102(e)(3) OF THE + Respondent. 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 Vernon Jeffrey Harrell +(“Respondent”). +II. +The Commission finds that: +Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any attorney, accountant, +engineer, or other professional or expert 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. + + + + + + + + + + + + + + + + + + + + + + + A. RESPONDENT +1. Harrell, age 42, resides in Ft. Laude rdale, Florida. From December 1999 +through June 28, 2008, Harrell served as Chairman of the Board, Pr esident, CEO, Secretary, and +Principal Financial and Accounting Officer for Video Without Boundaries, Inc. (“Video”), whose +common stock is registered with the Commission pursuant to Section 12 (g) of the Securities +Exchange Act of 1934 (“Exchange Act”). Harrell is not licensed as a CPA and is not registered +with the Commission in any capacity. +B. CIVIL INJUNCTION +2. On April 6, 2009, the U.S. District Court for the Southern District of Florida +entered by consent a judgment against Harrell, perm anently enjoining him from future violations +of Sections 5(a) and 5(c) of the Securities Ac t of 1933 (“Securities Act”), and Sections 10(b), +13(b)(5), 13(d), and 16(a) of the Exchange Act and Rules 10b-5, 13a-14, 13b2-1, 13d-1, 13d-2, and +16a-3 thereunder, in the civil action entitled Securities and Exchange Commission v. Video +Without Boundaries, Inc., et al., Civil Action Number 08-61517-CIV-GOLD/McALILY. +3. The Commission’s complaint in that action alleged that, from at least April +2003 through November 2005, Video, at the direction of Harrell, filed annual and quarterly reports +with the Commission that, among other things, materially overstated the company’s revenues and +assets and understated its net lo sses. The complaint further alle ged that Harrell falsely certified +numerous annual and quarterly reports Video file d with the Commission that he knew, or was +severely reckless in not knowing, contained material misstatements and omissions. Moreover, +according to the complaint, from November 2003 to September 2006, Harrell, along with Video’s +largest shareholder and creditor, issued fals e and misleading press re leases announcing its +acquisition of another company, the availability of large credit facilities, and that it was operating +an international subsidiary. +4. The complaint further alleged that Harrell maintained Video’s books and +records, created its financial statements, and prepared and signed all the related certifications under +the Sarbanes-Oxley Act of 2002 as both the principal executive officer and principal financial and +accounting officer. As alleged in the complaint, Harrell engaged in fraudulent accounting practices +and caused Video to file Forms 10-KSB for 2002 and 2003 and Forms 10-QSB for all quarters of +2004 that materially overstated Video’s revenues, improperly accounted for a failed acquisition, +and materially understated net losses. +III. +Based on the foregoing, the Commission finds that a court of competent jurisdiction has +permanently enjoined Harrell 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 Harrell be temporarily suspended from +appearing or practicing before the Commission. +2 + + + + + + + + + + + + + + + + + + +IT IS HEREBY ORDERED that Harrell 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 Harrell 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). +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 Harrell personally or by certified mail at his last known +address. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +3 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3007.txt b/raw/aaer/2009/AAER-3007.txt new file mode 100644 index 0000000000000000000000000000000000000000..163415acba4b2fa8bab3890941a63de809dbeb7e --- /dev/null +++ b/raw/aaer/2009/AAER-3007.txt @@ -0,0 +1,1363 @@ + + + + + + + + + + + + + + + + SEC.gov | Doral Financial Corporation and First BanCorp + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/506141","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + Doral Financial Corporation and First BanCorp + + + + + + + + + + + + Doral Financial Corporation and First BanCorp + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21117 / July 6, 2009 + + Accounting and Auditing Enforcement Release No. 3007 / July 6, 2009 + + Securities and Exchange Commission v. Doral Financial Corporation , Case No. 06-CIV-07158 (JES) (S.D.N.Y. filed September 19, 2006); Securities and Exchange Commission v. First BanCorp , Case No. 07-CIV-7039 (Crotty, J.) (S.D.N.Y. filed August 7, 2007) + + SEC Announces Distribution of $123 Million To Doral Financial Investors Harmed By Accounting Fraud + + The Securities and Exchange Commission today announced that investors who were harmed by fraudulent accounting and disclosure practices at Doral Financial Corporation are receiving $123 million in cash to compensate them for their losses. These funds include $25 million recovered by the SEC in an action brought against Doral Financial and $8.5 million in a related action brought against First BanCorp. The SEC alleged that Doral Financial overstated income by approximately $921 million or 100 percent on a pre-tax, cumulative basis between 2000 and 2004 by improperly accounting for the purported sale of non-conforming mortgage loans and that First BanCorp aided and abetted Doral Financial's violations of the federal securities laws. The balance of the funds comprise payments made to settle related private litigation. The claims administrator is Gilardi & Co. P.O. Box 8090, San Rafael, CA 94912-8090. For additional information, see LR-19837 (Sept. 19, 2006); LR-20227 (Aug. 7, 2007); LR-20721 (Sept. 17, 2008). + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Wells, Jr. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/506151","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Wells, Jr. + + + + + + + + + + + + Jerry F. Wells, Jr. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21119 / July 8, 2009 + + Accounting and Auditing Enforcement Release No. 3008 / July 8, 2009 + + Securities and Exchange Commission v. Jerry F. Wells, Jr. , Civil Action No. 3:09-CV-01792-MJP (D. S.C. July 6, 2009) + + The Securities and Exchange Commission ("Commission") announced that on July 6, 2009, it filed a Complaint in the United States District Court for the District of South Carolina against Jerry F. Wells, Jr. ("Wells"). The Complaint alleges that Wells, a resident of Columbia, South Carolina, served as the Executive Vice President and Chief Financial Officer of UCI Medical Affiliates, Inc. ("UCI" or the "Company"). UCI is a public issuer and a provider of nonmedical management and administrative services based in South Carolina. + + The Complaint alleges that between 2003 and 2008, Wells embezzled approximately $2.97 million from UCI through a variety of measures including: (1) using UCI's corporate credit card to pay personal expenses: (2) preparing false expense reports and submitting them for reimbursement; and (3) submitting unsupported check requests for non-business expenses, including construction work on Wells' personal residences and personal credit card accounts. The Complaint further alleges that Wells capitalized the expenses as fixed assets on the Company's balance sheet, rather than expensing them in their entirety as they were incurred, causing UCI to overstate its net earnings in the affected periods. According to the Complaint, to justify capitalizing these expenses, Wells altered invoices from contractors performing work on his personal residences to suggest that the work was for one of UCI's facilities, and provided fraudulent work descriptions on the related check requests. The Complaint also alleges that Wells signed each of the Company's Forms 10-Q and 10-K and accompanying Sarbanes-Oxley certifications, thereby misrepresenting that they did not contain any untrue statements of material fact. The Complaint further alleges that, in connection with the audit of the Company's annual financial statements, Wells also signed multiple management representation letters to UCI's auditors, thereby misrepresenting that the Company's financial statements were prepared in conformity with GAAP. + + The Complaint charges Wells with violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5, 13b2-1, 13b2-2 and 13a-14, promulgated thereunder. Further, the Complaint charges Wells with aiding and abetting the Company's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13, promulgated thereunder. Without admitting or denying the allegations in the complaint, Wells consented to the entry of an order (1) enjoining him from violating these statutes and rules and (2) barring him from serving as an officer and director of a public company. + + The Commission thanks the United States Attorney's Office, District of South Carolina, and the Federal Bureau of Investigation in Columbia, South Carolina for their assistance in this matter. + + + SEC Complaint + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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"Skip" Heger + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/506196","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Power, Edward Federman, and Richard J. "Skip" Heger + + + + + + + + + + + + Richard D. Power, Edward Federman, and Richard J. "Skip" Heger + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21128 / July 14, 2009 + + Accounting and Auditing Enforcement Release No. 3009 / July 14, 2009 + + U.S. Securities and Exchange Commission v. Richard D. Power, Edward Federman, and Richard J. "Skip" Heger , 06-CV-15343 (RWS) (S.D.N.Y. filed Dec. 21, 2006) + + FORMER TYCO VICE PRESIDENT SETTLES SEC ACTION FOR ROLE IN ACCOUNTING FRAUD + + On July 14, 2009, the Securities and Exchange Commission (the Commission) filed a settled Final Judgment against Richard D. Power, a former Tyco International Ltd. (Tyco) Vice President, in the Commission's action against Power arising from his involvement in fraudulent accounting practices at Tyco. The Final Judgment permanently enjoins Power from violating, or aiding and abetting violations of, the antifraud, periodic reporting, and books and records provisions of the federal securities laws, orders him to pay disgorgement of $425,000, and imposes a $100,000 civil penalty. + + The Commission's complaint alleges that Power, at the time that Tyco merged with the electronic security services company ADT Limited in 1997, devised a sham transaction that fraudulently inflated Tyco's operating income. The sham transaction was utilized every time that Tyco purchased a new security monitoring account from its dealers. The complaint also alleges that Power further inflated Tyco's operating income by engaging in fraudulent acquisition accounting, primarily through directing the pre-acquisition reduction of asset valuations and overstatement of liabilities in connection with several of Tyco's most significant acquisitions. + + Without admitting or denying the allegations in the Commission's complaint, Power consented to the entry of a Final Judgment that would permanently enjoin him from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rules 10b-5 and 13b2-1, and from aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and 13a-13. The proposed Final Judgment would also order Power to pay disgorgement of $425,000 and a civil penalty in the amount of $100,000. Under the terms of the settlement, Power's disgorgement obligation would be deemed partially satisfied upon proof of Power's payment of $250,000 to Tyco pursuant to a settlement agreement between Power and the company. The proposed Final Judgment is subject to the approval of the United States District Court for the Southern District of New York. + + For further information about the Commission's action in U.S. Securities and Exchange Commission v. Richard D. Power, Edward Federman, and Richard J. "Skip" Heger , see Litigation Release No. 19953 (Dec. 21, 2006) and Litigation Release No. 20096 (Apr. 30, 2007); see also Litigation Release No. 19657 (Apr. 17, 2006). + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Penland + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/506236","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Hardey, L. Cyrus DeBlanc, and Joe E. Penland + + + + + + + + + + + + Matthew W. Hardey, L. Cyrus DeBlanc, and Joe E. Penland + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21137 / July 16, 2009 + + Accounting and Auditing Release No. 3012 / July 16, 2009 + + Securities and Exchange Commission v. Matthew W. Hardey, L. Cyrus DeBlanc, and Joe E. Penland , Civil Action No. 09-cv-4414 (E.D. La. July 15, 2009) + + SEC CHARGES TWO FORMER FINANCE EXECUTIVES OF NEWPARK RESOURCES, INC. AND PRINCIPAL OF KEY NEWPARK VENDOR IN FRAUDULENT ACCOUNTING SCHEME + + The Securities and Exchange Commission filed a civil action against two former finance executives of Newpark Resources, Inc. ("Newpark"), an oil and gas company based in Houston, Texas, as well as the principal of Quality Mat Company, a Newpark vendor, for violations of the federal securities laws. According to the Complaint, Matthew W. Hardey, a former Chief Financial Officer for Newpark, and L. Cyrus DeBlanc, a former Chief Financial Officer for Newpark subsidiary Soloco LLC, conspired with Quality Mat president Joe E. Penland to engage in a fraudulent accounting scheme that allowed Newpark in fiscal year 2003 to avoid writing off approximately $4.2 million in aging debt. As a result, Newpark reported approximately $500,000 of net income instead of a significant loss for that fiscal year. + + The Commission's Complaint alleges that, in 2002 and 2003, Newpark recognized $4.2 million in revenue based on sales of its primary product â€" industrial mats used to lay temporary roads at drilling sites â€" to Quality Mat and another vendor, Easy Frac. The Complaint claims that neither vendor had made any payment on the sales through the end of 2003, and that Hardey, DeBlanc and Penland devised and executed a scheme to funnel money to Quality Mat and Easy Frac through sham transactions that would then allow the vendors to pay their debts to Newpark. + + According to the Complaint, one of the sham transactions took place in 2004 and involved Dura-Base Nevada, LLC and Dura-Base de Mexico, two Newpark subsidiaries created to begin mat rentals in Mexico. The Complaint asserts that Newpark purchased the entire initial inventory of mats for the Dura-Base business from Quality Mat, and that the decision to purchase the approximately 6,175 mats from Quality Mat was a pretext meant to give the appearance of a legitimate business transaction to Newpark's repurchase, at the original sales price, of 1,500 mats sold to Quality Mat in 2002 and 600 mats sold to Easy Frac in 2003. The Complaint claims that, in an attempt to perpetuate the pretext, Hardey also misled Newpark's auditors about the basis for buying the Dura-Base inventory from Quality Mat by falsely claiming that Quality Mat had contractual rights in Mexico that Newpark would have to buy in order for the Dura-Base venture to go forward. According to the Complaint, this ruse was necessary to allow Newpark to buy back the mats at the original sales price without suffering any adverse accounting consequences. Under this scheme, Newpark could account for the repurchases as if they had taken place at Newpark's manufacturing cost, but still pay Quality Mat the original purchase price for the mats by assigning the difference in value to the intangible asset allegedly created by the repurchase of Quality Mat's contract rights. + + The Complaint alleges that the other sham transaction, which took place during 2004 and 2005, involved Quality Mat sending fictitious invoices to Newpark purportedly for bulk lumber sales. According to the Complaint, in early 2004, Penland agreed to convert Quality Mat's outstanding debt from the 2002 sales to notes receivable. One of the notes required monthly payments of $52,409, which Quality Mat began making in March 2004. Between May 2004 and July 2005, the bulk lumber invoices, which were sent monthly, averaged $52,409, but there were no purchase orders or delivery tickets backing up the alleged sale. The Complaint alleges that Hardey, DeBlanc and Penland devised this scheme to provide Quality Mat with funds to continue making payments on this note, thus allowing Newpark to keep the debt on its books. + + The Complaint alleges that Hardey and DeBlanc each: violated the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rule 10b-5; violated the falsification of accounting records and circumvention of internal controls provision of the Exchange Act, Section 13(b)(5), and Exchange Act Rule 13b2-1; and aided and abetted Cardinal's violations of the reporting, record-keeping, and internal controls provisions of the Exchange Act, Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13. The Complaint also alleges that Hardey and DeBlanc misled Newpark's auditor in violation of Exchange Act Rule 13b2-2 and that Hardey signed officer certifications to Newpark's periodic filings in violation of Exchange Act Rule 13a-14. The Complaint alleges that Penland aided and abetted violations of Section 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and directly violated Exchange Act Rule 13b2-2. + + The Complaint asks the Court to enter permanent injunctions and to levy civil monetary penalties against all defendants. The Complaint also asks that the Court permanently prohibit Hardey and DeBlanc from acting as officers or directors of a public company pursuant to Section 20(e) of the Securities Act and Section 21(d)(2) of the Exchange Act. The Commission acknowledges the cooperation of Newpark in its investigation. + + + SEC Complaint + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-3013.pdf b/raw/aaer/2009/AAER-3013.pdf new file mode 100644 index 0000000000000000000000000000000000000000..6d8fe0126a4d426057a8a4dbfb391e013ca6a28e Binary files /dev/null and b/raw/aaer/2009/AAER-3013.pdf differ diff --git a/raw/aaer/2009/AAER-3013.txt b/raw/aaer/2009/AAER-3013.txt new file mode 100644 index 0000000000000000000000000000000000000000..d25891db37806418d99e050acfed244dc843773c --- /dev/null +++ b/raw/aaer/2009/AAER-3013.txt @@ -0,0 +1,100 @@ + + + + + + + + + +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60329 / July 17, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3013 / July 17, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-12227 +: ORDER GRANTING APPLICATION FOR +In the Matter of : REINSTATEMENT TO APPEAR AND PRACTICE +: BEFORE THE COMMISSION AS AN ACCOUNTANT +Andrew J. McAdams, : RESPONSIBLE FOR THE PREPARATION OR +CPA : REVIEW OF FINANCIAL STATEMENTS REQUIRED +: TO BE FILED WITH THE COMMISSION +On March 3, 2006, Andrew J. McAdams, CPA (“McAdams”) 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 McAdams pursuant to Rule +102(e)(1)(ii) of the Commission's Rules of Practice.1 This order is issued in response to +McAdams’ 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. +As the engagement partner for PricewaterhouseCoopers LLP’s (“PwC”) audits of +Aerosonic Corporation’s (“Aerosonic”) financial statements for fiscal years 1999 through 2002, +McAdams supervised the audit services performed by PwC. During this time, Aerosonic +recorded fictitious revenue through a number of accounting schemes in violation of Generally +Accepted Accounting Principles while McAdams failed to perform his work in accordance with +Generally Accepted Auditing Standards. With regard to some significant audit items in those +years, McAdams did not adequately plan and supervise the audits, did not obtain sufficient +competent evidential matter, did not maintain an attitude of professional skepticism, and placed +undue reliance upon former senior management’s representations. McAdams thereby engaged in +improper professional conduct. +1 See Accounting and Auditing Enforcement Release No. 2392 dated March 3, 2006. McAdams was permitted, +pursuant to the order, to apply for reinstatement after two years upon making certain showings. + + + + + + + + + + + + + + + +In his capacity as a preparer or reviewer, or as a person responsible for the preparation or +review, of financial statements of a public company to be filed with the Commission, McAdams +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. McAdams 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, McAdams’ +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 McAdams, it appears that he has complied with the terms of the March 3, 2006 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 McAdams, 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 +Andrew J. McAdams, 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. +Elizabeth M. Murphy +Secretary +2 Rule 102(e)(5)(i) provides: +“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) +of this section may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a +hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated +by the Commission for good cause shown.” 17 C.F.R. § 201.102(e)(5)(i). +2 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3014.pdf b/raw/aaer/2009/AAER-3014.pdf new file mode 100644 index 0000000000000000000000000000000000000000..41619779f87ecc49864f69a86286ea7807f5fdb7 Binary files /dev/null and b/raw/aaer/2009/AAER-3014.pdf differ diff --git a/raw/aaer/2009/AAER-3014.txt b/raw/aaer/2009/AAER-3014.txt new file mode 100644 index 0000000000000000000000000000000000000000..927153a0f87f756f9c1d0eae32a56e2d8f50cc4a --- /dev/null +++ b/raw/aaer/2009/AAER-3014.txt @@ -0,0 +1,174 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60331 / July 17, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3014 / July 17, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13552 +: + In the Matter of : ORDER INSTITUTING ADMINISTRATIVE + : PROCEEDINGS PURSUANT TO RULE +THOMAS STINER, 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 Thomas +Stiner (“Stiner” or “Respondent”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of +Practice. +1 +II. +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any c ourt of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Co mmission, from violating or aiding and abetting +the violation of any provision of the Federal secu rities laws or of the rules and regulations +thereunder. + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) whic h the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisd iction over him and the subject matter of these +proceedings, and the findings contained in Section III.3. below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) +of the Commission’s Rules of Practice, Maki ng Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Stiner, age 53, is a certified public accountant who was previously licensed +to practice in the Comm onwealth of Pennsylvania. He serv ed as Chief Fina ncial Officer of +AstroPower, Inc. (“AstroPower”) from December 1997 until his resignation on May 23, 2003. He +had previously served as AstroPower’s controller from May 1993 through November 1997. +2. AstroPower was, at all relevant times, a Delaware co rporation with its +principal place of business in Newark, Delaware. AstroPower was engaged in the business of +manufacturing solar electric power products including solar cells, modules and panels worldwide. +At all relevant times, AstroPower’s common stock was registered with the Commission pursuant to +Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”), and traded on the +NASDAQ National Market. +3. On March 10, 2009, the Commission filed a complaint against Stiner in +SEC v. Allen Barnett, et al. (Civil Action No. 1:09-cv-00457-EGS). On July 10, 2009, the court +entered a final judgment permanently enjoining Stiner, by consent, from future violations of +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 aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of +the Exchange Act and Exchange Act Rules 12b-20, and 13a-13. Stiner was also ordered to pay a +$40,000 civil money penalty and prohibited from serv ing as an officer or director of a public +company. +4. In its complaint, the Commission alleged that during 2002, Stiner, and +AstroPower’s former Chief Executive Officer, Allen Barnett, made material misstatements, +engaged in fraudulent accounting practices, and signed filings made with the Commission that they +knew, or were reckless in not knowing, contai ned materially false and misleading financial +statements. As alleged in the complaint, at the direction of Barnett and Stiner, and in contravention +of Generally Accepted Accounting Principles, AstroPower improperly recognized approximately +$4 million in revenues from four transactions ex ecuted over the course of the second and third +quarters of 2002. These improper accounting practices included: 1) revenue recognition from sales +where payment of the sales price was contingent and collectibility was not assured; 2) recognizing +2 + + + + + + + + + + + + + + + + + + + + +revenue from a fictitious sale; and 3) initiating and recognizi ng revenue from improper seller- +initiated bill-and-hold transactions in which AstroPower bore the risks of ownership and the costs +of storage. In its complaint, the Commission alleged that as a result of fraudulently recognizing +revenue from these transactions, AstroPower’s reported revenues were overstated by $2.1 million +or 12% in the second quarter of 2002, and by $1.9 million or 9% in the third quarter of 2002. +AstroPower’s net income was also overstated by approximately $160,000 or 80% for the second +quarter of 2002, and approximately $440,000 or 113% fo r the third quarter of 2002. In its +complaint, the Commission also alleged that, in connection with a single improper transaction, +Stiner made materially false statements to AstroPower’s external auditors during the 2002 financial +statement audit. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Stiner’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that Stiner is suspended from +appearing or practicing before the Commission as an accountant. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +3 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3015.txt b/raw/aaer/2009/AAER-3015.txt new file mode 100644 index 0000000000000000000000000000000000000000..60d806a261b1d6b07fdefa7d1419d909842a3b70 --- /dev/null +++ b/raw/aaer/2009/AAER-3015.txt @@ -0,0 +1,466 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60336 / July 17, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3015 / July 17, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13555 +In the Matter of +LSB INDUSTRIES, INC. and +JIMMIE DEAN JONES, +CPA, +Respondents. +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 Section +21C of the Securities Exchange Act of 1934 (“Exchange Act”) against LSB Industries, Inc. +(“LSB”), and pursuant to Sections 4C +1 and 21C of the Exchange Act and Rule 102(e)(1)(iii) of the +Commission’s Rules of Practice2 against Jimmie Dean Jones, CPA (“Jones”) (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 . . . (3) to have willfully violated, or willfully aided and abetted the violation of, any provision of the +securities laws or the rules and regulations thereunder. +2 Rule 102(e)(1)(iii) provides, in pertinent part, that: “The Commission may . . . deny, temporarily or permanently, +the privilege of appearing or practicing before it . . . to any person who is found…to have willfully violated, or +willfully aided and abetted the violation of any provision of the Federal securities laws or the rules and regulations +thereunder.” + + + + + + + + + + + + + + + + + + + + + + + + + + +II. +In anticipation of the institution of these proceedings, each Respondent has submitted an +offer of settlement (the “Offers”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over them and the subject matter of these +proceedings, which are admitted, Respondents consent 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 Respondents’ Offers, the Commission finds +3 that: +Summary +These proceedings arise out of LSB’s and Jones’ failures to comply with Generally +Accepted Accounting Principles (“GAAP”) in connection with LSB’s change in inventory pricing +methodology from LIFO to FIFO. When LSB changed from LIFO to FIFO during the first quarter +of fiscal year 2004, the value of its LIFO reserve was material to its net income. +4 LSB, however, +failed to comply with GAAP by disclosing its change from LIFO to FIFO and by restating its prior +financial results. Instead, to avoid a restatement, Jones (LSB’s then Chief Accounting Officer and +Controller) directed his subordinates to eliminate the LIFO reserve by improperly “bleeding it +down” over four quarters in 2004. Consequently, Jones caused LSB to issue three quarterly reports +and one annual report for fiscal year 2004 that failed to comply with GAAP. In addition, Jones +caused two of the quarterly reports issued in fiscal year 2004 to falsely represent that LSB still +maintained LIFO inventory. In December 2005, after the Commission’s Division of Corporation +Finance questioned how LSB’s change from LIFO to FIFO was in compliance with GAAP, LSB +disclosed the change and restated its financial results. +3 The findings herein are made pursuant to Respondents’ offers of settlement and are not binding on any +other person or entity in this or any other proceeding. +4 LIFO is an inventory pricing method whereby a company values the cost of the products it sells at the price paid +for its most recently purchased inventory. Under FIFO, a company values the cost of the products it sells at the +price paid for its oldest purchased inventory. GAAP requires issuers with LIFO inventory to maintain a reserve that +represents the difference between the carrying value of their inventory using LIFO and what the carrying value of +that inventory would be if they used FIFO instead. GAAP requires companies to track their inventory costs in order +to maintain a LIFO reserve. +2 + + + + + + + + + + + + + + + + + + + + + + +Respondents +1. LSB Industries, Inc. is a Delaware corporation, based in Oklahoma City, +Oklahoma. It is a diversified holding company with two primary subsidiaries. Its Climate Control +Business manufactures and sells products used in commercial and residential air conditioning +systems. LSB’s Chemical Business manufactures and sells chemical products for agricultural, +varied industrial, and mining markets. LSB’s securities are registered with the Commission +pursuant to Section 12(b) of the Exchange Act and are listed on the New York Stock Exchange. +2. Jimmie Dean Jones, age 66, is a Certified Public A ccountant licensed to practice in +Oklahoma. Jones served as the Chief Accounting Officer, Corporate Controller, Treasurer and a +Senior Vice President of LSB, from the early 1980s until he resigned from these positions in 2008. +He is currently a Senior Vice President and Treasurer at LSB. Prior to joining LSB, Jones worked +in public accounting for seven years at Arthur Young & Co. +Facts +1. Prior to and during its fiscal year 2003, LSB valued the inventory of its Climate +Master subsidiary using the LIFO (last in, first out) inventory pricing method. LSB also tracked its +inventory costs to maintain a LIFO reserve which, under GAAP, is required to reflect the +difference between the carrying value of a company’s inventory under LIFO and what the carrying +value would be if the company instead used the FIFO (first in, first out) inventory pricing method. +2. In May 2003, LSB’s independent auditor, Ernst & Young (“E&Y”), suggested to +LSB that it change the inventory pricing method for its Climate Master subsidiary from LIFO to +FIFO for tax purposes. E&Y suggested this change because LSB was no longer deriving any tax +benefit from maintaining this pricing methodology, yet was incurring the cost of tracking its LIFO +inventory as required by GAAP. LSB agreed and, at Jones’ direction, changed from LIFO to FIFO +for tax purposes in October 2003. +3. For financial reporting purposes, however, LSB did not change from LIFO to FIFO +at that time to avoid having to restate its financial results. Under GAAP, if the value of an issuer’s +LIFO reserve is material to its net income when it changes from LIFO to FIFO, then the issuer +must disclose the change and eliminate its LIFO reserve by restating its financial statements to +reflect what the company’s results would have been in prior periods had it not maintained a LIFO +reserve.5 Accounting Principles Board Opinion No. 20, “Accounting Changes” (“APB 20”). At +the end of fiscal year 2003, LSB’s LIFO reserve was $503,000, which represented 16 percent of its +2003 reported net income of $3,111,000. However, the LIFO reserve was forecast to decline to +$250,000 by the end of fiscal year 2004 in the ordinary course of business. In December 2003, an +E&Y senior manager advised Jones that if LSB were to delay the change from LIFO to FIFO for +financial reporting purposes until its LIFO reserve became immaterial, the company could write +the reserve off without having to restate. +5 Alternatively, if an issuer’s LIFO reserve is not material to its net income in the period of the change, an issuer +changing from LIFO to FIFO may eliminate its LIFO reserve by releasing the value of the reserve into current net +income and disclosing the change in the notes to its financial statements. +3 + + + + + + + + + + + + + + + + +4. To avoid filing a restatement, Jones told an E&Y audit principal on January 5, +2004, that LSB would delay the change from LIFO to FIFO for financial reporting purposes until +the end of 2004 to ensure that E&Y would not consider the impact of the change on LSB’s net +income to be material. The E&Y audit principal agreed with this plan and confirmed to Jones that +he would not consider a restatement to be necessary if LSB were to change from LIFO to FIFO +when the LIFO reserve fell to $250,000, assuming that LSB’s financial condition did not change +materially. +5. LSB ceased tracking inventory costs in January 2004. By not tracking its LIFO +inventory costs, which GAAP requires for purposes of maintaining an accurate LIFO reserve, LSB +effectively switched to FIFO for financial reporting purposes in January 2004. LSB did not +disclose its change from LIFO to FIFO for financial reporting purposes at that time. Jones +understood in the first quarter of fiscal year 2004 that LSB had ceased tracking inventory costs. +Jones also understood at that time that LSB was required to track its inventory costs in order to +remain on LIFO. +6. In April 2004, Jones learned that, due to rising costs, the value of LSB’s LIFO +reserve was not declining in the normal course of business as expected. Whereas LSB had +previously forecast that the LIFO reserve would decline to $250,000 in the normal course of +business by the end of 2004, Jones learned in April 2004 that the reserve remained at $503,000 as +of March 31, 2004, and was expected to decline by only $40,000 in fiscal year 2004 and was +therefore still expected to be material to LSB’s net income. +7. To avoid having to file a restatement, Jones improperly directed his subordinates to +make journal entries that artificially reduced LSB’s LIFO reserve by $125,000 in each quarter of +2004, so that the LIFO reserve account’s year-end balance was zero by December 31, 2004. These +entries resulted in corresponding increases in LSB’s operating income by $125,000 in each quarter. +The only justification for these entries was the elimination of the LIFO reserve to avoid +restatement. Jones did not inform LSB’s chief financial officer of his decision to bleed down the +LIFO reserve, even though LSB’s internal controls policies required Jones to note any item with a +potential financial statement impact of at least $100,000 on a quarterly “Issues List” for the CFO to +review. In fact, Jones did not inform LSB’s CFO of the bleed down at any point in 2004, even +though LSB’s internal controls required him to do so. +8. By the time LSB filed its Form 10-Q for the first quarter of 2004 on May 14, 2004, +it had effectively changed from LIFO to FIFO for financial reporting purposes. The change was +material: the value of LSB’s LIFO reserve was $503,000 while its first quarter operating results +were a $243,000 net loss. Had LSB instead released the entire amount of the LIFO reserve in that +quarter, it would have reported $260,000 net income. Nevertheless, LSB failed to comply with +APB 20’s restatement and disclosure requirements in its Form 10-Q for the quarter ended March +31, 2004. Not only did LSB fail to disclose its change from LIFO to FIFO in this filing, but it +falsely disclosed in this Form 10-Q that it was continuing to price inventory using the LIFO +methodology. +4 + + + + + + + + + + + + + + + + +9. As a result of the decision to bleed down the LIFO reserve by $125,000 each +quarter, LSB understated its net loss for the quarter ended March 31, 2004 by $125,000, a 51 +percent understatement. LSB reported a net loss of $118,000; its actual (restated) net loss was +$243,000. LSB also reported a loss per share of 1 cent instead of 2 cents for the quarter, a 50 +percent understatement. +10. LSB continued to reduce its LIFO reserve by $125,000 each quarter throughout the +remainder of 2004. This led LSB to overstate its income in its Form 10-Q for the quarter ended +June 30, 2004 by $125,000, or 7.8 percent, and to overstate its income for the six-month period +ended June 30, 2004 by $250,000, or 18.4 percent. LSB reported earnings per share of 8 cents +instead of 7 cents for that quarter, a 12.5 percent overstatement, and earnings per share of 6 cents +instead of 5 cents for the six-month period ended June 30, 2004, a 16.7 percent overstatement. +Again, LSB disclosed that it was continuing to value inventory using the LIFO methodology in its +Form 10-Q for the quarter ended June 30, 2004. +11. As a result of LSB’s decision to bleed down the LIFO reserve by $125,000 each +quarter, LSB overstated its income in its Form 10-Q for the quarter ended September 30, 2004 by +$125,000, or 3.7 percent, and by $375,000, or 7.9 percent, for the nine-month period ended +September 30, 2004. LSB also reported earnings per share of 19 cents instead of 18 cents for the +quarter, a 5.6 percent overstatement, and 26 cents instead of 24 cents for the 9-month period ended +September 30, 2004, an 8 percent overstatement. +12. The bleed-down plan also led LSB to overstate its net income for the annual period +by $503,000, or 36.7 percent, in its Form 10-K for the year ended December 31, 2004. LSB +reported net income of $1.873 million for the year; its actual (restated) net income was $1.370 +million. LSB also reported earnings per share for this annual period of 1 cent instead of a loss per +share of 3 cents. +13. As principal accounting officer for LSB, Jones was responsible for the preparation +of its financial statements. He reviewed and signed the Forms 10-Q for the quarters ended March +31, 2004, June 30, 2004, and September 30, 2004, and the Form 10-K for the year ended +December 31, 2004. +14. Following a series of comment letters to LSB from the Commission’s Division of +Corporation Finance that questioned how LSB’s change from LIFO to FIFO complied with APB +20, on December 30, 2005, LSB disclosed the change and filed an amended Form 10-K in which it +restated its financials for the year ended December 31, 2004. The amended Form 10-K restated the +financial statements and corrected the disclosure issues described in paragraphs 8-12 above. +5 + + + + + + + + + + + + + + + + + +Violations +1. Section 13(a) of the Exchange Act and Exchange Act Rules 13a-1 and 13a-13 +require issuers with securities registered under Section 12 of the Exchange Act to file quarterly and +annual reports with the Commission and to keep this information current. The obligation to file +such reports also embodies the requirement that they be true and correct. See, e.g., SEC v. Savoy +Indus., Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978). Rules 13a-1 and 13a-13 also require issuers to +file annual and quarterly financial statements that comply with Regulation S-X. Regulation S-X, +Section 4-01(a) mandates that financial statements and the accompanying notes be presented in +conformity with GAAP. +2. Section 13(b)(2)(A) of the Exchange Act requires Section 12 registrants to make +and keep books, records, and accounts that accurately and fairly reflect the transactions and +dispositions of their assets. +3. Section 13(b)(5) of the Exchange Act provides that no person shall knowingly +falsify any such book, record, or account or circumvent internal controls. Exchange Act Rule +13b2-1 also prohibits the falsification of any book, record, or account subject to Section +13(b)(2)(A). +4. By failing to comply with APB 20’s restatement and disclosure requirements, +misstating its financial results during the first three quarters of fiscal year 2004 and the full fiscal +year 2004 by bleeding down its LIFO reserve quarterly by $125,000, and falsely stating in its +Forms 10-Q for the first and second quarters of 2004 that it maintained LIFO inventory, LSB +violated Exchange Act Sections 13(a) and 13(b)(2)(A) and Rules 13a-1 and 13a-13. +5. Rather than comply with APB 20’s restatement and disclosure requirements, Jones +directed his subordinates to bleed down LSB’s LIFO reserve during 2004. Jones also failed to +comply with LSB’s requirement that he alert the company’s CFO to items with a financial +statement impact exceeding $100,000. Moreover, Jones, as LSB’s Chief Accounting Officer, was +responsible for LSB’s false disclosures in its Forms 10-Q for the first and second quarters of 2004 +that it maintained LIFO inventory. Jones knew that LSB’s Forms 10-Q for the first three quarters +of fiscal year 2004 and Form 10-K for the year ended December 31, 2004 materially overstated +LSB’s reported net income. Jones also knew that LSB’s Form 10-Q for the quarter ended March +31, 2004 failed to comply with APB 20. Finally, Jones knew or should have known that LSB’s +Forms 10-Q for the quarters ended March 31, 2004 and June 30, 2004 contained false disclosures +that LSB maintained inventory using the LIFO pricing methodology. As a result of this conduct, +Jones willfully violated Exchange Act Section 13(b)(5) and Rule 13b2-1 and caused and willfully +aided and abetted LSB’s violations of Exchange Act Sections 13(a) and 13(b)(2)(A), and Rules +13a-1 and 13a-13. +6 + + + + + + + + + + + + + + + + + + + + + + + + + + + + +Findings +1. Based on the foregoing, the Commission finds that LSB violated Exchange Act +Sections 13(a) and 13(b)(2)(A), and Rules 13a-1 and 13a-13. +2. Based on the foregoing, the Commission finds that Jones willfully violated +Exchange Act Section 13(b)(5) and Rule 13b2-1, and caused and willfully aided and abetted LSB’s +violations of Exchange Act Sections 13(a) and 13(b)(2)(A), and Rules 13a-1 and 13a-13. +3. Based on the foregoing, the Commission finds that Jones willfully violated and +willfully aided and abetted the violation of provisions of the federal securities laws and rules +thereunder within the meaning of Exchange Act Section 4C(a)(3) and Rule 102(e)(1)(iii) of the +Commission’s Rules of Practice. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in the Respondents’ Offers. +Accordingly, it is hereby ORDERED that: +A. LSB Industries, Inc. shall cease and desist from committing or causing any +violations and any future violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act, and +Exchange Act Rules 13a-1 and 13a-13; +B. Jimmie Dean Jones shall cease and desist from committing or causing any violations +and any future violations of Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1, +and from causing any violations and any future violations of Sections 13(a) and 13(b)(2)(A) and +Rules 13a-1 and 13a-13; +C. Respondent Jimmie Dean Jones is denied the privilege of appearing or practicing +before the Commission as an accountant. +D. After two years from the date of this order, Respondent Jimmie Dean Jones +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 +7 + + + + + + + + + + + + + + + + + + + + + + +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. +E. 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. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +8 diff --git a/raw/aaer/2009/AAER-3016.pdf b/raw/aaer/2009/AAER-3016.pdf new file mode 100644 index 0000000000000000000000000000000000000000..16d10f82098062e9f92ec9865406fd2ae20e6c3a Binary files /dev/null and b/raw/aaer/2009/AAER-3016.pdf differ diff --git a/raw/aaer/2009/AAER-3016.txt b/raw/aaer/2009/AAER-3016.txt new file mode 100644 index 0000000000000000000000000000000000000000..40ebcf87e53a86c02693b90529ee1917a973499b --- /dev/null +++ b/raw/aaer/2009/AAER-3016.txt @@ -0,0 +1,206 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60345 / July 20, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3016 / July 20, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13560 +: +: + : +In the Matter of : ORDER INSTITUTING +: A D M I N I S T R A T I V E P R O C E E D I N G S +LISA M. ROBERTS, CPA, : PURSUANT TO RULE 102(e) OF THE +: C O M M I S S I O N ’ S R U L E S O F + Respondent. : PRACTICE, MAKING FINDINGS, AND +: IMPOSING REMEDIAL SANCTIONS +: +____________________________________ : +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against Lisa M. +Roberts, CPA (“Respondent” or “Roberts”) pursuant to Rule 102(e)(3)(i) of the Commission’s +Rules of Practice.1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. + + + + + + + + + + + + + + + + +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over her and the subject matter of these +proceedings, and the findings contained in Section III.4 below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) +of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Roberts, age 43, a resident of Cape May, New Jersey, is a certified public +accountant (“CPA”) in New Jersey. Roberts joined Ulticom, Inc. (“Ulticom”) in December 1994 +and served in various accounting positions until becoming Vice President and Chief Financial +Officer (“CFO”) on July 2, 1998. Once she was replaced by a new CFO in December 1999, +Roberts served as the Company’s Vice President of Finance until September 2001, when she +became Vice President of Corporate Administration. Her title changed to Vice President of +Operations in November 2002. She became Ulticom’s Senior Vice President of Operations in +March 2006, a position she held until her termination on October 31, 2007. From March 13, 2000 +to April 27, 2001, Roberts signed management representation letters to the Company’s outside +auditors. From at least January 2000 to May 2002, Roberts prepared and/or reviewed Ulticom’s +periodic reports on Forms 10-Q and 10-K, proxies, and registration statements. +2. On June 18, 2009, the Commission filed a complaint against Roberts in the civil +action entitled Securities and Exchange Commission v. Lisa M. Roberts, (Civil Action No. 1:09- +CV-2590), in the United States District Court for the Eastern District of New York. On July 13, +2009, the Court entered a final judgment against Roberts, permanently enjoining her from violating +Section 17(a) of the Securities Act of 1933 (“Securities Act”), Sections 10(b) and 13(b)(5) of the +Exchange Act, and Exchange Act Rules 10b-5, 13b2-1, and 13b2-2, and from aiding and abetting +violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act, and +Exchange Act Rules 13a-1, 13a-11, 13a-13, and 14a-9. Roberts was also 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, +and was ordered to pay a $25,000 civil money penalty. +3. The Commission’s Complaint alleged, among other things, that Roberts, at the +direction of former Ulticom senior executives, participated in two separate fraudulent schemes to +materially misstate the financial results of Ulticom in a departure from generally accepted +accounting principles (“GAAP”). The first scheme involved improper backdating of Ulticom +stock options. The second scheme involved improper accounting practices, including (i) the +improper establishment, maintenance, and release of excess reserves, and (ii) the improper +recognition of revenue on certain inter-company shipments and service contracts. As a result of +these schemes, Ulticom has announced that its historical financial statements and any related +reports of its independent registered public accounting firm should no longer be relied upon, and +that it will correct its historical financial statements in order to record additional material non-cash +2 + + + + + + + + + + + + + + + + + + + + + + + + +charges for option-related compensation expenses and to address the material misstatement of its +revenues and earnings. In addition, the Complaint alleged that Roberts made material +misrepresentations to Ulticom’s outside auditors in furtherance of these schemes. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Roberts’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Roberts is suspended from appearing or practicing before the Commission as an +accountant. +B. After 5 years from the date of this order, Respondent may request that the +Commission consider her reinstatement by submitting an application (attention: Office of the Chief +Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that Respondent’s work in her practice before the +Commission will be reviewed either by the independent audit committee of the public company +for which she works or in some other acceptable manner, as long as she practices before the +Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which she is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; +(b) Respondent, or the registered public accounting firm with which +she is associated, has been inspected by the Board and that inspection did not identify any +criticisms of or potential defects in the respondent’s or the firm’s quality control system that +would indicate that the respondent will not receive appropriate supervision; + (c) Respondent has resolved all 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 her responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not limited +to, all requirements relating to registration, inspections, concurring partner reviews and +quality control standards. +3 + + + + + + + + + +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that her state CPA license is +current and she has resolved all other disciplinary issues with the applicable state boards of +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. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +4 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3017.txt b/raw/aaer/2009/AAER-3017.txt new file mode 100644 index 0000000000000000000000000000000000000000..932cebd9dbf29d6414897e864e7eb922563e9a0b --- /dev/null +++ b/raw/aaer/2009/AAER-3017.txt @@ -0,0 +1,68 @@ + +UNITED STATES OF AMERICA + +before the + +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Rel. No. 60346 / July 20, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Rel. No. 3017 / July 20, 2009 +Admin. Proc. File No. 3-12208 +In the Matter of + +KEVIN HALL, CPA + +and + +ROSEMARY MEYER, CPA + +ORDER GRANTING PARTIAL PROTECTIVE ORDER +On May 8, 2008, Kevin Hall, CPA, and Rosemary Meyer, CPA submitted a joint motion +1seeking a protective order under Rule of Practice 322, limiting disclosure of: an accompanying +memorandum, portions of Respondents' briefs addressing the investigation leading to the +institution of this proceeding, and the Division of Enforcement's response to such portions of the +Respondents' briefs (collectively, the "Covered Arguments"). Under Rule 322, any party "may +file a motion requesting a protective order to limit from disclosure to other parties or to the +public documents or testimony that contain confidential information." +2 "A motion for a +protective order shall be granted only upon a finding that the harm resulting from disclosure +would outweigh the benefits of disclosure." +3 The Commission's staff has not opposed the +Respondents' request for a protective order. +The Commission recognizes that the Covered Arguments contain sensitive information. +At this stage in the proceeding, we believe that the harm resulting from complete disclosure +outweighs the benefits. However, we have determined that disclosure of certain information +included in Covered Arguments now filed with us may be necessary to the resolution of the +issues before the Commission. +1 17 C.F.R. § 201.322. +2 17 C.F.R. § 201.322(a). +3 17 C.F.R. § 201.322(b). + +2 +Accordingly, IT IS ORDERED that: +1. Except as otherwise provided in this Order, the Covered Arguments shall be +disclosed only to the parties to this action, their counsel, the Commission, any staff advising the +Commission in its deliberative processes with respect to this proceeding, and in the event of an +appeal of the Commission's determination, any staff acting for the Commission in connection +with that appeal. +2. All persons who receive access to the Covered Arguments or the information +contained in the Covered Arguments shall keep them confidential and, except as provided in this +Order, shall not divulge the Covered Arguments or such information to any person. +3. No person to whom the Covered Arguments or information covered by this Order +is disclosed shall make any copies or otherwise use such Covered Arguments or information, +except in connection with this proceeding or any appeal thereof. +4. The Office of the Secretary shall place the briefs containing the Covered +Arguments in sealed envelopes or other sealed containers marked with the title of this action, +identifying each document, and marked "CONFIDENTIAL." +5. The requirements of sealing and confidentiality shall not apply to any reference to +the existence of the Covered Arguments or to citation of particular information contained therein +in testimony, oral argument, briefs, opinions, or in any other similar use directly connected with +this action or any appeal thereof. +6. The Commission expressly reserves the authority to reach a different conclusion +regarding the confidentiality of the Covered Arguments or information covered by this Order at +any time before it determines the issues raised in the proceeding. +By the Commission. +Elizabeth M. Murphy + Secretary \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3019.txt b/raw/aaer/2009/AAER-3019.txt new file mode 100644 index 0000000000000000000000000000000000000000..21f97c27ede4cf2d900ab5c79941093e4809fba1 --- /dev/null +++ b/raw/aaer/2009/AAER-3019.txt @@ -0,0 +1,1387 @@ + + + + + + + + + + + + + + + + SEC.gov | West Marine, Inc. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/506301","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + West Marine, Inc. + + + + + + + + + + + + West Marine, Inc. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21150 / July 23, 2009 + + Accounting and Auditing and Enforcement Release No. 3019 / July 23, 2009 + + Securities and Exchange Commission v. West Marine, Inc. , Case No. CV 09-3379 PVT (N.D. Cal. Filed July 23, 2009) + + SEC CHARGES WEST MARINE WITH FALSIFYING ITS FINANCIALS + + The Securities and Exchange Commission today filed a settled enforcement action against West Marine, Inc., a Northern California-based boating supply retailer. According to the SEC, West Marine filed numerous false financial statements from 2004 to 2006 after making undisclosed accounting changes designed to offset an unexpected earnings shortfall. + + The SEC's complaint, filed in federal court in San Jose, alleges that shortly after pre-announcing its fiscal 2003 earnings, West Marine determined that it needed to change the way in which the company valued its inventory. That change reduced the value of its inventory by approximately $13.2 million, dramatically decreasing the company's previously announced earnings. Rather than disclose this change to investors and report reduced earnings in its annual report, the SEC alleges that West Marine sought an offset and eventually devised a solution of capitalizing certain store occupancy expenses such as rent and utilities. This change in accounting methodology was neither disclosed to investors nor in compliance with Generally Accepted Accounting Principles (GAAP). According to the SEC, West Marine failed to properly disclose these significant accounting changes to its auditor by suggesting that its accounting methodology was consistent with prior years. + + By capitalizing store occupancy costs, West Marine improperly increased its pre-tax income for the year, offsetting the undisclosed reduction in earnings caused by the change in inventory valuation. As a result, the company's annual report filed in March 2004 was misleading. Moreover, the SEC alleges that the improper accounting resulted in similarly misleading registration statements and periodic reports to investors filed in 2005 and 2006. The wrongful conduct was ultimately uncovered in 2007, when the company restated its financial results for fiscal years 2002 through 2005. + + Without admitting or denying the SEC's allegations, West Marine agreed to a permanent injunction against future violations of Section 17(a)(2) and (a)(3) of the Securities Act of 1933, Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934, and Rules 12b-20, 13a-1, and 13a-13 under the Exchange Act. + + + SEC Complaint + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-3021.txt b/raw/aaer/2009/AAER-3021.txt new file mode 100644 index 0000000000000000000000000000000000000000..ea7716bc7e9e25b8e753f1186567242998657661 --- /dev/null +++ b/raw/aaer/2009/AAER-3021.txt @@ -0,0 +1,276 @@ + + UNITED STATES OF AMERICA + Before the + SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60393 / July 28, 2009 + +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3021 / July 28, 2009 + +ADMINISTRATIVE PROCEEDING +File No. 3-13564 + + +In the Matter of + +AVERY DENNISON +CORPORATION, + +Respondent. + + + + + +ORDER INSTITUTING CEASE-AND-DESIST +PROCEEDINGS PURSUANT TO SECTION +21C OF THE SECURITIES EXCHANGE ACT +OF 1934, MAKING FINDINGS, AND +IMPOSING A CEASE-AND-DESIST ORDER + + +I. + + The Securities and Exchange Commission (“Co mmission”) 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 Avery Dennison Corporation (“Avery” or +“Respondent”). + +II. + + In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over it and the subject matter of these +proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease- +and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making + 2 +Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below.1 + +III. + + On the basis of this Order and Res pondent’s Offer, the Commission finds2 that: + +Summary + +1. This matter involves Avery’s violations of the books and records and internal +controls provisions of the Foreign Corrupt Practices Act (“FCPA”) through its indirect subsidiary +Avery (China) Co. Ltd. (“Avery China”), as well as certain potential violations Avery uncovered at +entities it acquired after Avery’s initial self-disclosure to the Commission. + +2. From 2002 throug h 2005, Avery China’s Reflectives Division paid or authorized +the payments of several kickbacks, sightseeing trips, and gifts to Chinese government officials. +The amount of illegal payments actually paid amounted to approximately $30,000. These +payments and the promises to pay were made with the purpose and effect of improperly +influencing decisions by foreign officials to assist Avery China to obtain or retain business. + +3. In addition, after Avery acquired a co mpany in June 2007, employees of the +acquired company continued their pre-acquisition practice of making illegal petty cash payments to +customs or other officials in several foreign countries. The amount of illegal payments actually +paid after the June 2007 acquisition amounted to approximately $51,000. + +4. Avery failed to accurately record these payments and gifts in the company’s books +and records, and failed to implement or maintain a system of internal accounting controls sufficient +to detect and prevent such illegal payments or promises of illegal payments. + +Respondent + + +5. Avery is a Delaware corporation headquart ered in Pasadena, California. It operates +in over sixty countries and develops, manufactures and markets a wide range of products, +including self-adhesive materials, office products, labels and graphics imaging media. Its common +stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act and is +listed on the New York Stock Exchange. + + +1 The Commission has contemporaneously filed a complaint in the United States District Court for the Central +District of California against Avery alleging violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act +and seeking a civil penalty. Without admitting or denying the Commission’s allegations, Avery has consented to the +entry of a final judgment by the Court that requires the company to pay a $200,000 civil penalty. See SEC v. Avery +Dennison Corporation, No. CV09-5493 DSF (CWx). +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 + +Other Related Entity + +6. Avery China is a wholly-o wned subsidiary of Avery headquartered in Shanghai, +China. It is incorporated under the laws of China and wholly owned by Avery Dennison Hong +Kong BV, which is in turn wholly owned by Avery Dennison Group Danmark ApS, which is +in turn wholly owned by Avery Dennison Corporation. The Reflectives Division is part of +Avery China and is currently part of Avery’s Graphics Division. Avery China is overseen by +Avery’s Asia Pacific Group, an unincorporated group based in Hong Kong within the Avery +Dennison Hong Kong BV entity. + +Facts + +A. Payments and Promises of Payments by Avery China’s Reflectives Division + +Promises of Payments to Wuxi Institute Officials + +7. Avery China sells reflective material s through the Reflectives Division. +Reflective materials are commonly used in printing, road signs and emergency vehicle markings. +In China, the Ministry of Public Security requires that all products used in road communications +and safety meet certain requirements as certified by an authorized government entity. One such +entity is called the Traffic Management Research Institute under the Ministry of Public Security +located in Wuxi, Jiangsu Province (“Wuxi Institute”). The Wuxi Institute helps formulate project +plans, draft product and project specifications, and tests pilot projects, and as such could play an +important role in awarding government contracts. From early 2004, Avery China’s then-national +manager for the Reflectives Division (“Reflectives China National Manager”) sought to obtain +business through the Wuxi Institute. As part of that effort, in January 2004, an Avery China sales +manager accompanied four Wuxi Institute officials to a meeting and bought each a pair of shoes +with a combined value of approximately $500. + +8. In May 2004, Avery China hi red a former Wuxi Institute official as a sales manager +for the Reflectives Division, because his wife was also an official at the Wuxi Institute who was in +charge of two projects that Avery China wanted to pursue: a “digital license plate” project for +which Avery China had previously bid unsuccessfully, and a pilot project to develop a new graphic +design for police cars. + +9. In August 2004, Avery China was awar ded two government contracts through the +Wuxi Institute to install new graphics on approximately 15,400 police cars for two Chinese +government entities. The Reflectives China National Manager obtained these contracts by +agreeing to artificially increase the sales price and then refund that amount back to the Wuxi +Institute as a “consulting fee.” In doing so, he understood at least a portion of that refunded +amount would be for the benefit of Wuxi Institute officials. The total sales under the two contracts +were $677,494, and Avery China profited by approximately $363,953. However, Avery’s Asia +Pacific Group discovered the kickback scheme before any illegal payment was made. The + 4 +attempted illegal payments would have amounted to approximately $41,138, or 6% of the total +sales. + +2002 Sightseeing Trip + +10. In December 2002, another Reflectives Division salesman proposed, and the +Reflectives China National Manager approved, hosting a sightseeing trip for five government +officials with a budget of about RMB 35,000, or $4,227. Two reimbursement requests were used +to conceal the expenses for the trip (one of which was altered at some point in time). + +Attempted Kickback to Project Manager at State-owned Entity + +11. In August 2004, the Re flectives China National Manager approved a kickback +payment to an official at Henan Luqiao, a state-owned enterprise, to secure a sales contract. The +total sales under this contract were approximately $106,562, and Avery China profited by $61,381. +However, Avery China discovered the kickback arrangement and never made the promised +payment to the official at Henan Luqiao, which would have amounted to approximately $2,415. + +Kickback Arranged through Product Distributor (Hefei Anchang) + + 12. From May to June 2005, a Reflectives Di vision sales manager negotiated a sale to a +state-owned end user. To secure the sale, the sales manager agreed to pay a commission to a +project manager at the end user. He then asked a distributor to fill the order and fund the agreed +upon commission out of what ordinarily would have been the distributor’s profit. The transaction +was booked as a sale to the distributor, rather than to the end-user. The distributor claimed to have +paid the project manager approximately $24,752 out of its own profit margin. The total sales in the +transaction were $466,162, and Avery China profited by $273,213. + +2005 Sightseeing Trip + +13. In late 2005, during a sales conference that Avery China sponsored in a famous +Chinese tourist destination, the successor to the Reflectives China National Manager paid for +sightseeing trips for at least four government officials. The manager later attempted to cover up +both his role in planning the trip and the sightseeing during the conference. He asked his secretary +to alter the conference invoice by reallocating the sightseeing expenses to other expense categories, +and have the travel agency submit the changed invoice to Avery China for payment. The changed +invoice did not contain any sightseeing expenses; rather, they were buried in expenses for rooms, +meals, and transportation. The total cost for the conference (which had more than 40 attendees +overall) was approximately $15,500. + +14. After discovering the arrangement with the Wuxi Institute in September 2004, +Avery conducted an internal review of the Reflectives Division and another division of Avery +China. Avery voluntarily approached Commission staff regarding the possible improper +payments. + + 5 +B. Improper Payments by Employees of Acquired Companies + +15. After its initial disclosure to Commission staff in August 2005, Avery discovered +two additional instances of possible improper payments by acquired companies. + +16. The first involved illegal payments to customs officials in Indonesia. In 2005, +Avery integrated the operations of an Indonesia contractor it had acquired. The contractor +operated out of a bonded zone in Indonesia, and had a practice of paying approximately $100 each +to three customs officials who regularly visited its warehouse to inspect goods. The contractor +continued the practice after the acquisition. To obtain cash for the payments, an employee of the +acquired subsidiary obtained $10 petty cash on a daily basis for the $300 needed each month, and +the accounting entry reflected $10 of travel expense each day for the employee. + +17. The second instance involved illegal pe tty cash payments to customs officials by +employees of Paxar Corporation, a NYSE listed company that Avery acquired in June 2007. In +September 2007, through a whistleblower, Avery discovered that Paxar employees in Indonesia +made illegal payments to customs and tax officials to obtain bonded zone licenses and to overlook +bonded zone regulatory violations, and that the former general manager of Paxar Indonesia +directed employees to fabricate fake invoices to conceal illegal payments. An internal audit review +also uncovered payments to customs officials in Pakistan made by Paxar Pakistan through its +customs broker. In April 2008, Avery commenced a global trade compliance review in twenty- +seven countries, which included an FCPA review. In July 2008, Avery commenced a more +comprehensive FCPA review in ten high risk countries, including China. Beyond the illicit +payments identified at Paxar Indonesia and Paxar Pakistan, the ten country review has also +identified problematic payments in Paxar China. In all three locations, illicit payments were made +both before and after the acquisition, with the latest illicit payment occurring in January 2008. The +post-acquisition payments amount to $5,000, $30,000 and $16,000 at Paxar Indonesia, Paxar +Pakistan, and Paxar China, respectively. + +Violations + +18. The FCPA, enacted in 1977, added Exchange Act Section 13(b)(2)(A) to require +public companies to make and keep books, records and accounts, which, in reasonable detail, +accurately and fairly reflect the transactions and dispositions of the assets of the issuer, and added +Exchange Act Section 13(b)(2)(B) to require such companies to devise and maintain a system of +internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are +executed in accordance with management’s general or specific authorization; and (ii) transactions are +recorded as necessary to permit preparation of financial statements in conformity with generally +accepted accounting principles or any other criteria applicable to such statements, and to maintain +accountability for assets. 15 U.S.C. §§ 78m(b)(2)(A) and 78m(b)(2)(B). + +19. As detailed above, Avery’s books, record s, and accounts did not properly reflect the +illicit payments, sightseeing trips and gifts that Avery China made or provided to government +officials, and the illicit payments made to customs officials in several countries by employees of the +acquired subsidiaries. As a result, Avery violated Exchange Act Section 13(b)(2)(A). + + 6 +20. Avery also failed to devise or maintain sufficient internal controls to provide +reasonable assurance that Avery China and the acquired subsidiaries complied with the FCPA and +that payments, gifts or sightseeing expenses they provided to foreign officials were accurately +reflected on its books and records. As a result, Avery violated Exchange Act Section 13(b)(2)(B). + +Avery’s Remedial Efforts + +In determining to accept the Offer, the Commission considered remedial acts +undertaken by Avery and cooperation afforded the Commission staff. + +IV. + + In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Avery’s Offer. + + Accordingly, it is hereby ORDERED that: + + A. Pursuant to Section 21C of the Exchange Act, Respondent Avery cease and desist +from committing or causing any violations and any future violations of Sections 13(b)(2)(A) and +13(b)(2)(B) of the Exchange Act. + +B. Respondent Avery shall, within ten busine ss days of the entry of this Order, pay +disgorgement of $273,213 and prejudgment interest of $45,257 to the United States Treasury. If +timely payment is not made, additional interest shall accrue pursuant to SEC Rule of Practice 600. +Payment shall be: (A) made by United States postal money order, certified check, bank cashier's +check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) +hand-delivered or mailed to the Office of Financial Management, Securities and Exchange +Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and +(D) submitted under cover letter that identifies Avery as a Respondent in these proceedings, the file +number of these proceedings, a copy of which cover letter and money order or check shall be sent +to Andrew Petillon, Associate Regional Director, Los Angeles Regional Office, Securities and +Exchange Commission, 5670 Wilshire Boulevard, 11 +th Floor, Los Angeles, California 90036. + + By the Commission. + + + + E l i z a b e t h M . M u r p h y + S e c r e t a r y \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3022.txt b/raw/aaer/2009/AAER-3022.txt new file mode 100644 index 0000000000000000000000000000000000000000..d849931b45a434eb89b69e0ee9f86f1cbc3e97e7 --- /dev/null +++ b/raw/aaer/2009/AAER-3022.txt @@ -0,0 +1,1403 @@ + + + + + + + + + + + + + + + + SEC.gov | MedQuist Inc.; John A. Donohoe; and Brian J. Kearns and Bruce J. Van Fossen + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/505301","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Donohoe; and Brian J. Kearns and Bruce J. Van Fossen + + + + + + + + + + + + MedQuist Inc.; John A. Donohoe; and Brian J. Kearns and Bruce J. Van Fossen + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20949A / March 12, 2009 + + Accounting and Auditing Enforcement Release No. 3022 / March 12, 2009 + + Securities and Exchange Commission v. MedQuist Inc. , Civil Action No. 09-CV-2297 (S.D.N.Y. filed March 12, 2009) + + Securities and Exchange Commission v. John A. Donohoe , Civil Action No. 09-CV-2298 (S.D.N.Y. filed March 12, 2009) + + Securities and Exchange Commission v. Brian J. Kearns and Bruce J. Van Fossen , Civil Action No. 09-CV-2296 (S.D.N.Y. filed March 12, 2009) + + SEC Charges MedQuist Inc. and Former Senior Executives with Securities Fraud + + The Securities and Exchange Commission today filed a settled civil injunctive action against MedQuist Inc., a medical transcription company based in New Jersey, charging it with securities fraud and other violations of the federal securities laws. The Commission's complaint alleges that, from 1999 to 2004, MedQuist claimed in SEC filings, press releases and earnings calls that the Company's strong financial performance was due to its disciplined and conservative business practices, while at the same time it was systematically and secretly inflating customer bills to increase revenues and profit margins. Without admitting or denying the allegations, MedQuist agreed to be permanently enjoined from violating the antifraud, reporting, books and records, and internal controls provisions of the federal securities laws. + + The Commission also filed a settled civil action against former MedQuist Director, President, and Chief Operating Officer John A. Donohoe. Without admitting or denying the Commission's allegations, Donohoe agreed to a permanent injunction, a $75,000 civil penalty and a five-year officer and director bar. In its complaint, the Commission alleges that Donohoe, among other things, knew that the Company was increasing its bills to meet revenue and margin targets. The complaint further alleges that Donohoe and others at MedQuist told shareholders and other public investors that the Company's strong financial performance was due to disciplined and conservative business practices, while at the same time it was engaged in overbilling customers. Donohoe agreed to be permanently enjoined from violating Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rules 10b-5, 13b2-1 and 13b2-2 and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. + + The Commission's settlements with Donohoe and MedQuist are subject to the approval of the U.S. District Court for the Southern District of New York. + + In a separate complaint, the Commission charged former MedQuist Chief Financial Officer Brian J. Kearns and former Controller Bruce J. Van Fossen with participating in the fraudulent scheme. According to the complaint, Kearns and Van Fossen knew that company offices were not calculating bills in accordance with customer contracts, but rather were secretly manipulating the number of transcribed lines charged to customers in order to increase revenues and profit margins. Neither Kearns nor Van Fossen took steps to stop the scheme. Both knew that customers and employees complained of billing fraud, but neither investigated the accuracy of the Company's line counts. The Commission's complaint further alleges that both Kearns and Van Fossen made false statements to auditors designed to conceal the billing complaints and the scheme itself. Both Kearns and Van Fossen prepared, participated in, or signed misleading public filings and statements that attributed the Company's improved financial performance to disciplined and conservative business practices and attributed its revenues to contracted rates and increased sales. + + The Commission's complaint charges Kearns and Van Fossen with violations of the antifraud provisions in Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder; with violating the provisions regarding internal controls and false statements to auditors in Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder; and with aiding and abetting the Company's violations of the reporting, books and records, and internal control provisions in Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. The complaint also charges Van Fossen, in the alternative, with aiding and abetting others' violations of Section 10(b) of the Exchange Act. The Commission seeks injunctions against future violations, officer and director bars, and civil penalties. + + + SEC Complaint v. MedQuist Inc. SEC Complaint v. John A. Donohoe, Jr. SEC Complaint v. Brian J. Kearns and Bruce J. Van Fossen + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint v. MedQuist Inc. + + + + + Jr. + + + + + SEC Complaint v. Brian J. Kearns and Bruce J. Van Fossen + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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The link you have selected is located on another server. Please click on the OK button below to proceed to the selected site. 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Share sensitive information only on official, secure websites. + + + + + + + + + + + + + + + + + SEC homepage + + + + + + + Menu + + + + + + + + + + + + + + Close + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + Search Filings + + + + + + + + + Search Filings + + + + + + + + + Full Text Search + + + + + + Latest Filings + + + + + + Mutual Fund Search + + + + + + Variable Insurance Products Search + + + + + + SIC Codes + + + + + + CIK Lookup + + + + + + Public Dissemination Service (PDS) + + + + + + Search Assistance + + + + + + + + + + + + + Submit Filings + + + + + + + + + Submit Filings + + + + + + + + + EDGAR Filer Management Portal + + + + + + EDGAR Filing Portal + + + + + + Online Forms Management Portal + + + + + + EDGAR Next + + + + + + Forms Index + + + + + + Filer Support & Resources + + + + + + + + + + + + + Data & Research + + + + + + + + + Data & Research + + + + + + + + + Data Library + + + + + + Statistics & Data Visualizations + + + + + + Structured Data + + + + + + Investment Management Data + + + + + + Open Data at the SEC + + + + + + + + + + + + + Rules, Enforcement, & Compliance + + + + + + + + + + + + + + + + + + + + Rules & Regulations + + + + + + + + + Rulemaking Activity + + + + + + Submit Public Comments + + + + + + Staff Guidance + + + + + + No-Action, Interpretive, and Exemptive Letters + + + + + + Self-Regulatory Organization Rulemaking + + + + + + Public Petitions for Rulemaking + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + + + Litigation Releases + + + + + + Administrative Proceedings + + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + + Trading Suspensions + + + + + + Distributions to Harmed Investors + + + + + + Receiverships + + + + + + + + + + + + + + + + + Compliance + + + + + + + + + Examination Priorities + + + + + + Risk Alerts + + + + + + Compliance Outreach Program + + + + + + + + + + + + + + + + + + + + + + + Proposed Rules + + + + + + What's New + + + + + + Whistleblower Program + + + + + + + + + + + + + + + + + + + Featured Topics + + + + + + + + + Featured Topics + + + + + + + + + Crypto Task Force + + + + + + Cybersecurity + + + + + + Market Structure Analytics + + + + + + Saving and Investing for Military Personnel + + + + + + Saving and Investing for Teachers + + + + + + SEC-CFTC Harmonization Initiative + + + + + + Treasury Clearing Implementation + + + + + + + + + + + + + About + + + + + + + + + About + + + + + + + + + Mission + + + + + + Commissioners + + + + + + Divisions & Offices + + + + + + Division & Office Directors + + + + + + Advisory Committees + + + + + + Budget & Performance + + + + + + Reports & Publications + + + + + + Commission Votes + + + + + + Contact the SEC + + + + + + Careers + + + + + + + + + + + + + Submit a Tip or Complaint + + + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + More in this Section + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + Angelo Mozilo, David Sambol, and Eric Sieracki + + + + + + + + + + + + Angelo Mozilo, David Sambol, and Eric Sieracki + + + + + + + + + + + + + + + + + + + U.S. Securities and Exchange Commission + + Litigation Release No. 21068A / June 4, 2009 + + Accounting and Auditing Enforcement Release No. 3023 / June 4, 2009 + + Securities and Exchange Commission v. Angelo Mozilo, David Sambol, and Eric Sieracki, (C.D. Cal.), Civil Action No. CV 09-03994 (VBF) + + SEC Files Securities Fraud Charges Against Former Countrywide Executives + + On June 4, 2009, the Securities and Exchange Commission announced the filing of securities fraud charges against former Countrywide Financial CEO Angelo Mozilo, former chief operating officer and president David Sambol, and former chief financial officer Eric Sieracki. They are charged with deliberately misleading investors about the significant credit risks being taken in efforts to build and maintain the company's market share. + + The Commission has additionally charged Mozilo with insider trading for selling his Countrywide stock based on non-public information for nearly $140 million in profits. + + In its complaint filed in federal district court in Los Angeles, the SEC alleges that Mozilo, Sambol, and Sieracki misled the market by falsely assuring investors that Countrywide was primarily a prime quality mortgage lender that had avoided the excesses of its competitors. + + According to the SEC's complaint, Countrywide's credit risks were so alarming that Mozilo internally issued a series of increasingly dire assessments of various Countrywide loan products and the resulting risks to the company. In one internal e-mail, Mozilo referred to a profitable subprime product as "toxic." In another internal e-mail regarding the performance of its heralded Pay-Option ARM loan, he acknowledged that the company was "flying blind." + + The SEC's complaint alleges that Countrywide's annual reports for 2005, 2006, and 2007 misled investors in claiming that Countrywide "manage[d] credit risk through credit policy, underwriting, quality control and surveillance activities." Its annual reports for 2005 and 2006 falsely stated that the company ensured its "access to the secondary mortgage market by consistently producing quality mortgages." The annual report for 2006 also falsely claimed that Countrywide had "prudently underwritten" its Pay-Option ARM loans. + + The SEC alleges that Mozilo, Sambol, and Sieracki actually knew, and acknowledged internally, that Countrywide was writing increasingly risky loans and that defaults and delinquencies would rise as a result, both in loans that Countrywide serviced and loans that the company packaged and sold as mortgage-backed securities. + + According to the SEC's complaint, Countrywide developed what was internally referred to as a "supermarket" strategy that widened underwriting guidelines to match any product offered by its competitors. By the end of 2006, Countrywide's underwriting guidelines were as wide as they had ever been, and Countrywide made an increasing number of loans based on exceptions to those already wide guidelines, even though exception loans had a higher rate of default. + + The SEC's complaint alleges that Mozilo believed that the risk was so high that he repeatedly urged that Countrywide sell its entire portfolio of Pay-Option loans. Despite these severe concerns about the increasing risks that Countrywide was undertaking, Mozilo, Sambol, and Sieracki hid these risks from the investing public. + + The SEC further alleges that Mozilo engaged in insider trading of Countrywide stock that he owned. Mozilo established four executive stock sale plans for himself in October, November, and December 2006 while he was aware of material, non-public information concerning Countrywide's increasing credit risk and the expected poor performance of Countrywide-originated loans. From November 2006 through August 2007, Mozilo exercised more than 5.1 million stock options and sold the underlying shares for total proceeds of nearly $140 million, pursuant to written trading plans adopted in late 2006 and early 2007. + + The SEC's complaint alleges that each of the defendants violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and aided and abetted violations of Sections 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. The complaint further alleges that Mozilo and Sieracki violated Rule 13a-14 under the Exchange Act. The SEC's complaint seeks permanent injunctive relief, officer and director bars, and financial penalties against all of the defendants and the disgorgement of ill-gotten gains with prejudgment interest against Mozilo and Sambol. + + SEC Complaint in this matter + +   + + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Opper + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/505221","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Fraser, Don W. Watson, Edward W. O'Brien, and Gary M. Opper + + + + + + + + + + + + Martin G. Fraser, Don W. Watson, Edward W. O'Brien, and Gary M. Opper + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20933A / March 6, 2009 + + Accounting and Auditing Enforcement Release No. 3024 / March 6, 2009 + + Securities and Exchange Commission v. Martin G. Fraser, Don W. Watson, Edward W. O'Brien, and Gary M. Opper , Case No. 2:09-cv-00442-LOA (D. Ariz.) + + SEC CHARGES FORMER CSK AUTO CORPORATION MANAGEMENT WITH ACCOUNTING FRAUD + + On March 5, 2009, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court in Phoenix, Arizona against two former senior officers, Martin G. Fraser and Don W. Watson, the former controller, Edward W. O'Brien, and a former supervisor, Gary M. Opper, of Phoenix-based CSK Auto Corporation (CSK). The Commission's complaint alleges that the defendants orchestrated a multi-million dollar accounting scheme to inflate the company's financial results and overstate its net income in 2002 through 2004. At the time of the fraud, CSK was one of the nation's largest auto parts retailers with over 1000 stores located throughout the western United States. In July 2008, CSK became a wholly owned subsidiary of O'Reilly Automotive, Inc. + + According to the complaint, CSK had a program by which it obtained allowances from its vendors that decreased CSK's costs of goods sold and, as a result, increased the company's pre-tax income. The complaint alleges that from 2002 through 2004, CSK could not collect tens of millions of dollars in vendor allowances it had previously recognized, and that instead of writing off those uncollectible receivables, Watson, O'Brien, and Opper hid them using a variety of methods, including improperly moving vendor allowance collections between years, making unsubstantiated journal entries, and incorrectly accounting for amounts paid back to vendors. The Commission alleges that the defendants all participated in preparing and filing false financial statements that overstated CSK's pre-tax income in 2002 by approximately 47%, or $11 million; in 2003 by approximately $34 million, reporting pre-tax income instead of an actual pre-tax loss; and in 2004 by approximately 65%, or $21 million. The complaint further alleges that in order to hide their misconduct, the defendants repeatedly lied to the company's independent auditors and provided false documentation in support of CSK's inappropriate accounting. + + The complaint alleges that in 2005, CSK filed a restatement of its previously reported financial statements in connection with its accounting for vendor allowances. The Commission's complaint further alleges that the defendants knew, or were reckless in not knowing, that CSK falsely ascribed the restatement solely to "errors in estimation in earlier periods" and "imprecise estimates, bookkeeping errors and recording allowances in the incorrect periods." In addition, the complaint alleges that the restatement failed to write off all the uncollectible vendor allowance receivables. As a result, the defendants tried to collect approximately $15 million in vendor allowances that CSK was not actually owed in order to conceal these uncollectible receivables from CSK's auditors and shareholders. + + The Commission's complaint charges Fraser, age 53, of Phoenix, Ariz., Watson, age 53, of Gilbert Ariz., O'Brien, age 46, of Cave Creek, Ariz., Opper, age 56, of Mesa Ariz., with violating Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, and 13b2-1, Fraser, Watson, and O'Brien with violating Rule 13b2-2 of the Exchange Act; and Watson with violating Rule 13a-14 of the Exchange Act. The Commission is seeking a permanent injunction from future violations, disgorgement, prejudgment interest, and civil penalties against all the defendants, and an order barring Fraser, Watson, and O'Brien from serving as a director or officer of a public company. + + The Commission's investigation is ongoing. + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Jenkins + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/506296","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Jenkins + + + + + + + + + + + + Maynard L. Jenkins + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21149A / July 23, 2009 + + Accounting and Auditing Release No. 3025 / July 23, 2009 + + Securities and Exchange Commission v. Maynard L. Jenkins , Case No. CV 09-1510-PHX-JWS (D. Ariz.) + + SEC SEEKS RETURN OF $4 MILLION IN BONUSES AND STOCK SALE PROFITS FROM FORMER CEO OF CSK AUTO CORP. + + Enforcement Action Is First Solely Under Section 304 of Sarbanes-Oxley Act of 2002 + + On July 22, 2009, the Securities and Exchange Commission asked the U.S. District Court for the District of Arizona to order the former chief executive officer of CSK Auto Corporation to reimburse the company and its shareholders more than $4 million that he received in bonuses and stock sale profits while CSK was committing accounting fraud. The SEC's enforcement action charges Maynard L. Jenkins of Scottsdale, Ariz., with violations of Section 304 of the Sarbanes-Oxley Act of 2002. It is the first action seeking reimbursement under Section 304 from an individual who is not alleged to have otherwise violated the securities laws. Section 304 deprives corporate executives of money that they earned while their companies were misleading investors. + + According to the SEC's complaint, Jenkins made $2,091,020 in bonuses and $2,018,893 in company stock sales that should have been reimbursed to CSK pursuant to Section 304. The complaint alleges that CSK was required to prepare an accounting restatement due to its fraudulent conduct. While Jenkins served as CEO, CSK filed two such restatements related to its overstated vendor allowances. The complaint further alleges that, in violation of Section 304, Jenkins failed to reimburse CSK for bonuses, or other incentive-based or equity-based compensation, and profits from the sale of CSK stock he received during the 12-month periods following the filing of each of CSK's fraudulent financial statements. The SEC's complaint does not allege that Jenkins engaged in the fraudulent conduct. + + CSK was an automotive parts and accessories retailer headquartered in Arizona during the relevant time period. In July 2008, after the conduct alleged in the complaint, CSK became a wholly-owned subsidiary of O'Reilly Automotive, Inc. + + This is the third enforcement action in the SEC's investigation into CSK's alleged accounting misconduct. In March 2009, the SEC filed a civil injunctive action in federal court charging CSK's former president and chief operating officer, former chief financial officer, former controller, and former director of credits and receivables with securities fraud, among other charges. In May 2009, the SEC instituted settled cease-and-desist proceedings against CSK and found that the company had fraudulently filed false financial statements as set forth above for fiscal years 2002 through 2004. In that settled proceeding, the SEC ordered CSK to cease and desist from committing or causing any violations and any future violations of the anti-fraud, reporting, books and records, and internal control provisions of the federal securities laws. CSK, in agreeing to that settlement, neither admitted nor denied the SEC's findings. + + + SEC Complaint + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-3026.pdf b/raw/aaer/2009/AAER-3026.pdf new file mode 100644 index 0000000000000000000000000000000000000000..a75e7d59eb7c2413aaf36e1d5f4fcb662661adb0 Binary files /dev/null and b/raw/aaer/2009/AAER-3026.pdf differ diff --git a/raw/aaer/2009/AAER-3026.txt b/raw/aaer/2009/AAER-3026.txt new file mode 100644 index 0000000000000000000000000000000000000000..db949519cfa1268152a71d9ae3d961af47c76428 --- /dev/null +++ b/raw/aaer/2009/AAER-3026.txt @@ -0,0 +1,278 @@ + + + + + + + + + + + + + + + + + + + + + + + + +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60400 / July 30, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3026 / July 30, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13565 +In the Matter of +HELMERICH & PAYNE, +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 Helmerich & Payne, +Inc. (“H&P or “Respondent”). +II. +In anticipation of the institution of these proceedings, Respondent has submitted +an Offer of Settlement (the “Offer”) which the Commission has determined to accept. +Solely for the purpose of these proceedings and any other proceedings brought by or on +behalf of the Commission, or to which the Commission is a party, and without admitting +or denying the findings herein, except as to the Commission’s jurisdiction over it and the +subject matter of these proceedings, which are admitted, Respondent consents to the entry +of this Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the +Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist +Order (“Order”), as set forth below. + + + + + + + + + + + + + + + + + + + + +III. +On the basis of this Order and Respondent’s Offer, the Commission finds1 that: +Summary +1. This recommendation concerns violations of the books and records and +internal controls provisions of the Foreign Corrupt Practices Act (“FCPA”) by H&P, +through two of its second-tier wholly-owned subsidiaries, Helmerich & Payne +(Argentina) Drilling Company and Helmerich & Payne de Venezuela, C.A. From 2003 +through 2008, H&P Argentina and H&P Venezuela made approximately $185,673 in +improper payments directly – or indirectly through third-party customs brokers – to +foreign customs authorities in connection with the international passage of drilling +equipment parts into and out of Latin American drilling sites. These payments were +made with the purpose and effect of avoiding potential delays typically associated with +the international transport of drilling parts. H&P avoided costs in the estimated amount +of approximately $320,604, as a direct result of the improper payments by its +subsidiaries. None of the improper payments was accurately reflected in H&P’s books +and records, nor was H&P’s system of internal accounting controls adequate at the time +to prevent and detect the improper payments. +Respondent +2. H&P is a Delaware corporation headquartered in Tulsa, Oklahoma. H&P +is the holding company for Helmerich & Payne International Drilling Co., an +international drilling contractor with land and offshore operations primarily in the United +States and South America. H&P’s common stock is registered with the Commission +pursuant to Section 12(b) of the Exchange Act, and is listed on the New York Stock +Exchange. H&P, through its subsidiaries, provided oil drilling rigs, equipment, and +personnel on a contract basis to international and national oil companies, primarily in the +United States and South America. +Other Relevant Entities +3. Helmerich & Payne (Argentina) Drilling Company (“H&P Argentina”), a +wholly-owned second-tier subsidiary of H&P, was incorporated in Oklahoma and has its +principal administrative office in Buenos Aires, Argentina. H&P Argentina operates +drilling rigs in Argentina. H&P Argentina’s financial results are components of the +consolidated financial statements included in H&P’s filings with the Commission. +The findings herein are made pursuant to Respondent’s Offer and are not binding on any other +person or entity in this or any other proceeding. +2 +1 + + + + + + + + + + + + + + +4. Helmerich & Payne de Venezuela, C.A. (“H&P Venezuela”), a +wholly-owned second-tier subsidiary of H&P, was incorporated in Venezuela and has its +principal administrative office in Anaco, Venezuela. H&P Venezuela operates drilling +rigs in Venezuela. H&P Venezuela’s financial results are components of the +consolidated financial statements included in H&P’s filings with the Commission. +Facts +A. Payments to Argentine Customs Officials +5. In connection with the operation of its oil rigs in Argentina, H&P, through +its operating subsidiaries, imported and exported equipment and materials related to the +operation of the rigs. Such equipment and materials were inspected by the Argentine +customs service and were subject to duties owed under the laws of Argentina. From 2004 +through 2008, H&P Argentina paid Argentine customs officials approximately $166,000 +to permit the importation and exportation of equipment and materials without required +certifications, to expedite the importation of equipment and materials, and to allow the +importation of materials that could not be imported under Argentine law. +6. H&P Argentina made most of these improper payments indirectly through +customs brokers. After having made the improper payments on behalf of H&P +Argentina, the customs brokers invoiced H&P Argentina for their brokerage services, +including as part of the invoiced amount the improper payments to the Argentine customs +officials. The improper payments were fals ely, or at least misleadingly, described as +attributable to, for instance, “additional assessments,” “extra costs,” or “extraordinary +expenses.” By making these improper paym ents to Argentine government officials, +H&P, through H&P Argentina, avoided more than an estimated $186,000 in expenses it +would have otherwise incurred if it had properly imported and exported the equipment +and materials. +B. Payments to Venezuelan Customs Officials +7. In connection with the operation of its oil rigs in Venezuela, H&P, through +its operating subsidiaries, imported and exported equipment and materials related to the +operation of the rigs and support of its personnel. Such equipment and materials were +inspected by the Venezuelan customs service and were subject to duties owed under the +laws of Venezuela. From 2003 through 2008, H&P Venezuela paid Venezuelan customs +officials approximately $19,673 either to permit the importation and exportation of +equipment and materials that were not in compliance with Venezuelan importation and +exportation regulations or to secure a partial inspection, rather than a full inspection, of +the goods being imported. +8. H&P Venezuela made the improper payments indirectly through customs +brokers. After having made the improper pa yments on behalf of H&P Venezuela, the +customs brokers invoiced H&P Venezuela for their brokerage services, including as part +of the invoiced amount the improper payments to the Venezuelan customs officials. The +improper payments were falsely, or at least misleadingly, described as attributable to, for +3 + + + + + + + + + + + + + + + + +instance, “urgent processing,” “urgent dispatch,” or “customs processing.” By making +these improper payments to Venezuelan government officials, H&P, through H&P +Venezuela, avoided more than an estimated $134,000 in expenses it would have +otherwise incurred if it had properly imported and exported the equipment and materials. +C. Discovery of Improper Payments and Internal Investigation +9. In early 2008, as part of an effort to improve compliance with the FCPA, +H&P designed and implemented a stand-alone set of FCPA policies and procedures. +2 In +conjunction with this effort, H&P also designed and conducted worldwide FCPA training +for its key employees. At one such training session in May 2008, an employee +voluntarily disclosed that potentially improper payments had been made by H&P +Argentina, through a customs broker, to Argentine customs officials. This information +was relayed to H&P’s corporate headquarters in Oklahoma, and came to the attention of +H&P’s general counsel in July 2008. In response, H&P hired outside FCPA counsel and +independent forensic accountants to conduct an internal investigation of its subsidiaries’ +customs payment practices in a number of Latin American countries. +10. The internal investigation uncovered fifty improper payments to +government customs officials in Argentina and Venezuela from 2003 through 2008, +totaling approximately $185,673. In Argentina, the nature of the improper payments was +disguised in invoices by using vague-sounding line items such as “additional +assessments,” “extra costs,” and “extraordinary expenses,” without any additional +documentation to support the descriptions. Similarly, in Venezuela, the nature of the +improper payments was disguised in invoices by using descriptions such as “urgent +processing,” “urgent dispatch,” or “customs processing.” In October 2008, H&P +voluntarily reported its initial findings to the staff. +Legal Analysis +11. The FCPA, enacted in 1977, added Exchange Act Section 13(b)(2)(A) to +require public companies to make and keep books, records, and accounts which, in +reasonable detail, accurately and fairly reflect the transactions and dispositions of the +assets of the issuer, and added Exchange Act Section 13(b)(2)(B) to require such +companies to devise and maintain a system of internal accounting controls sufficient to +provide reasonable assurances that: (i) transactions are executed in accordance with +management’s general or specific authorization; and (ii) transactions are recorded as +necessary to permit preparation of financial statements in conformity with generally +accepted accounting principles or any other criteria applicable to such statements, and to +maintain accountability for assets. 15 U.S.C. §§ 78m(b)(2)(A) and 78m(b)(2)(B). +H&P’s Corporate Code of Business Ethics historically had contained anti-bribery provisions, but +H&P decided as part of its focus on FCPA compliance to draft and implement a stand-alone set of +policies and procedures regarding the FCPA. +4 +2 + + + + + + + + + + + + + + +12. As detailed above, H&P’s books, records, and accounts did not properly +reflect the improper payments made by H&P Argentina and H&P Venezuela to customs +officials. As a result, H&P violated Exchange Act Section 13(b)(2)(A). +13. H&P also failed to devise or maintain sufficient internal controls to ensure +that H&P Argentina and H&P Venezuela complied with the FCPA and to ensure that the +payments those subsidiaries made to foreign officials were accurately reflected on its +books and records. As a result, H&P viol ated Exchange Act Section 13(b)(2)(B). +H&P’s Remedial Efforts and Cooperation +In determining to accept the Offer, the Commission considered remedial acts +promptly undertaken by Respondent, Respondent’s voluntary disclosure of these matters +to the Commission, and cooperation afforded the Commission staff. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the +sanctions agreed to in Respondent H&P’s Offer. +Accordingly, it is hereby ORDERED that: +(i) Pursuant to Section 21C of the Exchange Act, Respondent H&P cease and +desist from committing or causing any violations and any future violations +of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B); +(ii) Respondent shall, within ten days of the entry of this Order, pay +disgorgement of $320,604 and prejudgment interest of $55,077.22 to the +United States Treasury. If timely paym ent is not made, additional interest +shall accrue pursuant to SEC Rule of Practice 600. Payment shall be: (A) +made by United States postal money order, certified check, bank cashier’s +check, or bank money order; (B) made payable to the Securities and +Exchange Commission; (C) hand-delivered or mailed to the Office of +Financial Management, Securities and Exchange Commission, Operations +Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and +(D) submitted under cover of a letter that identifies Helmerich & Payne, +Inc. as a Respondent in these proceedings, the file number of these +proceedings, a copy of which cover letter and money order or check shall +be sent to Cheryl J. Scarboro, Associate Director, Division of +Enforcement, Securities and Exchange Commission, 100 F St., N.E., +Washington, D.C. 20549. +By the Commission. + Elizabeth M. Murphy + S e c r e t a r y +5 diff --git a/raw/aaer/2009/AAER-3027.txt b/raw/aaer/2009/AAER-3027.txt new file mode 100644 index 0000000000000000000000000000000000000000..b161eac2afbfbd3434af87281e328744e990a386 --- /dev/null +++ b/raw/aaer/2009/AAER-3027.txt @@ -0,0 +1,816 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60415 / July 31, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3027 / July 31, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13567 +In the Matter of +FRANK S. LAFORGIA, 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 Frank S. +LaForgia, CPA (“Respondent” or “LaForgia”) pursuant to Sections 4C +1 and 21C of the Securities +Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) of the Commission’s Rules of +Practice.2 +1 Section 4C provides, in relevant part, that: +The Commission may censure any person, or deny, temporarily or permanently, to any person the privilege +of appearing or practicing before the Commission in any way, if that person is found . . . (1) not to possess the +requisite qualifications to represent others . . . (2) to be lacking in character or integrity, or to have engaged in +unethical or improper professional conduct; or (3) to have willfully violated, or willfully aided and abetted the +violation of, any provision of the securities laws or the rules and regulations thereunder. +2 Rule 102(e)(1)(ii) provides, in pertinent part, that: +The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before +it . . . to any person who is found . . . to have engaged in unethical or improper professional conduct. + + + + + + + + + + + + + + + + + + + + + + + + + + +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over him and the subject matter of these +proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Public +Administrative 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 +1. These proceedings concern the improper professional conduct of LaForgia, a +certified public accountant (“CPA”), who conducted improper audits and reviews of Certified +Services, Inc.’s (“Certified”) financial statements for the years ended December 31, 2002 and +December 31, 2003 and the first three quarters of 2004 (the “engagements”). LaForgia’s departure +from the applicable professional standards while acting as the engagement partner caused the +accounting firm, Rosenberg, Rich, Baker, Berman & Company, PA (“Rosenberg Rich”), to issue +unqualified audit and review reports despite the fact that Certified’s financial statements were not +presented in accordance with generally accepted accounting principles (“GAAP”). +2. Certified was a publicly held company located in Fort Lauderdale, Florida. +Certified and its subsidiaries operated a professional employee leasing organization (“PEO”) +business. PEOs provide small and medium-size businesses with a variety of human resource +services by acting as a co-employer of those businesses’ employees. Among other things, +Certified assumed some or all of its clients’ responsibilities and risks related to workers’ +compensation insurance coverage. Beginning in 2002, Certified retained Rosenberg Rich to audit +its financial statements and quarterly filings. +3. On March 6, 2008 the Commission filed a complaint in U.S. District Court for the +Southern District of Florida (the “Complaint”), alleging, among other things, that Certified’s +management engaged in financial fraud from approximately 2001 through 2004. +4 The +Commission alleged that Certified’s officers artificially and materially inflated the company’s +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. +4 SEC v. W. Anthony Huff et al., 08-60315-CIV-ZLOCH (S. D. Fla.). +2 + + + + + + + + + + + + + + + + + + + + +financial condition in its Commission filings by including at its high point almost $47 million in +bogus letters of credit (“LOCs”) as assets on its balance sheet and omitting liabilities that reached a +high of approximately $65 million. The Commission also alleged that the company failed +adequately to disclose material related party relationships and related party transactions. +4. LaForgia was Rosenberg Rich’s engagement partner on the audits and reviews at +issue. LaForgia should have known that Certified’s financial statements for the years ended 2002 +and 2003 as well as the first three quarters of 2004 were misleading and not presented in +accordance with GAAP. As the engagement partner, LaForgia was a cause of Certified issuing +misstated financial statements by ignoring significant evidence that indicated heightened audit risk +and by failing to conduct Certified’s audits and reviews in accordance with generally accepted +auditing standards (“GAAS”). Additionally, LaForgia should have known that Rosenberg Rich’s +unqualified audit reports were false because they represented that the audits were conducted in +accordance with GAAS, when they were not. +5. LaForgia thereby was a cause of Certified’s violations of Sections 10(b), 13(a) and +13(b)(2)(A) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder, and +engaged in improper professional conduct within the meaning of Rule 102(e)(1)(ii) of the +Commission’s Rules of Practice (“Rule 102(e)(1)(ii)”). +B. RESPONDENT +LaForgia, CPA, age 61, resides in White House Station, New Jersey. LaForgia is a CPA +licensed in New Jersey since 1975. From 2002 through 2005, LaForgia was Rosenberg Rich’s +engagement partner for Certified. LaForgia currently works for a private company. +C. FACTS +Certified +1. In July 2001, Danny L. Pixler and W. Anthony Huff formed Midwest Merger +Management (“Midwest”) as a holding company, capitalized it with $500, and listed Pixler’s wife +and Huff’s ex-wife as the primary shareholders. In November 2001, Midwest acquired a majority +ownership interest in Certified, an inactive public shell company. Certified and its subsidiaries +operated a PEO business. Through a series of acquisitions, Certified grew from a shell company +with minimal assets to a company with approximately $78 million in revenues and $107 million in +assets in 2003. Pixler was Certified’s president and Huff, who was affiliated with Midwest, was +also an undisclosed control person of Certified. +Certified Improperly Recorded LOCs as Assets +2. Beginning in July 2002, Certified’s insurer required one of Certified’s subsidiaries +to post more collateral due to Certified’s rapidly expanding PEO business. Certified relied +primarily on another entity Pixler and Huff controlled through a business associate, to obtain the +3 + + + + + + + + + + + + + + + + + +collateral for its insurer. That entity provided this collateral in the form of LOCs which were due +to expire in one year.5 Midwest played a role in obtaining the LOCs. +3. In December 2002, Midwest entered into an agreement with Certified to purchase +shares of Certified’s preferred stock (“Subscription Agreement”). The Subscription Agreement +specifically provided that the subscriber could use various forms of consideration to subscribe to +the offering, including cash or LOCs. Midwest used the very same LOCs which it had procured +for Certified’s subsidiary as consideration for the subscription. Beginning with its 2002 annual +report, Certified reported these LOCs as assets. Certified relied on the fact that the LOCs were +used as consideration under the Subscription Agreement as a factor in justifying their treatment as +assets. By Certified’s second quarter 2003 filing it was reporting $47 million in LOCs as assets on +its financial statements. The LOCs were discovered to be bogus by Certified’s insurer during +Certified’s third quarter of 2003. However, as discussed below, it was improper for Certified to +record the LOCs as assets even if they had been legitimate. +Certified Improperly Omitted its Workers’ Compensation Liabilities +4. Certified improperly omi tted substantial workers’ compensation liabilities from its +balance sheets. As Certified’s PEO business expanded in 2002 and 2003, Certified assumed +increasing amounts of workers’ compensation liabilities as part of the normal operation of its PEO +business. Midwest and Certified entered into a Risk Allocation Agreement (“Risk Agreement”), +purportedly to enable Midwest to manage Certified’s workers’ compensation program and to +protect against the exposure that Certified would face from large claims. Certified used the Risk +Agreement to justify omitting its workers’ compensation liabilities from its financials asserting that +those liabilities were assumed by Midwest under the Risk Agreement. +5. In reality though, Midwest did not assume any of Certified’s workers’ +compensation liabilities under the Risk Agreement. The Risk Agreement provided that Midwest +would “assume responsibility for and promptly make all required payments in excess of the +applicable deductibles… .” (emphasis added). However, Certified already had re-insurance that +protected it against having to make payments in excess of the applicable deductible ($1 million per +claim). Certified’s risk was its liability for deductibles, which the Risk Agreement did not transfer. +Even if the terms of the Risk Agreement had purportedly provided any real economic protection, it +is unlikely that Midwest would have been able to honor those terms based on the fact that Midwest +had negative equity for 2001-2003 and only one employee. +Certified Failed to Disclose its Related Party Transactions +6. In its financial statements, Certified acknowledged its relationship with Midwest +but omitted required information. Certified disclosed that Midwest was a “related party,” however +Certified did not disclose that Pixler was a co-manager of Midwest. Certified also failed to +A LOC is an instrument under which the issuer, usually a bank, at a customer's request, agrees to honor a draft +or other demand for payment made by a third party, as long as the draft or demand complies with specified +conditions, and regardless of whether any underlying agreement between the customer and the beneficiary is +satisfied. +4 + +5 + + + + + + + + + + + + +disclose until its Form 10-Q for the period ending September 30, 2004 that Pixler had received +payments from Midwest. Additionally, Certified failed to disclose that Pixler’s wife owned at least +a 40% stake in Midwest. +Auditor Violations of Professional Standards +7. LaForgia’s GAAS failures during the engagements facilitated Certified’s ability to +report $47 million of bogus assets, omit $65 million of liabilities and not fully disclose its related +party relationships and transactions. LaForgia failed to: staff and plan adequately; obtain sufficient +competent evidential matter regarding assets and liabilities; exercise due professional care and +professional skepticism; and issue accurate audit reports and review reports. Based on his +violations of professional standards, LaForgia was a cause of Certified issuing misstated financial +statements by ignoring significant evidence that indicated heightened audit risk and by failing to +conduct Certified’s audits and reviews in accordance with GAAS. Additionally, LaForgia should +have known that Rosenberg Rich’s unqualified audit reports were false because they incorrectly +represented that the audits were conducted in accordance with GAAS, and that Certified’s financial +statements conformed with GAAP. Furthermore, LaForgia also caused Rosenberg Rich to +improperly issue seven unqualified review reports for Certified’s quarterly filings from the third +quarter of 2002 through the third quarter of 2004. +Failure Adequately to Staff and Plan the Engagements +8. LaForgia failed adequately to staff the engagements. GAAS requires audits to be +performed by a person or persons having adequate technical training and proficiency as an auditor. +(AU § 150.02, Generally Accepted Auditing Standards) The auditor, having ultimate authority for +the audit, should “know, at a minimum, the relevant professional accounting and auditing +standards and should be knowledgeable about the client.” (AU § 230.06, Due Professional Care in +the Performance of Work) The auditor “with final responsibility is responsible for the assignment +of tasks to, and supervision of, assistants.” (AU § 230.06) LaForgia did not have any prior +experience auditing LOCs before accepting the Certified engagement. Despite his lack of +experience with LOCs, and the complexity of Certified’s business and financial relationships, +LaForgia staffed the engagements with an audit manager who had limited experience auditing +LOCs and no experience auditing PEO’s. LaForgia’s own inexperience auditing LOCs and his +decision to select an inexperienced audit manager negatively impacted LaForgia’s ability to +conduct the audits and reviews in accordance with GAAS. The two most senior accountants on the +engagement had little or no experience auditing the largest category of assets on Certified’s +balance sheets. +9. LaForgia failed to plan and develop audit programs tailored to address issues +unique to Certified. GAAS requires that the auditor plan the audit “to obtain reasonable assurance +about whether the financial statements are free of material misstatement, whether caused by error +or fraud.” (AU § 316.01, Consideration of Fraud in a Financial Statement Audit) The risk +assessment process should “be ongoing throughout the audit” and should consider whether the +“nature of audit procedures performed may need to be changed to obtain evidence that is more +reliable or to obtain additional corroborative information.” (AU § 316.52) LaForgia was aware +5 + + + + + + + + + + + + + + + + + + + + + + + +that Certified had rapidly grown from a shell company to a company with approximately $78 +million in revenues. LaForgia also knew the LOCs comprised 45% of Certified’s assets. Further, +LaForgia was aware of Certified’s treatment of its workers’ compensation liabilities which were +purportedly being assumed by its controlling shareholder, Midwest. Despite this knowledge, +LaForgia did not plan and develop an adequate audit program particular to Certified and these +issues. +10. Further, LaForgia failed adequately to plan, develop and adjust his audit programs +or procedures when he was confronted with significant indications of increased fraud risk. +Auditors must consider potential fraud factors when planning and performing the audit. GAAS +states that the assessment of the risk of material misstatement due to fraud is a cumulative process +and one that should be ongoing throughout the audit. (See § AU 316) LaForgia had researched +Huff’s background while conducting the engagements and knew that Huff had previously been +criminally indicted.6 Also, LaForgia identified concerns in a November 11, 2002 letter to +Certified. LaForgia stated that he was “distressed” to learn that Certified incorrectly recorded $8 +million worth of LOCs as cash on its balance sheet. Further, in a November 19, 2002 letter to +Certified, LaForgia identified additional concerns, namely “a lack of total candor” by Certified’s +executives regarding the auditors’ inquiries, and Certified’s penchant for “managing earnings,” +among other things. LaForgia’s observations show that he was aware of heightened audit risks yet +he did not adequately tailor the audit program specifically to address the risks suggested by these +facts that were both specific to Certified and critical to the audit of its financial statements. +Failure to Obtain Sufficient Competent Evidential Matter Regarding Assets and +Liabilities +11. Auditors must obtain sufficient competent evidence to afford a basis for an opinion +regarding the financial statements under audit. (AU § 326.01, Audit Evidence) The validity and +sufficiency of required evidence depends on the circumstances and the auditors’ judgment, but +should be “persuasive” though it need not be “conclusive.” (AU § 326.13) With respect to such +judgment, an auditor must maintain an attitude of professional skepticism and assess the risk that +errors and irregularities may cause the financial statements to contain a material misstatement. (AU +§ 316.13) An assessment of higher risk may cause the auditor to expand the extent of procedures +applied or modify the nature and/or the timing of procedures to obtain more persuasive evidence. +Failure to Audit LOCs Included in the Financial Statements +12. Certified’s LOCs represented its single largest asset for its 2002 financial +statements and each subsequent quarter up to, and including, the quarter ended September 30, + In 1998, the State of Kentucky revoked Huff’s insurance license in connection with an $113,000 insurance +premium theft while he was associated with U.S. Trucking, Inc. (“U.S. Trucking”) as a significant shareholder. In +2000, Huff was indicted by the United States Attorney’s Office for the Western District of Kentucky, for his +involvement in a multi-million dollar insurance fraud with U.S. Trucking. In 2004, he pled guilty to three counts of +mail fraud in that case, served 12 months probation and paid restitution of approximately $180,000. +6 + +6 + + + + + + + + + + + + + + + + + + + + +2003.7 LaForgia accepted the position that Certified properly recorded the LOCs as assets because +they were given in consideration for the Subscription Agreement and were analogous to a note, or +alternatively a promise to pay. However, LaForgia’s conclusion was unreasonable. Emerging +Issues Task Force 85-1, Classifying Notes Received for Capital Stock, (1985)(“EITF 85-1”) states +that “[t]he SEC requires that public companies report notes received in payment for the enterprise’s +stock as a deduction from shareholders’ equity.” Midwest provided the LOCs, which LaForgia +equated to a note, as consideration in exchange for Certified’s preferred stock. Therefore, +LaForgia’s conclusion was inconsistent with EITF 85-1. +13. Further, LaForgia failed to obtain sufficient competent evidence to conclude that +the LOCs were properly recorded as assets. Statement of Financial Accounting Concepts No. 6. +Elements of Financial Statements, provides that: +An asset has three essential characteristics: (a) it embodies a probable future benefit that +involves a capacity, singly or in combination with other assets, to contribute directly or +indirectly to future net cash inflows, (b) a particular entity can obtain the benefit and +control others’ access to it, and (c) the transaction or other event giving rise to the entity’s +right to or control of the benefit has already occurred. +14. The LOCs did not and could not provide Certified with future cash flows. The +LOCs were not cash equivalents but instead a promise to pay cash to Certified’s insurance provider +on behalf of one of Certified’s subsidiaries, upon the insurer’s demand. However the LOCs’ future +economic benefits were limited in duration because the fees paid to use the LOCs were made for a +fixed period of time, usually one year. Therefore any future benefit ended after one year unless the +LOCs were renewed or replaced. Midwest, not Certified, was obliged to replace the LOCs if they +were not renewed by the issuing bank upon expiration. Certified’s future economic benefit from +the LOCs would have only extended beyond one year if Midwest had the financial capabilities to +renew or replace the LOCs after their expiration. LaForgia did not obtain sufficient competent +evidence regarding Midwest’s financial capabilities to renew or replace the LOCs, and evidence +shows that Midwest did not have such capabilities. +15. The LOCs also failed to meet the second criteria of an asset. Certified did not own +or control the LOCs and could not pledge, assign or transfer them. This fact also renders moot the +third characteristic of an asset, since Certified did not control the benefit of the LOCs. In addition, +Certified did not provide collateral for the LOCs. Therefore, LaForgia did not obtain sufficient +evidence to overcome these factors which collectively demonstrate that the LOCs were not assets. +Failure Adequately to Audit the Risk Agreement and Workers’ Compensation +Liabilities +16. Certified asserted that under the Risk Agreement its workers’ compensation +liabilities were assumed by Midwest, even though it is clear under the Risk Agreement’s terms +7 Certified reported $18.7 million of LOCs as assets for 2002 and $47.5 million of LOCs as assets in the second +quarter of 2003. +7 + + + + + + + + + + + + + + +that Midwest did not assume those liabilities. LaForgia failed adequately to audit and review the +key terms of the Risk Agreement. LaForgia instead relied on Certified’s representations that +pursuant to the Risk Agreement, Certified’s workers’ compensation liabilities were assumed by +Midwest and could be omitted from Certified’s financial statements. GAAS requires that +“[d]uring an audit, management makes many representations to the auditor, both oral and +written, in response to specific inquiries or through the financial statements. Such +representations from management are part of the audit evidence the independent auditor obtains, +but they are not a substitute for the application of those auditing procedures necessary to afford a +reasonable basis for an opinion regarding the financial statements under audit.” (AU § 333.02, +Management Representations) LaForgia had a general understanding about how the parties +operated under the Risk Agreement, but had little information concerning Midwest’s business. +LaForgia did not take sufficient steps independently to test Certified’s reliance on the Risk +Agreement as a basis for its decision to omit the liabilities. +17. Aside from his reliance on the Risk Agreement, LaForgia failed to obtain other +sufficient competent evidence to support his position that Certified properly omitted the workers’ +compensation liabilities from its financial statements. Certified maintained a contractual +relationship with its insurer and even if the Risk Agreement was consistent with LaForgia’s +belief, Certified would still be obligated to pay the deductible amount for claims in the event that +Midwest did not fulfill its promises under the Risk Agreement. Further, GAAS requires that +“[w]ith respect to material uncollected balances, guarantees, and other obligations, [auditors +should] obtain information about the financial capability of the other party or parties to the +transaction.” (AU § 334.10e, Related Parties ) LaForgia did not have, or require, adequate +assurance that Midwest had the financial resources to satisfy the workers’ compensation +liabilities and he did not do adequate work to satisfy himself of Midwest’s ability to pay. +LaForgia failed to obtain sufficient competent evidence to provide a basis for his opinion that the +workers’ compensation liabilities could be omitted from Certified’s financial statements. +18. Additionally, LaForgia was also confronted with facts that should have raised his +professional skepticism with regards to the Risk Agreement. For example, Certified’s filings +included inconsistent versions of the Risk Agreement. Specifically, the language in the text of +Certified’s filings materially contradicted the language of the Risk Agreement that was attached to +the filing. The two versions of the Risk Agreement language were contradictory regarding which +party was responsible for paying claims above or below the $1 million deductible - a critical aspect +of the Risk Agreement. Also, the Risk Agreement was purportedly signed by Certified’s president. +This individual was not even associated with Certified at that time. These facts, in addition to +those previously mentioned regarding Certified’s growth and fraud risks, should have further +caused LaForgia’s increased skepticism. Instead, he failed to obtain sufficient competent evidence +and unreasonably relied on management’s representations about the Risk Agreement and why the +workers’ compensation liabilities were being omitted. +Failure to Control the LOC Confirmation Process +19. LaForgia was confronted with numerous facts that should have caused him to +heighten his skepticism during the LOC confirmation process. For example, he was aware of +8 + + + + + + + + + + + + +Certified’s rapid growth, the increase in the LOCs as a proportion of Certified’s assets, LaForgia’s +documented concerns regarding Certified’s management and his knowledge of Huff’s criminal +background. Significantly, LaForgia also knew that Certified did not maintain accounts with the +financial institution that purportedly issued the LOCs. Despite these facts, and in contravention of +AU § 330.15, (AU § 330, The Confirmation Process) LaForgia did not exhibit an appropriate level +of professional skepticism. +20. LaForgia’s review of the LOCs and the process LaForgia directed and conducted +to confirm the LOCs were insufficient. GAAS requires that “[d]uring the performance of +confirmation procedures, the auditor should maintain control over the confirmation requests and +responses. Maintaining control means establis hing direct communication between the intended +recipient and the auditor to minimize the possibility that the results will be biased because of +interception and alteration of the confirmation requests or responses.” (AU § 330.28) GAAS +also instructs that “[t]he auditor should direct the confirmation request to a third party who the +auditor believes is knowledgeable about the information to be confirmed. For example, to +confirm a client’s oral and written guarantees with a financial institution, the auditor should +direct the request to a financial institution official who is responsible for the financial +institution’s relationship with the client or is knowledgeable about the transactions or +arrangements.” (AU § 330.26) LaForgia and his team did not control the LOC confirmation +process. Rather than independe ntly obtaining the address of the issuing bank, LaForgia and his +team of auditors relied on Certified to supply the contact information. The address they found in +Certified’s documents was not actually connected with the bank but instead was the address of a +retail mail service store. +21. LaForgia and his team also failed to reasonably evaluate a purported confirmation +response from the issuing bank. LaForgia did not question why a standard client authorization for +release of information letter directed to Certified and received by the auditors was signed by a +purported bank employee rather than someone from Certified. Additionally, LaForgia and his +team requested certain information concerning LOCs issued on behalf of Certified’s subsidiary, +however the issuing bank response listed Certified, not the subsidiary as the beneficiary of the +LOCs. Despite LaForgia’s receipt of this document he failed adequately to analyze this one-page +confirmation and did not notice the discrepancy. This discrepancy should have increased +LaForgia’s skepticism for two reasons. First, Certified was never mentioned in the auditors’ +authorization letter. Second, neither Certified nor its subsidiary ever had a banking relationship +with that bank. Further, LaForgia and his team requested that the issuing bank identify the source +of the LOCs’ collateral, but the response failed to address this issue and LaForgia did not further +pursue it. Finally, Certified did not have any other bank documents to support the issuance of the +LOCs and the auditors did not obtain any evidence of cash disbursements backing the LOCs. The +totality of these facts should have raised LaForgia’s skepticism regarding the validity of the LOCs, +particularly since they comprised such a large part of Certified’s assets. +Failure to Identify and Examine Properly Related Party Transactions +22. LaForgia failed to perform adequate procedures to identify related parties, and the +related party transactions in the engagements. GAAS states that “[t]he auditor should place +9 + + + + + + + + + + + + + + + + +emphasis on testing material transactions with parties he knows are related to the reporting entity.” +(AU § 334.07) Further, AU Section 334.11 provides that “[t]he auditor should consider whether +he has obtained sufficient competent evidential matter to understand the relationship of the parties +and, for related party transactions, the effects of the transaction on the financial statements.” +Certified failed to fully describe its relationship with Midwest in its Commission filings. Certified +disclosed that Midwest was a “related party” because it was Certified’s largest shareholder and as +part of its disclosures relating to the Risk Agreement. Yet, Certified did not disclose that in +addition to being Certified’s largest shareholder, Midwest was a related party to Certified because +Pixler was a co-manager of Midwest; Pixler received payments from Midwest; and Pixler’s wife +owned at least a 40% stake in Midwest.8 LaForgia testified that he knew, during the 2002 audit, +that Pixler’s wife and Huff’s ex-wife were the owners of Midwest. Yet LaForgia did not object to +Certified’s failure to disclose Pixler’s wife’s ownership of Midwest (nor that of Huff’s ex-wife, +since LaForgia knew, or should have known, that Huff was an undisclosed control person of +Certified). Additionally, during the 2003 audit, LaForgia also learned that Pixler was an +“owner/controller” of Midwest. Yet again, LaForgia did not object to Certified’s failure to disclose +Pixler’s overlapping management roles. Furthermore, LaForgia failed to take adequate steps to +investigate and determine the full extent as to why Midwest was a related party when he was +confronted with these additional facts evidencing the intertwined relationship. LaForgia’s failure +to obtain competent evidential matter regarding Certified’s related party transactions in accordance +with GAAS, and failure to address Certified’s inadequate disclosure of known intercompany +relationships, caused Certified to issue financial statements that provided inadequate disclosures. +Failure to Exercise Due Professional Care and Professional Skepticism +23. GAAS required LaForgia to exercise due professional care in performing the +engagements and in the preparation of the audit and review reports. (AU § 230.01) Due care +required LaForgia to exercise professional skepticism in planning auditing and review procedures +and in assessing audit evidence and to obtain sufficient competent evidential matter through +inspection, observation, inquiries, and confirmations to afford a reasonable basis for the opinion +regarding Certified’s financial statements. (AU § 230.07-.08) “In exercising professional +skepticism, the auditor should not be satisfied with less than persuasive evidence because of a +belief that management is honest.” (AU § 230.09) Exercise of professional skepticism requires +auditors to demonstrate a questioning mind and to critically assess audit evidence. (AU § 230.07; +see also AU § 316.13) LaForgia had a responsibility not only to plan and perform the +engagements to provide reasonable assurances of detecting material errors or irregularities in the +financial statements, but to exercise sufficient professional skepticism to achieve reasonable +assurance that material errors or irregularities would be detected. As described above, LaForgia’s +lack of skepticism resulted in the audit and review failures. +Failure to Issue Accurate Audit Reports and Review Reports +24. In auditing Certified’s financial statements, and reviewing Certified’s quarterly +filings, LaForgia acted unreasonably in rendering audit reports and review reports containing +8 Certified did not disclose that Pixler received payments from Midwest until filing its Form 10-Q for the period +ending September 30, 2004. +10 + + + + + + + + + + + + + +unqualified opinions. GAAS requires 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. (AU § 508.04, Reports on Audited Financial Statements) The auditor can +determine that he is able to issue an audit report containing an unqualified opinion only if he has +conducted his audit in accordance with GAAS and the financial statements were presented in +accordance with GAAP. (AU §§ 508.07 & .22) LaForgia signed Rosenberg Rich’s audit reports +and review reports on Certified’s financial statements and quarterly filings even though those +statements and quarterly filings were not presented in accordance with GAAP and that LaForgia +did not conduct the audits in accordance with GAAS. Nevertheless, LaForgia issued audit +reports containing unqualified opinions that falsely stated that Certified’s financial statements +were presented in accordance with GAAP and that he and the auditors he directed had conducted +the audits in accordance with GAAS. +Violations +1. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit a person, in +connection with the purchase or sale of a security, from making an untrue statement of a material +fact or from omitting to state a material fact necessary to make statements made, in light of the +circumstances under which they were made, not misleading. To violate Section 10(b) or Rule 10b- +5, a defendant must act with scienter, Aaron v. SEC, 446 U.S. 680, 695, 701-02 (1980), which the +Supreme Court has defined as “a mental state embracing intent to deceive, manipulate, or defraud,” +Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n.12 (1976). Certified violated Section 10(b) of +the Exchange Act and Rule 10b-5 thereunder by filing with the Commission quarterly and annual +reports that were materially misstated and that misrepresented Certified’s financial condition and +results of operations. +2. Under Section 21C of the Exchange Act the Commission may “enter an order +requiring such person, and any other person that is, was, or would be a cause of the violation, due +to an act or omission the person knew or should have known would contribute to such violation, to +cease and desist from committing or causing such violation and any future violation of the same +provision, rule, or regulation.” Exchange Act, 15 USCS § 78u-3. As a result of his actions +described above LaForgia was a cause of Certified’s violations of Section 10(b) of the Exchange +Act and Rule 10b-5 thereunder. +3. Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require +issuers with securities registered under Section 12 of the Exchange Act to file quarterly and annual +reports with the Commission and to keep this information current. The obligation to file such +reports embodies the requirement that they be true and correct. See, e.g., SEC v. Savoy Indus., Inc., +587 F.2d 1149, 1165 (D.C. Cir. 1978), cert. denied, 440 U.S. 913 (1979). Rule 12b-20 requires +disclosure of such additional information as may be necessary to make the required statements not +misleading. Implicit in these provisions is the requirement that the information reported be true, +correct and complete. See SEC v. IMC International, Inc., 384 F.Supp. 889, 893 (N.D. Texas), +aff’d mem., 505 F.2d 733 (5th Cir. 1974), cert. denied sub nom. +11 + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +4. As discussed above, LaForgia’s actions were a cause of Certified filing false and +misleading annual and quarterly reports with the Commission that misrepresented Certified’s +financial results. By his conduct described above, LaForgia caused Certified’s violations of +Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. +5. Section 13(b)(2)(A) of the Exchange Act requires Section 12 registrants to make +and keep books, records, and accounts that accurately and fairly reflect the transactions and +dispositions of their assets. +6. As a result of the actions taken by LaForgia as described above, LaForgia was a +cause of Certified’s violations of Section 13(b)(2)(A) of the Exchange Act. +7. Under Rule 102(e)(1)(iv), the term “improper professional conduct” means, in part, +“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.” +8. As a result of the actions described above, LaForgia engaged in improper +professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. +Undertakings +1. Ongoing Cooperation by LaForgia. LaForgia undertakes to cooperate fully with the +Commission in any and all investigations, litigations or other proceedings relating to or arising +from the matters described in this Order. In connection with such cooperation, LaForgia has +undertaken: +A. To produce, without service of a notice or subpoena, any and all documents +and other information reasonably requested by the Commission’s staff; +B. To be interviewed by the Commission’s staff at such times as the staff may +reasonably request and to appear and testify truthfully and completely without service of a notice +or subpoena in such investigations, depositions, hearings or trials as may be requested by the +Commission’s staff; and +C. That in connection with any testimony of LaForgia to be conducted at +deposition, hearing or trial pursuant to a notice or subpoena, LaForgia: +i. Agrees that any such notice or subpoena for his appearance and +testimony may be served by regular mail on his counsel, R. Scott Thompson, Esq., Lowenstein +Sandler PC, 65 Livingston Avenue, Roseland, New Jersey 07068; and +ii. Agrees that any such notice or subpoena for his appearance and +testimony in an action pending in a United States District Court may be served, and may require +testimony, beyond the territorial limits imposed by the Federal Rules of Civil Procedure. +12 + + + + + + + + + + + + + + + + + + + + + + + + + + + + +Findings +1. Based on the foregoing, the Commission finds that LaForgia engaged in improper +professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. +2. Based on the foregoing, the Commission finds that LaForgia was a cause of +Certified’s violations of Sections 10(b), 13(a) and 13(b)(2)(A) of the Exchange Act, and Rules +Rule 10b-5, 12b-20, 13a-1 and13a-13 promulgated thereunder. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent LaForgia’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. LaForgia shall 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 promulgated thereunder; +and from causing any violations and any future violations of Sections 13(a) and 13(b)(2)(A) of the +Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 promulgated thereunder; +B. LaForgia is denied the privilege of appearing or practicing before the Commission +as an accountant. +C. After five (5) years from the date of this order, Respondent may request that +the Commission consider his reinstatement by submitting an application (attention: Office of +the Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that Respondent’s work in his practice before the +Commission will be reviewed either by the independent audit committee of the public company +for which he works or in some other acceptable manner, as long as he practices before the +Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which he is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; +(b) Respondent, or the registered public accounting firm with which +he/she is associated, has been inspected by the Board and that inspection did not identify any +13 + + + + + + + + + + + + + +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. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +14 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3028.txt b/raw/aaer/2009/AAER-3028.txt new file mode 100644 index 0000000000000000000000000000000000000000..5633855ea0b3a4a064d75a67efe15049b38c42fa --- /dev/null +++ b/raw/aaer/2009/AAER-3028.txt @@ -0,0 +1,1398 @@ + + + + + + + + + + + + + + + + SEC.gov | Kenneth Selterman and Patti Tay + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/506366","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Kenneth Selterman and Patti Tay , United States District Court for the Southern District of New York, Civil Action No. 09-CV-6813 (S.D.N.Y. July 31, 2009) + + SEC Charges Take-Two's Former General Counsel and Former Controller/Chief Accounting Officer With Stock Option Backdating + + The Securities and Exchange Commission today announced the filing of a civil action against Kenneth Selterman and Patti Tay, the former General Counsel and former Controller/ Chief Accounting Officer, respectively, of video game maker Take-Two Interactive Software, Inc. (Take-Two) with stock option backdating. The SEC's complaint alleges that Tay and Selterman enriched themselves and others by knowingly or recklessly allowing Take-Two's former Chairman/CEO Ryan Brant to backdate Take-Two's stock option grants. The scheme involved granting backdated, undisclosed "in the money" stock options that coincided with dates of historically low annual and quarterly closing prices for Take-Two's common stock. The complaint alleges that Take-Two granted backdated stock options to senior officers, directors, and key employees without complying with its own stock option plans, and generally, without the Board or a committee thereof approving the grant dates and exercise prices. Take-Two also did not record or disclose the compensation expenses it incurred as a result of the "in-the-money" portions of the option grants. Tay's misconduct, according to the complaint, occurred from at least as early as 1998, while Selterman's misconduct occurred from at least as early as 2002. + + The SEC's complaint, filed in federal court in the Southern District of New York, also alleges, among other things, that Tay and Selterman: + + knew, or were reckless in not knowing, that exercise prices for stock options had been picked with hindsight; + + created company records that falsely indicated that stock option grants had occurred on earlier dates when Take-Two's stock price had been at a low; + + knew the accounting consequences of granting stock options at exercise prices less than fair market value on the date of the grant; and + + knew or were reckless in not knowing that Take-Two's filings with the SEC were false and misleading because they materially understated Take-Two's compensation expenses and materially overstated its earnings (or understated its losses), and contained materially false and misleading statements pertaining to the true grant dates and exercise prices of options, creating the false and misleading impression that Take-Two granted options in accordance with the terms of its stock option plans. + Tay and Selterman have agreed to settle this matter, without admitting or denying the allegations of the SEC's complaint. Tay and Selterman consented to orders permanently enjoining them from violating the antifraud provisions of Section 10(b) of the Exchange Act and Rule 10b-5, the internal controls and books and records provisions of Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1; the misrepresentations to auditors provision of Exchange Act Rule 13b2-2; and the reporting provisions of Section 16(a) of the Exchange Act and Rule 16a-3; and from aiding and abetting Take-Two's violations of the Exchange Act's reporting, books and records, internal controls, and proxy solicitation provisions. Tay and Selterman agreed to permanent bars from serving as officers or directors of any issuer that has a class of securities registered with the SEC or that is required to file reports with the SEC. Tay and Selterman will each pay a civil penalty of $125,000. Selterman will also pay disgorgement of $363,185 plus prejudgment interest of $111,115, for a total of $474,300, representing the "in-the-money" benefit he obtained from exercising his backdated options. + + In addition, as part of the settlements, and following the entry of the proposed final judgments, Tay and Selterman, without admitting or denying the Commission's findings, consented to the entry of administrative orders pursuant to Rule 102(e)(3) of the Commission's Rules of Practice permanently suspending them from appearing or practicing before the SEC as an accountant and an attorney, respectively. + + The settlements are subject to the approval of the United States District Court for the Southern District of New York. + + The SEC previously settled with former Chief Executive Officer and Chairman Ryan Brant for his alleged role as the architect of the fraudulent options backdating scheme. SEC v. Ryan Ashley Brant , Civil Action No. 1:07 CV 1075 (DLC) (S.D.N.Y. 2007) (filed February 14, 2007), Litigation Release No. 20003. The SEC also previously settled with Take-Two with respect to the alleged options backdating scheme. SEC v. Take-Two Interactive Software, Inc. , Civil Action No. 1:09-CV-03113 (S.D.N.Y. 2009) (filed April 1, 2009), Litigation Release No. 20982. + + The SEC acknowledges the assistance of the New York County District Attorney's Office, which conducted a separate, parallel investigation. + + SEC Complaint + +   + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + General Electric Company + + + + + + + + + + + + General Electric Company + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21166 / August 4, 2009 + + Accounting and Auditing Enforcement Release No. 3029 / August 4, 2009 + + Securities and Exchange Commission v. General Electric Company , 3:09 CV 1235 (RNC) (D. Conn.) + + SEC CHARGES GENERAL ELECTRIC WITH ACCOUNTING FRAUD + + + + The Commission today filed a civil injunctive action alleging civil fraud and other charges against General Electric Company ("GE"), a diversified technology, manufacturing, media, and financial services company with headquarters in Fairfield, Connecticut. The suit, filed in U.S. District Court for the District of Connecticut, alleges that GE misled investors by reporting materially false and misleading results in its financial statements. The SEC alleges that GE used improper accounting methods to increase its reported earnings or revenues and avoid reporting negative financial results. GE has agreed to pay a $50 million penalty to settle the SEC's charges. + + According to the Commission's complaint, GE met or exceeded final consensus analyst earnings per share (EPS) expectations every quarter from 1995 through filing of its 2004 annual report. However, on four separate occasions in 2002 and 2003, high-level GE accounting executives or other finance personnel approved accounting that was not in compliance with Generally Accepted Accounting Principles ("GAAP"). In one instance, the improper accounting allowed GE to avoid missing analysts' final consensus EPS expectations. The four accounting violations were (1) beginning in January 2003, an improper application of the accounting standards to GE's commercial paper funding program to avoid unfavorable disclosures and an estimated approximately $200 million pre-tax charge to earnings; (2) a 2003 failure to correct a misapplication of financial accounting standards to certain GE interest-rate swaps; (3) in 2002 and 2003, reported end-of-year sales of locomotives that had not yet occurred in order to accelerate more than $370 million in revenue; and (4) in 2002, an improper change to GE's accounting for sales of commercial aircraft engines' spare parts that increased GE's 2002 net earnings by $585 million. + + Without admitting or denying the SEC's allegations, GE agreed to the financial penalty and consented to the entry of an order permanently enjoining it from violating 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 Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The charges announced today conclude the SEC's investigation with respect to the company. + + + + + SEC Complaint + +   + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Johannes Gerhardus Andreae , Civil Action No. 1:04-CV-01741-RMU (D.D.C. filed Oct. 13, 2004) + + SEC Settles Fraud Action against Former Royal Ahold Executive Vice President + + The Securities and Exchange Commission (Commission) announced today that it filed a settled Final Judgment against Johannes Gerhardus Andreae. Andreae, who consented to the Judgment without admitting or denying the allegations in the Commission's Complaint, is a former Executive Vice President and former member of the executive board of Royal Ahold (Koninklijke Ahold N.V.). The proposed Final Judgment would: (i) permanently enjoin Andreae from violating Section 17(a) of the Securities Act of 1933; violating, or aiding and abetting violations of, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13b2-1, and 13b2-2 thereunder; and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 13a-1 and 13a-16 thereunder; and (ii) bar Andreae from serving as an officer or director of a public company. The proposed Final Judgment is subject to the approval of the U.S. District Court for the District of Columbia. + + The Commission's Complaint against Andreae alleges that Andreae and others at Royal Ahold participated in a scheme to consolidate joint ventures improperly, which caused Royal Ahold fraudulently to publish materially false and misleading financial and other statements for at least fiscal years 2000 and 2001 and for the first three quarters of 2002. Royal Ahold is a publicly held company organized in The Netherlands. At the time of the alleged misconduct, the company had registered securities with the Commission pursuant to Section 12(b) of the Exchange Act. + + For further information, see: Litigation Release No. 18929 (Oct. 13, 2004). + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + Escala Group, Inc., Gregory Manning, and Larry Lee Crawford, CPA + + + + + + + + + + + + Escala Group, Inc., Gregory Manning, and Larry Lee Crawford, CPA + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 20965 / March 23, 2009 + + Accounting and Auditing Enforcement Release No. 3031 / March 23, 2009 + + Securities and Exchange Commission v. Escala Group, Inc., Gregory Manning, and Larry Lee Crawford, CPA , Civil Action No. 09 CV 2646 (DLC) (S.D.N.Y., March 23, 2009) + + SEC Charges Escala Group, Inc., its Former CEO and CFO with Disclosure and Accounting Fraud Concerning Related Party Transactions with Parent Company Afinsa + + Escala enters into a proposed simultaneous settlement + + The Securities and Exchange Commission today filed a disclosure and accounting fraud case against then-NASDAQ National Market issuer Escala Group, Inc.; its founder and former CEO Gregory Manning, 62; and its former CFO Larry Lee Crawford, 60, alleging fraudulent related party transactions between Escala and its parent company, Afinsa Bienes Tangibles, S.A. ("Afinsa"). Escala is a network of companies in the collectibles market specializing in stamps, among other things. Afinsa was a privately held Spanish company that sold investments in portfolios of stamps in Europe. According to the complaint, the fraudulent related-party transactions ceased after May 2006, when Spanish authorities raided Afinsa's offices and charged Afinsa and certain individuals with engaging in a massive unlawful pyramid scheme. + + The SEC complaint alleges a fraudulent business scheme based upon the secret and dramatic manipulation of collectible stamp values, in which Escala, Manning, and Crawford violated the antifraud and reporting provisions of the federal securities laws by: + + failing to disclose the related party status of Barrett & Worthen, Inc., resulting in control of the Brookman Catalogue, and failing to disclose the revenues obtained by virtue of Afinsa and Manning's control of the prices in the Brookman Catalogue; + + falsely representing that Escala sold Afinsa several large stamp archives at prices determined by reference to independent stamp catalogues and appraisals when in fact Manning set the catalogue prices and influenced and edited the appraisals; and + + falsely reporting a payment for business combination-related expenses as the "sale" of certain antiques. The complaint alleges that Escala and Manning also violated the antifraud provisions by selling back to Afinsa in a round-trip transaction inventory acquired from Afinsa in direct contravention of Escala's public promise not to do so. + The complaint alleges that these false and misleading disclosures and omissions were material in that the related-party transactions contributed over $80 million to Escala's revenues and allowed Escala to meet its forecasts for either revenue or pre-tax net income for the third quarter and for year-end of fiscal year 2004, and for the first quarter and year-end in fiscal 2005. According to the complaint, as a result of these transactions, Escala went from trading at $1.47 per share on January 23, 2003, to a $32-per-share company with a purported market cap of $898 million in the span of a few years. + + The complaint charges Escala with violations of Sections 10(b), 13(a), 13(b)(2)(A) and (B) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §§ 78j(b), 78m(a), 78m(b)(2)(A) and (B)] and Exchange Act Rules 10b-5, 12b-20, 13a-1, and 13a-13, [17 C.F.R. §§ 240.10b-5, 240.12b-20, 13a-1 and 13a-13]. Simultaneous with the filing of the complaint in a Consent and proposed Final Judgment submitted for the Court's consideration, without admitting or denying the allegations in the complaint, Escala consented to a permanent injunction against future violations of these provisions. + + The complaint charges defendants Manning and Crawford with violations of Sections 10(b) and 13(b)(5) of the Exchange Act [15 U.S.C. §§ 78j(b) and 78m(b)(5)] and Exchange Act Rules 10b-5, 13b2-1, 13b2-2, and 13a-14, [17 C.F.R. §§ 240.10b-5, 240.13b2-1, 240.13b2-2 and 240.13a-14], aiding and abetting Escala's violations of Sections 13(a), and 13(b)(2)(A) and (B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and 13a-13, and seeks permanent injunctions against future violations, disgorgement of ill-gotten gains, prejudgment interest, civil penalties, and officer and director bars. + + The Commission acknowledges the assistance of the Special Prosecutions Office for Financial Offenses relating to Corruption, Madrid, Spain. + + The Commission's investigation in this matter is ongoing as to the role of others. + + + SEC Complaint + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-3034.txt b/raw/aaer/2009/AAER-3034.txt new file mode 100644 index 0000000000000000000000000000000000000000..f0ea9d50402c1516735453424294357e28f712e7 --- /dev/null +++ b/raw/aaer/2009/AAER-3034.txt @@ -0,0 +1,191 @@ + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60484 / August 12, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3034 / August 12, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13578 +In the Matter of +DOUGLAS K. HUTCHINS, +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 Douglas K. Hutchins (“Hutchins” or +“Respondent”). +1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission's jurisdiction over him and the subject matter of these +proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease- +and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making +Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below. +1 This matter is related to a civil action, Securities and Exchange Commission v. Douglas K. Hutchins, +Civ. Action No. 1:03-cv-328, filed on July 9, 2009, in which Hutchins has consented to pay a $25,000 +civil penalty. + + + + + + + + + + + + + + + + + + +III. +On the basis of this Order and Respondent's Offer, the Commission finds2 that: +1. Douglas K. Hutchins, age 37, of Denver, Colorado, was the director of finance for +Qwest Communications International’s Global Business Markets (“Global Business”) unit and +reported to the chief financial officer (“CFO”) of Global Business from January 2001 until February +2002 when Hutchins was promoted to senior director of quality. Hutchins resigned from Qwest on +October 12, 2002. +2. Qwest, based in Denver, Colorado, is one of the largest telecommunications and +Internet services companies in the United States. Qwest’s common stock is registered with the +Commission pursuant to Section 12(b) of the Exchange Act, and the company is obligated to file +reports on Forms 10-K and 10-Q. Qwest’s common stock is traded on the New York Stock +Exchange. +3. In January 2001, the Arizona School Facilities Board (“ASFB”) and Qwest entered +into agreements providing that Qwest would design and implement a statewide network and provide +internet and local area network services for Arizona schools using equipment provided by Qwest. +4. The CFO of Global Business told Hutchins that Global Business needed to be +aggressive in recognizing revenue on the ASFB transaction. The CFO of Global Business consulted +with the assistant controller of Qwest and Hutchins and they inappropriately decided to separate the +equipment sale from the other elements of the ASFB contract and then to improperly characterize +the sale as a bill and hold transaction to ensure immediate revenue recognition. +5. Hutchins prepared the memorandum incorrectly concluding that Qwest met each +requirement for a bill and hold transaction and that revenue could be recognized immediately on the +equipment sale. The assistant controller of Qwest reviewed and edited the memorandum. +6. Hutchins drafted letter agreements for an ASFB official to sign to fulfill the bill and +hold requirements, knowing they included terms contrary to the official’s oral agreements with +Qwest. The senior vice president (“SVP”) and vice president of sales for the Government and +Educational Services unit (“GES”) and the assistant controller of Qwest reviewed and edited letter +agreements, and the SVP of GES signed them. +7. As a result of the scheme, Qwest improperly recognized approximately $34 million +in revenue on the sale of the equipment in its second quarter ended June 30, 2001. Accordingly, +Qwest's June 30, 2001 quarterly report, September 30, 2001 quarterly report, and December 31, +2001 annual report were materially false and misleading. +8. As a result of the conduct described above, Qwest violated, and Hutchins was a +cause of Qwest’s violations of, Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and +2 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding +on any other person or entity in this or any other proceeding. +2 + + + + + + + + + + + + + + + + + + + + + +13a-13 thereunder, which require every issuer of a security registered pursuant to Section 12 of +the Exchange Act to file with the Commission information, documents, and annual and quarterly +reports as the Commission may require, and mandate that periodic reports contain such further +material information as may be necessary to make the required statements not misleading. +9. As a result of the conduct described above, Qwest violated, and Hutchins was a +cause of Qwest's violations of, Section 13(b)(2)(A) of the Exchange Act, which requires reporting +companies to make and keep books, records, and accounts which, in reasonable detail, accurately +and fairly reflect their transactions and dispositions of their assets, and Section 13(b)(2)(B), which +requires all reporting companies to devise and maintain a system of internal accounting controls +sufficient to provide reasonable assurances that transactions are recorded as necessary to permit +preparation of financial statements in conformity with generally accepted accounting principles. +10. Lastly, as a result of the conduct described above, Hutchins violated Section +13(b)(5) of the Exchange Act, which prohibits persons from knowingly circumventing or knowingly +failing to implement a system of internal accounting controls, or knowingly falsifying any book, +record or account, and Exchange Act Rule 13b2-1, which prohibits persons 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. +Undertakings +In connection with this action and any related judicial or administrative proceeding or +investigation commenced by the Commission or to which the Commission is a party, Respondent +undertakes to cooperate with the Commission staff and: (i) agrees to appear and be interviewed +by Commission staff at such times and places as the staff requests upon reasonable notice; (ii) will +accept service by mail or facsimile transmission of notices or subpoenas issued by the Commission +for documents or testimony at depositions, hearings, or trials, or in connection with any related +investigation by Commission staff; (iii) appoints Respondent’s attorney as agent to receive service +of such notices and subpoenas; (iv) with respect to such notices and subpoenas, waives the +territorial limits on service contained in Rule 45 of the Federal Rules of Civil Procedure and any +applicable local rules, provided that the party requesting the testimony reimburses Respondent’s +travel, lodging, and subsistence expenses at the then-prevailing U.S. Government per diem rates; +and (v) consents to personal jurisdiction over Respondent in any United States District Court for +purposes of enforcing any such subpoena. +In determining whether to accept the Offer, the Commission has considered these +undertakings. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent Hutchins' Offer. +Accordingly, it is hereby ORDERED that: +3 + + + + + + + + +A. Respondent Hutchins cease and desist from committing or causi ng any violations +and any future violations of Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, and +from causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), and +13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +4 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3035.txt b/raw/aaer/2009/AAER-3035.txt new file mode 100644 index 0000000000000000000000000000000000000000..d88eb715fa8960b36e6ad0a5623e596169dae621 --- /dev/null +++ b/raw/aaer/2009/AAER-3035.txt @@ -0,0 +1,1395 @@ + + + + + + + + + + + + + + + + SEC.gov | Terex Corporation + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/506431","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Terex Corporation, 3:09civ1281(AWT) (D. Conn.) + + SEC CHARGES TEREX CORPORATION WITH ACCOUNTING FRAUD + + The Commission today charged Terex Corporation, a Westport, Conn.-based heavy equipment manufacturer, with accounting fraud for making material misstatements in its own financial reports to investors, as well as aiding and abetting a fraudulent accounting scheme at United Rentals, Inc. (URI), another Connecticut-based public company. + + Terex has agreed to settle the SEC's charges and pay a penalty of $8 million. The SEC previously charged URI with fraud as well as officers of URI and Terex. + + The SEC's complaint, filed in U.S. District Court for the District of Connecticut, alleges that Terex aided and abetted the fraudulent accounting by URI for two year-end transactions that were undertaken to allow URI to meet its earnings forecasts. These fraudulent transactions also allowed Terex to prematurely recognize revenue from its sales to URI. The fraud occurred through URI's sales of used equipment to a financing company and its lease-back of that equipment for a short period. As part of the scheme, Terex agreed to sell the equipment at the end of the lease period and guarantee the financing company against any losses. URI separately guaranteed Terex against losses it might incur under the guarantee it had extended to the financing company. + + The SEC's complaint also alleges that from 2000 through June 2004, Terex's accounting staff failed to resolve imbalances arising from certain intercompany transactions. Instead of investigating and correcting the imbalances, Terex offset the imbalances with unsupported and improper entries. As a result, costs were not recorded as expenses, and, on a consolidated basis, Terex appeared to be more profitable than it was. + + Without admitting or denying the SEC's charges, Terex agreed to settle the Commission's action by consenting to be permanently enjoined from violating Section 17(a) of the Securities Act of 1933, and from violating and aiding and abetting any violation of Sections 10(b), 13(a), and 13(b)(2)(A) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder, and by paying the $8 million penalty. The settlement is subject to court approval. + + The Commission acknowledges the assistance of the U.S. Attorney's Office for the District of Connecticut and the New Haven Field Office of the Federal Bureau of Investigation in this matter. + + This case is the latest in a series of actions filed by the SEC related to Terex and URI. See, SEC v Michael J. Nolan (( Litigation Release No. 20396 ); SEC v. Joseph F. Apuzzo ( Litigation Release No. 20418 ); SEC v. John N. Milne ( Litigation Release No. 20518 ); and SEC v. United Rentals, Inc. ( Litigation Release No. 20706 ). + + SEC Complaint in this matter + +   + + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-3036.pdf b/raw/aaer/2009/AAER-3036.pdf new file mode 100644 index 0000000000000000000000000000000000000000..4c62353aa40e3d3e1bd4511cb4890cd405a30ce4 Binary files /dev/null and b/raw/aaer/2009/AAER-3036.pdf differ diff --git a/raw/aaer/2009/AAER-3036.txt b/raw/aaer/2009/AAER-3036.txt new file mode 100644 index 0000000000000000000000000000000000000000..982341d003874d009f8e47c7032842a5b1128ca6 --- /dev/null +++ b/raw/aaer/2009/AAER-3036.txt @@ -0,0 +1,138 @@ + + + + + + + + + + + + + + + + + + + +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60532 / August 19, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3036 / August 19, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13586 +In the Matter of +ENTRADE, 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 Entrade, Inc. (“Entrade” or +“Respondent”). +II. +In anticipation of the institution of these proceedings, Entrade has submitted an Offer of +Settlement (the “Offer”) which the Commission has determined to accept. Solely for the purpose +of these proceedings and any other proceedings brought by or on behalf of the Commission, or to +which the Commission is a party, and without admitting or denying the findings herein, except as +to the Commission’s jurisdiction over it and the subject matter of these proceedings, which are +admitted, Entrade consents to the entry of this Order Instituting Cease-and-Desist Proceedings +Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing +a Cease-and-Desist Order (“Order”), as set forth below. +1 +1 Concurrently with the entry of this Order, Entrade has consented to the entry of an order revoking the +registration of its securities pursuant to Section 12(j) of the Securities Exchange Act of 1934. In the +Matter of Entrade, Inc., Securities Exchange Act Release No. + + + + + + + + +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +FACTS +1. Entrade, Inc., a Pennsylvania corporation based in Chicago, Illinois, is a holding +company whose principal asset is its wholly-owned subsidiary, Nationwide Auction Systems +(“Nationwide”). Until late 2008, Nationwide provided public auction services for the disposal of +surplus commercial property and operated a retail division selling used vehicles. The common +stock of Entrade is registered under Section 12(g) of the Exchange Act. Until October 11, 2001, +Entrade’s common stock was listed and traded on the New York Stock Exchange. It is currently +quoted on the “pink sheets” market under the symbol “ETAD.” +2. On October 19, 1999, Entrade acquired Nationwide, which became Entrade’s +primary operating subsidiary. Owing to significant cash flow problems, Entrade was unable to +service the liabilities stemming from this acquisition and the transaction was restructured several +times. Entrade did not maintain adequate books and records of the liabilities arising from the +various restructurings of the Nationwide acquisition. Entrade was also unable to pay its +independent auditors regularly, and, on repeated occasions, the auditors suspended audit work +for lengthy periods of time. Furthermore, Entrade lacked a system of internal accounting +controls designed to provide reasonable assurances that its transactions were accurately and +fairly recorded and executed. As a result of these failures, Entrade became seriously delinquent +in its required periodic filings. Entrade did not file a Form 10-K after its 1999 Form 10-K +(which it filed on March 30, 2000), and it did not file any Forms 10-Q since the third quarter of +2000. +3. In 2005, in an effort to address its reporting failures, Entrade hired new senior +management for Nationwide and supplemented Nationwide’s accounting staff. New +management took steps to address Entrade’s books and records problems and to implement new +internal controls. These efforts resulted in the filing of a Form 10-K for the period ended +December 31, 2006, which Entrade filed on June 28, 2008. The Form 10-K included audited +balance sheets for 2005 and 2006 and audited statements of operations and cash flows for 2004, +2005, and 2006. However, after that filing, Entrade has failed to file the required Forms 10-K +for 2007 and 2008. Further, Entrade has failed to file any of the required Forms 10-Q after the +third quarter of 2000. +VIOLATIONS +4. As a result of the conduct described above, Entrade violated Section 13(a) of the +Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder, which require every issuer of a +security registered pursuant to Section 12 of the Exchange Act to file with the Commission +information, documents, and annual and quarterly reports as the Commission may require, and +mandate that periodic reports contain such further material information as may be necessary to +make the required statements not misleading. +2 + + + + + + + + + + + + + + +5. As a result of the conduct described above, Entrade also violated +Section 13(b)(2)(A) of the Exchange Act, which requires reporting companies to make and keep +books, records, and accounts which, in reasonable detail, accurately and fairly reflect their +transactions and dispositions of their assets. +6. Finally, as a result of the conduct described above, Entrade violated +Section 13(b)(2)(B) of the Exchange Act, which requires all reporting companies to devise and +maintain a system of internal accounting controls sufficient to provide reasonable assurances that +transactions are recorded as necessary to permit preparation of financial statements in accordance +with generally accepted accounting principles. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanction +agreed to in Respondent’s Offer. +Accordingly, it is hereby ORDERED that: +Pursuant to Section 21C of the Exchange Act, Respondent Entrade cease and desist from +committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), +and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 promulgated +thereunder. +By the Commission. +Elizabeth M. Murphy +Secretary +3 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3037.txt b/raw/aaer/2009/AAER-3037.txt new file mode 100644 index 0000000000000000000000000000000000000000..624e6ca817112324c7d21161e56bb6d6ba867f67 --- /dev/null +++ b/raw/aaer/2009/AAER-3037.txt @@ -0,0 +1,220 @@ + + + + + +____________________________________ + + + + + + + + + + + + + + + + + + + + + +UNITED STATES OF AMERICA +before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60566 / August 25, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3037 / August 25, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13599 +: + : +In the Matter of : ORDER INSTITUTING +: A D M I N I S T R A T I V E + HOWARD I. SMITH, CPA, : PROCEEDINGS +: P U R S U A N T T O R U L E + Respondent. : 102(e)(3)(i) OF THE +: C O M M I S S I O N ’ S R U L E S O F + : P R A C T I C E , M A K I N G + : FINDINGS, AND IMPOSING +: REMEDIAL SANCTIONS +____________________________________: +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate +and in the public interest that public administrative proceedings be, and hereby are, +instituted against Howard I. Smith (“Respondent” or “Smith”) pursuant to Rule +102(e)(3)(i) of the Commission’s Rules of Practice. +1 +1 + Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary +hearing, may, by order, . . . suspend from appearing or practicing before it any . . . +accountant . . . who has been by name . . . permanently enjoined by any court of +competent jurisdiction, by reason of his or her misconduct in an action brought by the +Commission, from violating or aiding and abetting the violation of any provision of the +Federal securities laws or of the rules and regulations thereunder. + + + + + + + + + + + + + + + + + + +II. +In anticipation of the institution of these proceedings, Respondent has submitted +an Offer of Settlement (the “Offer”) which the Commission has determined to accept. +Solely for the purpose of these proceedings and any other proceedings brought by or on +behalf of the Commission, or to which the Commission is a party, and without admitting +or denying the findings herein, except as to the Commission’s jurisdiction over him and +the subject matter of these proceedings, and the findings contained in Section III.3 below, +which are admitted, Respondent consents to the entry of this Order Instituting +Administrative Proceedings Pursuant to Rule 102(e)(3)(i) 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. Smith, age 64, is a resident of Woodbury, New York. Smith is a certified +public accountant licensed to practice in the State of New York, but his license is not +currently active. He served as chief financial officer of American International Group, +Inc. (“AIG”) from 1996 until his termination in March 2005. +2. AIG was, at all relevant times, a Delaware corporation with its principal +place of business in New York, NY. At a ll relevant times, AIG was a holding company +that, through its subsidiaries was engaged in a broad range of insurance and insurance- +related activities in the United States and abroad. AIG’s common stock is registered with +the Commission pursuant to Section 12(b) of the Securities Exchange Act of 1934 +(“Exchange Act”), and is listed on the New York Stock Exchange. +3. On August 7, 2009, a final judgment was entered against Smith, on +consent, permanently enjoining him from future violations of Section 17(a) of the +Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules +10b-5, 13a-14, 13b2-1, and 13b2-2 thereunder and from controlling any person who +violates Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b- +20, 13a-1, and 13a-13 thereunder, in the civil action entitled Securities and Exchange +Commission v. Maurice R. Greenberg, et al., Civil Action Number 09 Civ. 6939 (LAP), +in the United States District Court for the Southern District of New York. Smith also was +ordered to pay $750,000 in disgorgement and a $750,000 civil money penalty. He also +was barred 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, for a period of three years from the date +of entry of the judgment. +4. The Commission’s complaint alleged, among other things, that Smith and +AIG’s former chairman and chief executive officer directed several different accounting +transactions to materially affect AIG’s reported financial results. The transactions +2 + + + + + + + + + + + + + + + + + + +affected multiple reporting periods when Smith and the former chairman and chief +executive officer were at the company. The complaint also alleges that Smith, as AIG’s +chief financial officer, was aware of transactions that enabled AIG to create the +inaccurate impression that it met or exceeded expectations for certain key financial +measures, and that he knew or recklessly disregarded that AIG’s accounting for these +transactions was not in conformity with generally accepted accounting principles. The +complaint also alleges that during the period that AIG’s financial results were misstated, +AIG distributed its stock in connection with its acquisition of American General +Corporation to that company’s stockholders, and that Smith signed a registration +statement for this distribution that incorporated by reference AIG financial statements +containing misstated financial results that Smith also signed. The complaint also alleges +that Smith falsified or caused to be falsified books, records, or accounts of AIG that were +subject to Section 13(b)(2)(A) of the Exchange Act; that he made materially false or +misleading statements or omissions to an accountant in connection with (i) audits, +reviews, or examinations of the financial statements of AIG required to be made pursuant +to Commission regulations, and (ii) the preparation or filing by AIG of documents and +reports required to be filed with the Commission; and that he certified annual and +quarterly reports of AIG that contained misstated financial results. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public +interest to impose the sanction agreed to in Respondent Smith’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Smith 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”) +3 + + + + + + + + + + + + + + + +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. +The Commission will consider an application by Respondent to resume appearing +or practicing before the Commission provided that his state CPA license is current and he +has resolved all other disciplinary issues with the applicable state boards of accountancy. +However, if state licensure is dependent on reinstatement by the Commission, the +Commission will consider an application on its other merits. The Commission’s review +may include consideration of, in addition to the matters referenced above, any other +matters relating to Respondent’s character, integrity, professional conduct, or +qualifications to appear or practice before the Commission. +By the Commission. + Elizabeth M. Murphy + S e c r e t a r y +4 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3038.pdf b/raw/aaer/2009/AAER-3038.pdf new file mode 100644 index 0000000000000000000000000000000000000000..1667877ac468ab22f88c5a9914eb04c2f388aa1d Binary files /dev/null and b/raw/aaer/2009/AAER-3038.pdf differ diff --git a/raw/aaer/2009/AAER-3039.pdf b/raw/aaer/2009/AAER-3039.pdf new file mode 100644 index 0000000000000000000000000000000000000000..b3378fa8560a84a544a337d844f434b03d2d3a11 Binary files /dev/null and b/raw/aaer/2009/AAER-3039.pdf differ diff --git a/raw/aaer/2009/AAER-3039.txt b/raw/aaer/2009/AAER-3039.txt new file mode 100644 index 0000000000000000000000000000000000000000..e64a0af5e4889c5edd08442f36d4ab761790594c --- /dev/null +++ b/raw/aaer/2009/AAER-3039.txt @@ -0,0 +1,144 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60576 / August 27, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3039/ August 27, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13601 +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +JERRY F. WELLS, JR., : 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 Jerry F. +Wells, Jr. (“Respondent” or “Wells”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of +Practice.1 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. + + + + + + + + + + + + + + + + + + + + + +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over him and the subject matter of these +proceedings, and the findings contained in Section III.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. Wells, age 46, is a certified public accountant licensed to practice in the +State of South Carolina. Wells worked as a Senior Manager and consultant for +PricewaterhouseCoopers LLP from 1985 until he was hired by UCI Medical Affiliates, Inc. +(“UCI” or the “Company”) in February 1995 as Executive Vice President and Chief Financial +Officer. Wells worked in those capacities until he was terminated by the Company in December +2008. +2. UCI was, at all relevant times, a Delaware corporation with its principal +place of business in Columbia, South Carolina. The Company was engaged in the business of +providing nonmedical management and administrative services for a network of freestanding +medical centers located in South Carolina and Tennessee. At all relevant times, UCI’s common +stock was registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act +of 1934 (“Exchange Act”) and listed on the OTC Bulletin Board. +3. On July 6, 2009, the Commission filed a complaint against Wells in SEC v. +Jerry F. Wells, Jr. (Civil Action No. 3:09-CV-01792-MJP). On July 7, 2009, the court entered an +order permanently enjoining Wells, by consent, from future violations of Sections 10(b) and +13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1, 13b2-2 and 13a-14 thereunder, and from +aiding and abetting any violation of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange +Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. Wells was also ordered, on consent, to 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. +4. The Commission’s complaint alleged, among other things, that between +approximately 2003 and 2008, Wells fraudulently obtained more than $2.9 million from the +Company by misusing UCI’s expense reimbursement process and corporate credit card to pay +his personal expenses and otherwise orchestrating unapproved, improper payments by the +Company for his personal benefit. In addition, the complaint alleged that, in an effort to conceal +2 + + + + + + + + + + + + +his misconduct, Wells also knowingly caused the Company to record these illicit payments as +legitimate business expenses and asset purchases and thereby materially misrepresented its +financial performance. As a result of his actions, UCI filed materially false and misleading +financial information for its quarterly and annual reports during the period in question. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that Wells is suspended from +appearing or practicing before the Commission as an accountant. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +3 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3040.txt b/raw/aaer/2009/AAER-3040.txt new file mode 100644 index 0000000000000000000000000000000000000000..ec1b134c2b00dc0d46064da44fd4bf265a31ef91 --- /dev/null +++ b/raw/aaer/2009/AAER-3040.txt @@ -0,0 +1,1369 @@ + + + + + + + + + + + + + + + + SEC.gov | Michael J. 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Moore and Moore & Associates Chartered + + + + + + + + + + + + Michael J. Moore and Moore & Associates Chartered + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21189A / August 27, 2009 + + Accounting and Auditing Enforcement Release No. 3040 / August 27, 2009 + + SECURITIES AND EXCHANGE COMMISSION v. MICHAEL J. MOORE AND MOORE & ASSOCIATES CHARTERED , Civil Action No. 2:09-cv-01637 (D. Nev.) + + SEC CHARGES LAS VEGAS-BASED CPA AND HIS ACCOUNTING FIRM WITH FRAUD + + Today, the Securities and Exchange Commission charged a Las Vegas-based CPA and his public accounting firm with securities fraud for issuing false audit reports that failed to comply with Public Company Accounting Oversight Board ("PCAOB") Standards and were often the product of high school graduates hired with little or no education or experience in accounting or auditing. The Commission's lawsuit, filed in federal district court in Las Vegas, Nevada, names Michael J. Moore ("Moore"), CPA, age 55, of Las Vegas, Nevada, and Moore & Associates Chartered ("M&A"), a Nevada corporation headquartered in Las Vegas, Nevada. Moore and M&A have agreed to settle the charges without admitting or denying the allegations. + + According to the SEC's complaint, Moore and M&A issued audit reports for more than 300 clients who consist of primarily shell or developmental stage companies with public stock quoted on the OTCBB or the Pink Sheets. The SEC alleges that Moore and M&A violated numerous auditing standards, including a failure to hire employees with adequate technical training and proficiency. The SEC further alleges that Moore and M&A did not adequately plan and supervise the audits, failed to exercise due professional care, and did not obtain sufficient competent evidence. Despite the audit failures, M&A issued and Moore signed audit reports falsely stating that the audits were conducted in accordance with PCAOB Standards. By issuing and signing these false audit reports, Moore and M&A violated the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder and Regulation S-X Rule 2-02(b)(1). + + The SEC's complaint also alleges that Moore and M&A violated Sections 10A(a)(1) and10A(b)(1) of the Exchange Act by failing to include audit procedures designed to detect and report likely illegal acts. The complaint further alleges that Moore and M&A improperly modified audit documentation in violation of Regulation S-X Rule 2-06. + + To settle the Commission's charges, Moore and M&A consented to the entry of a final judgment permanently enjoining them from future violations of Sections 10(b), 10A(a)(1), and 10A(b)(1) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Regulation S-X Rules 2-02(b)(1) and 2-06 and ordering them to disgorge $179,750 plus prejudgment interest of $10,151.59. Moore separately agreed to pay a $130,000 penalty. Moore and M&A also consented to the entry of an administrative order that makes findings and suspends them from appearing or practicing before the Commission as an accountant pursuant to Rule 102(e)(3) of the Commission's Rules of Practice. + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Meza + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/506496","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Meza + + + + + + + + + + + + Oscar H. Meza + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21190 / August 28, 2009 + + Accounting and Auditing Enforcement Release No. 3041 / August 28, 2009 + + SECURITIES AND EXCHANGE COMMISSION v. OSCAR H. MEZA , Civil Action No. 1:09-CV-01648 (D.D.C.) (Filed August 28, 2009) + + SEC SUES FORMER SALES EXECUTIVE FOR FOREIGN BRIBERY + + On August 28, 2009, the Securities and Exchange Commission filed a settled enforcement action in the United States District Court for the District of Columbia against Oscar H. Meza, formerly the Director of Asia-Pacific Sales for Faro Technologies, Inc. ("Faro"), a software development and manufacturing company. The Commission's complaint alleges that Meza authorized bribery payments to employees of Chinese state-owned companies in order to obtain contracts, and that in order to conceal the bribes Meza instructed that account entries be altered. The Commission charged Meza with violations of the anti-bribery, books and records and internal control provisions of the Foreign Corrupt Practices Act ("FCPA"), and with aiding and abetting Faro's violations of the anti-bribery, books and records and internal control provisions of the FCPA. + + The Commission's complaint alleges that beginning in 2004, Meza authorized a former employee of Faro's subsidiary, Faro Shanghai Co., Ltd. ("Faro-China"), to make the improper payments. The complaint alleges that Meza's actions resulted in Faro-China's payment of $444,492 in bribes during the period 2004 through 2006, generating approximately $4.5 million in sales and approximately $1.4 million in net profit. + + Without admitting or denying the allegations in the complaint, Meza has consented to the entry of a final judgment permanently enjoining him from violating Sections 30A and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 13b2-1, and from aiding and abetting violations of Sections 30A, 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. The final judgment also orders that Meza pay a $30,000 civil penalty, as well as $26,707 in disgorgement and prejudgment interest. + + The Commission previously instituted a settled administrative proceeding against Faro in connection with the bribery payments. See Exchange Act Release No. 57933 (June 5, 2008); Accounting and Auditing Enforcement Release No. 2836. + + The Commission acknowledges the assistance of the United States Department of Justice, Fraud Section. + + + SEC Complaint + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-3042.pdf b/raw/aaer/2009/AAER-3042.pdf new file mode 100644 index 0000000000000000000000000000000000000000..ad9febc9698abee2eaaffb74fa440a3cc79e1292 Binary files /dev/null and b/raw/aaer/2009/AAER-3042.pdf differ diff --git a/raw/aaer/2009/AAER-3043.txt b/raw/aaer/2009/AAER-3043.txt new file mode 100644 index 0000000000000000000000000000000000000000..36b978707ba6953be4d39238b6bff6c67cad2e46 --- /dev/null +++ b/raw/aaer/2009/AAER-3043.txt @@ -0,0 +1,168 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA + BEFORE THE +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60601 / September 1, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3043 / September 1, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13607 +: +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +Patti Tay, 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 Patti +Tay, CPA (“Tay” or “Respondent”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of +Practice. +1 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, may, by +order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has been by name. . . +permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an +action brought by the Commission, from violating or aiding and abetting the violation of any provision of +the Federal securities laws or of the rules and regulations thereunder. + + + + + + + + + + + + + + + + + + + + + + + + +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over her and the subject matter of these +proceedings, and the findings contained in Section III.3 below, which are admitted, Respondent +consents to the entry of this Order Instituting 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. Tay, age 38, is a Certified Public Accountant licensed to practice in the State +of New York. From 1998 until 2002, Tay served as Controller of Take-Two Interactive Software, +Inc. (“Take-Two” or “the Company”), and served as Chief Accounting Officer of Take-Two +beginning in 2002. On November 10, 2006, Tay resigned from Take-Two. +2. Take-Two was, at all relevant times, a Delaware corporation with its +principal place of business in New York, New York. Take-Two develops, markets, publishes and +distributes interactive entertainment software games for video game consoles and personal +computers. Take-Two also publishes through its wholly-owned labels Rockstar Games, 2K Games, +2K Sports and 2K Play. Prior to July 31, 2006, Take-Two registered its common stock with the +Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”) +and traded on the NASDAQ NMS under the symbol “TTWO.” Since July 31, 2006, Take-Two has +registered its common stock with the Commission pursuant to Section 12(b) of the Exchange Act +and has traded on the NASDAQ Global Market under the same symbol. The Company operates on +an October 31 fiscal year. +3. On August 6, 2009, a final judgment was entered against Tay, permanently +enjoining her from future violations of Sections 10(b), 13(b)(5), and 16(a) of the Exchange Act and +Exchange Act Rules 10b-5, 13b2-1, 13b2-2, and 16a-3, and aiding and abetting violations of +Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act and Exchange Act Rules +12b-20, 13a-1, 13a-11, 13a-13, and 14a-9, in the civil action entitled Securities and Exchange +Commission v. Kenneth Selterman, et al., Civil Action Number 09-CV-6813 (DLC), in the United +States District Court for the Southern District of New York. Tay was also barred from serving as +an officer or director of any public company and ordered to pay a $125,000 civil money penalty. +4. The Commission’s Complaint alleged, among other things, that Tay +enriched herself and others by knowingly or recklessly allowing Take-Two’s former +CEO/Chairman Ryan Brant (“Brant”) to backdate the Company’s stock option grants. The +Complaint alleged that from at least as early as 1998, Tay knew, or was reckless in not knowing, +2 + + + + + + + + + + + + + + + + + + +that exercise prices for stock options had been picked with hindsight, and that she created +Company records which falsely indicated that grants had occurred on earlier dates when the +Company’s stock price had been at a low. Specifically, between 1998 and at least April 2002, +Tay prepared and maintained (and thereafter until at least September 2003, was involved in +maintaining) a Master Options List which she knew, or was reckless in not knowing, reflected +false option grant information that had been provided to Tay by Brant. Accordingly, Tay knew, +or was reckless in not knowing, that Take-Two filed materially false and misleading reports, +proxy statements, and financial statements with the Commission and that Take-Two’s filings +falsely represented that Take-Two was properly accounting for stock option grants. In addition, +the Complaint alleged that Tay received backdated “in-the-money” options. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanctions agreed to in Respondent Tay’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +Tay is suspended from appearing or practicing before the Commission as an accountant. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +3 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3045.txt b/raw/aaer/2009/AAER-3045.txt new file mode 100644 index 0000000000000000000000000000000000000000..5265a867a8b729a4d25f744c8b914d5494980218 --- /dev/null +++ b/raw/aaer/2009/AAER-3045.txt @@ -0,0 +1,1395 @@ + + + + + + + + + + + + + + + + SEC.gov | The Hain Celestial Group, Inc. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/506521","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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The Hain Celestial Group, Inc , CV 09-3826 (DRH) (E.D.N.Y.) + + The Hain Celestial Group Inc. Settles Charges of Stock Options Backdating + + + + + The Securities and Exchange Commission today charged The Hain Celestial Group, Inc. ("Hain"), a Melville, New York natural foods company, alleging that Hain backdated and re-priced stock option grants to its officers, directors, and employees and reported false information to shareholders. + + The SEC's complaint, filed in federal court in Brooklyn, New York, alleges that from at least 1998 to 2002, Hain fraudulently backdated stock options granted to Company officers, directors, and employees, concealing millions of dollars in expenses from the Company's shareholders. Hain, and its former Chief Financial Officer ("CFO") and Secretary, used hindsight to choose dates corresponding to low stock prices for stock option grants, backdated stock option agreements to make it appear as if options had been granted on the earlier dates, and prepared or approved financial statements and SEC filings that omitted necessary expenses for backdated options and falsely described Hain's option granting practices. During this period, Hain and its former CFO also re-priced grants that had previously been approved, but for which stock option paperwork had not yet been issued, to give recipients the advantage of subsequent lower exercise prices. + + The SEC's complaint also alleges that by virtue of the undisclosed backdating and re-pricing scheme, Hain materially understated the Company's expenses and overstated its income in disclosures to the Commission and the investing public, and falsely represented in filings that Hain had incurred no expenses for option grants. Additionally, throughout the period of 1993-2005, Hain did not have adequate internal controls relating to the granting of stock options and did not maintain accurate books and records concerning its stock option grants. + + After media inquiries and analyst reports regarding its stock option practices in mid-2006, Hain's current CFO conducted a limited internal review of selected grants. At the time, Hain did not retain outside counsel to review its historical option practices and did not conduct a forensic review of e-mails or accounting records. Subsequently, Hain's current CFO and the company made statements during September and November 2006 that the company had carefully reviewed its historical stock option grants and found nothing improper. + + After being contacted by the SEC staff in mid-2007, Hain formed a group of independent directors and retained outside counsel and other experts to conduct a detailed review of its stock options practices. In January 2008, Hain restated its historical financial statements as a result of this review. Hain re-measured 48 grants and recorded $20.5 million of compensation expense. Twenty-one of the 48 re-measured grants, representing approximately 3.7 million options and $13.2 million of compensation expense, were issued between 1998 and 2002. + + Without admitting or denying the SEC's allegations, Hain consented to a permanent injunction against violations of Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Securities Exchange Act of 1934, and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, and 14a-9 thereunder. The settlement is subject to court approval. The Commission took into account the cooperation that Hain provided the Commission staff during its investigation. + + + + + SEC Complaint + +   + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + Tenet Healthcare Corporation, et al. + + + + + + + + + + + + Tenet Healthcare Corporation, et al. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21205 / September 11, 2009 + + Accounting and Auditing Release No. 3047 / September 11, 2009 + + Securities and Exchange Commission v. Tenet Healthcare Corporation, et al. , United States District Court for the Central District of California, Civil Action No. CV 07-2144 RSWL (RZx) + + On September 10, 2009, the Commission accepted a settlement offer from Thomas B. Mackey, the former co-president and chief operating officer of Tenet Healthcare Corporation and the sole remaining defendant in an action brought by the Commission on April 2, 2007. Mackey consented to the relief described below without admitting or denying the allegations in the Commission's Complaint. Mackey's consent has been submitted to the Court for its approval. + + The Complaint alleges that Mackey, of Keswick, Virginia, was the principal architect of Tenet's scheme to inflate its earnings by exploiting Medicare's outlier reimbursement regulations, which provided for additional reimbursement to hospitals to cover the additional costs for treating extraordinarily sick patients. Mackey realized that additional outlier reimbursement could be triggered simply by increasing Tenet's gross charges, regardless of the actual cost incurred by Tenet to treat its Medicare patients. In 1999, and under Mackey's direction, Tenet management calculated the precise increase to Tenet's gross charges needed to boost its revenue from Medicare outlier payments to a level that would allow Tenet to reach its earnings targets. For the next three years, Mackey continued to oversee aggressive gross charge increases by Tenet. Tenet's outlier revenue more than tripled by 2002 and accounted for over 40% of Tenet's earnings per share in fiscal year 2002, as Tenet's earnings goals were surpassed year after year. Once Tenet finally revealed its scheme to the investing public and admitted that its strategy was not sustainable, the market value of Tenet's stock plunged by over $11 billion. + + During the relevant time, Tenet was based in Santa Barbara, California, and was the second largest publicly traded healthcare company in the United States. + + To settle the charges, Mackey consented to entry of a permanent injunction prohibiting him from future violations of the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and aiding and abetting violations of the issuer reporting provisions of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. He also agreed to disgorge $1,780,000 in ill-gotten gains resulting from his exercise of Tenet stock options during the period when its revenues were artificially inflated together with $251,541 in prejudgment interest thereon, and to pay a $500,000 civil penalty, which the Commission will seek to have placed into a Fair Fund for distribution to harmed investors pursuant to the Sarbanes-Oxley Act, together with disgorgement and penalties previously paid by other settling defendants in the case. Finally, Mackey agreed to be permanently barred from serving as an officer or director of a public company. + + On March 30, 2006, the Commission charged three of Tenet's outside auditors with improperly changing audit work papers in connection with the audit completed during the period of the defendants' scheme. + + For further information see LR-20067 ; Exchange Act Release No. 60170 and AAER No. 3000 (June 25, 2009). + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Bernard Cole, William Hennessy, Douglas Hodge and Robert Steimle , Civil Action No. 3:09-CV-2107 (N.D. Ohio) (JGC) + + SEC Files Settled Accounting Fraud Case Against Four Former Employees of Dana Corporation; Dana Holding Corporation Settles to Cease-And-Desist Order for Reporting Violations + + On September 11, 2009, the Securities and Exchange Commission (Commission) filed a settled civil action against four former employees of Dana Corporation (now known as Dana Holding Corporation), Bernard Cole, William Hennessy, Douglas Hodge and Robert Steimle, in connection with a financial accounting fraud scheme that occurred from 2004 through the first two quarters of 2005. According to the complaint, Commercial Vehicle Systems (CVS), a subdivision of one of Dana's two main business units, the Heavy Vehicle Technologies and Systems Group (HVTSG), improperly recognized revenue or income on several transactions and delayed recording expenses in the appropriate period. The improper accounting entries included, among other things: (1) recognizing revenue on transactions where assets were never transferred or risk of ownership never passed, (2) recognizing revenue for price increases on parts sales without agreement from the customers, (3) deferring the recognition of steel surcharge expenses, and (4) recording other improper accounting entries, including decreasing debts owed to suppliers without any contractual support or agreement from the suppliers and recording entries that increased income without any basis or supporting documentation. At the time, Cole was the President of HVTSG, Hennessy was the Vice-President of North and South America of HVTSG and CVS' General Manager, Hodge was the Vice-President and Group Controller of HVTSG and Steimle was the Controller for CVS. Dana overstated its earnings before interest and taxes (EBIT) by $31.6 million or 26.5% due to the fraud. + + The complaint further alleges that as CVS' General Manager, Hennessy instructed certain Dana plant managers and controllers to record improper accounting entries. Hennessy and Hodge repeatedly directed Steimle to improperly record income or defer expenses even though Steimle expressed concerns about the propriety of the accounting treatment for a number of these entries. In turn, Steimle directed his accounting staff to make improper accounting entries despite knowing that those entries did not comply with Dana's accounting policies or with GAAP. Finally, Cole was aware that CVS had accrued income from certain proposed price increases before those increases were accepted by customers. + + The complaint also alleges that Cole, Hennessy, Hodge and Steimle were each responsible for the accuracy of the financial statements of their business unit or division. They signed quarterly and year-end representations that the financial results of CVS were accurate and in accordance with GAAP. However, these statements were false. + + Without admitting or denying the allegations in the Commission's complaint, Cole, Hennessy, Hodge and Steimle consented to the entry of final judgments permanently enjoining them from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder; enjoining Hennessy, Hodge and Steimle from violating Section 17(a) of the Securities Act; and enjoining Hennessy and Steimle from violating Rule 13b2-2 of the Exchange Act. The final judgments impose a $65,000 civil penalty and five-year officer-and-director bar against Cole and Hodge and a $45,000 civil penalty against Hennessy and Steimle. The final judgments also order Hodge to pay $71,037 in disgorgement plus $21,420 in prejudgment interest, Hennessy to pay $44,825 in disgorgement plus $13,122 in prejudgment interest and Steimle to pay $21,744 in disgorgement and $6,449 in prejudgment interest. + + In a separate action, Dana Holding Corporation was ordered by the Commission to cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. Dana Holding Corporation consented to the issuance of the Order without admitting or denying any of the findings in the Order. The order contains findings that, in addition to the fraud, Dana's financial statements from 2004 through the first two quarters of 2005 contained accounting errors amounting to $56.4 million of EBIT. Dana failed to maintain accurate books and records. Dana also had materially deficient internal accounting controls that significantly contributed to the accounting irregularities and errors. As a result, Dana filed materially false and misleading periodic filings with the Commission for fiscal year 2004 and the first two quarters of 2005. In total, Dana materially overstated its EBIT by $88 million, or 73.9% of restated EBIT. This is equivalent to an overstatement of $43 million or 39.8% of restated net income, as reported in Dana's Form 10-K/A and Forms 10-Q/A filed in December 2005. +(Rel. 34-60657; AAE Rel. 3048; File No. 3-13614). + + + + SEC Complaint + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Fuhlendorf and Isilon Systems, Inc. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/506596","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Fuhlendorf and Isilon Systems, Inc. + + + + + + + + + + + + Stuart W. Fuhlendorf and Isilon Systems, Inc. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21210 / September 14, 2009 + + Accounting and Auditing Release No. 3050 / September 14, 2009 + + Securities and Exchange Commission v. Stuart W. Fuhlendorf , Case No. C-09-1292 (TSZ) (W.D. Wash. filed Sept. 14, 2009) + + Securities and Exchange Commission v. Isilon Systems, Inc. , Case No. C-09-1293 (RAJ) (W.D. Wash. filed Sept. 14, 2009) + + SEC CHARGES FORMER ISILON SYSTEMS CFO WITH FRAUDULENTLY BOOSTING REVENUE + + The Securities and Exchange Commission today filed securities fraud charges against Stuart W. Fuhlendorf, former Chief Financial Officer of Isilon Systems, Inc. On the heels of the Seattle-based electronic storage company's successful initial public offering (IPO), Fuhlendorf allegedly cut secret side deals with Isilon customers to allow the company to report inflated sales to its shareholders. + + The SEC alleges Fuhlendorf concealed the true deal terms from Isilon's controller, audit committee, and outside auditor, leading the company to report $4.8 million in improper revenue during 2006 and 2007. In a separate proceeding, the SEC also filed settled charges against Isilon for its misleading financial information. + + According to the SEC's complaints, filed in federal district court in Seattle, Isilon became a publicly-traded company in December 2006 and its stock price increased 77 percent on its opening day. The high expectations created by the successful IPO placed significant pressure on Isilon's management to meet analysts' lofty revenue forecasts. When anticipated deals failed to materialize, the SEC alleges that Fuhlendorf personally negotiated deal terms so that Isilon could get product out the door, even though the secret deal terms made revenue recognition improper under Generally Accepted Accounting Principles (GAAP) and the company's own internal policies. + + The SEC's complaints allege that Isilon improperly booked revenue on five transactions, including three transactions with oral side agreements between Fuhlendorf and representatives of Isilon customers; a sale in which the terms were not fixed and determinable until after Isilon's quarter ended; and a roundtrip transaction that was essentially a circular flow of cash from Isilon to the customer and back to Isilon. The SEC alleges that Fuhlendorf lied to Isilon's audit committee about the true nature of the deal, which was merely a sham transaction designed to artificially boost Isilon's revenues. + + In February 2008, following an internal investigation, Isilon restated its financial statements to correct its accounting for these and other transactions. + + In its federal court action against Fuhlendorf, the SEC alleges Fuhlendorf violated Section 17(a)(1), (a)(2), and (a)(3) of the Securities Act of 1933 ("Securities Act"), 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 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. The SEC seeks a permanent injunction, disgorgement of ill-gotten gains plus prejudgment interest, financial penalties, forfeiture of bonuses and other compensation, and an officer-and-director bar. + + In the separate settled proceeding against Isilon, the company has agreed (without admitting or denying the SEC's allegations) to be enjoined from future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. In deciding to accept Isilon's offer of settlement, the SEC took into account the cooperation that Isilon provided the SEC staff during the investigation. + + + SEC Complaint v. Fuhlendorf SEC Complaint v. Isilon Systems + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint v. Fuhlendorf + + + + + SEC Complaint v. 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Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-3051.pdf b/raw/aaer/2009/AAER-3051.pdf new file mode 100644 index 0000000000000000000000000000000000000000..55c394ca637d935e287624be084f09bfa82ddca0 Binary files /dev/null and b/raw/aaer/2009/AAER-3051.pdf differ diff --git a/raw/aaer/2009/AAER-3051.txt b/raw/aaer/2009/AAER-3051.txt new file mode 100644 index 0000000000000000000000000000000000000000..2ca1987d2e956332f2e54f2554fb413ee566f769 --- /dev/null +++ b/raw/aaer/2009/AAER-3051.txt @@ -0,0 +1,143 @@ + + + + + + +_______________________________________ + + + + + + + + + + + + + + + + + + + +UNITED STATES OF AMERICA +before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60676 / September 15, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3051 / September 15, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13617 +: +In the Matter of : ORDER INSTITUTING +: ADMINISTRATIVE PROCEEDINGS + BERDJ J. RASSAM, CPA, : PURSUANT TO RULE 102(e) OF THE +: COMMISSION’S RULES OF PRACTICE, +Respondent. : MAKING FINDINGS, AND IMPOSING +: R E M E D I A L S A N C T I O N S +_______________________________________: +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 +Berdj J. Rassam (“Respondent” or “Rassam”) pursuant to Rule 102(e)(3)(i) of the Commission’s +Rules of Practice. +1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”), which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the +findings herein, except as to the Commission’s jurisdiction over him and the subject matter of +these proceedings, and the findings contained in Section III. C. below, which are admitted, + Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . +suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently +enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the +Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of +the rules and regulations thereunder. +1 + + + + + + + + + + + + + + + +Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant +to Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial +Sanctions (“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +A. Berdj J. Rassam, age 43, was at all relevant times a certified public accountant +licensed to practice in the state of California. He became Controller at Peregrine Systems, Inc. in +November 2000. He was promoted to Vice President of Finance and Chief Accountant in +September 2001 and served in that role until he resigned at management’s request in June 2002. +B. Peregrine Systems, Inc. was, at the time of Rassam’s employment, a Delaware +corporation with principal offices in San Diego, California. Peregrine’s primary business +involved selling infrastructure management software. From its initial public offering in April +1997, until it merged with Hewlett-Packard in 2005, Peregrine’s common stock was registered +with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 +(“Exchange Act”). It traded on the Nasdaq National Market System from its initial public +offering until August 30, 2002, when it was delisted and quoted on the Pink Sheets. In February +2003, Peregrine announced the restatement of $509 million of revenue it had improperly +recorded during the fraud. +C. On September 14, 2009, a final judgment was entered against Rassam, +permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933 +(“Securities Act”) and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and +13b2-1 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and +13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder, in the civil +action entitled Securities and Exchange Commission v. Stephen P. Gardner et al., Civil Action +No. 04 CV 2002 (S.D. Cal.). The Court also ba rred Rassam for ten years from serving as an +officer or director of any issuer that has a class of securities registered with the Commission or +that is required to file reports with the Commission. +D. The Commission’s complaint alleged, among other things, that Peregrine and its +senior officers fraudulently inflated the revenues Peregrine reported in its filings with the +Commission and elsewhere. Peregrine improperly recorded millions of dollars of revenue based +on non-binding arrangements with resellers. This ultimately caused uncollectible receivables +from the non-binding arrangements to swell on Peregrine’s balance sheet. The complaint further +alleges that Peregrine’s management, including Rassam, improperly wrote off the unpaid +receivables by falsely characterizing the write-offs as unrelated acquisition costs. According to +the complaint, by engaging in this and other conduct Rassam violated the antifraud provisions of +the federal securities laws and the books and records, reporting, and internal accounting control +2 + + + + + + + + + + + + + + + + + +provisions of the Exchange Act. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest +to impose the sanction agreed to in Respondent Rassam’s Offer. +Accordingly, IT IS HEREBY ORDERED, effective immediately, that Rassam is +suspended from appearing or practicing before the Commission as an accountant. +By the Commission. +Elizabeth M. Murphy +Secretary +3 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3052.txt b/raw/aaer/2009/AAER-3052.txt new file mode 100644 index 0000000000000000000000000000000000000000..0941691f83596d9697bb6b6fa9dce39172240229 --- /dev/null +++ b/raw/aaer/2009/AAER-3052.txt @@ -0,0 +1,1381 @@ + + + + + + + + + + + + + + + + SEC.gov | Charles Johnson, Jr., Christopher Benyo, Michael Kennedy, John Tuli, and Kent Wakeford + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/506611","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Charles Johnson, Jr., Christopher Benyo, Michael Kennedy, John Tuli, and Kent Wakeford , Civil Action No. 05-CV-0036-GK (D.D.C.) + + COURT IMPOSES OFFICER AND DIRECTOR BAR, INJUNCTION AND CIVIL PENALTY AGAINST FORMER CHIEF EXECUTIVE OFFICER OF PURCHASEPRO.COM, INC. + + The Securities and Exchange Commission announced today that the U.S. District Court for the District of Columbia granted summary judgment against Charles Johnson, Jr., former Chief Executive Officer of PurchasePro.com, Inc. (PurchasePro) after finding that he had violated the securities laws in connection with an accounting scheme at the company. + + On September 15, 2009, Judge Gladys Kessler entered a final judgment against Johnson that imposed a civil monetary penalty of $3 million, permanently enjoined him from violating Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5) and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, 13b2-2 thereunder, and Securities Act of 1933 Section 17(a), and permanently barred him from acting as an officer or director of a publicly traded company. + + Following a bench trial before Judge Walter D. Kelly in District Court for the Eastern District of Virginia, Johnson was convicted of conspiracy to commit securities fraud, securities fraud for violating Exchange Act Section 10(b) and Rule 10b-5 thereunder, witness tampering and obstruction of justice on May 15, 2008. On November 14, 2008, Judge Liam O'Grady (E.D. Va.) sentenced Johnson to, among other things, 108 months in prison and ordered him to pay restitution of $9.7 million. Following Johnson's sentencing, the stay of the Commission's case against Johnson was lifted on January 12, 2009. + + Previously, on April 24, 2008, a jury found Christopher Benyo, former Senior Vice President for Marketing and Network Development for PurchasePro liable for aiding and abetting PurchasePro's violation of the antifraud provisions of the Securities Exchange Act of 1934 (Section 10(b) and Rule 10b-5 thereunder). The jury found Benyo not liable on other charges. The jury also found Michael Kennedy and Kent Wakeford not liable on the charges against them. The SEC voluntarily dismissed the allegations against John Tuli on November 3, 2008. + + Moreover, as previously announced, the Commission settled with six other former executives of PurchasePro â€" R. Geoffrey Layne, James S. Sholeff, Dale Boeth, Shawn McGhee, Jeffrey R. Anderson, and Scott H. Miller â€" for violations of the federal securities laws. A PurchasePro vendor, Garg Data International, Inc., and its President, Sushil K. Garg, also previously settled with the Commission for aiding and abetting PurchasePro's financial fraud. + + Additional information concerning this action and Commission actions related to this matter can be found at: + + SEC v. Charles Johnson, Jr., et al. , Civil Action No. 1:05 CV-0036-GK (D.D.C.) [ Release No. LR-19029 ] (January 10, 2005) + + SEC v. Layne, et al. , Civil Action No. 04-1500 (E.D. Va.) [ Release No. LR-18999 ] (December 15, 2004) + + SEC v. Garg, et al. , Civil Action No. 04-1662 PLF (D.D.C.) [ Release No. LR-18903 ] (September 28, 2004) + + SEC v. Jeffrey R. Anderson , Civil Action No. CA-03-1203-A (E.D. Va.) and SEC v. Scott H. Miller, Civil Action No. CA-03-1202-A (E.D. Va.) [ Release No. LR-18358 ] (September 23, 2003) + +  + + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-3053.pdf b/raw/aaer/2009/AAER-3053.pdf new file mode 100644 index 0000000000000000000000000000000000000000..c68116f243174a08477741f59c7cec1e365f506d Binary files /dev/null and b/raw/aaer/2009/AAER-3053.pdf differ diff --git a/raw/aaer/2009/AAER-3053.txt b/raw/aaer/2009/AAER-3053.txt new file mode 100644 index 0000000000000000000000000000000000000000..a41df0cea5bf5a0027350921cd66a8f2e985f1c8 --- /dev/null +++ b/raw/aaer/2009/AAER-3053.txt @@ -0,0 +1,213 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60689 / September 18, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3053 / September 18, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13412 +: +: +: +In the Matter of : +: CORRECTED ORDER PURSUANT TO +William D. Shovers (CPA), : RULE 102(e) OF THE COMMISSION’S RULES +: OF PRACTICE, MAKING FINDINGS, AND +Respondent. : IMPOSING REMEDIAL SANCTIONS +: +: +____________________________________: +I. +The Securities and Exchange Commission (“Commission”) instituted public administrative +proceedings against William D. Shovers (“Respondent” or “Shovers”) pursuant to Rule +102(e)(3)(i) of the Commission’s Rules of Practice and imposed an Order of Temporary +Suspension on March 18, 2009. On April 6, 2009, Respondent filed a Petition to Lift Temporary +Suspension. On May 6, 2009, the Commission entered an Order Denying the Motion to Lift +Temporary Suspension, directing that a hearing be held pursuant to Rule 102(e)(3)(iii) of the +Commission’s Rules of Practice. +1 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. + + + + + + + + + + + + + + + + + + + +II. +In anticipation of the hearing, Respondent has submitted an Offer of Settlement (the +“Offer”) which the Commission has determined to accept. Solely for the purpose of these +proceedings and any other proceedings brought by or on behalf of the Commission, or to which the +Commission is a party, and without admitting or denying the findings herein, except as to the +Commission’s jurisdiction over him and the subject matter of these proceedings, and the findings +contained in Section III(2) and (3) below, which are admitted, Respondent consents to the entry of +this Order 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. Shovers, age 54, served as Chief Financial Officer of Hayes-Lemmerz +International, Inc. (“Hayes”) from approximately 1993 until October 2001. He also was Chief +Accounting Officer at least during the period of October 2000 through October 2001. From +October 2001 until mid-2003, Shovers remained an officer with Hayes Lemmerz. He was first +licensed as a CPA in Wisconsin in 1980 however his license has been expired since 1995 and he is +not currently practicing. +2. On December 18, 2008, the U.S. District Court for the Eastern District of +Michigan entered a final judgment against Shovers. The Final Judgment followed a jury trial in +which the jury found that Shovers had violated the following provisions of the securities laws and +rules and regulations promulgated thereunder: (1) Section 10(b) of the Securities Exchange Act of +1934) (“Exchange Act”) [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 204.10b-5] thereunder; +(2) Section 17(a)(3) of the Securities Act of 1933 (the “Securities Act”) [15 U.S.C. § 77q(a)(3)]; +and (3) Section 13(b)(5) of the Exchange Act [15 U.S.C. § 78m(b)(5)], and Rules 13b2-1 [17 +C.F.R. § 240.13b2-1] and 13b2-2 [17 C.F.R. § 240.13b2-2] thereunder. The jury also found that he +aided and abetted certain of Hayes’ violations of the federal securities laws. +3. The Final Judgment permanently enjoined Shovers from violating Section +10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. § 204.10b-5] +thereunder; Section 17(a)(3) of the Securities Act [15 U.S.C. § 77q(a)(3)]; Section 13(b)(5) of the +Exchange Act [15 U.S.C. § 78m(b)(5)], and Rules 13b2-1 [17 C.F.R. § 240.13b2-1] and 13b2-2 +[17 C.F.R. § 240.13b2-2] thereunder; and from aiding and abetting violations of Section 13(a), +Section 13(b)(2)(A), and Section 13(b)(2)(B) of the Exchange Act [15 U.S.C. §78m(a), +§78m(b)(2)(A), and §78m(b)(2)(B)], and Rules 12b-20, 13a-1, and 13a-13 [17 CFR §240.12b-20, +17 CFR § 240.13a-1, and 17 CFR § 240.13a-13] thereunder. The Final Judgment also barred +Shovers, for a period of five (5) 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 [15 U.S.C. § 78l] or that is +2 + + + + + + + + + + + + + + + + + + + + + + + + + +required to file reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C. § 78o(d)], and +ordered him to pay a civil money penalty of $50,000. +4. The Commission’s Complaint in this matter alleged that by early 2001, +Shovers learned about fraudulent accounting practices that had occurred at Hayes, that Shovers +concealed information about the improper accounting practices from Hayes' outside independent +auditor and Hayes' Audit Committee and Board of Directors, that Shovers made affirmative +misrepresentations to the company's outside independent auditor about Hayes' financial +statements, and that Shovers caused Hayes to make Commission filings containing material +misrepresentations, such as the company's annual report on Form 10-K for the fiscal year ending +January 31, 2001, and the quarterly report on Form 10-Q for the quarterly period ended April 30, +2001. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Shover’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Shovers 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; +3 + + + + + + + + + + + + + (c) Respondent has resolved all disciplinary issues with the Board, and +has complied with all terms and conditions of any sanctions imposed by the Board (other than +reinstatement by the Commission); and +(d) Respondent acknowledges his responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not limited to, all +requirements relating to registration, inspections, concurring partner reviews and quality control +standards. +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that his state CPA license is +current and he has resolved all other disciplinary issues with the applicable state boards of +accountancy. However, if state licensure is dependent on reinstatement by the +Commission, the Commission will consider an application on its other merits. The +Commission’s review may include consideration of, in addition to the matters referenced +above, any other matters relating to Respondent’s character, integrity, professional conduct, +or qualifications to appear or practice before the Commission. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +4 diff --git a/raw/aaer/2009/AAER-3054.pdf b/raw/aaer/2009/AAER-3054.pdf new file mode 100644 index 0000000000000000000000000000000000000000..4d5724223cee7bc99639a93c0417cd7881ea0d36 Binary files /dev/null and b/raw/aaer/2009/AAER-3054.pdf differ diff --git a/raw/aaer/2009/AAER-3054.txt b/raw/aaer/2009/AAER-3054.txt new file mode 100644 index 0000000000000000000000000000000000000000..fbebd5b1cef9536d4bea2244d5cf9143ab84700a --- /dev/null +++ b/raw/aaer/2009/AAER-3054.txt @@ -0,0 +1,205 @@ + + + + + + +_______________________________________ + + + + + + + + + + + + + + + + + + + + + +UNITED STATES OF AMERICA +before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60693 / September 18, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3054 / September 18, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13619 +: +In the Matter of : ORDER INSTITUTING +: ADMINISTRATIVE PROCEEDINGS +DANIEL F. STULAC, CPA, : PURSUANT TO RULE 102(e) OF THE +: COMMISSION’S RULES OF PRACTICE, +Respondent. : MAKING FINDINGS, AND IMPOSING +: R E M E D I A L S A N C T I O N S +_______________________________________: +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 +Daniel F. Stulac (“Respondent” or “Stulac”) 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 (“Offer”), which the Commission has determined to accept. Solely for the purpose +of these proceedings and any other proceedings brought by or on behalf of the Commission, or to +which the Commission is a party, and without admitting or denying the findings herein, except as +to the Commission’s jurisdiction over him and the subject matter of these proceedings, and the +findings contained in Section III. 3. below, which are admitted, Respondent consents to the entry +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 . . . +[p]ermanently 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 an abetting the violation of any provision of +the Federal securities laws or of the rules and regulations thereunder. + + + + + + + + + + + + + + + + + + +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. Daniel F. Stulac, age 45, was at all relevant times a certified public accountant +licensed to practice in the state of California. Stulac became a partner at Arthur Andersen in +September 2000 and was the engagement partner on the audit of Peregrine Systems Inc. +(“Peregrine”) from September 2000 to September 2001. +2. At the time Stulac was the engagement partner on the audit, Peregrine was a +Delaware corporation with principal offices in San Diego, California. Peregrine’s primary +business involved selling infrastructure management software. From its initial public offering in +April 1997, until it merged with Hewlett-Packard in 2005, Peregrine’s common stock was +registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of +1934 (“Exchange Act”). It traded on the Nasdaq National Market System from its initial public +offering until August 30, 2002, when it was delisted and quoted on the Pink Sheets. In February +2003, Peregrine announced the restatement of $509 million of revenue it had improperly +recorded. +3. On September 14, 2009, a final judgment was entered against Stulac, permanently +enjoining him from future violations of Sections 10(b) of the Exchange Act and Rule 10b-5 +thereunder, and from aiding and abetting violations of Section 13(a) of the Exchange Act and +Rules 13a-1 and 13a-13 thereunder, in the civil action entitled Securities and Exchange +Commission v. Stephen P. Gardner, et al., Civil Action No. 04 CV 2002 (S.D. Cal.). +4. The Commission’s Complaint alleged, among other things, that Peregrine and its +senior officers fraudulently inflated the revenues Peregrine reported in its filings with the +Commission and elsewhere. Peregrine improperly recorded millions of dollars of revenue based +on non-binding arrangements with resellers. This ultimately caused uncollectible receivables +from the non-binding arrangements to swell on Peregrine’s balance sheet. The Complaint further +alleged that Peregrine’s management improperly wrote off unpaid receivables by falsely +characterizing the write-offs as “acquisition costs and other.” According to the Commission’s +Complaint, Stulac knew, or was reckless in not knowing, that the receivables Peregrine intended +to write off were unrelated to acquisitions and should not have been recorded as “acquisition +costs and other.” The Complaint also alleged th at Stulac knew, or was reckless in not knowing, +that Peregrine’s 2001 financial statements improperly recognized millions of dollars of revenue +from agreements with resellers. The Complaint alleged that, by engaging in this and other +conduct, Stulac violated the anti-fraud provisions of the Exchange Act, and aided and abetted +2 + + + + + + + + + + + + + + + + + + + + + + + + + +violations of the reporting provisions of the Exchange Act. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanction +agreed to in Respondent’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Respondent is suspended from appearing or practicing before the Commission as +an accountant. +B. After five (5) years from the date of this order, Respondent may request that +the Commission consider his reinstatement by submitting an application (attention: Office of +the Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that Respondent’s work in his practice before the +Commission will be reviewed either by the independent audit committee of the public company +for which he works or in some other acceptable manner, as long as he practices before the +Commission in this capacity; and/or + 2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which he is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; +(b) Respondent, or the registered public accounting firm with which he +is associated, has been inspected by the Board and that inspection did not identify any criticisms +of or potential defects in the Respondent’s or the firm’s quality control system that would +indicate that the Respondent will not receive appropriate supervision; +(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 +3 + + + + + + + + + + + + + + + +requirements relating to registration, inspections, concurring partner reviews and quality control +standards. +C. The Commission will consider an application by Respondent to resume appearing +or practicing before the Commission provided that his state CPA license is current and he has +resolved all other disciplinary issues with the applicable state boards of accountancy. However, +if state licensure is dependent on reinstatement by the Commission, the Commission will +consider an application on its other merits. The Commission’s review may include consideration +of, in addition to the matters referenced above, any other matters relating to Respondent’s +character, integrity, professional conduct, or qualifications to appear or practice before the +Commission. +By the Commission. +Elizabeth M. Murphy +Secretary +4 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3055.txt b/raw/aaer/2009/AAER-3055.txt new file mode 100644 index 0000000000000000000000000000000000000000..65fdc942ebfa345b7796d6f26fed050a6e9305a0 --- /dev/null +++ b/raw/aaer/2009/AAER-3055.txt @@ -0,0 +1,1372 @@ + + + + + + + + + + + + + + + + SEC.gov | Matthew W. Hardey, L. Cyrus DeBlanc, and Joe E. 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Hardey, L. Cyrus DeBlanc, and Joe E. Penland + + + + + + + + + + + + Matthew W. Hardey, L. Cyrus DeBlanc, and Joe E. Penland + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21236 / October 5, 2009 + + Accounting and Auditing Enforcement Release No. 3055 / October 5, 2009 + + Securities and Exchange Commission v. Matthew W. Hardey, L. Cyrus DeBlanc, and Joe E. Penland , Civil Action No. 09-CV-4414 (E.D. La.) + + FEDERAL JUDGE ENTERS FINAL JUDGMENT AGAINST THIRD-PARTY VENDOR JOE E. PENLAND IN FRAUDULENT ACCOUNTING SCHEME + + On October 2, 2009, the Honorable Carl Barbier, United States District Judge for the Eastern District of Louisiana entered a final judgment of permanent injunction and other relief on behalf of the Honorable Martin L.C. Feldman, to whom the case is assigned. The final judgment is against defendant Joe E. Penland, a Texas resident and the owner of a third-party vendor of Newpark Resources, Inc. ("Newpark"), an oil and gas company based in Houston, Texas. Penland was the principal of Quality Mat Company, a Newpark vendor, and was charged in the complaint along with Newpark principals for violations of the federal securities laws. The final judgment permanently enjoined Penland from future violations of the antifraud provision of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and from future violations of Exchange Act Rule 13b2-2, which prohibits lying to auditors. The final judgment also permanently enjoined Penland from aiding and abetting accounting violations of others as set forth in Sections13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. The final judgment ordered that Penland pay a civil penalty in the amount of $70,000. Penland consented to the entry of the order without admitting or denying the allegations of the Commission's complaint. + + According to the Commission's Complaint, Matthew W. Hardey, a former Chief Financial Officer for Newpark, and L. Cyrus DeBlanc, a former Chief Financial Officer for Newpark subsidiary Soloco LLC, conspired with Quality Mat president Joe E. Penland to engage in a fraudulent accounting scheme that allowed Newpark in fiscal year 2003 to avoid writing off approximately $4.2 million in aging debt. As a result, Newpark reported approximately $500,000 of net income instead of a significant loss for that fiscal year. The Commission's Complaint alleged that, in 2002 and 2003, Newpark recognized $4.2 million in revenue based on sales of its primary product â€" industrial mats used to lay temporary roads at drilling sites â€" to Quality Mat and another vendor, Easy Frac. The Complaint alleged that neither vendor had made any payment on the sales through the end of 2003, and that Hardey, DeBlanc and Penland devised and executed a scheme to funnel money to Quality Mat and Easy Frac through sham transactions that would then allow the vendors to pay their debts to Newpark. + + According to the Complaint, one of the sham transactions took place in 2004 and involved Dura-Base Nevada, LLC and Dura-Base de Mexico, two Newpark subsidiaries created to begin mat rentals in Mexico. The Complaint asserted that Newpark purchased the entire initial inventory of mats for the Dura-Base business from Quality Mat, and that the decision to purchase the approximately 6,175 mats from Quality Mat was a pretext meant to give the appearance of a legitimate business transaction to Newpark's repurchase, at the original sales price, of 1,500 mats sold to Quality Mat in 2002 and 600 mats sold to Easy Frac in 2003. The Complaint claimed that, in an attempt to perpetuate the pretext, Hardey also misled Newpark's auditors about the basis for buying the Dura-Base inventory from Quality Mat by falsely claiming that Quality Mat had contractual rights in Mexico that Newpark would have to buy in order for the Dura-Base venture to go forward. According to the Complaint, this ruse was necessary to allow Newpark to buy back the mats at the original sales price without suffering any adverse accounting consequences. Under this scheme, Newpark could account for the repurchases as if they had taken place at Newpark's manufacturing cost, but still pay Quality Mat the original purchase price for the mats by assigning the difference in value to the intangible asset allegedly created by the repurchase of Quality Mat's contract rights. + + The Complaint alleged that the other sham transaction, which took place during 2004 and 2005, involved Quality Mat sending fictitious invoices to Newpark purportedly for bulk lumber sales. According to the Complaint, in early 2004, Penland agreed to convert Quality Mat's outstanding debt from the 2002 sales to notes receivable. One of the notes required monthly payments of $52,409, which Quality Mat began making in March 2004. Between May 2004 and July 2005, the bulk lumber invoices, which were sent monthly, averaged $52,409, but there were no purchase orders or delivery tickets backing up the alleged sale. The Complaint alleged that Hardey, DeBlanc and Penland devised this scheme to provide Quality Mat with funds to continue making payments on this note, thus allowing Newpark to keep the debt on its books. + + See also: L.R. 21137 (July 16, 2009). + + +  + + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-3056.pdf b/raw/aaer/2009/AAER-3056.pdf new file mode 100644 index 0000000000000000000000000000000000000000..2985ef324b022d6c63ac6e041cf912dcbf31e5be Binary files /dev/null and b/raw/aaer/2009/AAER-3056.pdf differ diff --git a/raw/aaer/2009/AAER-3056.txt b/raw/aaer/2009/AAER-3056.txt new file mode 100644 index 0000000000000000000000000000000000000000..6f25e9df49f8410da8de0a97949e3c20a932bd04 --- /dev/null +++ b/raw/aaer/2009/AAER-3056.txt @@ -0,0 +1,153 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60792 / October 6, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3056 / October 6, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13640 +: +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +MICHAEL J. MOORE, CPA : 102(e) OF THE COMMISSION’S RULES OF +AND MOORE & ASSOCIATES : PRACTICE, MAKING FINDINGS, AND +CHARTERED, : IMPOSING REMEDIAL SANCTIONS +: + Respondents : +____________________________________ : +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against Michael +J. Moore (“Moore”) and Moore & Associates Chartered (“M&A”) (“Respondents”) pursuant to +Rule 102(e)(3)(i) of the Commission’s Rules of Practice. +1 +II. +In anticipation of the institution of these proceedings, Respondents have submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. + + + + + + + + + + + + + + + + +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over them and the subject matter of these +proceedings, and the findings contained in Section III.3. below, which are admitted, Respondents +consent to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of +the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Michael J. Moore, age 55, is a resident of Las Vegas, Nevada. Moore is a +certified public accountant, currently licensed in Texas (1984 to 1994 and 2000 to present) and +Nevada (2000 to present). Moore is the president and majority owner of Moore & Associates +Chartered (“M&A”). Moore was M&A’s only CPA from its inception through 2008 and the +auditor with final responsibility for all M&A audits during those years. +2. M&A is a Nevada corporation and public accounting firm headquartered in +Las Vegas, Nevada. M&A is registered with the Public Company Accounting Oversight Board +(“PCAOB”). +3. On August 27, 2009, the Commission filed a complaint against Moore and +M&A in SEC v. Michael J. Moore, et al., Civil Action No. 2:09-cv-01637-LDG-GWF, in the +United States District Court for the District of Nevada. On September 25, 2009, the court entered +an order permanently enjoining Moore and M&A, by consent, from future violations of Sections +10(b), 10A(a)(1) and 10A(b)(1) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 +U.S.C. §§ 78j(b), 78j-1(a)(1), and 78j-l(b)(1)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b- +5], and Regulation S-X Rules 2-02(b)(1) and 2-06 [17 C.F.R. §§ 210.2-02(b)(1) and 210.2-06]. +Moore and M&A were ordered to pay jointly and severally disgorgement of $179,750.00 and +prejudgment interest of $10,151.59 for a total of $189,901.59. Moore was also ordered to pay a +civil money penalty of $130,000.00. +4. The Commission’s complaint alleged, among other things, that Moore and +M&A issued unqualified audit reports in connection with its audits of Ethos Environmental, Inc. +(2007-2008); Tombstone Exploration Corporation (2006-2007); Studio One Media, Inc. (2006- +2008); Biocoral, Inc. (2005-2007); Centergistic Solutions, Inc. (2006-2007); and Standard +Drilling, Inc. (2006-2008) that falsely stated that their audits were conducted in accordance with +PCAOB Standards and that the entities’ financial statements were fairly presented in accordance +with U.S. Generally Accepted Accounting Principles. The complaint further alleged that, +contrary to the representation in the audit reports, Moore and M&A’s audits failed to meet +numerous PCAOB Standards and were so deficient that they amounted to no audits at all. +Among other things, Moore and M&A’s employees lacked adequate technical training and +proficiency as auditors, and Moore and M&A failed to train or supervise these employees; the +audits were not properly planned; and Moore and M&A failed to obtain sufficient competent +2 + + + + + + + + + + + + + + +evidential matter to afford a reasonable basis for an opinion regarding the financial statements +under audit or to perform any meaningful audit procedures, even when there were red flags that +the financial statements were materially misstated. The complaint further alleged that Moore and +M&A improperly modified audit documentation. By their conduct, Moore and M&A violated +Sections 10(b), 10A(a)(1), and10A(b)(1) of the Exchange Act and Rule 10b-5 thereunder, and +Regulation S-X Rules 2-02(b)(1) and 2-06. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondents’ Offer. +Accordingly, it is hereby ORDERED, effective immediately, that Respondents are +suspended from appearing or practicing before the Commission as accountants. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +3 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3057.pdf b/raw/aaer/2009/AAER-3057.pdf new file mode 100644 index 0000000000000000000000000000000000000000..24e134e3720a266031e15972387d51e909cfb8c8 Binary files /dev/null and b/raw/aaer/2009/AAER-3057.pdf differ diff --git a/raw/aaer/2009/AAER-3058.txt b/raw/aaer/2009/AAER-3058.txt new file mode 100644 index 0000000000000000000000000000000000000000..66e2b71257e2910e00603ee2800a7e6f192ea6f3 --- /dev/null +++ b/raw/aaer/2009/AAER-3058.txt @@ -0,0 +1,1376 @@ + + + + + + + + + + + + + + + + SEC.gov | John N. Milne + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/506781","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Milne + + + + + + + + + + + + John N. Milne + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21247 / October 13, 2009 + + Accounting and Auditing Enforcement Release No. 3058 / October 13, 2009 + + Securities and Exchange Commission v. John N. Milne , (United States District Court for the District of Connecticut, Civil Action No. 3:08-cv-00505 (EBB) + + FORMER OFFICER OF UNITED RENTALS TO PAY $6.25 MILLION TO SETTLE FINANCIAL FRAUD CHARGES + + The Securities and Exchange Commission announced today that John N. Milne, a former Vice Chairman, President and Chief Financial Officer of United Rentals, Inc. ("URI") has agreed to settle pending fraud charges filed against him by the Commission. Without admitting or denying the allegations in the complaint, which was filed on April 7, 2008, Milne consented to the entry of a Final Judgment, subject to the court's approval, permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933, and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934, and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13, thereunder, imposing a permanent officer and director bar against him, and ordering him to pay disgorgement and prejudgment interest of $6.25 million. + + The Commission's complaint alleges that, from 2000 through 2002, Milne engaged in a series of fraudulent transactions undertaken in order to meet URI's earnings forecasts and analyst expectations. The complaint alleges that Milne and others carried out the fraud through a series of interlocking three-party transactions, structured as "minor sale-leasebacks," to allow URI to recognize revenue prematurely and to inflate profits generated from the sales. As a result of the fraud, URI materially overstated its financial results in its Forms 10-K for fiscal years 2000 and 2001, and its Forms 10-Q for the periods ended June 30, 2001 and March 31, 2002, as well as in other public releases. + + The complaint further alleges that shortly after URI announced 2001 and 2002 year-end results, Milne sold URI stock that he owned, knowing that the company's announced financial results were materially overstated. + + The U.S. Attorney's Office for the District of Connecticut also announced that Milne today pleaded guilty to one count of conspiracy to falsify the books and records of URI while he served as its CFO, and that he has agreed to a term of incarceration of 24â€"30 months. + + The Commission acknowledges the assistance of the U.S. Attorney's Office for the District of Connecticut and the New Haven Field Office of the Federal Bureau of Investigation in this matter. + + For more information, see Litigation Release Nos. 20396 (December 12, 2007), 20418 (December 31, 2007), 20518 (April 7, 2008), 20706 (September 8, 2008), and 21177 (August 12, 2009). + +   + + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-3059.pdf b/raw/aaer/2009/AAER-3059.pdf new file mode 100644 index 0000000000000000000000000000000000000000..ed099191989958b03c945a0c8293940c02e9983e Binary files /dev/null and b/raw/aaer/2009/AAER-3059.pdf differ diff --git a/raw/aaer/2009/AAER-3060.txt b/raw/aaer/2009/AAER-3060.txt new file mode 100644 index 0000000000000000000000000000000000000000..80eb949984f3546893892f9715416ca8deefb7ad --- /dev/null +++ b/raw/aaer/2009/AAER-3060.txt @@ -0,0 +1,1371 @@ + + + + + + + + + + + + + + + + SEC.gov | Michael A. 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Rivers and ARKR Trust LLC + + + + + + + + + + + + Michael A. Rivers and ARKR Trust LLC + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21228 / September 30, 2009 + + Accounting and Auditing Enforcement Release No. 3060 / September 30, 2009 + + Securities and Exchange Commission v. Michael A. Rivers and ARKR Trust LLC, Case No. 6:09-CV-1674-ORL-35DAB (Middle District Fla., filed Sept. 29, 2009) + + SEC Charges the Former CEO of Florida Software Company with Fraud + + On September 29, 2009, the Securities and Exchange Commission filed fraud charges against Michael A. Rivers, the former Chief Executive Officer of IBSG International Inc., alleging he directed IBSG to issue multiple press releases announcing fictitious software licensing agreements and to file periodic reports with the Commission that falsely recognized more than $23 million in revenues from the purported agreements. Rivers contemporaneously sold over one million shares of IBSG stock, generating approximately $1.23 million in illicit proceeds. + + The Commission's complaint alleges that, between January 2006 and January 2009, IBSG, which discontinued all of its operations earlier this year, marketed an Internet-based business software it had developed for small businesses. According to the complaint, Rivers directed IBSG to issue a series of press releases disclosing the purported sale of licenses for the software to various entities in South Africa, Hungary and Finland, as well as the revenues the company would allegedly generate from the licenses. The complaint alleges that, contrary to the press releases, the licenses either did not exist or that IBSG had agreed to waive the licensing and service fees required by the agreements. The complaint further alleges that Rivers directed IBSG to file periodic reports with the Commission that falsely reported the company had generated $23.4 million in revenues from the purported license agreements. + + In addition, the complaint alleges that Rivers, while directing IBSG to report the false license agreements and revenues, sold over one million shares of IBSG stock from brokerage accounts that he and he wife maintained in the name of a nominee company, Relief Defendant, ARKR Trust, LLC. The stock sales generated approximately $1.23 million in proceeds. + + The Commission's complaint charges Rivers with violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934, and Rules 10b-5, 13a-14, 13b2-1 and 13b2-2, and with aiding and abetting IBSG's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-11 and 13a-13. In its complaint, the Commission seeks a permanent injunction, an accounting, disgorgement, a civil penalty and an officer and director bar against Rivers. The Commission also seeks disgorgement against Relief Defendant, ARKR. + + The Commission acknowledges the assistance of the Financial Services Board of South Africa, the Financial Supervisory Authority of Hungary, and the Financial Supervisory Authority of Finland with this investigation. + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-3061.pdf b/raw/aaer/2009/AAER-3061.pdf new file mode 100644 index 0000000000000000000000000000000000000000..5e680198515144bd3cee6cda90cf3eb99c7cbecd Binary files /dev/null and b/raw/aaer/2009/AAER-3061.pdf differ diff --git a/raw/aaer/2009/AAER-3061.txt b/raw/aaer/2009/AAER-3061.txt new file mode 100644 index 0000000000000000000000000000000000000000..363278b0ed88f6d4438dd9389c12a05e9a79ec16 --- /dev/null +++ b/raw/aaer/2009/AAER-3061.txt @@ -0,0 +1,232 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 60898 / October 28, 2009 +INVESTMENT ADVISERS ACT OF 1940 +Release No. 2942 / October 28, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3061 / October 28, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13669 +In the Matter of +TAB KEPLINGER, CPA +Respondent. +ORDER INSTITUTING +ADMINISTRATIVE PROCEEDINGS +PURSUANT TO RULE 102(e) OF THE +COMMISSION’S RULES OF PRACTICE +AND SECTION 203(f) OF THE +INVESTMENT ADVISERS ACT OF 1940, +MAKING FINDINGS, AND IMPOSING +REMEDIAL SANCTIONS +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in +the public interest that public administrative proceedings be, and hereby are, instituted pursuant +to Rule 102(e)(3)(i) of the Commission’s Rules of Practice +1 and Section 203(f) of the Investment +Advisers Act of 1940 (“Advisers Act”) against Tab Keplinger (“Keplinger” or “Respondent”). +Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . +suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently +enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the +Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of +the rules and regulations thereunder. +1 + + + + + + + + + + + + + + + + + + + +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”), which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the +findings herein, except as to the Commission’s jurisdiction over him and the subject matter of +these proceedings, and the findings contained in Section III.4 below, which are admitted, +Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant +to Rule 102(e) of the Commission’s Rules of Practice and Section 203(f) of the Investment +Advisers Act of 1940, 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. Keplinger, age 48, is and has been a certified public accountant licensed to +practice in the State of Ohio. He served as Chief Financial Officer of Brantley Capital +Management, LLC (“BCM”) and of Brantley Capital Corp. (“Brantley Capital”) from June 1996 +until July 15, 2005. +2. BCM was, at all relevant times, a limited liability company headquartered +in Ohio, which served as Brantley’s investment adviser from Brantley Capital’s 1996 inception +until September 28, 2005. BCM has previously been registered with the Commission as an +investment adviser, but currently is not registered and is not serving as an investment adviser. +Brantley’s prospectus and BCM’s investment advisory agreement and Form ADV indicate that +BCM was responsible for oversight of Brantley’s records and financial reporting requirements. +3. Brantley Capital was, at all relevant times, a closed-end, non-diversified +investment company, incorporated in Maryland and headquartered in Ohio, which elected to be +regulated as a business development company under the Investment Company Act of 1940. +Brantley’s common stock is registered with the Commission pursuant to Section 12(g) of the +Securities Exchange Act of 1934 (“Exchange Act”). Prior to April 21, 2005, Brantley’s common +stock traded on The Nasdaq National Market system +4. On August 13, 2009, the Commission filed a complaint against Keplinger +in SEC v. Robert Pinkas et al. (Civil Action No. 1:09-cv-01906). On September 14, 2009, the +court entered an order permanently enjoining Keplinger, by consent, from violating Exchange +Act Sections 10(b) and 13(b)(5) and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2 thereunder, and +from aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) +and Rules 13a-1 and 13a-13 thereunder, and Advisers Act Sections 206(1) and 206(2). +Keplinger was also ordered to pay a $50,000 civil money penalty. In addition, Keplinger was +barred from serving as an officer or director of a publicly-traded company for five years. +2 + + + + + + + + + + + + + + + + + + + +5. The Commission’s complaint alleges, among other things, that in +Brantley Capital’s Forms 10-Q and 10-K for the period 2002 to 2005, Keplinger knowingly or +recklessly overstated the value of two companies, Flight Options International (“FOI”) and +Disposable Products Company (“DPC”), that together represented over one-half of Brantley +Capital’s investment portfolio. The Complaint alleges that Keplinger also knowingly or +recklessly made material misrepresentations and failed to make required disclosures regarding +FOI and DPC to Brantley Capital’s board of directors and to investors in Brantley Capital’s +public filings. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest +to impose the sanctions agreed to in Respondent Keplinger’s Offer. +Accordingly, it is hereby ORDERED: +A. Pursuant to Advisers Act Section 203(f), Keplinger is hereby barred from +association with any investment adviser with the right to reapply for association after one (1) +year to the appropriate self-regulatory organization, or if there is none, to the Commission. +B. Any reapplication for association with an investment adviser by Keplinger will be +subject to the applicable laws and regulations governing the reentry process, and reentry may be +conditioned upon a number of factors, including, but not limited to, the satisfaction of any or all +of the following: (a) any disgorgement orde red against the Respondent, whether or not the +Commission has fully or partially waived payment of such disgorgement; (b) any arbitration +award related to the conduct that served as the basis for the Commission order; (c) any self- +regulatory organization arbitration award to a customer, whether or not related to the conduct +that served as the basis for the Commission order; and (d) any restitution order by a self- +regulatory organization, whether or not related to the conduct that served as the basis for the +Commission order. +C. Keplinger is suspended from appearing or practicing before the Commission as an +accountant. +D. After five (5) years from the date of this order, Respondent may request that +the Commission consider his reinstatement by submitting an application (attention: Office of +the Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that Respondent’s work in his practice before the +Commission will be reviewed either by the independent audit committee of the public company +for which he works or in some other acceptable manner, as long as he practices before the +Commission in this capacity; and/or +3 + + + + + + + + + + + + + + + + + + + +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. +E. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that his state CPA license is +current and he has resolved all other disciplinary issues with the applicable state boards of +accountancy. However, if state licensure is dependent on reinstatement by the +Commission, the Commission will consider an application on its other merits. The +Commission’s review may include consideration of, in addition to the matters referenced +above, any other matters relating to Respondent’s character, integrity, professional conduct, +or qualifications to appear or practice before the Commission. +By the Commission. + Elizabeth M. Murphy + S e c r e t a r y +4 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3062.txt b/raw/aaer/2009/AAER-3062.txt new file mode 100644 index 0000000000000000000000000000000000000000..a09c11f0674f32e832a17ec14c406292960bf1c1 --- /dev/null +++ b/raw/aaer/2009/AAER-3062.txt @@ -0,0 +1,1376 @@ + + + + + + + + + + + + + + + + SEC.gov | Ronald Ferguson, Elizabeth Monrad, Christian Milton, Robert Graham and Christopher Garand + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/506721","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + Ronald Ferguson, Elizabeth Monrad, Christian Milton, Robert Graham and Christopher Garand + + + + + + + + + + + + Ronald Ferguson, Elizabeth Monrad, Christian Milton, Robert Graham and Christopher Garand + + + + + + + + + + + + + + + + + + + CORRECTED + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21235 / October 1, 2009 + + Accounting and Auditing Enforcement Release No. 3062 / October 1, 2009 + + SECURITIES AND EXCHANGE COMMISSION V. RONALD FERGUSON, ELIZABETH MONRAD, CHRISTIAN MILTON, ROBERT GRAHAM AND CHRISTOPHER GARAND; Case No. 06 Civ 0778 (S.D.N.Y.) (LAP) + + SEC OBTAINS JUDGMENTS AGAINST ONE AIG AND FOUR GEN RE FORMER EXECUTIVES FOR AIDING IN AIG SECURITIES FRAUD + + The Securities and Exchange Commission today announced that the United States District Court for the Southern District of New York entered final judgments against five former senior executives of General Re Corporation (Gen Re) and American International Group, Inc. (AIG) for their roles in helping AIG mislead investors through the use of fraudulent reinsurance transactions.  Four of the former executives, Ronald Ferguson, Elizabeth Monrad, CPA, Robert Graham, Esq., and Christopher Garand, worked for Gen Re, while the fifth, Christian Milton, worked for AIG. + + On February 2, 2006, the Commission filed its civil action against the defendants, alleging that they aided and abetted AIG's violations of the antifraud and other provisions of the securities laws. The complaint alleged that Ferguson, Monrad, Graham, Garand, and others at Gen Re worked with Milton and others at AIG to fashion two sham reinsurance contracts between Cologne Re Dublin, a Gen Re subsidiary in Dublin, Ireland, and an AIG subsidiary. The sham reinsurance transactions made it appear that AIG had legitimately increased its general loss reserves. + + Without admitting or denying the allegations in the complaint, the defendants each consented to the entry of a final judgment, permanently enjoining them from violating or aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Exchange Act of 1934 (Exchange Act) and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1. Defendants also consented to officer and director bars. In separate administrative proceedings, Monrad and Graham were suspended from appearing and practicing before the Commission. + + On February 25, 2008, in a criminal action filed by the U.S. Attorney's Office for the Eastern District of Virginia, and tried in the U.S. District Court for the District of Connecticut, United States v. Ronald E. Ferguson, et al. , D. Conn. No. 3:06-CR-137 (CFD), a jury returned a guilty verdict on all sixteen felony counts against all five defendants in connection with the AIG sham reinsurance transactions. All five defendants subsequently were sentenced to serve terms of imprisonment and to pay monetary penalties. In determining to accept defendants' settlement offers in which they consented to final judgments, the Commission considered the sanctions the court ordered against them in the criminal proceedings. + + The SEC previously charged AIG in 2006 with securities fraud and improper accounting, and the company settled the charges by paying disgorgement of $700 million and a penalty of $100 million, among other remedies. + +   + + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Jenny XueJian Lu) + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/506906","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Share sensitive information only on official, secure websites. + + + + + + + + + + + + + + + + + SEC homepage + + + + + + + Menu + + + + + + + + + + + + + + Close + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + Search Filings + + + + + + + + + Search Filings + + + + + + + + + Full Text Search + + + + + + Latest Filings + + + + + + Mutual Fund Search + + + + + + Variable Insurance Products Search + + + + + + SIC Codes + + + + + + CIK Lookup + + + + + + Public Dissemination Service (PDS) + + + + + + Search Assistance + + + + + + + + + + + + + Submit Filings + + + + + + + + + Submit Filings + + + + + + + + + EDGAR Filer Management Portal + + + + + + EDGAR Filing Portal + + + + + + Online Forms Management Portal + + + + + + EDGAR Next + + + + + + Forms Index + + + + + + Filer Support & Resources + + + + + + + + + + + + + Data & Research + + + + + + + + + Data & Research + + + + + + + + + Data Library + + + + + + Statistics & Data Visualizations + + + + + + Structured Data + + + + + + Investment Management Data + + + + + + Open Data at the SEC + + + + + + + + + + + + + Rules, Enforcement, & Compliance + + + + + + + + + + + + + + + + + + + + Rules & Regulations + + + + + + + + + Rulemaking Activity + + + + + + Submit Public Comments + + + + + + Staff Guidance + + + + + + No-Action, Interpretive, and Exemptive Letters + + + + + + Self-Regulatory Organization Rulemaking + + + + + + Public Petitions for Rulemaking + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + + + Litigation Releases + + + + + + Administrative Proceedings + + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + + Trading Suspensions + + + + + + Distributions to Harmed Investors + + + + + + Receiverships + + + + + + + + + + + + + + + + + Compliance + + + + + + + + + Examination Priorities + + + + + + Risk Alerts + + + + + + Compliance Outreach Program + + + + + + + + + + + + + + + + + + + + + + + Proposed Rules + + + + + + What's New + + + + + + Whistleblower Program + + + + + + + + + + + + + + + + + + + Featured Topics + + + + + + + + + Featured Topics + + + + + + + + + Crypto Task Force + + + + + + Cybersecurity + + + + + + Market Structure Analytics + + + + + + Saving and Investing for Military Personnel + + + + + + Saving and Investing for Teachers + + + + + + SEC-CFTC Harmonization Initiative + + + + + + Treasury Clearing Implementation + + + + + + + + + + + + + About + + + + + + + + + About + + + + + + + + + Mission + + + + + + Commissioners + + + + + + Divisions & Offices + + + + + + Division & Office Directors + + + + + + Advisory Committees + + + + + + Budget & Performance + + + + + + Reports & Publications + + + + + + Commission Votes + + + + + + Contact the SEC + + + + + + Careers + + + + + + + + + + + + + Submit a Tip or Complaint + + + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + More in this Section + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + China Holdings, Inc. and Julianna Lu (a.k.a. Jenny XueJian Lu) + + + + + + + + + + + + China Holdings, Inc. and Julianna Lu (a.k.a. Jenny XueJian Lu) + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21272 / October 30, 2009 + + Accounting and Auditing Enforcement Release No. 3063 / October 30, 2009 + + SEC v. China Holdings, Inc. and Julianna Lu (a.k.a. Jenny XueJian Lu) , Civil Action No. 1:09-CV-02045 (JDB) (D.D.C.) + + SEC CHARGES CHINA HOLDINGS, INC. AND ITS CEO WITH FRAUD FOR FILING UNAUTHORIZED AUDIT REPORTS + + The Securities and Exchange Commission today filed civil fraud charges in the U.S. District Court for the District of Columbia against China Holdings, Inc. ("CHHL") and Julianna Lu ("Lu"), who is described in CHHL's public filings as the company's "Chief Executive Officer, Principal Financial Officer, Principal Accounting Officer, Treasurer and Chairwoman of the Board of Directors." + + The Commission's complaint alleges that from April 15, 2008 through April 17, 2009, CHHL and Lu made material misrepresentations in nine public filings. In April 2008, Lu filed a Form 10-KSB and two Forms 10-KSB/A for CHHL's fiscal year 2007 which improperly included audit reports from CHHL's then-current and former auditors. As alleged in the complaint, Lu knew that neither auditor authorized her to use its audit report in the filings because she had not made necessary corrections to the filings, and because she did not give the auditors the opportunity to review and approve the filings. As a result, the filings fraudulently misrepresented that CHHL's fiscal year 2007 financial statements were audited and that CHHL's auditors certified that the financial statements and related disclosures in the filings fairly presented the financial position of CHHL and its subsidiaries. + + As further alleged in the complaint, in April and May 2008, Lu filed a Form 8-K and two Forms 8-K/A which fraudulently misrepresented that CHHL dismissed its then-current auditor (who had in fact resigned), and that CHHL and the auditor had no disagreements over matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedures. Lu attached to the second Form 8-K/A a fabricated letter purportedly from the dismissed auditor which falsely stated that the auditor agreed with CHHL's misrepresentations. As the complaint alleges, Lu and CHHL repeated all of the above misrepresentations in March and April 2009, when Lu filed a Form 10-K and two Forms 10-K/A for CHHL's fiscal year 2008. Lu again included audit reports from CHHL's two previous auditors despite knowing that neither firm authorized her to use its report. + + The complaint charges CHHL and Lu with violating Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The complaint also charges Lu with aiding and abetting CHHL's violations of Exchange Act Section 10(b) and Rule 10b-5. The Commission seeks a permanent injunction and civil monetary penalties against both defendants, and an officer and director bar against Lu. + + + SEC Complaint + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Symbol Technologies, Inc., et al., , 04 CV 2276 (SJF)(EDNY) + + THREE FORMER EXECUTIVES OF SYMBOL TECHNOLOGIES, INC. SETTLE SEC ACTION BY AGREEING TO PERMANENT INJUNCTIONS, MONETARY PENALTIES AND OTHER RELIEF + + FORMER CHIEF FINANCIAL OFFICER TO PAY $3.3 MILLION + + + + On November 2, 2009, the United States District Court for the Eastern District of New York, Honorable Sandra J. Feuerstein, United States District Judge, entered final judgments against three defendants in the pending enforcement action against former executives of Symbol Technologies, Inc. ("Symbol"). The Commission's complaint, filed on June 3, 2004, alleges that from 1998 until early 2003, the defendants engaged in a fraudulent scheme to inflate revenue, earnings and other measures of financial performance in order to create the false appearance that Symbol had met or exceeded its financial projections. The three judgments imposed the following relief, to which each of the three defendants consented without admitting or denying the allegations of the Commission's complaint: + + Kenneth Jaeggi , Symbol's Chief Financial Officer, consented to entry of a judgment that requires him to disgorge a total $3,091,539, consisting of $2,274,935 in ill-gotten gains he obtained as a result of the conduct alleged in the complaint and $816,604 in prejudgment interest, and to pay a civil penalty of $250,000. The consent judgment also prohibits him from acting as an officer or director of a public company for a five year period and permanently enjoins him from violating the relevant antifraud, corporate reporting, books and records and internal control provisions of the federal securities laws. Specifically, Jaeggi is permanently enjoined from violating, or engaging in conduct that would make him liable for violations of, Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2), and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13, 13a-14, 13b2-1 and 13b2-2. The complaint alleges that Jaeggi: (i) spearheaded what was known within Symbol as the "Tango sheet" process, through which baseless accounting entries were made in order to conform the company's raw quarterly results to management's projections; (ii) engaged in channel stuffing and other revenue recognition schemes; and (iii) manipulated restructuring charges, operations reserves and inventory levels to boost reported earnings. + + Christopher DeSantis , Symbol's former Vice President of Sales Finance, consented to entry of a judgment that requires him to pay a civil penalty of $40,000 (plus $1 of disgorgement), and that permanently enjoins him from violating the relevant antifraud, corporate reporting, books and records and internal control provisions of the federal securities laws. Specifically, DeSantis is permanently enjoined from violating, or engaging in conduct that would make him liable for violations of, Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1. The complaint alleges that DeSantis carried out aspects of the channel stuffing scheme and other fraudulent revenue recognition practices, as well as the manipulation of reported inventory levels and accounts receivable data to conceal the adverse side effects of the revenue recognition schemes. + + James Heuschneider , Symbol's former Director of Customer Service, consented to entry of a judgment that requires him to pay a civil penalty of $35,000 and to disgorge $3,587, consisting of $2,280 in ill-gotten gains as a result of the conduct alleged in the Commission's complaint and $1,307 in prejudgment interest. The consent judgment also permanent enjoins him from violating the relevant antifraud, corporate reporting, books and records and internal control provisions of the federal securities laws. Specifically, Heuschneider is permanently enjoined from violating, or engaging in conduct that would make him liable for violations of, Sections 10(b), 13(a), 13(b)(2) and 13(b)(5), of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1. The complaint alleges that Heuschneider engaged in improper practices to overstate the customer service department's revenue and earnings. + + On February 27, 2008, in a parallel criminal proceeding brought by the United States Attorney's Office for the Eastern District of New York ("USAO"), Jaeggi pled guilty to one felony count of mail fraud for filing a false disclosure form with the Commission in connection with his exercise of Symbol stock options, and he was sentenced to three years of probation and ordered to pay $450,000 in restitution. On December 16, 2005, DeSantis pled guilty to misprision of a felony in the same criminal proceeding, and on July 16, 2009 he was sentenced to three years of probation. + + Final consent judgments were previously entered against the following defendants in the Commission's civil enforcement action: On June 3, 2004, Symbol consented to entry of a final judgment imposing, among other relief, a permanent injunction and a civil penalty in the amount of $37 million, and James Dean, Symbol's former Manager and Director of Operations Finance, consented to entry of a partial final judgment imposing permanent injunctive relief. On February 17, 2005, Brian Burke, Symbol's former Senior Vice President, consented to entry of a partial final judgment imposing permanent injunctive relief and a bar prohibiting him from acting as an officer or director of a public company. On February 7, 2006, Leonard Goldner, Symbol's former General Counsel, consented to entry of a final judgment imposing permanent injunctive relief and an officer-and-director bar. In addition, on May 11, 2005, Robert Korkuc, Symbol's former Chief Accounting Officer, consented to entry of a partial final judgment imposing permanent injunctive relief and an officer-and-director bar in a separate action filed by the Commission on June 19, 2003. Korkuc also settled an administrative proceeding pursuant to Rule 102(e) of the Commission's Rules of Practice by consenting to entry of an order suspending him from appearing or practicing before the Commission as an accountant. + + The litigation is continuing with respect to the remaining defendants, and the Court has set a trial date of January 11, 2010. +The Commission acknowledges the assistance and cooperation of the USAO and the U.S. Postal Inspection Service in this matter. + + + +   + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Treacy, et al. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/506936","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Treacy, et al. + + + + + + + + + + + + James J. Treacy, et al. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21278 / November 4, 2009 + + Accounting and Auditing Release No. 3065 / November 4, 2009 + + Securities and Exchange Commission v. James J. Treacy, et al. , Civil Action No. 08 CV 4052 (RJS) (S.D.N.Y.) + + Court Enters Permanent Injunction and Other Relief against James Treacy in Stock Options Backdating Case + + The Securities and Exchange Commission ("SEC") today announced that on November 3, 2009, the Honorable Richard J. Sullivan of the United States District Court for the Southern District of New York entered a final judgment of permanent injunction and officer and director bar against James J. Treacy, the former president and Chief Operating Officer of Monster Worldwide, Inc. Without admitting or denying the SEC's allegations, Treacy consented to the entry of the final judgment. The judgment settles the SEC's claims against Treacy in a civil action filed on April 30, 2008, in which the SEC alleged that Treacy engaged in a fraudulent scheme to backdate option grants while he was an officer of Monster. + + The SEC's complaint alleged that Treacy participated in a scheme that began in 1997 to fraudulently backdate stock options to coincide with the dates of low closing prices for the New York-based company's common stock. As a result of this conduct, Monster misrepresented that all stock options were granted at the fair market value of the stock on the date of the award, when that was not the case. Monster also filed materially misstated financial statements with the SEC in its Forms 10-K and 10-Q that did not recognize compensation expense for the company's stock option grants, as required by generally accepted accounting principles. As a result, Monster overstated its aggregate pre-tax operating income by approximately $339.5 million for fiscal years 1997 through 2005. + + The final judgment: (i) permanently enjoins Treacy from future violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(b)(5), 14(a) and 16(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1, 13b2-2, 14a-9 and 16a-3 thereunder, and from aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder; and (ii) imposes a permanent bar from acting as an officer or director of a public company. The SEC withdrew its request for disgorgement and civil monetary penalties in light of the jail sentence, forfeiture and restitution ordered in United States v. James J. Treacy , 08 CR 0366 (JSR) (S.D.N.Y.). + + For additional information about Treacy as well as other litigation associated with the backdating of stock options at Monster, please see Litigation Release No. 21042 (May 18, 2009), Litigation Release No. 20554 (April 30, 2008), Litigation Release No. 20435 (January 23, 2008), Litigation Release No. 20056 (March 27, 2007), and Litigation Release No. 20004 (February 15, 2007). + +   + + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-3066.txt b/raw/aaer/2009/AAER-3066.txt new file mode 100644 index 0000000000000000000000000000000000000000..8d0d2d53c545f683aff8660c4f4e880c17ccd6ef --- /dev/null +++ b/raw/aaer/2009/AAER-3066.txt @@ -0,0 +1,1376 @@ + + + + + + + + + + + + + + + + SEC.gov | Steven V. Cotton + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/506951","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Share sensitive information only on official, secure websites. + + + + + + + + + + + + + + + + + SEC homepage + + + + + + + Menu + + + + + + + + + + + + + + Close + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + Search Filings + + + + + + + + + Search Filings + + + + + + + + + Full Text Search + + + + + + Latest Filings + + + + + + Mutual Fund Search + + + + + + Variable Insurance Products Search + + + + + + SIC Codes + + + + + + CIK Lookup + + + + + + Public Dissemination Service (PDS) + + + + + + Search Assistance + + + + + + + + + + + + + Submit Filings + + + + + + + + + Submit Filings + + + + + + + + + EDGAR Filer Management Portal + + + + + + EDGAR Filing Portal + + + + + + Online Forms Management Portal + + + + + + EDGAR Next + + + + + + Forms Index + + + + + + Filer Support & Resources + + + + + + + + + + + + + Data & Research + + + + + + + + + Data & Research + + + + + + + + + Data Library + + + + + + Statistics & Data Visualizations + + + + + + Structured Data + + + + + + Investment Management Data + + + + + + Open Data at the SEC + + + + + + + + + + + + + Rules, Enforcement, & Compliance + + + + + + + + + + + + + + + + + + + + Rules & Regulations + + + + + + + + + Rulemaking Activity + + + + + + Submit Public Comments + + + + + + Staff Guidance + + + + + + No-Action, Interpretive, and Exemptive Letters + + + + + + Self-Regulatory Organization Rulemaking + + + + + + Public Petitions for Rulemaking + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + + + Litigation Releases + + + + + + Administrative Proceedings + + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + + Trading Suspensions + + + + + + Distributions to Harmed Investors + + + + + + Receiverships + + + + + + + + + + + + + + + + + Compliance + + + + + + + + + Examination Priorities + + + + + + Risk Alerts + + + + + + Compliance Outreach Program + + + + + + + + + + + + + + + + + + + + + + + Proposed Rules + + + + + + What's New + + + + + + Whistleblower Program + + + + + + + + + + + + + + + + + + + Featured Topics + + + + + + + + + Featured Topics + + + + + + + + + Crypto Task Force + + + + + + Cybersecurity + + + + + + Market Structure Analytics + + + + + + Saving and Investing for Military Personnel + + + + + + Saving and Investing for Teachers + + + + + + SEC-CFTC Harmonization Initiative + + + + + + Treasury Clearing Implementation + + + + + + + + + + + + + About + + + + + + + + + About + + + + + + + + + Mission + + + + + + Commissioners + + + + + + Divisions & Offices + + + + + + Division & Office Directors + + + + + + Advisory Committees + + + + + + Budget & Performance + + + + + + Reports & Publications + + + + + + Commission Votes + + + + + + Contact the SEC + + + + + + Careers + + + + + + + + + + + + + Submit a Tip or Complaint + + + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + More in this Section + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + Steven V. Cotton + + + + + + + + + + + + Steven V. Cotton + + + + + + + + + + + + + + + + + + + U. S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21281 / November 4, 2009 + + Accounting and Auditing Enforcement Release No. 3066 / November 4, 2009 + + SEC v. Steven V. Cotton , Civil Action No. SA CV-06-905 AG (ANx) (C.D.Cal.) + + On September 29, 2009, the Honorable Andrew Guilford, United States District Judge for the Central District of California, entered a Final Judgment against Steven V. Cotton, pursuant to Cotton's Consent. Cotton is the former chief financial officer and chief operating officer of Lantronix, Inc., an Irvine, California technology company. Cotton consented to entry of a permanent injunction, disgorgement of $344,976.98 in ill-gotten gains plus pre-judgment interest of $62,629.03, payment of a $120,000 civil penalty, and imposition of a ten-year officer and director bar. + + The Commission's complaint, filed in U.S. District Court in Los Angeles, California, alleged that Cotton, of Huntington Beach, California, orchestrated a scheme to inflate the company's revenues and earnings by deliberately sending excessive product to distributors and granting them undisclosed expanded return rights and unusual extended payment terms (a fraudulent practice known as "channel stuffing"). The complaint further alleged that, as part of the channel stuffing scheme and to prevent imminent product returns, Cotton caused Lantronix to loan funds to a third party to purchase Lantronix product from one of its distributors. According to the complaint, Lantronix, through Cotton, also engaged in other improper revenue recognition practices, including shipping product that had not been ordered and recognizing revenue on a contingent sale. + + The complaint alleged that as a result of Cotton's scheme, Lantronix overstated its revenues by up to 21 percent and understated pre-tax losses by up to 98 percent for its second and third quarters of fiscal year 2001, its fiscal year 2001, and the first quarter of fiscal 2002. Lantronix publicly reported its false financials in periodic reports on Form 10-Q and 10-K and in a registration statement for a public offering of stock in July 2001. Lantronix subsequently restated its financial results for the relevant periods. + + The complaint further alleged that Cotton made substantial profits from his scheme through bonuses and through the sale of Lantronix stock at artificially inflated prices. + + The Commission alleged Cotton violated the antifraud provisions, Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; the record-keeping and internal controls provisions, Section 13(b)(5) of the Exchange Act and Rule 13b2-1; and the false statements to auditors provision, Rule 13b2-2 of the Exchange Act. Cotton was also alleged to have aided and abetted Lantronix's violations of the reporting provisions, Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder; the record-keeping provision, Section 13(b)(2)(A) of the Exchange Act; and the internal controls provision, Section 13(b)(2)(B) of the Exchange Act. + + Previously, on September 27, 2006, the Commission issued a cease-and-desist order against Lantronix, pursuant to its offer of settlement, ordering it to cease and desist from committing or causing any violations of Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder. + + For further information see LR-19850, AAER No. 2487 (September 28, 2006); Securities Act Release No. 8745 , Exchange Act Release No. 54525, AAER No. 2485 (September 27, 2006); and LR-17799 (October 23, 2002). + +   + + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21282 / November 4, 2009 + + Accounting and Auditing Enforcement Release No. 3067 / November 4, 2009 + + SEC v. Merge Healthcare Incorporated, Richard Linden, and Scott Veech , Civil Case No. 1:09-cv-1036, USDC, E.D.Wis. + + SEC CHARGES MERGE HEALTHCARE INCORPORATED, RICHARD LINDEN, AND SCOTT VEECH IN CONNECTION WITH ACCOUNTING FRAUD + + The Securities and Exchange Commission ("Commission") announced that on November 4, 2009, it charged Richard Linden of Barrington, Illinois, Scott Veech of Whitefish Bay, Wisconsin, and Merge Healthcare Incorporated, based in Milwaukee, Wisconsin, in connection with an accounting fraud that occurred from 2002 through 2005. Linden was the former Chief Executive Officer of Merge, a company which provides medical imaging software, hardware, and services, and Veech was its Chief Financial Officer. + + The SEC's complaint, filed in federal court in Milwaukee, alleges that Linden and Veech helped cause fraudulent accounting practices at Merge which involved the improper recognition of revenue from sales on transactions: (1) which included promises of specified future software enhancements; (2) which included sale contingencies; and (3) in which Merge failed to properly execute contracts and/or failed to properly deliver products in the same fiscal period in which Merge recorded revenue from those transactions. The SEC's complaint also alleges that Linden interfered with the audit confirmation process between certain of Merge's customers and Merge's outside auditor by instructing, or causing others to instruct, some of Merge's customers not to disclose side agreements between Merge and the customer. The SEC also alleges that Merge failed to devise and maintain a system of internal accounting controls that could have prevented the fraud. The SEC also alleges that during the period February through August 2006, during which Merge disclosed its accounting misstatements to the public, Merge's stock price dropped from $24.50 to $7.30 per share, reflecting a $500 million loss in market capitalization. + + Merge, Linden, and Veech settled the charges without admitting or denying the allegations of the SEC's complaint. Under the settlement, Linden and Veech are permanently enjoined from committing future violations of the antifraud provisions of the federal securities laws and are barred from serving as an officer and director of a public company for five years. Additionally, Linden will pay $382,193 in disgorgement, $117,807 in prejudgment interest, and a penalty of $90,000, and Veech will pay $180,000 in disgorgement, $50,000 in prejudgment interest, and a $50,000 penalty. Veech also consented to the entry of an administrative order which suspends him from appearing or practicing before the Commission as an accountant, with a right to reapply after three years. Merge is permanently enjoined from future violations of the internal controls, books and records, and reporting provisions of the federal securities laws. + + + SEC Complaint in this matter --> + +   + + + +  + + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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SafeNet, Inc., et. al. , Civil Action No. 09-2117 (D.D.C. Nov. 12, 2009) + + SEC CHARGES SAFENET, INC. AND TWO FORMER SENIOR OFFICERS IN EARNINGS MANAGEMENT AND OPTIONS BACKDATING SCHEMES + + SEC Also Charges Three Former SafeNet Accountants for Their Roles in the Earnings Management Scheme + + The Securities and Exchange Commission today filed a civil injunctive action against SafeNet, Inc., its former Chief Executive Officer, Anthony Caputo, its former Chief Financial Officer, Kenneth Mueller, and three former SafeNet accountants, Clinton Ronald Greenman, John Wilroy, and Gregory Pasko. The complaint filed in the United States District Court for the District of Columbia alleges that, during the period from the fourth quarter of 2000 through May 2006, SafeNet engaged in two fraudulent schemes â€" one involving the backdating of options and the other earnings management. Each scheme resulted in SafeNet materially misstating its financial results and disseminating materially false and misleading information concerning its financial condition. According to the complaint, Mueller and Caputo were involved in both schemes, while Greenman, Wilroy and Pasko were involved only in the earnings management scheme. Without admitting or denying the allegations in the complaint, except as to jurisdiction, all of the defendants have agreed to settle the action on the terms described below. + + This is the first enforcement action brought by the Commission pursuant to Regulation G. Regulation G applies whenever a company subject to the periodic reporting requirements under Section 13(a) or 15(d) of the Exchange Act of 1934, or a person acting on the company's behalf, discloses publicly any material information that includes a "non-GAAP financial measure." Non-GAAP financial measures, which are not calculated in conformity with Generally Accepted Accounting Principles, often exclude non-recurring, infrequent, or unusual expenses. Regulation G requires companies to reconcile the non-GAAP financial measure to the most directly comparable GAAP financial measure. Regulation G also prohibits companies and their employees from disseminating false or misleading non-GAAP financial measures or presenting the non-GAAP financial measures in such a manner that they mislead investors or obscure the company's GAAP results. The complaint alleges that: + + From the third quarter of 2004 through the second quarter of 2005, SafeNet, through the actions of Mueller, Caputo, Greenman, Wilroy (after the third quarter of 2004), and Pasko, engaged in a scheme to meet or exceed quarterly earnings per share (EPS) targets through the use of improper accounting adjustments. + + During the relevant period, Caputo and Mueller were aware that SafeNet would be unable to meet its earnings targets through normal business operations, and in response, took actions to ensure that SafeNet would meet its earnings targets. + + At Mueller's direction, Greenman, Wilroy, and Pasko, made, or caused others to make, improper accounting adjustments to various expenses including the improper classification of ordinary operating expenses as non-recurring integration expenses (costs incurred to integrate acquired companies into current operations), and the improper reduction of accruals and reserves. + + SafeNet, Mueller, and Caputo represented to investors that SafeNet's non-GAAP earnings results excluded certain non-recurring expenses, when, in fact, SafeNet had misclassified and excluded a significant amount of recurring, operating expenses from its non-GAAP earnings results, in order to meet or exceed quarterly EPS targets. + + In the course of the earnings management scheme, Mueller, Caputo, Greenman, Wilroy, and Pasko prepared, reviewed, and/or signed SafeNet's materially false and misleading securities filings and press releases. + In addition, the complaint alleges that SafeNet, through the actions of three former officers, engaged in a scheme to backdate option grants to senior executives and employees in order to take advantage of low points in the company's stock price, without recording the requisite compensation expense for these option grants. According to the complaint: + + The three former officers who participated in the backdating of option grants were Caputo, Mueller, and Carole Argo, a former SafeNet President and CFO, who was convicted in a parallel criminal action and settled with the Commission in 2008. + + Argo, in consultation with Caputo, looked back and selected historical dates when SafeNet's stock price had closed at or near the low for a given period to use as grant dates for SafeNet option grants. By selecting these highly favorable dates and causing options to be granted on dates when they would be "in-the-money," Argo and Caputo created opportunities for themselves and others at SafeNet to reap substantial profits. + + Mueller became SafeNet's CFO in June 2004 and after learning of SafeNet's backdating practice, Mueller continued the backdating scheme by, among other actions, approving a highly favorable historical date to use as the grant date for option grants to himself and others. + + During the backdating scheme, Mueller, Caputo, and Argo prepared, reviewed and/or signed SafeNet's materially false and misleading securities filings and press releases. + + Argo, Caputo, and Mueller each benefited from the backdating scheme by receiving significant in-the-money option grants. Caputo and Mueller realized illicit profits of approximately $1.6 million and $80,000, respectively, from the sale of SafeNet stock obtained from the exercise of backdated option grants. + All defendants have agreed to settle this matter, without admitting or denying the allegations in the complaint, on the following terms: + + SafeNet consented to the entry of a judgment: permanently enjoining it from violating the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5, the rule relating to the use of non-GAAP financial measures of Regulation G, the reporting, books and records and internal controls provisions, Sections 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, and the proxy solicitation provisions, Section 14(a) of the Exchange Act and Exchange Act Rule 14a-9; and ordering SafeNet to pay a civil penalty of $1,000,000. + + Mueller consented to the entry of a judgment: (a) permanently enjoining him from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5, the internal controls and books and records provisions of Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1, the misrepresentations to auditors provision of Exchange Act Rule 13b2-2, the ownership reporting provisions of Section 16(a) of the Exchange Act and Exchange Act Rule 16a-3, the proxy solicitation provisions of Section 14(a) of the Exchange Act and Exchange Act Rule 14a-9, the certification provision of Exchange Act Rule 13a-14, and Regulation G, and from aiding and abetting violations of the reporting, books and records, and internal controls provisions; (b) finding him liable for disgorgement of $78,250 plus prejudgment interest of $21,349, but after taking into account his previous settlement with SafeNet, ordering him to pay $37,000 plus prejudgment interest of $13,561; (c) ordering him to pay a civil penalty of $75,000; and (d) barring him from acting as an officer or director of a public company for a period five years. + + Caputo consented to the entry of a judgment permanently enjoining him from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act, Sections 13(b)(5), 14(a), and 16(a) of the Exchange Act, Exchange Act Rules 13a-14, 13b2-1, 13b2-2, 14a-9, and16a-3, and Regulation G, and from aiding and abetting violations of the reporting, books and records, and internal controls provisions; finding him liable for disgorgement of $1,690,000 plus prejudgment interest of $214,000, but deeming these amounts to be fully satisfied by Caputo's previous settlement with SafeNet; and ordering him to pay a civil penalty of $250,000. + + Greenman, Wilroy, and Pasko each consented to the entry of judgments permanently enjoining them from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act and Exchange Act Rules 13b2-1 and 13b2-2, and from aiding and abetting violations of the reporting, books and records, and internal controls provisions. Greenman consented to a judgment finding him liable to pay disgorgement of $45,000 plus prejudgment interest, but based on his sworn financial statements and other documents submitted to the Commission, waiving disgorgement, except for $15,000, and not imposing a civil penalty. Wilroy and Pasko consented to judgments ordering them to pay civil penalties of $25,000 and $15,000 respectively. + + In addition, Mueller, Greenman, Wilroy, and Pasko each consented to the issuance of administrative orders suspending them from appearing or practicing before the Commission as accountants, with the right to apply for reinstatement after (i) five years for Mueller, (ii) two years for Greenman and Wilroy, and (iii) one year for Pasko. + The settlements with SafeNet, Greenman, and Pasko take into account the cooperation with the SEC's investigation by SafeNet and these individuals. All of the settlements of the civil action are subject to the approval of the United States District Court for the District of Columbia. + + The Commission acknowledges the assistance of the United States Attorney's Office for the Southern District of New York and the United States Postal Inspection Service. + + For additional information, please see Litigation Release Nos. 20752 (September 29, 2008) and 20221 (August 1, 2007). + + + SEC Complaint + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Sokol + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/507046","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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Share sensitive information only on official, secure websites. + + + + + + + + + + + + + + + + + SEC homepage + + + + + + + Menu + + + + + + + + + + + + + + Close + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + Search Filings + + + + + + + + + Search Filings + + + + + + + + + Full Text Search + + + + + + Latest Filings + + + + + + Mutual Fund Search + + + + + + Variable Insurance Products Search + + + + + + SIC Codes + + + + + + CIK Lookup + + + + + + Public Dissemination Service (PDS) + + + + + + Search Assistance + + + + + + + + + + + + + Submit Filings + + + + + + + + + Submit Filings + + + + + + + + + EDGAR Filer Management Portal + + + + + + EDGAR Filing Portal + + + + + + Online Forms Management Portal + + + + + + EDGAR Next + + + + + + Forms Index + + + + + + Filer Support & Resources + + + + + + + + + + + + + Data & Research + + + + + + + + + Data & Research + + + + + + + + + Data Library + + + + + + Statistics & Data Visualizations + + + + + + Structured Data + + + + + + Investment Management Data + + + + + + Open Data at the SEC + + + + + + + + + + + + + Rules, Enforcement, & Compliance + + + + + + + + + + + + + + + + + + + + Rules & Regulations + + + + + + + + + Rulemaking Activity + + + + + + Submit Public Comments + + + + + + Staff Guidance + + + + + + No-Action, Interpretive, and Exemptive Letters + + + + + + Self-Regulatory Organization Rulemaking + + + + + + Public Petitions for Rulemaking + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + + + Litigation Releases + + + + + + Administrative Proceedings + + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + + Trading Suspensions + + + + + + Distributions to Harmed Investors + + + + + + Receiverships + + + + + + + + + + + + + + + + + Compliance + + + + + + + + + Examination Priorities + + + + + + Risk Alerts + + + + + + Compliance Outreach Program + + + + + + + + + + + + + + + + + + + + + + + Proposed Rules + + + + + + What's New + + + + + + Whistleblower Program + + + + + + + + + + + + + + + + + + + Featured Topics + + + + + + + + + Featured Topics + + + + + + + + + Crypto Task Force + + + + + + Cybersecurity + + + + + + Market Structure Analytics + + + + + + Saving and Investing for Military Personnel + + + + + + Saving and Investing for Teachers + + + + + + SEC-CFTC Harmonization Initiative + + + + + + Treasury Clearing Implementation + + + + + + + + + + + + + About + + + + + + + + + About + + + + + + + + + Mission + + + + + + Commissioners + + + + + + Divisions & Offices + + + + + + Division & Office Directors + + + + + + Advisory Committees + + + + + + Budget & Performance + + + + + + Reports & Publications + + + + + + Commission Votes + + + + + + Contact the SEC + + + + + + Careers + + + + + + + + + + + + + Submit a Tip or Complaint + + + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + More in this Section + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + Bancinsurance Corporation and John S. Sokol + + + + + + + + + + + + Bancinsurance Corporation and John S. Sokol + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21300 / November 16, 2009 + + Accounting and Auditing Release No. 3069 / November 16, 2009 + + Securities and Exchange Commission v. Bancinsurance Corporation and John S. Sokol , Civil Action No. 1:09-CV-02155 (D.D.C.) (November 16, 2009) + + SEC Charges Bancinsurance Corporation and its Senior Executive with Securities Fraud + + The Securities and Exchange Commission today filed a settled civil injunctive action against Ohio insurance company Bancinsurance Corporation ("Bancinsurance" or the "Company"), and its chief executive officer, John S. Sokol ("Sokol"), charging them with securities fraud and other violations of the federal securities laws. The Commission's complaint alleges that Bancinsurance failed to account properly for more than $2 million of reinsurance claims, and that Sokol-Bancinsurance's president at the time-failed to ensure that the Company's principal financial officer or its external auditors were informed of the claims. As a result, the Company's financial condition in its Form 10-K for fiscal year 2003 and its Form 10-Q for the first quarter of fiscal year 2004 was materially misstated. Sokol agreed to pay a $60,000 civil penalty, and both Bancinsurance and Sokol agreed to be permanently enjoined from violating the antifraud and other provisions of the federal securities laws. + + The complaint alleges: During the period 2001 through 2004, Bancinsurance participated in a bail and immigration bond program (the "Program") as a reinsurer. On or before March 11, 2004, shortly before Bancinsurance filed its Form 10-K for the fiscal year 2003, Bancinsurance and Sokol were notified that the Company would receive more than $1 million in reinsurance claims under the Program. Sokol understood, or was reckless in not understanding, that these claims represented 2003 losses and therefore were required to be reflected in Bancinsurance's fiscal 2003 financial statements. Sokol failed to ensure that the Company's principal financial officer or its external auditors were informed of the claims. As a result, the claims were not properly recorded in the Company's books and records, which caused Bancinsurance's 2003 financial statements to materially understate the Company's expenses and loss reserves. + + The complaint further alleges: On or about March 25, 2004, Bancinsurance received invoices for more than $1 million in additional claims. Sokol understood, or was reckless in not understanding, that these claims were required to be included in Bancinsurance's financial statements filed with its Form 10-Q for the quarter ended March 31, 2004. Sokol again failed to ensure that Bancinsurance's principal financial officers or its external auditors were informed of the claims. As a result, the claims were not properly recorded in Bancinsurance's books and records, which caused its financial statements for that quarter to materially understate the Company's expenses. + + Without admitting or denying the complaint's allegations, Bancinsurance agreed to be enjoined from violating 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, and 13a-13. Without admitting or denying the complaint's allegations, Sokol agreed to be enjoined from violating Exchange Act Sections 10(b) and 13(b)(5), and Exchange Act Rules 10b-5, 13b2-1, and 13b2-2; and from aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, and 13a-13. + + The Commission's settlements with Bancinsurance and Sokol are subject to the approval of the U.S. District Court for the District of Columbia. + + + SEC Complaint + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. 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Share sensitive information only on official, secure websites. + + + + + + + + + + + + + + + + + SEC homepage + + + + + + + Menu + + + + + + + + + + + + + + Close + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + Search Filings + + + + + + + + + Search Filings + + + + + + + + + Full Text Search + + + + + + Latest Filings + + + + + + Mutual Fund Search + + + + + + Variable Insurance Products Search + + + + + + SIC Codes + + + + + + CIK Lookup + + + + + + Public Dissemination Service (PDS) + + + + + + Search Assistance + + + + + + + + + + + + + Submit Filings + + + + + + + + + Submit Filings + + + + + + + + + EDGAR Filer Management Portal + + + + + + EDGAR Filing Portal + + + + + + Online Forms Management Portal + + + + + + EDGAR Next + + + + + + Forms Index + + + + + + Filer Support & Resources + + + + + + + + + + + + + Data & Research + + + + + + + + + Data & Research + + + + + + + + + Data Library + + + + + + Statistics & Data Visualizations + + + + + + Structured Data + + + + + + Investment Management Data + + + + + + Open Data at the SEC + + + + + + + + + + + + + Rules, Enforcement, & Compliance + + + + + + + + + + + + + + + + + + + + Rules & Regulations + + + + + + + + + Rulemaking Activity + + + + + + Submit Public Comments + + + + + + Staff Guidance + + + + + + No-Action, Interpretive, and Exemptive Letters + + + + + + Self-Regulatory Organization Rulemaking + + + + + + Public Petitions for Rulemaking + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + + + Litigation Releases + + + + + + Administrative Proceedings + + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + + Trading Suspensions + + + + + + Distributions to Harmed Investors + + + + + + Receiverships + + + + + + + + + + + + + + + + + Compliance + + + + + + + + + Examination Priorities + + + + + + Risk Alerts + + + + + + Compliance Outreach Program + + + + + + + + + + + + + + + + + + + + + + + Proposed Rules + + + + + + What's New + + + + + + Whistleblower Program + + + + + + + + + + + + + + + + + + + Featured Topics + + + + + + + + + Featured Topics + + + + + + + + + Crypto Task Force + + + + + + Cybersecurity + + + + + + Market Structure Analytics + + + + + + Saving and Investing for Military Personnel + + + + + + Saving and Investing for Teachers + + + + + + SEC-CFTC Harmonization Initiative + + + + + + Treasury Clearing Implementation + + + + + + + + + + + + + About + + + + + + + + + About + + + + + + + + + Mission + + + + + + Commissioners + + + + + + Divisions & Offices + + + + + + Division & Office Directors + + + + + + Advisory Committees + + + + + + Budget & Performance + + + + + + Reports & Publications + + + + + + Commission Votes + + + + + + Contact the SEC + + + + + + Careers + + + + + + + + + + + + + Submit a Tip or Complaint + + + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + Newsroom + + + | + + + Investors + + + Small Businesses + + + Whistleblowers + + + + + + + + + + + + + + + + + Search SEC.gov & EDGAR + + + + + + Search + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + More in this Section + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + Enforcement & Litigation + + + + + + + Litigation Releases + + + + + Administrative Proceedings + + + + + Administrative Law Judge Orders and Initial Decisions + + + + + Trading Suspensions + + + + + Distributions to Harmed Investors + + + + + Receiverships + + + + + Electronic Filings in Administrative Proceedings (eFAP) + + + + + Rules of Practice + + + + + Applications for Reentry + + + + + Reports of Investigations + + + + + Whistleblower Program + + + + + Public Alert: Unregistered Soliciting Entities (PAUSE) + + + + + SEC Action Lookup - Individuals (SALI) + + + + + Enforcement Data Delivery Standards + + + + + Small Businesses + + + + + Appellate Briefs + + + + + Amicus / Friend of the Court Briefs + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + Home + + + Enforcement and Litigation + + + Litigation Releases + + + Benjamin Silva, III and Diane Bjorkstrom + + + + + + + + + + + + Benjamin Silva, III and Diane Bjorkstrom + + + + + + + + + + + + + + + + + + + U.S. Securities and Exchange Commission + + LITIGATION RELEASE NO. 21302 / November 17, 2009 + + ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 3070 / November 17, 2009 + + Securities and Exchange Commission v. Benjamin Silva, III , Case No. 09-5395-PVT (N.D. Cal. filed November 17, 2009) + + Securities and Exchange Commission v. Diane Bjorkstrom , Case No. 09-5394-PVT (N.D. Cal. filed November 17, 2009) + + SEC CHARGES FORMER EXECUTIVES AT SILICON VALLEY COMPANY FOR INFLATING FINANCIAL RESULTS + + The Securities and Exchange Commission today charged two former Silicon Valley executives for improperly inflating the reported financial results at Santa Clara, Calif., semiconductor company Tvia, Inc. + + The SEC alleges that Tvia's former Vice President of Worldwide Sales, Benjamin Silva III of Fremont, Calif., made side deals with customers and concealed the terms from Tvia's executives and auditors, which fraudulently caused the company to report millions of dollars in excess revenue. The SEC further alleges that Tvia's former Chief Financial Officer Diane Bjorkstrom of Palo Alto, Calif., also played a role in Tvia's improper accounting, allowing Tvia to recognize revenue on merchandise shipped to a customer weeks before the customer had agreed to accept it, and failing to act on red flags surrounding Silva's misconduct. + + Bjorkstrom agreed to settle the SEC's charges against her by paying a $20,000 penalty. + + The SEC's complaint, filed in federal district court in San Jose, alleges that Silva's side agreements illegally inflated Tvia's revenue by approximately $5 million from September 2005 through June 2006. This caused the company's quarterly revenue to be consistently overstated, including by as much as 165 percent in one quarter. The SEC further alleges that in order to divert auditors' attention from delinquent customer payments, Silva fraudulently applied payments from new customers to old receivables. + + According to the SEC's complaint, Silva's misconduct allowed him to meet his revenue targets at the company. For his efforts in meeting those targets, Silva received an award of options to buy 70,000 shares of Tvia stock. Before the fraud was discovered in early 2007, Silva exercised and sold all of his available Tvia options for a profit of $300,000. + + The SEC's complaint against Silva charges him with violations of the antifraud, reporting, books and records and internal control provisions of the federal securities laws, and seeks a permanent injunction, disgorgement of Silva's ill-gotten gains plus prejudgment interest, and a financial penalty. The SEC also seeks a court order permanently barring Silva from acting as an officer or director of any public issuer. + + In the settled enforcement action against Bjorkstrom, she consented without admitting or denying the SEC's allegations to an order requiring her to pay the penalty and banning her from appearing or practicing before the SEC as an accountant for a period of two years. + + SEC Complaints in this matter + + Benjamin Silva, III + Diane Bjorkstrom +   + + + +  + + + + + + + + + + + Resources + + + + + III + + + + + Diane Bjorkstrom + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-3072.pdf b/raw/aaer/2009/AAER-3072.pdf new file mode 100644 index 0000000000000000000000000000000000000000..54e623726685a804e891e445ec3e1d1c0c61007d Binary files /dev/null and b/raw/aaer/2009/AAER-3072.pdf differ diff --git a/raw/aaer/2009/AAER-3072.txt b/raw/aaer/2009/AAER-3072.txt new file mode 100644 index 0000000000000000000000000000000000000000..a7e8655ec58b550a0d7b2ed991db50de1960c9b7 --- /dev/null +++ b/raw/aaer/2009/AAER-3072.txt @@ -0,0 +1,203 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 61113 / December 4, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3072 / December 4, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13704 +: +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +ROBERT BERNSTEIN, : 102(e) OF THE COMMISSION’S RULES OF +: PRACTICE, MAKING FINDINGS, AND +Respondent. : IMPOSING REMEDIAL SANCTIONS +: +: +____________________________________ : +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against Robert +Bernstein (“Respondent” or “Bernstein”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules +of Practice. +1 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. + + + + + + + + + + + + + + + + + + +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over him and the subject matter of these +proceedings, and the findings contained in Section III(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. Bernstein, age 44, passed the CPA exam in New York but does not have a +license to practice accounting in any state. He served as controller of American Home Mortgage +Investment Corp. (“AHM” or the “Company”) from December 2002 until June 2008. +2. AHM is a Maryland corporation headquartered in Melville, New York. In +2006, AHM was one of the nation’s largest home mortgage lenders. AHM’s common and +preferred stock was registered with the Commission pursuant to Section 12(b) of the Securities +Exchange Act of 1934 (“Exchange Act”). Through the first quarter of 2007, AHM filed periodic +reports, including Forms 10-K and 10-Q, with the Commission pursuant to Section 13(a) of the +Exchange Act and related rules thereunder. Since May 10, 2007, the Company has not filed any +required periodic reports. On August 6, 2007, AHM and its direct and indirect subsidiaries filed +for bankruptcy protection. On February 23, 2009, the Bankruptcy Court confirmed AHM’s plan of +liquidation. +3. On April 28, 2009 the Commission filed a complaint against Bernstein and +others in SEC v. Strauss, et al. (09 Civ. 4150) (S.D.N.Y.). On November 17, 2009, the court +entered an order permanently enjoining Bernstein, by consent, from future violations of Section +13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder, and aiding and abetting +violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 +and 13a-13 thereunder. Bernstein was also ordered to pay a $125,000 civil money penalty. +4. The Commission’s complaint alleged, among other things, that Bernstein, +with others, analyzed the Company’s reserves for expected loan losses, which showed that a +substantial increase was required to account for AHM’s increased loss rates on its portfolios. +Bernstein did not provide this information to AHM’s auditor. Instead, based on an instruction +from AHM’s chief financial officer, Bernstein provided to the auditor a misleading document that +made the Company’s understated loan loss reserves appear adequate. Bernstein also took +affirmative steps to conceal a significant aged receivable balance on AHM’s books for the periods +ending December 31, 2006 and March 31, 2007 by directing a subordinate to make a series of +2 + + + + + + + + + + + + + + + + + + + + + + + + +accounting entries designed to bury the balance in a liability account in order to mislead the +Company’s auditor with respect to the existence of these aged receivables. Bernstein +circumvented AHM’s internal controls and falsified the Company’s books and records by, among +other things, creating false accounting entries in connection with the aged receivables and entries +which reflected the understated loan loss reserves. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Bernstein’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Bernstein is suspended from appearing or practicing before the Commission as an +accountant. +B. After three years from the date of this order, Respondent may request that the +Commission consider his reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that Respondent’s work in his practice before the +Commission will be reviewed either by the independent audit committee of the public company +for which he works or in some other acceptable manner, as long as he practices before the +Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which he is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; +(b) Respondent, or the registered public accounting firm with which he +is associated, has been inspected by the Board and that inspection did not identify any criticisms +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 +3 + + + + + + + + + + +requirements relating to registration, inspections, concurring partner reviews and quality control +standards. +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that his state CPA license is +current and he has resolved all other disciplinary issues with the applicable state boards of +accountancy. However, if state licensure is dependent on reinstatement by the +Commission, the Commission will consider an application on its other merits. The +Commission’s review may include consideration of, in addition to the matters referenced +above, any other matters relating to Respondent’s character, integrity, professional conduct, +or qualifications to appear or practice before the Commission. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +4 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3073.txt b/raw/aaer/2009/AAER-3073.txt new file mode 100644 index 0000000000000000000000000000000000000000..4197bb5a8cbde78a3d56544e65db9ecf5303ff84 --- /dev/null +++ b/raw/aaer/2009/AAER-3073.txt @@ -0,0 +1,1393 @@ + + + + + + + + + + + + + + + + SEC.gov | Black Box Corporation, Frederick C. Young, and Anna M. 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Young, and Anna M. Baird + + + + + + + + + + + + Black Box Corporation, Frederick C. Young, and Anna M. Baird + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21323 / December 4, 2009 + + Accounting and Auditing Enforcement Release No. 3073 / December 4, 2009 + + Securities and Exchange Commission v. Black Box Corporation, Frederick C. Young, and Anna M. Baird , Case No. 09-CV-1591 (W.D. Pa.) + + SEC FILES LAWSUIT AGAINST BLACK BOX CORPORATION, FORMER CEO AND FORMER CFO FOR STOCK-OPTIONS BACKDATING VIOLATIONS + + The Securities and Exchange Commission announced that, on December 4, 2009, it filed a civil action in the United States District Court for the Western District of Pennsylvania against Black Box Corporation ("Black Box"), a Lawrence, PA technical services provider, its former Chief Executive Officer Frederick C. Young, 53, of Silver Point, Tennessee, and its former Chief Financial Officer Anna M. Baird, 52, of Bridgeville, PA, alleging violations related to stock-options backdating. Without admitting or denying the Commission's allegations, all three defendants agreed to settle the matter. + + The Commission's complaint alleges that, in July and August 2007, as a result of a previously announced review of its stock options practices, Black Box filed quarterly and annual reports restating its net income for fiscal years 1994 through 2006 (the "Restatements") by identifying approximately $70.9 million of unrecorded expenses it had incurred as a result of mispriced stock option grants. Black Box was required to, but did not, record an expense for options issued at below-market prices ("in the money" options). More than one-half of the unrecorded expenses reported in the Restatements, approximately $38.1 million, stem from backdated options awarded at Young's direction. + + The complaint alleges that, as Chief Executive Officer, Young had authority for the granting of stock options at Black Box. On six occasions, from 1998 through 2001, Young intentionally backdated stock option grants totaling millions of shares, to hundreds of recipients, including Black Box's officers, directors, and employees. Young chose dates for these grants from between two weeks to over a year prior to the actual dates such grants were awarded. By doing so, the options were "in-the-money" in amounts ranging from $3.19 to $43.86 per share on the dates they were actually granted (or 13% to 58% lower than the market price on the actual grant date). + + The complaint further alleges that, in or about December 2000, Baird, then Black Box's Chief Financial Officer and a CPA, also participated in granting backdated options to Black Box's officers and employees. Baird personally exercised backdated options for $87,243 in excess profits. The complaint further alleges that Young and Baird engaged in their conduct despite knowing, or having reason to know, that the Company had improperly recorded compensation expenses for the options and violated the terms of its own stock option plans as disclosed in various filings with the Commission. + + Black Box consented to the entry of an order permanently enjoining it from violating Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1 and 13a-13 thereunder. The settlement with Black Box takes into account the company's cooperation during the Commission's investigation. + + Young consented to the entry of an order permanently enjoining him from violating Section 17(a) of the Securities Act of 1933, Sections 10(b),13(b)(5) and 14(a) of the Exchange Act and Rules 10b-5, 13b2-2, 13a-14 and 14a-9 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. Young agreed to pay a $120,000 penalty and to be barred from serving as an officer or director of a public reporting company for five years. + + Baird consented to the entry of an order permanently enjoining her from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act, and Section 13(b)(5) of the Exchange Act, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. Baird also consented to disgorgement and prejudgment interest of $118,645. In addition, Baird agreed to settle a related administrative proceeding pursuant to Rule 102(e) of the Commission's Rules of Practice by consenting, without admitting or denying the Commission's findings, to the entry of an order suspending her from appearing or practicing before the Commission as an accountant for five years. 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Solely for the purpose of +these proceedings and any other proceedings brought by or on behalf of the Commission, or to +which the Commission is a party, and without admitting or denying the findings herein, except as to +the Commission’s jurisdiction over him and the subject matter of these proceedings, and the +findings contained in paragraph three of Section III below, which are admitted, Respondent +consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule +102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions +(“Order”), as set forth below. + +III. + + On the basis of this Order and Responde nt’s Offer, the Commission finds that: + + 1. John Wilroy, age 50, was the Worldw ide Controller of SafeNet, Inc., from +December 2004 through July 29, 2005. Wilroy was licensed as a Certified Public Accountant in +the state of Virginia from April 2003 to August 2009. + + 2. SafeNet, Inc. (“SafeNet” or the “Company”) is a Delaware corporation, with +its headquarters in Belcamp, Maryland. SafeNet produces information security software products. +During the relevant period, the Company’s common stock was registered with the Commission +pursuant to Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”) and listed on +the NASDAQ Global Market under the symbol “SFNT.” In April 2007, SafeNet was taken private +by Vector Capital Corporation. + + 3. On November 12, 2009, the Commission filed a complaint against Wilroy in +SEC v. SafeNet, Inc., et. al +, Civil Case No. 09-2117 (D.D.C). On December 2, 2009, the court +entered a final judgment permanently enjoining Wilroy, by consent, from future violations of +Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, and Rules 13b2-1 and 13b2-2 under +the Exchange 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, 13a-11, and 13a-13 thereunder. The +final judgment also ordered Wilroy to pay a civil penalty of $25,000. + +4. The Commission’s complaint alleged that, from the third quarter of 2004 +through the second quarter of 2005, SafeNet, through the conduct of its former employees, +engaged in a scheme to assist SafeNet in meeting or exceeding quarterly earnings per share +targets through the use of improper accounting adjustments. The complaint alleged that Wilroy +and others made, or caused others to make, certain improper accounting adjustments in SafeNet’s +books and records. The complaint also alleged that, as a result of these inappropriate adjustments, +SafeNet’s periodic reports, registration statements, and press releases contained materially +misstated financial results and materially false and misleading information concerning SafeNet’s +financial condition. + + +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 Wilroy’s Offer. + + Accordingly, it is hereby ORDERED, effective immediately, that: + +A. Wilroy is suspended from appearing or practicing before the Commission as an +accountant. + + B. After two years from th e date of this order, Respondent may request that the +Commission consider his reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: + + 1. a preparer or reviewer, or a person responsible for the preparation or +review, of any public company’s financial statements that are filed with the Commission. Such +an application must satisfy the Commission that Respondent’s work in his 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 further satisfy the +Commission that: + + (a) Respondent, or the public accounting firm with which he is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; + + (b) Respondent, or the registered public accounting firm with which he +is associated, has been inspected by the Board and that inspection did not identify any criticisms +of or potential defects in the respondent’s or the firm’s quality control system that would indicate +that the respondent will not receive appropriate supervision; + (c) Respondent has resolved all di sciplinary issues with the Board, and +has complied with all terms and conditions of any sanctions imposed by the Board (other than +reinstatement by the Commission); and + + (d) Respondent acknowledges his re sponsibility, as long as Respondent +appears or practices before the Commission as an independent accountant, to comply with all +requirements of the Commission and the Board, including, but not limited to, all requirements +relating to registration, inspections, concurring partner reviews, and quality control standards. + +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that his state CPA license is +current and he has resolved all other disciplinary issues with the applicable state boards of +accountancy. However, if state licensure is dependent on reinstatement by the Commission, + +4 +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. + + + + + + E l i z a b e t h M . M u r p h y + S e c r e t a r y + + + + + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3078.pdf b/raw/aaer/2009/AAER-3078.pdf new file mode 100644 index 0000000000000000000000000000000000000000..e6c27c660d147cd2598e8af58800740caa740549 Binary files /dev/null and b/raw/aaer/2009/AAER-3078.pdf differ diff --git a/raw/aaer/2009/AAER-3078.txt b/raw/aaer/2009/AAER-3078.txt new file mode 100644 index 0000000000000000000000000000000000000000..ae52fde0fbf3088a46d4ab6a829d84a98d9b9996 --- /dev/null +++ b/raw/aaer/2009/AAER-3078.txt @@ -0,0 +1,204 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +UNITED STATES OF AMERICA + Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 61149 / December 10, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3078 / December 10, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13711 +: + : +In the Matter of : ORDER INSTITUTING PUBLIC +: A D M I N I S T R A T I V E P R O C E E D I N G S +Gregory Pasko, CPA : PURSUANT TO RULE 102(e) OF THE +: C O M M I S S I O N ’ S R U L E S O F + Respondent. : PRACTICE, MAKING FINDINGS, AND +: IMPOSING REMEDIAL SANCTIONS +: +____________________________________ : +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against Gregory +Pasko, CPA, (“Respondent” or “Pasko”) 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 +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his or +her misconduct in an action brought by the Commission, from violating or aiding and abetting the +violation of any provision of the Federal securities laws or of the rules and regulations thereunder. + + + + + + + + + + + + + + + + + + + + + +these proceedings and any other proceedings brought by or on behalf of the Commission, or to +which the Commission is a party, and without admitting or denying the findings herein, except as to +the Commission’s jurisdiction over him and the subject matter of these proceedings, and the findings +contained in paragraph three of Section III below, which are admitted, Respondent consents to the +entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the +Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions (“Order”), as +set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: + 1. Gregory Pasko, age 43, was the Director of External Reporting of SafeNet, +Inc., from January 2005 through May 2005. Since 1995, Pasko has been licensed as a Certified +Public Accountant in the state of Maryland. +2. SafeNet, Inc. (“SafeNet” or the “Company”) is a Delaware corporation, with +its headquarters in Belcamp, Maryland. SafeNet produces information security software products. +During the relevant period, the Company’s common stock was registered with the Commission +pursuant to Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”) and listed on the +NASDAQ Global Market under the symbol “SFNT.” In April 2007, SafeNet was taken private by +Vector Capital Corporation. +3. On November 12, 2009, the Commission filed a complaint against Pasko in +SEC v. SafeNet, Inc., et. al., Civil Case No. 09-2117 (D.D.C). On December 2, 2009, the court +entered a final judgment permanently enjoining Pasko, by consent, from future violations of +Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, and Rules 13b2-1 and 13b2-2 under the +Exchange 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, 13a-11, and 13a-13 thereunder. The +final judgment ordered Pasko to pay a civil penalty of $15,000. +4. The Commission’s complaint alleged that, from the third quarter of 2004 +through the second quarter of 2005, SafeNet, through the conduct of its former employees, +engaged in a scheme to assist SafeNet in meeting or exceeding quarterly earnings per share targets +through the use of improper accounting adjustments. The complaint alleged that Pasko and others +made, or caused others to make, certain improper accounting adjustments in SafeNet’s books and +records. The complaint also alleged that, as a re sult of these inappropriate adjustments, SafeNet’s +periodic reports, registration statements, and press releases contained materially misstated +financial results and materially false and misleading information concerning SafeNet’s financial +condition. +IV. +2 + + + + + + + + + + + + + + + + + + + + + + + +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Pasko’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Pasko is suspended from appearing or practicing before the Commission as an +accountant. +B. After one year from the date of this order, Respondent may request that the +Commission consider his reinstatement by submitting an application (attention: Office of the +Chief Accountant) to resume appearing or practicing before the Commission as: +1. a preparer or reviewer, or a person responsible for the preparation or 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 further satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which he is +associated, is registered with the Public Company Accounting Oversight Board (“Board”) in +accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; +(b) Respondent, or the registered public accounting firm with which he +is associated, has been inspected by the Board and that inspection did not identify any criticisms of +or potential defects in the respondent’s or the firm’s quality control system that would indicate that +the respondent will not receive appropriate supervision; + (c) Respondent has resolved all disciplinary issues with the Board, and +has complied with all terms and conditions of any sanctions imposed by the Board (other than +reinstatement by the Commission); and +(d) Respondent acknowledges his responsibility, as long as Respondent +appears or practices before the Commission as an independent accountant, to comply with all +requirements of the Commission and the Board, including, but not limited to, all requirements +relating to registration, inspections, concurring partner reviews, and quality control standards. +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that his state CPA license is current +and he has resolved all other disciplinary issues with the applicable state boards of +accountancy. However, if stat e 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 +3 + + + + + + + + + + + + + + + + + +relating to Respondent’s character, integrity, professional conduct, or qualifications to appear +or practice before the Commission. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +4 diff --git a/raw/aaer/2009/AAER-3080.txt b/raw/aaer/2009/AAER-3080.txt new file mode 100644 index 0000000000000000000000000000000000000000..883ecf5d5dc07f25164cc46cf71c641d8567831e --- /dev/null +++ b/raw/aaer/2009/AAER-3080.txt @@ -0,0 +1,1547 @@ +UNITED STATES OF AMERICA + +before the +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Rel. No. 61162 / December 14, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Rel. No. 3080 / December 14, 2009 +Admin. Proc. File No. 3-12208 +In the Matter of + +KEVIN HALL, CPA + +and + +ROSEMARY MEYER, CPA + +OPINION OF THE COMMISSION +RULE 102(e) PROCEEDING +Grounds for Remedial Action + +Improper Professional Conduct + +Certified public accountants acting as engagement partner and senior manager were +charged with having engaged in improper professional conduct in both the audit and the +interim review of a public company's financial statements. Held, the matter is dismissed. +APPEARANCES: +Miles N. Ruthberg, Peter W. Devereaux, Jamie L. Wine, William R. Baker, III, David A. +Becker, and Kevin H. Metz, for Kevin M. Hall. +Gary F. Bendinger, Wesley D. Felix, and Yolanda Hawkins-Bautista, for Rosemary K. +Meyer. +John D. Worland, Jr., Robert W. Pommer III, H. Michael Semler, and Matthew B. +Greiner, for the Division of Enforcement. + + +2 + +Appeal filed: February 6, 2008 +Last brief received: May 21, 2008 +Oral argument: July 21, 2009 +The Division of Enforcement appeals from the decision of an administrative law judge in +a proceeding brought pursuant to Commission Rule of Practice 102(e) ("Rule 102(e)"). +1 The law +judge found that the conduct of Kevin Hall, CPA and Rosemary Meyer, CPA (together, +"Respondents"), in connection with the fiscal year ("FY") 1999 audit of the financial statements +of U.S. Foodservice, Inc. ("USF") and the interim review of USF's second quarter FY 2000 +financial statements, was not improper under the Rule. We base our findings on an independent +review of the record, except with respect to those findings not challenged on appeal. +I. +The Audit of the Fiscal Year 1999 Financial Statements +A. Background +USF is a food service and distribution company. The accounting firm KPMG, LLP +("KPMG") served as USF's independent auditor for fiscal years 1997, 1998, and 1999. +2 +Respondents worked on KPMG's audits of USF's financial statements for all three audits.3 +Hall was the engagement partner, and Meyer was the senior manager, on the audit of +USF's FY 1999 financial statements. Hall signed an unqualified audit opinion stating that +KPMG had conducted its audit in accordance with generally accepted auditing standards +("GAAS") and that such audit provided a reasonable basis for its opinion that USF's FY 1999 +financial statements fairly presented USF's financial position, the results of its operations, and its +1 17 C.F.R. § 201.102(e). With the passage of Section 602 of the Sarbanes-Oxley +Act of 2002, Pub. L. No. 107-204, 116 Stat. 745, 794 (2002), this rule was codified in Section 4C +of the Securities Exchange Act of 1934, 15 U.S.C. § 78d-3. +2 During the periods audited by KPMG, USF's fiscal year ended on the Saturday +closest to June 30. +3 Respondents also worked on KPMG's interim review of USF's quarterly financial +statements for the second quarter of FY 2000. See infra Section III. + +3 + +cash flows, in conformity with generally accepted accounting principles ("GAAP").4 It is +undisputed that USF's financial statements for FY 1999 do not accord with GAAP. +B. Details of USF's Accounting Fraud +At the time of the FY 1999 audit, USF purchased products from approximately 7,000 +vendors and re-sold them to customers such as restaurants, hospitals, and schools. Many of the +purchases were made through brokers, many of whom handled multiple vendors. +USF received rebates called promotional allowances ("PAs") from national vendors +responsible for the largest volume of USF's purchases. The payment of PAs is a common +practice in the food distribution industry that is not itself improper. Most PAs were volume +discounts, treated on USF's income statement as a reduction in the cost of sales. On USF's +balance sheet, collected PA income increased USF's cash, and uncollected PA income was +included in accounts receivable. PA income was extremely important to USF's profitability; it +roughly equated to USF's net income. +The Division introduced evidence, and Respondents do not dispute, that during the time +at issue, USF was engaged in an earnings management fraud based in part on its accounting for +PAs. +5 The scheme involved prepayments of PA income to USF that were improperly booked as +income when received although they had not yet been earned, and intentional overpayments by +USF to brokers who "sheltered" the excess funds until USF needed them to make up for +shortfalls in PA income. +6 +4 GAAS are generally described in the American Institute of Certified Public +Accountants ("AICPA") Codification of Statements of Accounting Standards, hereinafter cited as +"AU § __." Section 103 of the Sarbanes-Oxley Act, 15 U.S.C. § 7213, conferred the power to +establish auditing standards and rules for public companies on the Public Company Accounting +Oversight Board ("PCAOB"). +5 The ensuing description of the fraudulent conduct at USF is based largely on the +testimony of Timothy Lee, who admits to having participated in the fraud. See infra. Although +liability for the fraud is not at issue in this proceeding, and we make no findings regarding such +liability, we provide information about the fraud as a context for our findings about Respondents' +conduct. Our findings with respect to any persons other than Respondents are made solely for +the purpose of this proceeding. +The accounting fraud continued to grow in scope. USF was acquired by +Koninklijke Ahold N.V. ("Royal Ahold") in April 2000, and a new auditor was retained. The +fraud only came to light in early 2003, at which time Royal Ahold conducted an internal +investigation. Forensic accounting revealed overstatements of pre-tax earnings at USF of +(continued...) +6 +4 +Mark Kaiser, USF's senior vice president, then executive vice president of sales and +marketing, and Timothy Lee, executive vice president of USF's purchasing group, orchestrated +the accounting fraud. Kaiser initiated the PA prepayment scheme in the mid-1990s. At his +direction, USF negotiated deals with some of its largest vendors whereby USF would commit to +purchasing a certain amount of product and the vendor would commit to paying USF a stated +allowance before the purchases had been completed. Some prepayments were to be made +directly by the vendor; others were to be made through a broker who worked with the vendor. +Agreements with some vendors allowed the vendor to obtain a refund of the prepayments if USF +did not purchase the agreed-upon amounts. +Kaiser instructed Lee to keep the prepayments concealed from everyone outside the +purchasing group. For example, Kaiser told Lee to prepare summaries of the vendor purchasing +arrangements that omitted the prepayment provisions; if USF's auditors asked to see the +contracts, they were given only the summaries. +USF had grown primarily through corporate acquisitions, and its purchasing data resided +on computers that did not share a common operating system. For that reason, USF's purchasing +group relied on its vendors to calculate and report PAs due to USF. Once a month, the +purchasing group calculated how much PA revenue should be recorded and instructed USF's +accounting group to book the revenue in USF's general ledger, the main source consulted in the +preparation of USF's financial statements. The purchasing group also provided the accounting +group with adjustments, representing increases in PA income, at the end of each quarter. +USF's PA account comprised accrued unbilled earnings and outstanding billed +receivables. USF recognized all the income from each prepayment upon receipt. Under GAAP, +USF should have recorded the prepayments as liabilities, because they were not yet earned. USF +would not have met analysts' consensus earnings expectations without these adjustments, but +with them USF met or exceeded these expectations every quarter in fiscal years 1998 and 1999. +Kaiser also arranged for income to be sheltered by various entities to satisfy PA balances +due. For example, in December 1998 and June 1999, he directed Lee to make lists of +outstanding PA billings and to send them to Gordon Redgate, owner of Private Brands. Private +Brands was a broker that dealt in canned goods and groceries. Kaiser had arranged to overpay +Private Brands for certain goods, and Redgate was holding this excess payment as shelter income +for USF. +7 Kaiser, through Lee, instructed Redgate to issue checks returning some of the shelter +income that would retire the balances of vendors on the lists, even though Private Brands had no +relationship with some of those vendors. Redgate arranged for the checks to be issued as +6 (...continued) + +approximately $880 million between April 1, 2000 and December 28, 2002. See Royal Ahold's + +Form 6-K dated May 8, 2003. +7 This overpayment resulted in an overstatement of the cost of goods to USF, and +thus a separate GAAP violation. + +5 + +requested. The checks were treated by USF as PA payments on behalf of the vendors, and, like +legitimate PA payments, they were recorded as income.8 +C. KPMG's Audit of USF's 1999 Financial Statements +Hall's responsibilities as engagement partner for the 1999 audit included planning the +engagement, assigning tasks to and supervising the staff, and ultimately drawing the conclusion +with respect to the financial statements taken as a whole. Meyer helped Hall plan the audit; she +also had responsibilities for supervision, review of workpapers, evaluation of audit evidence, and +informing Hall about the progress of the audit and about issues of concern. Seven or eight +additional KPMG staff members also worked on the 1999 audit. +Respondents' planning and execution of the FY 1999 audit was informed by their work +on previous USF audits. Hall testified that he had found management's representations in +connection with those audits correct, giving him confidence in management's integrity. +Additionally, USF required its senior management to sign questionnaires asserting their +compliance with a code of conduct, a measure Hall regarded as uncommon at that time. +9 Meyer +also stated that she had a positive impression of USF management. +Management told Respondents during prior audits that USF did not have formal executed +written contracts with its vendors. Respondents asked about the possibility of prepayments of +PA income and were told, "There were no prepayments of any amounts that had not been earned, +period." A management representation letter signed by five members of USF senior management +8 The U.S. Department of Justice brought criminal charges against Kaiser and Lee. +Based on his wrongdoing at USF, Kaiser was convicted of one count of securities fraud, four +counts of false filing with the Commission, and one count of conspiracy. United States v. Kaiser, +1:04-cr-00733-TPG (S.D.N.Y. May 18, 2007). He was sentenced to seven years of +imprisonment and two years of supervised release, and fined. Id. Kaiser has filed an appeal of +his conviction, which remains pending. United States v. Kaiser, 07-2365-cr (2d Cir. filed June 4, +2007). Lee pleaded guilty to four felony charges of securities fraud, conspiracy, and making +materially false and fraudulent statements to the United States government. United States v. Lee, +1:04-cr-00712-PKC (S.D.N.Y. July 27, 2004). We brought multiple civil actions and +administrative proceedings related to the fraud at USF. See SEC Charges Thirteen Individuals +with Aiding and Abetting Fraud at U.S. Foodservice, Litigation Rel. No. 19975 (Jan. 22, 2007), +89 SEC Docket 2929 (noting that nine out of thirteen individuals charged with aiding and +abetting fraud agreed to settle enforcement actions and listing eight related actions brought by the +Commission). +9 Under a rule promulgated by the Commission in 2003 pursuant to Section 406(a) +of the Sarbanes-Oxley Act, 15 U.S.C. § 7264(a), companies required by the Exchange Act to file +annual reports on Form 10-K must disclose whether they have adopted a code of ethics for +certain senior officers, and if not, why not. 17 C.F.R. § 229.406(a). +6 + +during an earlier audit stated that USF received no prepayments of PA income. USF's +accounting for PA income was consistent with these management representations. Thus, any +evidence the auditors uncovered suggesting that there were prepayments should have raised +serious issues concerning not only the correct accounting for PAs, but also the integrity of USF's +senior management. +KPMG viewed the PA account as posing a high inherent risk, because individual +balances were significant within the account, and a high control risk, because KPMG did not +intend to rely on USF's internal controls in that area. Accordingly, KPMG concluded that the +risk of significant misstatement related to PAs was high for the 1999 audit, and identified as a +critical audit objective determining whether "[a]ccounts receivable amounts, both billed and +unbilled for vendor rebates (promotional allowances) are accurately presented, properly valued +and exist." An audit planning memorandum prepared by Meyer and reviewed by Hall explained +that the objective was considered critical "due to the considerable degree of management +judgment relating to allowance estimates, unbilled vendor receivable estimates and revenue +recognition." +Because USF's controls were unreliable, Hall selected substantive procedures to test the +valuation, existence, and completeness of the PAs. Two of these procedures, vouching cash +receipts and confirming vendor receivables, are at issue in this appeal. +1. Vouching Cash Receipts +Respondents planned their cash receipts testing procedures to obtain information about +cash collection trends and about USF's application of incoming cash to appropriate accounting +periods. For their principal cash receipts testing procedure, Respondents selected approximately +thirty-five vendors from the billed aged trial balance as of the end of USF's FY 1998 and tracked +their account balances during the subsequent fiscal year. From a subset of twenty of those +vendors, Respondents sought remittances in amounts greater than $100,000 for detailed cash +receipts testwork and obtained a set of fifty checks and one wire transfer, eight of which +exceeded one million dollars. Respondents were unable to analyze six of the fifty-one items, +identified as the "Discrepancies," satisfactorily on the basis of the information they had. Four of +these Discrepancies were among the eight items that exceeded one million dollars. +Three of the Discrepancies raised the possibility of prepayments on PA programs. A $1.8 +million wire transfer from Nabisco identified $1.2 million of the payment as an "Advance on +USF baked goods agreement," the remittance accompanying a Tyson check for approximately +$1.3 million read "99 m/1 prepay," and the remittance accompanying a $240,000 check from +Dakota Growers Pasta ("Dakota") read "Final 5year contrt pymnt." +10 Respondents gave USF +10 The remaining Discrepancies -- a Dakota check for approximately $124,000, a +Seafood Marketing Specialists check for $450,000, and a four million dollar check from Superior +(continued...) + +7 + +management a PA Discussion Points Memorandum that identified, among other things, these +apparent prepayment issues for further discussion with management. Management's renewed +reassurances that USF did not receive prepayments or advances of PA income did not resolve +Respondents' concerns, and in early August, USF agreed to help Respondents obtain additional +third-party documentation. +The record includes almost no documentary evidence showing how Respondents resolved +the Discrepancies. One workpaper, captioned "Promotional Allowance Receivables," states that +Kaiser "obtained confirmation from the vendors that [the] cash receipts [involved in the +Discrepancies] . . . were not prepayment on fiscal 1999 programs or other advances" (emphasis +in original). The workpaper continues, "See D-32 series for documentation of resolution." The +record does not contain a workpaper series denominated D-32 nor does it establish what +happened to it or even whether it was ever created. +11 Meyer testified that she intended for the +third-party documentation clearing the Discrepancies to be put in the workpapers, although +whether in D-32 or elsewhere she could not remember. +The record contains two letters Respondents contend are illustrative of those they relied +on in resolving all of the Discrepancies. A letter from Fred Paglia, Regional Vice President of +Nabisco Food Service, dated December 28, 1998 (the "Nabisco letter"), reads, in relevant part: +Congratulations on another year of outstanding performance! We are pleased to inform +you that you have maxed out your 1998 Earned Income Program with Nabisco. As +discussed, you will shortly be in receipt of a wire transfer of $1,196,203. +Once again, thanks for a record breaking year! +10 (...continued) + +Coffee -- raised questions about USF's applications of the payments to the proper fiscal year or + +other concerns; the $1.3 million Tyson check raised questions about both prepayment and + +application. +11 Respondents suggested that the D-32 series, alternatively, was compiled but not +properly filed with the completed workpapers, was misplaced while a successor auditor had +access to the 1999 workpapers, was misplaced when the original workpapers were copied for +production to the Division, or was accidentally never compiled. + + + +8 + +A letter signed by Mike Rogers, Vice President, Western Division, Food Service Group, +Tyson Food Group, and dated July 21, 1999 (the "Tyson letter"), reads, in relevant part, +Thank you for your continued commitment and growth pertaining to our program +agreements. As a result of this growth, a payout of $2,226,881 was submitted. I look +forward to the future and the opportunity to max out our program. +12 +Lee testified that both of these letters used language crafted by Kaiser to be intentionally vague, +susceptible of the interpretation that the payments were not prepayments, yet avoiding an explicit +statement to that effect. +Meyer testified that the audit team obtained documentation that she claimed resolved the +other Discrepancies, but no such documentation is in the record. Hall said that he saw the +documentation. Neither Respondent provided detailed information about such purported +documents. +In fact, the three checks that raised possible prepayment concerns were prepayments. +13 +The checks that raised questions regarding application of funds or other concerns were all +received in FY 1999 and applied, at least in part, to FY 1998 invoices; they thus reflected +questionable applications of cash received. +Respondents also conducted a more limited test of subsequent cash receipts, i.e., cash +received after the end of FY 1999. Auditors commonly perform subsequent cash receipts testing +as an alternative procedure in instances where confirmations of accounts receivable are not +returned. +14 In such cases, they look to see whether particular balances are subsequently paid +down by the entities that owe them. +Here, however, all the confirmation requests sent during the audit were returned, and the +record is unclear as to how extensively Respondents intended to review, and did review, the +application of the cash received. Meyer testified that Respondents' principal inquiry in the +subsequent cash receipts testing was whether PA payments were coming in, with little attention +12 The record copy of the Nabisco letter was in KPMG's workpapers, but the Tyson +letter was obtained from Lee. Meyer testified that, although she was not certain that she +reviewed this letter, she reviewed one consistent with it. +13 The four million dollar check from Superior Coffee was also a prepayment. See +supra note 10. +14 See AU § 330.31-32 (suggesting examination of subsequent cash receipts, +"including matching such receipts with the actual items being paid," as an alternative procedure +to be used in examination of accounts receivable when the auditor has not received replies to +positive confirmation requests). +9 + +to how those funds were applied. Hall testified that he did not personally review the checks, and +that he thought either Meyer or the audit team member who worked with her on cash receipts +testing had done so. Meyer testified that, to the extent she looked at checks, she could not +remember which ones she saw. +A memorandum in the audit workpapers states, "We vouched the cash receipts to check +copies and vendor remittances, as applicable. . . . No problems were noted, cash was +appropriately applied." These statements suggest the more detailed matching of payments to +invoices that would commonly be done in subsequent cash receipts testing. However, Meyer +testified that the phrase "appropriately applied" might merely mean that cash was "received." +Hall testified that he was unsure about what Meyer meant by the language and was not "focused +on" whether the cash was appropriately applied. +2. Confirming Vendor Receivables +Confirming vendor receivables of PA income involved sending requests to third parties +asking them to confirm that certain PA income was owed and earned. Respondents employed +this procedure in the FY 1998 audit of USF and expanded it in the FY 1999 audit. +Meyer obtained a list of PA accounts receivable from USF's accounting group; Hall asked +USF's chief financial officer to review the list in order to obtain further assurance that the list was +accurate and the amounts shown were owed and earned. Meyer selected the thirty highest +balances from this list, and collaborated with Hall in choosing a representative sample of five +additional balances for confirmation. +GAAS required the team to send the confirmations to persons the auditors believed to be +knowledgeable about the information at issue. +15 Respondents testified that, in their experience, it +was common practice to obtain contact information for confirmation requests from the audit +client. Respondents understood that Kaiser would provide the contact information for the +vendors and brokers. They believed that Kaiser was more familiar with and knowledgeable +about the PA account than anyone else at USF. Each letter included the representation that "the +invoice amount(s) is(are) due to U.S. Foodservice for rebates and/or promotional income earned +on products purchased and delivered to U.S. Foodservice prior to July 3, 1999." Meyer "flipped +through" the prepared letters with USF's corporate controller. Meyer testified that, in her +opinion, this cursory management review of the letters provided additional assurance that the +letters were addressed to appropriate people. +15 See AU §§ 330.16 (recognizing that the intended respondent of a confirmation +request has a "direct effect on the reliability of the evidence obtained"), 330.27 (requiring the +auditor to send the confirmation "to a respondent from whom the auditor can expect the response +will provide meaningful and competent evidence"). +10 +Respondents noted that some of the letters were addressed to brokers rather than to +vendors, and they noticed that some brokers were being asked to confirm balances for more than +one vendor.16 They considered these facts unexceptionable. Respondents were generally +familiar with the role of brokers in USF's purchasing process from work on previous USF audits +and conversations with USF management, +17 and they had seen references to many of the brokers +on the list in their work on other aspects of the 1999 audit. +There were, however, gaps in Respondents' knowledge regarding the individuals and +entities to whom the confirmations were sent. Respondents did not always know which brokers +worked with which vendors, so they would not necessarily know whether a confirmation was +being sent to an appropriate broker. Moreover, Respondents did not understand that USF did not +have PA programs with vendors of commodities. +18 Respondents were therefore unlikely to +realize that a confirmation of purported PA income coming from a commodities broker would be +anomalous. Additionally, many of the names on the 1999 list were different from those to whom +confirmations were sent in 1998. Thus, USF representations regarding addressees for the 1998 +confirmations were of limited relevance. +All thirty-five letters were returned directly to the auditors with responses indicating that +the information to be confirmed was correct. Respondents considered this persuasive evidence +both that the addressees were knowledgeable and that the PA income in question was owed and +earned in FY 1999. +19 Respondents did not know, however, that Kaiser had supplied Respondents +with contact information for individuals willing to sign confirmation letters that contained false +information. Some of the letters were sent to people who had no business relationship with USF. +Some of the addresses used were home addresses, or addresses for entities that were not involved +in the food distribution business at all. +16 Twenty-two of the thirty-five confirmation letters were addressed to seven people. +Each of the other letters was sent to a different person. +17 During the 1998 audit, when some of the confirmation requests were also sent to +brokers, Hall had met with USF management "to confirm that, in fact, they understood who the +brokers were that we were getting confirmations from." The fact that most of the letters sent in +1998 were returned, with the requested information confirmed, indicated to Respondents that the +addressees were knowledgeable. +18 Vendors typically offered PAs on sales of prepared foods. Commodities such as +meat and seafood were sold at a negotiated market price, without PAs. +19 Respondents included in the confirmations a representation that the amounts in +questioned were "earned" in order to provide assurance that those amounts were not +prepayments. + +11 + +D. The Administrative Proceeding +The Order Instituting Proceedings ("OIP") was filed in February 2006. Largely because +the administrative proceeding was stayed at the request of the Department of Justice, pending +resolution of criminal proceedings arising out of the fraud, the hearing did not begin until July +2007. +The law judge found that Respondents' conduct in planning and executing both the cash +receipts testing procedures and the confirmation procedures did not constitute improper +professional conduct, and was, in fact, reasonable. The law judge accepted Respondents' +testimony that they obtained vendor documentation clearing all six Discrepancies, although she +made no explicit finding as to Respondents' credibility. +II. +Analysis of the Fiscal Year 1999 Audit +A. Applicable Professional Standards +Rule 102(e) permits the Commission to censure or deny, permanently or temporarily, the +privilege of appearing or practicing before it to persons found to have engaged in improper +professional conduct. +20 As relevant here, "improper professional conduct" for accountants +includes "[r]epeated instances of unreasonable conduct, each resulting in a violation of applicable +professional standards, that indicate a lack of competence to practice before the Commission." +21 +The term "unreasonable" signifies an ordinary or simple negligence standard.22 Discipline under +Rule 102(e) may be appropriate when the repetition of such negligent conduct shows an +accountant's lack of competence to practice before the Commission. +23 The negligence-based +20 Rule 102(e), 17 C.F.R. § 201.102(e). +21 Rule 102(e)(iv)(B)(2), 17 C.F.R. § 201.102(e)(iv)(B)(2). The OIP also charged +that Respondents' conduct was reckless, or highly unreasonable in circumstances warranting +heightened scrutiny, either of which (if established) would also constitute improper professional +conduct within the meaning of the Rule. For the reasons discussed below, we do not believe the +record supports these charges. +22 Amendment to Rule 102(e) of the Commission's Rules of Practice, 63 Fed. Reg. +57,164, 57,169 (Oct. 26, 1998) ("Amendment to Rule 102(e)"). +23 Gregory C. Dearlove, Securities Exchange Act Rel. No. 57244 (Jan. 31, 2008), 92 +SEC Docket 1867, 1909-12 (discussing Amendment to Rule 102(e) and finding that Dearlove +(continued...) + + +23 +12 + +standards in Rule 102(e)(iv)(B) are objective, measured by the degree of the departure from +professional standards rather than the intent of the accountant.24 In applying these standards, the +Commission does not evaluate actions or judgments in the light of hindsight; it focuses, instead, +on what the accountant knew or should have known at the time an action was taken or a decision +was made. +25 +GAAS require auditors to exercise due professional care in performing an audit and +preparing a report.26 Auditors must maintain an attitude of professional skepticism, which +includes "a questioning mind and a critical assessment of audit evidence."27 When the audit +presents a risk of material misstatement or fraud, auditors must increase their professional care +and skepticism. +28 Auditors must obtain sufficient competent evidential matter to afford a +reasonable basis for an opinion with respect to the financial statements under review.29 They +may not substitute management representations for competent evidence, and they may not +(...continued) +engaged in improper professional conduct under Rule 102(e)(B)(2)), petition denied, 573 F.3d +801 (D.C. Cir. July 24, 2009). +24 Amendment to Rule 102(e), 63 Fed. Reg. at 57,167, 57,170. The term "applicable +professional standards" "primarily refers to GAAP, GAAS, the AICPA Code of Professional +Conduct and Commission regulations"; it encompasses "generally accepted standards routinely +used by accountants in the preparation of statements, opinions, or other papers filed with the +Commission" and "the body of professional guidance routinely used by accountants." +Amendment to Rule 102(e), 63 Fed. Reg. at 57,166. +25 See Amendment to Rule 102(e), 63 Fed. Reg. at 57,168 (discussing subparagraph +(B)(1)). Respondents' conduct is judged against standards in effect at the time of the conduct at +issue, although more stringent standards would now apply in some relevant areas. See supra note +9 (discussing 17 C.F.R. § 229.406(a)) and infra Section II.B.1.b. (discussing PCAOB Auditing +Standard No. 3). +26 AU § 230.01. +27 AU § 230.07; see also AU §§ 230.08 ("[P]rofessional skepticism should be +exercised throughout the audit process."), 330.15 (requiring auditors to exercise an appropriate +level of professional skepticism in designing and conducting the confirmation process). +28 AU §§ 312.17, 316.27. +29 AU § 326.22. +13 + +become satisfied with less than persuasive evidence merely because they believe that +management is honest.30 +Before analyzing Respondents' conduct in connection with the two substantive +procedures at issue, we address Respondents' contention that a finding of improper professional +conduct within the meaning of Rule 102(e) may not be based on repeated instances of +unreasonable conduct in connection with the audit of a single account -- in this case, they argue, +the PA account. Rule 102(e) looks to the number of instances of unreasonable conduct, not the +number of accounts. The adopting release for Rule 102(e) recognizes that "[t]he term 'repeated' +may encompass as few as two separate instances of unreasonable conduct occurring within one +audit." +31 There is no requirement that the two instances pertain to different accounts in that audit. +The statement in the release that an auditor's failure to gather evidential material "for more than +two accounts" could constitute repeated instances of unreasonable conduct +32 is merely an +example of conduct that would fall under Rule 102(e)(iv)(B)(2). We therefore see no merit in +Respondents' argument. +B. Cash Receipts Testing +1. Resolution of the Discrepancies +a. The Nabisco and Tyson Discrepancies +As discussed above, in the course of cash receipts testing Respondents identified six +Discrepancies that they concluded they could not resolve without further information. The +record contains two letters, purportedly written by third parties, on which Respondents relied in +concluding that the Discrepancies related to the Nabisco remittance and the Tyson wire transfer +were not evidence of prepayments of PAs. +Whether these two letters adequately address the concerns that led Respondents to +identify the Nabisco remittance and the Tyson wire transfer as Discrepancies is a close question. +Respondents knew that USF's accounting for PAs posed a significant audit risk and that any +evidence of prepayments would raise critical questions about management integrity. The words +"prepay" and "advance" were red flags warning of the possibility that prepayments had been +made. Against this background, the resolution of these two Discrepancies assumed particular +importance. The Nabisco and Tyson letters, however, do not explicitly address Respondents' +30 AU §§ 333.02, 230.09. GAAS also requires auditors to plan the audit adequately +and to supervise any assistants properly. AU §§ 311.01, 311.11. Violations of these GAAS +provisions were not charged. +31 Amendment to Rule 102(e), 63 Fed. Reg. at 57,169. +32 Id. + +14 + +concerns: they do not refer to prepayments or advances at all, much less explain why the terms +"prepay" and "advance" were used, if the payments at issue were not prepayments. +On the other hand, the letters appear to have been written in the ordinary course of +business, predating Respondents' inquiries about the remittance and the wire transfer. Such +letters would not necessarily directly address Respondents' concerns. The letters, crafted by +Kaiser to be purposefully ambiguous, can be read to imply that the payments are based on past +performance. The Nabisco letter congratulates USF on "another year of outstanding +performance," apparently summing up the year's sales; this inference is further buttressed by the +statement that USF "ha[s] maxed out your 1998 Earned Income Program with Nabisco." The +statement that USF would "shortly be in receipt of a wire transfer of $1,196,203," following +closely after the apparent references to the completion of an annual purchase cycle, can be read +as related to that year's purchases, with the payment based on those purchases. The Tyson letter, +while less clearly backward looking, is at least consistent with the theory that the payment at +issue was not an advance or prepayment. +Moreover, Respondents' interpretation of the Nabisco and Tyson letters did not occur in a +vacuum. Respondents confirmed balances at the end of FY 1998 in their FY 1998 audit, rolled +forward the accounts to review activity during FY 1999, then confirmed balances at the end of +FY 1999 in their FY 1999 audit. They knew from the workpapers of the predecessor auditors +that USF had represented for years that it did not receive prepayments of PAs, and their own +audit work in prior years tended to confirm that there were no prepayments. Respondents were +not shown contracts with prepayment terms -- only the term sheets that omitted the prepayments. +Respondents questioned management about the existence of prepayments, included a +representation about the absence of prepayments in the management representation letter, and +tailored the language of the confirmation letters to obtain assurances that the amounts to be +confirmed were not prepayments. +33 +Given the significance to the audit of properly resolving these two Discrepancies, we do +not believe that, on this record, Respondents' conduct exemplifies best audit practices. However, +based on the totality of the evidence here, we cannot conclude that Respondents' conduct in +resolving the Nabisco and Tyson Discrepancies constituted an instance of unreasonable conduct +within the meaning of Rule 102(e). +33 The Division argues that Respondents admitted that the Tyson letter was too +ambiguous to resolve the Discrepancy. Respondents only admitted, however, that their concerns +regarding application of the Tyson payment were not adequately addressed by the Tyson letter in +the record. See supra note 10 (recognizing that the Tyson remittance posed application as well as +prepayment concerns). They assert that they obtained a second letter, which is not in the record, +resolving the application concerns. See infra Section II.B.1.b. (discussing absence from the +record of third-party documentation on which Respondents relied in resolving remaining +Discrepancies). +15 + +b. Resolving the Remaining Discrepancies +The law judge found both that Respondents obtained and reviewed third-party +documentation in resolving the four remaining Discrepancies, and that their reliance on it to +resolve those Discrepancies was reasonable. The first finding is a finding of fact, based on the +law judge's assessment of Respondents' uncontradicted testimony. +34 The law judge's finding that +Respondents' reliance on the third-party documentation in clearing the Discrepancies was +reasonable is, on the other hand, a finding of law requiring an application of the reasonableness +standard to particular facts. +35 Because neither the purported letters nor adequate descriptions of +their contents are in the record, it is impossible to determine whether Respondents' reliance on +such documentation to resolve the Discrepancies was reasonable. Conversely, the Division, +which has the burden of proof, was unable to demonstrate that Respondents' reliance was +unreasonable because the only evidence on this point is Respondents' testimony. Thus, although +the law judge lacked sufficient basis to determine that Respondents' conduct was reasonable, we +are unable to conclude that Respondents' conduct in resolving the four remaining Discrepancies +was unreasonable. +Under current GAAS, audit documentation must "contain sufficient documentation to +enable an experienced auditor, having no previous connection with the engagement," to +"understand the nature, timing, extent, and results of the procedures performed, evidence +obtained, and conclusions reached," with no provision for recourse to external sources. +36 The +absence from the workpapers of documents as critically important as the third-party documents +that Respondents relied on to clear the Discrepancies (or a detailed summary of those documents) +might well constitute a violation of current GAAS. At the time of the FY 1999 audit, however, +34 We note, however, that Meyer's testimony that terms used in the workpapers that +ordinarily have one meaning might actually mean something different is troubling. In addition to +her testimony that a statement in the workpapers that cash was "appropriately applied" might +merely mean that cash was "received," she testified that what she described in the workpapers as +a review of "executed contracts" might actually have been a review of "executive vendor +correspondence," and that a reference to a "purchasing requirement" might really be to an +"internal purchasing target." +35 E.g., Russell Ponce, 54 S.E.C. 804, 817 n.33 (2000) (observing that whether +activity was manufacturing or research and development for purposes of GAAP "is a mixed +question of law and fact"), aff'd, 345 F.3d 722 (9th Cir. 2003). +36 PCAOB Auditing Standard No. 3. + +16 + +GAAS did not preclude an auditor from supporting his or her report by other means in addition to +workpapers, as the law judge found Respondents did here. 37 +2. Other Red Flags in Cash Receipts Testing +The Division also contends that Respondents encountered many other red flags in the +course of cash receipts testing, including apparent irregularities in payment patterns and in the +application of payments. For example, copies of some payment checks that went into the PA +account have remittances showing payors' notes regarding the application of their payments, but +USF's application of the funds was often inconsistent with the payors' notes. The Division +contends that in failing to analyze these red flags more closely, Respondents failed to show due +care and to gather sufficient competent evidential matter to support their audit conclusions. +It is unclear, however, how many of the checks and remittance copies underlying these +red flags Respondents personally saw. Meyer testified, without contradiction, that she could +remember seeing the three largest checks that gave rise to the Discrepancies, but could not +remember which other checks she saw. There is no testimony that Meyer, as opposed to some +other member of the audit team, was shown copies of particular checks. Without evidence that +Meyer saw specific checks raising application problems, we cannot conclude that it was +unreasonable for Respondents to have failed to follow up on those red flags. +38 +KPMG's files contain a chart showing details of questionable applications of payments. +We believe that a reasonable auditor would have noticed red flags upon review of this detailed +chart. However, the record does not establish who prepared the chart or whether Respondents +knew about the chart or the information it contained, and the chart is not contained in the audit +workpapers. Because the record does not show that they were aware of the chart, Respondents +cannot be found to have failed to exercise due care or maintain an attitude of professional +skepticism with respect to the information contained in it. +The audit workpapers contain a different chart that presents some of the same information +shown on the chart found in KPMG's files, and it is reasonable to expect that Respondents would +have been aware of the chart in the workpapers. However, the questionable applications are less +obvious on the workpaper chart, and the information presented on its face is too innocuous to +rise to the level of a red flag. The record therefore does not establish that Respondents failed to +37 AU §339.01 n.3; cf. Gregory C. Dearlove, 92 SEC Docket at 1883 n.39 (finding +lack of any evidence in workpapers or elsewhere in the record to be evidence that audit team did +not devote substantial, if any, effort to review the areas in question). +38 If another member of the audit team reviewed the checks and remittances and +failed to brief Meyer about them adequately, this might raise questions regarding GAAS +standards pertaining to staffing or supervision; no violation of those standards was charged or +litigated here. +17 + +exercise due care or maintain an attitude of professional skepticism with respect to the +information contained in the workpaper chart. +3. Application Issues in Subsequent Cash Receipts Testing +The Division contends that Respondents acted unreasonably in not following up on +irregularities encountered in subsequent cash receipts testing, where the application of some +payments lacks any evident rationale. The Division bases its argument on the assumption that +Respondents' testing of "application" meant the usual auditing practice in conducting subsequent +cash receipts testing: examining checks and remittances to see whether a particular vendor's PA +payment was applied against that vendor's PA receivable. Such an examination here would have +revealed a complex tangle of applications of money where, for example, payments made by +several entities were applied against a receivable of yet another, apparently unrelated, entity. +Unraveling this tangle could have led to the discovery of accounting irregularities, at least, and +perhaps of fraud. +There is no apparent reason why Respondents would have performed subsequent cash +receipts testing for the more limited purpose to which they testified, i.e., to verify that money +broadly characterized by USF as PA income was being applied against the broad category of PA +receivables. +39 However, in light of the law judge's apparent acceptance of Respondents' +testimony, and in the absence of contradictory record evidence, we cannot find that it was +unreasonable that Respondents failed to notice red flags that would have been apparent had they +been conducting a more detailed application testing. For these reasons, we find that the record +does not establish that Respondents' conduct with respect to the cash receipts testing procedures +in the FY 1999 audit constituted an unreasonable departure from GAAS. +C. Confirming Vendor Receivables +GAAS define the confirmation process as "obtaining and evaluating a direct +communication from a third party in response to a request for information about a particular item +affecting financial statement assertions." +40 Accordingly, GAAS require the auditor to "direct the +confirmation request to a third party who the auditor believes is knowledgeable about the +39 There was not, under the circumstances of this audit, a GAAS requirement that +subsequent cash receipts testing be performed at all. However, GAAS requires that, for any audit +procedure undertaken, the auditors must diligently perform the procedure in compliance with all +applicable GAAS. +40 AU § 330.04. + +18 + +information to be confirmed."41 AU Section 330.27 emphasizes that particular circumstances +may require heightened skepticism: +If information about the respondent's competence, knowledge, motivation, ability, or +willingness to respond, or about the respondent's objectivity and freedom from bias with +respect to the audited entity comes to the auditor's attention, the auditor should consider +the effects of such information on designing the confirmation request and evaluating the +results, including determining whether other procedures are necessary. . . . In these +circumstances, the auditor should consider whether there is sufficient basis for +concluding that the confirmation request is being sent to a respondent from whom the +auditor can expect the response will provide meaningful and competent evidence. +42 +Respondents did not act improperly in obtaining confirmation names and addresses from +management in the first instance; management is ordinarily in the best position to provide such +information. The Division contends, however, that Respondents should have independently +investigated each of the addressees, for example by contacting the vendors and addressees, +reviewing underlying invoices and other USF accounting records, and/or considering the audit +evidence provided by the cash receipts testing. +The Division contends that it was clear at the time of the FY 1999 audit that Respondents +were not allowed to use contact information provided by USF management without taking steps +to verify that the addresses they were given were truly those of persons knowledgeable about the +information to be confirmed. They contend that our decision in Seidman & Seidman +43 and the +AICPA's Report of the Special Committee on Equity Funding ("Equity Funding Report")44 +required auditors to validate addresses. +Neither Seidman & Seidman nor the Equity Funding Report requires Respondents to do +more than they did to ascertain that the addresses they used were valid. In Seidman & Seidman, +the auditors essentially relied on their client's employees to conduct confirmation procedures +without supervision or testing by the auditors. +45 Such an abandonment of audit responsibilities is +not at issue here. The Equity Funding Report states that ascertaining that valid addresses are +used "is already a customary and integral part of confirmation procedures," but it does not +explain what validation procedures are required. +41 AU § 330.26. +42 AU § 330.27 (footnote omitted). +43 46 S.E.C. 524, 543 (1976). +44 Report of the Special Committee on Equity Funding 32 (AICPA 1975). +45 46 S.E.C. at 543. + +19 + +We find that Respondents' use of the addresses received from USF management must be +viewed in the context of their entire experience in auditing USF. Some of the addressees had +returned confirmations in connection with the 1998 audit, indicating their familiarity with the +balances to be confirmed. Respondents had received assurances from management that the 1998 +addresses were suitable. The USF corporate controller's quick review of the FY 1999 letters +indicated to Meyer that he saw nothing questionable about the choice of recipients. Because +Respondents had amassed considerable knowledge, both about USF's business generally +(including the nature of relationships between USF's vendors and the brokers they worked with) +and about specific vendors, we decline to find that Respondents were required to conduct further +investigation before using the addresses under the standards expected of a reasonable accountant +at the time. +The Division contends that audit evidence provided by the cash receipts testing should +have led Respondents to investigate the addressees more closely. However, Respondents were +actively pursuing resolution of the Discrepancies, and because their efforts appeared to be +leading in the direction of resolution, their work on the Discrepancies did not require them to +exercise heightened skepticism with respect to confirmation addressees. +For these reasons, we find that the Division did not establish that Respondents' conduct +with respect to the confirmation procedures in the FY 1999 audit constituted an unreasonable +departure from GAAS. +III. +The Interim Review of Quarterly Financial Information +The Division contends that Respondents' review of USF financial statements for the +second quarter ended January 1, 2000 reflected an additional unreasonable departure from +"applicable professional standards." As an initial matter, the initial decision included dicta +questioning whether a quarterly review should serve as a basis for Commission discipline. Rule +102(e) covers "generally accepted standards routinely used . . . in the preparation of statements, +opinions, or other papers filed with the Commission." +46 Thus, the Rule offers no support for +such an assertion. The Rule focuses on violations of "applicable professional standards," not on +any particular accounting or auditing procedure. As discussed below, AU § 722 establishes +professional standards applicable to interim reviews. Restricting the Rule's application to audits +would undermine its effectiveness as a "remedial tool . . . cover[ing] a range of conduct that +demonstrates that a professional is a future threat to the Commission's processes." +47 +46 Amendment to Rule 102(e), 63 Fed. Reg. at 57,166. +47 Id. + + +20 + +A. Applicable Professional Standards: AU Section 722 +The objective and procedural requirements for interim reviews are set forth in AU +Section 722. In contrast to an audit, where the objective "is to provide a reasonable basis for +expressing an opinion" regarding whether financial statements taken as a whole comply with +GAAP, +48 the objective of a review of interim financial information is to provide "a basis for +reporting whether material modifications should be made for such information to conform with +[GAAP]." +49 +An interim review requires the accountant to apply "his or her knowledge of financial +reporting practices to significant matters of which he or she becomes aware through inquiries and +analytical procedures," but does not require the accountant to conduct all of the procedures +generally performed during an audit. +50 An interim review, unlike an audit, does not generally +contemplate "tests of accounting records through inspection, observation, or confirmation" or +generally require evidence corroborating management's statements. +51 An interim review +accordingly provides "limited assurance" or "negative assurance" that the financial statements +comply with GAAP. It may reveal "significant matters affecting the interim financial +information, but it does not provide assurance that the accountant will become aware of all +significant matters that would be disclosed in an audit." +52 +The inquiries and analytical procedures involved in the review process include +comparisons of the interim financial statements with previous statements and the accountant's +expectations, as well as assessments of "plausible relationships among both financial and, where +relevant, nonfinancial data." +53 If the accountant learns something during the review "that leads +him or her to question whether the interim financial information . . . conforms with [GAAP], the +accountant should make additional inquiries or employ other procedures he or she considers +appropriate to provide the limited assurance for a review engagement." +54 For instance, upon +discovery of any "significant changes in accounting practices or in the nature or volume of the +client's business activities," the accountant "should inquire about the manner in which the +48 AU § 722.09. +49 Id. +50 Id. +51 Id. +52 Id. +53 AU § 722.13(b). +54 AU § 722.18. + + + + +21 + +changes and their effects are to be reported."55 Circumstances requiring additional inquiries +include "extraordinary, unusual or infrequently occurring transactions; significant changes in +related parties or related-party transactions; . . . or the development of other contingencies."56 +AU Section 722 instructs the accountant to direct these inquiries to executives +responsible for financial and accounting matters.57 Management's responses to these inquiries, +though generally not requiring corroboration, should be assessed for "consistency . . . in light of +the results of other inquiries and the application of analytical procedures." +58 "Deferrals, accruals, +and estimates at the end of each interim period are frequently affected by judgments made at +interim dates concerning anticipated results of operations for the remainder of the annual +period." +59 +If the accountant "become[s] aware of matters that cause him or her to believe that +interim financial information . . . is probably materially misstated as a result of a departure from +[GAAP]," the accountant should discuss those matters with "the appropriate level of +management." +60 If management does not appropriately address these concerns, the accountant +should contact the audit committee.61 +B. Background +1. Payments to United Signature Foods During the Second Quarter of FY 2000 +The OIP's allegations with respect to the interim review focus on USF payments to +United Signature Foods ("Signature"). During the prior fiscal year, USF sold Signature +manufacturing assets, conditioned on USF's agreement (the "Supply Agreement") to purchase +approximately $750 million of products produced by Signature over a six-year period. The +Supply Agreement included yearly purchasing targets, and required USF to pay a shortfall +penalty ("Shortfall Penalty") if purchasing for any contract year fell below 95% of the applicable +annual target. +55 AU § 722.16. +56 Id. +57 AU § 722.13(f). +58 AU § 722.13(b). +59 AU § 722.08. +60 AU § 722.20. +61 AU § 722.21. + +22 +Each month Signature sent USF a notice calculating USF's purchases for the preceding +three months and annualizing this three-month amount. If the annualization was less than 85% +of the annual target for the corresponding contract year, the Supply Agreement required USF to +pay a projected shortfall penalty ("Projected Penalty"). Unlike Shortfall Penalties, Projected +Penalties were refundable if, and to the extent that, the total Projected Penalties paid exceeded +the Shortfall Penalty amount due at year-end based on USF's actual purchasing during the +contract year. +Respondents reviewed the Signature transaction for the FY 1999 audit, and described the +transaction in a memorandum (the "Audit Memo") and the notes to the FY 1999 audited financial +statements. Those descriptions stated that USF accounted for the asset sale and the Supply +Agreement as a single transaction resulting in a net gain of approximately $78 million. USF +deferred most of this gain based on Signature's reliance on its purchases and its substantial +purchasing obligations under the Agreement. USF planned to recognize the deferred gain over +the six-year term of the Supply Agreement. Both the audited financial statement notes and the +Audit Memo noted the annual purchase targets and referenced "penalties" for failure to purchase +"the minimum product quantities specified" in the Supply Agreement. The Audit Memo further +stated, "[t]o the extent that payments are made in any year for failure to meet the minimum +purchase targets[,] they will be recorded as incurred." Neither the Audit Memo nor the notes to +the financial statements made any mention of the monthly annualizations triggering Projected +Penalties. +USF was unable to meet the contractual purchasing targets for the first contract year. +However, Signature did not charge a Shortfall Penalty. Instead, it agreed to amend the Supply +Agreement. Under this amendment, dated the last day of FY 1999 (the "Amendment"), USF +agreed to pay a "Cash Flow Deposit" of $3,251,100. Unlike a Shortfall Penalty, this amount was +not forfeited upon payment but was instead treated as an "an advance payment" for future USF +payment obligations under the Supply Agreement. +USF's continuing difficulties meeting the purchasing levels contemplated by the Supply +Agreement were reflected in the monthly Signature notices during the second quarter of the next +fiscal year. These notices charged USF Projected Penalties of approximately $3.2 million in +October 1999, $3.3 million in November 1999, $3.0 million in December 1999, and $2.7 million +in January 2000. The notices were addressed to USF's general counsel, and copied the USF +manager responsible for monitoring its purchasing under the Supply Agreement, and (except for +the October notice) the chief financial officer. USF paid these charges and accounted for them as +a reduction in the deferred gain from the Signature transaction. Because the payments were +recorded as a reduction in deferred gain rather than as an expense, they did not impact USF's +reported income in its quarterly financial statements. +2. Discovery of Signature Payments During the Interim Review +Hall and Meyer were not aware of USF's difficulty in meeting the first annual target and, +in response to their direct questions, management did not disclose the existence of any +23 + +amendments to the Supply Agreement. During the interim review, however, Meyer noticed that +the deferred income from the transaction had significantly decreased from the FY 1999 amount. +Based on discussions with USF's accounting department, Meyer understood that the reduction in +deferred gain related to approximately $13-15 million in payments to Signature. +Meyer discussed these payments with the chief financial officer and general counsel, who +described them as "cash flow deposits" for future purchases. At the hearing, she also testified +that USF's accounting records identified the payments as "cash deposits." She testified that "at +no time did [she] believe or understand [the purchasing] to be below minimum purchasing +requirements in the contract," and that she had not generally been concerned about USF's ability +to meet the annual targets because she understood that the targets were based on historical +purchasing levels and that USF sales were growing. Meyer testified: +The payments, as I understood them, were not penalty payments . . . . US Foodservice +was [Signature's] main customer, and it certainly made sense that if they were not +meeting every purchase dollar that they wanted to, that [Signature] needed cash flow to +continue to operate and manufacture the product that they needed. +Meyer's workpaper notes state, "13M in pymts to United – Not meeting purchasing +requirements." During the hearing, Meyer maintained that this notation referenced USF's +"internal targets" or "internal projections" and not contractual targets. Her cross-examination by +the Division included the following exchange: +Q: So you understood at the time that if the company fell below the 85 percent +threshold target during any 13-week period, that significant penalties would have +to be paid? +A: Could be, yes, sir. + +. . . . + +Q: And, in fact, KPMG had advised or had concluded that, in the event that the +company made such shortfall penalties, that those penalties would be . . . . +recorded as incurred? +A: Yes. +Q: You would agree the language in your [Audit Memo], it says recorded as incurred, +in fact means that the penalties would be expensed? +A: The penalties, if they were penalties, that was my understanding. +Meyer also discussed these payments with Hall, who testified that the description of +payments as "cash deposits to help United Signature with cash flow" "seemed reasonable." Hall +also testified that he had "a vague recollection of discussing the matter with [the chief financial +officer], and he indicated, as I recall, that they were going to make the purchase commitment as +of the end of the fiscal year and that they would not incur any penalties under the contract." Like +Meyer, Hall testified that he had been familiar with the Projected Penalties calculation based on +the prior fiscal year review of the Supply Agreement, but that "[t]here was never any concern" +about USF's ability to meet the contractual purchasing targets," and that he did not know that + +24 + +purchasing had fallen below the 85% mark during that quarter. He testified that he did not recall +whether he had any conversations regarding the extent of the decline in purchasing, but referred +to "the representations we historically got from the company" regarding its compliance with its +contractual obligations. Respondents were not aware of the monthly notices demanding +Projected Penalties and did not speak with the purchasing manager during the review. +Hall also distinguished Shortfall Penalties and Projected Penalties. He testified that +"[P]rojected [P]enalties that are paid during the interim [periods] . . . are not penalties" because +they "were recoverable to the extent that [USF] achieved the target by the end of the fiscal year." +C. Analysis +Generally, an issuer's losses must be expensed, or charged to income, when incurred. +Statement of Accounting Standards No. 5 ("FAS 5") outlines USF's accounting and reporting +obligations for the contingencies at issue in this case. +62 A loss contingency is "an existing +condition, situation, or set of circumstances involving uncertainty as to possible . . . loss . . . that +will ultimately be resolved when one or more future events occur or fail to occur. Resolution of +the uncertainty may confirm . . . the incurrence of a liability." +63 FAS 5 requires a loss +contingency to be expensed if both (a) "Information available prior to issuance of the financial +statements indicates that it is probable that . . . a liability had been incurred at the date of the +financial statements;" and (b) "the amount of the loss can be reasonably estimated." +64 FAS 5 +further provides that disclosure, rather than a charge to income, is required if the contingent loss +is reasonably possible, +65 and that gain contingencies should usually not be recorded until the gain +is realized.66 As applied here, the inquiry would focus on whether USF would fail to meet the +annual purchasing target, resulting in forfeiture of a previously paid Projected Penalty and/or the +assessment of a Shortfall Penalty. +62 On June 30, 2009, the Financial Accounting Standards Board ("FASB") issued the +FASB Accounting Standards CodificationTM ("FASB ASC"), and established the FASB ASC as +the source of authoritative U.S. GAAP. FASB ASC is effective for interim and annual periods +ending after September 15, 2009. See Commission Guidance Regarding the Financial +Accounting Standards Board's Accounting Standards Codification, Exchange Act Rel. No. +60519A (Aug. 19, 2009), 96 SEC Docket 19829. The provisions of FAS 5 are currently codified +primarily in FASB ASC Topic 450, Contingencies. Because the conduct at issue took place prior +to the codification, we continue to use the designation FAS 5 in this opinion. +63 FAS 5 ¶ 1. +64 Id. ¶ 8. +65 Id. ¶ 10. +66 Id. ¶ 17. +25 +The Division contends that Respondents failed to reasonably assess whether the payments +to Signature during the quarter, which the Division characterizes as "apparent penalties," should +have been expensed under FAS 5 as evidence of a probable (i.e., likely) and estimable failure to +meet Supply Agreement purchasing targets. The law judge deemed Respondents' review +reasonable, finding that USF "maintained that it was behind on its own internal purchasing +targets" and "never represented . . . that the payments were penalty payments." +On appeal, the Division contends that Respondents failed to apply appropriate +professional skepticism to the cash flow payment explanation from management. Faulting +Respondents for failing to question the purchasing manager or to employ additional inquiries or +procedures, the Division argues that Respondents violated their obligation to follow up on +information raising questions about the compliance of the financial statements with GAAP. The +Division contends that Respondents had an obligation to further test managements' explanations, +arguing that "[t]here is no rational reason why Signature would accept 'cash flow deposits' when +the contract by design provided for penalties to address the exact situation." +However, a review "does not involve obtaining corroborating evidential matter for +responses to inquiries" or "search and verification." On the one hand, the symbiotic relationship +between the two companies and USF's Form 10-K disclosure regarding warehouse consolidation +supported the plausibility of the cash flow/internal targets explanation. In addition, although +Respondents were not aware of the Amendment during the review, the Amendment contradicts +the Division's contention that Signature's willingness to be flexible regarding USF's purchasing +obligations was implausible as a business matter. +On the other hand, we agree with the Division that Respondents' assessment of +management's explanations for plausibility should also have taken into account the monthly +Projected Penalty calculations required under the Agreement. Both Respondents testified that +they were familiar with the Projected Penalty provisions but that they were not aware that USF's +purchasing had fallen below the 85% target calculation. Given this knowledge, a reasonable +inquiry regarding payments to Signature based on a downturn in purchasing should have directly +asked whether such payments, regardless of the nomenclature applied to them, had been +triggered by the Projected Penalty obligations in the Agreement. However, Respondents' +testimony did not directly address whether their review inquiries focused on this key issue. +Moreover, regardless of whether management characterized the payments as "penalties," +"cash flow payments," or "advances," because Respondents knew that USF's rights with respect +to these payments depended on future events, the accounting for such payments should have +triggered a consideration of FAS 5. Such analysis could have appropriately considered both the +"probable and estimable" test for recognition of a loss contingency and the guidance disfavoring +recognition of gain contingencies. The contractual Projected Penalty calculations should have +informed this FAS 5 analysis, and Respondents should have considered the plausibility of +management's explanations in light of their understanding of those calculations. + + +26 + +On the record before us, however, we cannot determine whether Respondents considered +the appropriate contractual provisions as part of a FAS 5 assessment. The testimony on this +point is ambiguous, in part due to the inconsistent use of key contractual terms during the +hearing. For instance, the Signature payments at issue were repeatedly described as Shortfall +Penalty payments (assessed annually under the Agreement) despite clear record evidence that the +payments made during the quarter were Projected Penalty payments (assessed monthly). Also, +although Meyer testified that "[a]t the time [she] was doing this work, there was no discussion of +penalty payments," it is unclear from the context, and Meyer was not asked to clarify, whether +this statement referred to either or both Projected Penalty and Shortfall Penalty payments. +The contractual differences between Shortfall and Projected Penalty payments were +significant for FAS 5 purposes. Because Shortfall Penalties were based on a final year-end +calculation, GAAP required any such payments to be expensed as a loss when probable and +reasonably estimable. +67 +Projected Penalty payments, however, were based on projections and were subject to +refund pending the Shortfall Penalty calculation of purchasing volume for the entire year. The +correct accounting treatment for a known Projected Penalty payment presents a close judgment +call as to which reasonable accountants could disagree. Here, Respondents' expert suggests that +the payment of a Projected Penalty should have triggered a facts-and-circumstances based +analysis of the likelihood of achieving the year-end purchasing target. The Division's expert +suggests that the actual payment of a Projected Penalty is evidence of a likely failure to meet the +annual target triggering an obligation to expense, and that the failure to expense the payments +amounted to a premature recognition of a gain contingency. +Both approaches are grounded in relevant accounting guidance. The facts-and­ +circumstances based analysis espoused by Respondents' expert is supported by interim review +guidance indicating that interim financial statements may appropriately reflect management +judgements at that time "concerning anticipated results of operations for the remainder of the +annual period," +68 and FAS 5 guidance indicating that the recognition of a contingent loss must be +based on a "probab[ility] that one or more future events will occur confirming the fact of the +loss." This guidance supports an accounting approach based on management representations +regarding the probability of future refund or application of payments prior to contract-year end. +FAS 5 guidance disfavoring premature recognition of contingent gains, however, could be read +to support an approach requiring automatic recognition of any Projected Penalty as a contingent +loss, as described by the Division's expert. +67 Meyer testified that "the penalties, if there were penalties" should have been +expensed, but that "in [her] understanding, these [payments] were not penalty payments." +68 AU § 722.08. + +27 + +In any event, the relevant question under Rule 102(e) is not whether the accounting for +the payments reflected in the financial statements was correct, but whether Respondents' review +of the accounting was reasonable in light of the relevant FAS 5 guidance and their knowledge of +the Supply Agreement. +69 The interim review workpapers offer minimal and ultimately +ambiguous evidence in this regard. The only other record evidence is Respondents' testimony +and several statements in the report of Respondents' expert. +Hall's testimony was generally consistent with the Respondents' expert's emphasis on the +FAS 5 "probable and estimable" standards for recognition of a contingent loss. Hall emphasized +the distinction between Shortfall Penalties and Projected Penalties, stressing that Projected +Penalties would be refunded "to the extent that [USF] achieved the target by the end of the fiscal +year" and focusing on USF's assurances that annual contractual targets would be met. Similarly, +Respondents' expert report describes Meyer's assessment in terms of the contingent loss factors, +indicating that "Ms. Meyer was . . . told by USF management that USF intended to and could +meet the contractual purchasing requirements by the end of the contract year and thus the +possibility that USF would incur penalties under the contract was remote." +Although the Division contends that Hall and Meyer should have further tested or +questioned management's explanations, the Division did not press Respondents at the hearing +about the degree to which they did so. For example, the Division's expert report stated that +Respondents should have asked management, "Why would Signature accept a prepayment from +USF when instead it had the contractual ability to charge USF penalties?" At the hearing, +however, the Division did not ask Respondents whether they asked or considered this question. +Some of Respondents' testimony could be read as supporting the Division's contention +that Respondents failed to appropriately evaluate management's explanations for the payments +against the Projected Penalty payment calculations required under the Supply Agreement. For +instance, Hall testified that he did not recall asking how far below the threshold USF's +purchasing had fallen during the quarter, and Meyer testified that "[a]t the time [she] was doing +this work, there was no discussion of penalty payments." Ultimately, however, this testimony is +not conclusive in light of the inconsistent use of key contractual terms during the examination of +Respondents at the hearing as described above, and because Respondents were not directly asked +to explain whether their FAS 5 assessment took the Projected Penalty calculations into account. +70 +69 See, e.g., Dearlove, 92 SEC Docket at 1889-90 & n.51 (accountant's conduct may +violate GAAS even if the underlying financial reporting complies with GAAP). +70 The Division's suggestion that Respondents should have questioned the +purchasing manager diverges from interim review guidance directing inquiries to officers with +responsibility for "financial and accounting matters" rather than employees with operational +responsibility, and stating that responses to inquiries during a review do not need to be supported +by corroborating evidential matter. +(continued...) + +70 +28 + +Given the limited assurance standard for interim reviews and gaps in the development of +potentially dispositive record evidence, we believe that the record does not establish, by a +preponderance of the evidence, that Respondents' conduct during the interim review was an +unreasonable departure from applicable professional standards. +V. +Respondents' Due Process Claims +A. Background +71 +In opening its investigation of USF accounting practices in early 2003, the Division +issued a document subpoena covering professional services provided to USF by Respondents. In +April 2005, the Division issued Wells notices to notify Respondents that it was considering +recommending that the Commission institute administrative proceedings against them, and +offering Respondents an opportunity to submit a statement to be forwarded to the Commission in +conjunction with the Division's enforcement recommendation. +72 Respondents submitted a joint +Wells submission through their then-counsel ("Former Counsel") in May 2005. +Separately, in July 2005, we authorized a preliminary investigation into whether certain +counsel, including Former Counsel, had engaged in conduct subject to discipline under Rule +(...continued) +Respondents note that both the chief financial officer and the general counsel +knew that the payments were Projected Penalty payments, but instead characterized the payments +as cash flow payments in response to Respondents' direct inquiries. The Division expert's +suggestion that Respondents' assessment of management's responses should have taken into +account the management "integrity issues" from the previous year's audit assumes that +Respondents were, at that time, aware of reason to question management's integrity. The record +does not include evidence that Respondents harbored such suspicions during the review. +71 Respondents have moved to limit public disclosure of their arguments regarding +the Division's investigation. On July 20, 2009, we issued an order granting Respondents' motion. +Exchange Act Rel. No. 60346 (July 20, 2009), 96 SEC Docket 18986. As noted in that order, the +requirements of sealing and confidentiality do not apply to "any reference to the existence of the +[c]overed [a]rguments or to citation of particular information contained therein" in, among other +things, the opinion "or in any other similar use directly connected with this action or any appeal +thereof." Although we are dismissing this action, because of their potential significance in future +cases, we address Respondents' due process claims separately in this Section V. +See 17 C.F.R. § 202.5(c). This is known as the Wells process. +72 + + +29 + +102(e) (the "Counsel Investigation"). Consistent with Commission rules, we directed members +of the Office of General Counsel ("OGC") to conduct the Counsel Investigation.73 +The Counsel Investigation was non-public,74 and Commission staff did not inform +Respondents of the Counsel Investigation when it was initiated. Former Counsel continued to +represent Respondents, including in correspondence and meetings with the Division, between +May and August 2005. In October 2005, Former Counsel, joined by new counsel for Hall, +75 +submitted a second, superseding joint Wells submission ("Superseding Wells Submission"). +Respondents state, and the Division does not dispute, that Respondents were not subpoenaed to +provide sworn testimony during the investigation. In January 2006, OGC advised Former +Counsel of the Counsel Investigation. The Counsel Investigation was subsequently closed +without any action being brought. +In February 2006, we issued the OIP for this case. The OIP included allegations, among +other things, that Respondents reviewed USF contracts containing prepayment provisions (the +"Prepayment Review Allegations"). In March 2006, new counsel entered a notice of appearance +on behalf of Meyer (together with Hall's new counsel, "Current Counsel"). +The hearing before the law judge was originally scheduled to begin in March 2006, but +was stayed until April 18, 2007 upon a motion by the United States attorney for the Southern +District of New York. On April 20, 2007, the Division indicated that it had decided not to +pursue the Prepayment Review Allegations at the hearing. On June 20, 2007, Respondents filed +an interlocutory motion with the Commission seeking dismissal of the proceedings. +Respondents contended, among other things, that the Counsel Investigation deprived them of +effective assistance of counsel and that the Commission's decision to institute proceedings was +"tainted" by the Division's investigation. We denied Respondents' motion, indicating that "once +we have exercised our prosecutorial discretion to institute a proceeding, the appropriate remedy +for any challenge to that exercise of discretion is to litigate the proceeding to a final decision." +Respondents renewed their due process claims during the hearing, but the law judge rejected +these claims, ruling that the hearing satisfied their due process right to defend themselves against +the charges. +76 +73 OGC, rather than the Division, is charged with investigating and prosecuting +potential violations of Rule 102(e) by attorneys. 17 C.F.R. § 200.21(a). +74 17 C.F.R. § 202.5(a) ("Unless otherwise ordered by the Commission, the +investigation . . . is non-public and the reports thereon are for staff and Commission use only."). +75 The circumstances prompting Hall's substitution of new counsel are not evident +from the record. +76 The administrative law judge issued a separate decision under seal addressing +(continued...) + +76 +30 + +B. Respondents' Contentions +On appeal, Respondents argue that their due process claims constitute independent +grounds for dismissal of the Rule 102(e) charges. Respondents argue that the Division had a +duty to inform them of the Counsel Investigation when it was initiated, and that the Division +"deprived [them]. . . of the opportunity to knowingly exercise [their] choice of counsel" when it +did not make this disclosure. Asserting that the Counsel Investigation created a conflict of +interest violating their right to effective representation, Respondents claim that this right was +violated "the moment that Former Counsel was ineffective" due to the initiation of the separate +Counsel Investigation. Respondents further contend that the Division engaged in an "incomplete +and biased" investigation that rendered our issuance of the OIP arbitrary and capricious. In +support of this claim, they focus on the Division's decision not to pursue the Prepayment Review +Allegations and the law judge's subsequent decision finding that they had not engaged in +improper professional conduct. Respondents argue that our issuance of the OIP caused them +reputational harm. Finally, Respondents argue that the investigation violated Commission +ethical guidelines. We address these contentions in turn. +C. Analysis +1. Choice of Counsel. +The right to counsel before administrative agencies is grounded in section 555(b) of the +Administrative Procedure Act ("APA"), which entitles a "person compelled to appear in person +before an agency or representative thereof . . . to be accompanied, represented, and advised by +counsel." +77 Commission rules, echoing the APA right, cover "[a]ny person compelled to appear, +or who appears by request or permission of the Commission, in person at a formal investigative +proceeding," +78 and a "witness who is sworn in a proceeding pursuant to a Commission order for +investigation or examination."79 This provision of the APA had not attached during Former +Counsel's involvement in the Division's investigation because Respondents were not compelled +(...continued) +Respondents' procedural contentions. The factual findings in this Section V of the opinion rely +primarily on stipulations of fact submitted under seal to the administrative law judge by the +Division and Respondents. +77 5 U.S.C. § 555(b). The APA also entitles parties to agency proceedings to appear +with counsel. Id. +78 17 C.F.R. § 203.7(b); see also 17 C.F.R. § 201.102(b) ("In any proceeding, a +person may be represented by an attorney at law. . . ."). +79 17 C.F.R. § 203.4(a). + + + + + +31 + +to appear or to provide sworn testimony during the investigation.80 Although Former Counsel +filed written submissions on behalf of Respondents as part of the Wells process, this process is +conducted at the Division's discretion81 and does not confer procedural rights.82 +A Commission investigation does not confer any party with a general right to information +about the Division's view of their counsel, or any potential parallel investigations. In suggesting +the contrary, Respondents rely on cases applying the right to counsel under the APA "to imply +the concomitant right to the lawyer of one's choice," and preventing the Commission from +sequestering a witness from counsel during sworn testimony. +83 In those cases, however, the +respondents asserted that the Commission directly interfered with their consultation with counsel +during testimony. Respondents here do not allege interference in their ability to consult with the +counsel of their own choosing either before or after these proceedings were instituted. +2. Effective Assistance of Counsel. +Although Respondents attempt to characterize their claim as a deprivation of their right to +effective assistance of counsel, the Commission does not have a general obligation to ensure the +competence or suitability of Respondents' representation during an investigation. +84 Fifth +80 A requirement investing all parties potentially implicated in an investigation with +such procedural rights would be "virtually impossible" to administer and "'would unwarrantedly +cast doubt upon and stultify the [Commission's] every investigatory move.'" SEC v. O'Brien, 467 +U.S. 735, 749 & 751 (1985) (quoting Donaldson v. United States, 400 U.S. 517, 531 (1971)). +81 See 17 C.F.R. § 202.5(c) (describing the Wells process by stating: "Persons who +become involved in preliminary or formal investigations may, on their own initiative, submit a +written statement to the Commission setting forth their interests and position in regard to the +subject matter of the investigation. Upon request, the staff, in its discretion, may advise [persons +under investigation] of the general nature of the investigation . . . ."). +82 Wellman v. SEC, 79 F.R.D. 341, 353 (S.D.N.Y. 1978). +83 See SEC v. Higashi, 359 F.2d 550, 553 (9th Cir. 1966) (applying the APA +provision to subpoenaed testimony); SEC v. Csapo, 533 F.2d 7, 10 (D.C. Cir. 1976) (interpreting +the statutory right to cover "any person summoned to appear before a federal agency"). +84 In fact, administrative proceedings generally do not trigger a specific right to the +effective assistance of counsel. Hammon Capital Mgmt. Corp., 48 S.E.C. 264, 266 (1985); see +also Williams v. Wynne, 533 F.3d 360, 369 (5th Cir. 2008) (finding Sixth Amendment +inapplicable to an administrative hearing); Father & Sons Lumber & Bldg. Supplies v. NLRB, +931 F.2d 1093, 1096-97 (6th Cir. 1991) (finding that neither the Fifth Amendment nor the APA +conferred a separate right to effective assistance of counsel in an administrative hearing). + + +32 + +Amendment due process principles protecting the "right to a fair and impartial hearing"85 apply to +adjudicative, not investigative, processes.86 These protections are satisfied by the "opportunity to +appear as a claimant and to have a full hearing" in connection with the charged violations.87 +Accordingly, the preliminary determination to institute a proceeding does not trigger due process +protections "so long as the requisite hearing is held before the final administrative order becomes +effective." +88 Government actions taken before the institution of proceedings trigger a due process +remedy only if such conduct both actually prejudiced the defense at the hearing and constituted +"an intentional device to gain tactical advantage" at the hearing. +89 +Respondents have not alleged or demonstrated either of these required elements for due +process relief.90 Effective assistance inquiries based on counsel conflicts of interest, like other +85 Friedman v. Rogers, 440 U.S. 1, 18 (1979). +86 O'Brien, 467 U.S. at 742 (holding that targets of SEC investigations are not +entitled to notice of third party subpoenas and stating that "an administrative investigation +adjudicates no legal rights" (citing Hannah v. Larche, 363 U.S. 420, 440-43 (1960)). +87 Ewing v. Mytinger & Casselberry, Inc., 339 U.S. 594, 598 (1950); see also +Withrow v. Larkin, 421 U.S. 35, 46 (1975) (stating that administrative agencies have an +obligation to provide a "fair trial in a fair tribunal" as "a basic requirement of due process"). +88 Ewing, 339 U.S. at 598. +89 United States v. Marion, 404 U.S. 307, 324 (1971) (finding that a delay in +indictment did not constitute a due process violation); see also United States v. Stringer, 521 +F.3d 1189, 1200 (9th Cir. 2008), amended in part, 535 F.3d 929, 933 & 941 (9th Cir. 2008) +(suggesting that government "deceit or an affirmative misrepresentation" interfering with a +client's relationship with counsel will give rise to potential due process claim if such conduct +resulted in "actual and substantial prejudice" to the client's defense during the trial). +90 Although Respondents cite cases discussing the rights of criminal defendants +under the Sixth Amendment, these cases are inapplicable to administrative proceedings because +"Sixth Amendment [protections] are explicitly confined to 'criminal prosecutions,'" Austin v. +United States, 509 U.S. 602, 608 (1993), and only attach after the formal institution of such +criminal proceedings. Massiah v. United States, 377 U.S. 201, 205 (1964) (indicating that the +right attaches from the time of the arraignment). +Moreover, Respondents improperly conflate authority addressing two distinct +rights under the Sixth Amendment -- the right to choice of counsel and the right to effective +representation. The authority cited by Respondents, however, expressly distinguished between +"the right of counsel of choice -- which is the right to a particular lawyer regardless of +comparative effectiveness" and "the right to effective counsel -- which imposes a baseline +(continued...) + + +90 +33 + +due process claims, focus on the adjudication of the charged person's legal rights.91 For instance, +we have disqualified an attorney from participating in a hearing when the attorney's divided +loyalties posed a potential threat to "the apparent fairness and integrity of the proceedings."92 +Respondents here do not cite any evidence, however, that their right to a fair and impartial +adjudication of the charges against them -- the touchstone of due process -- was compromised by +their representation by Former Counsel during the investigation. +In addition, Respondents have not shown that any of the Division's decisions during its +investigation constituted bad faith efforts to frustrate Respondents' ability to defend themselves +against the charges, or to undermine the integrity of the hearing. In fact, we expressly found in +Trautman Wasserman & Co. +93 that the non-disclosure of a parallel investigation of respondent's +counsel during the Wells process does not constitute grounds for dismissal of charged violations. +We held that "the Division's decision during the Wells process to withhold information about +certain facts . . . does not give rise to any right or remedy," +94 and that in any case the substitution +of new counsel before the hearing "cur[ed] any alleged harm [respondent] may have suffered +because of [his former counsel's] alleged conflict." +95 Here, as in Trautman Wasserman, the +retention of Current Counsel prior to the hearing averted any potential prejudice to the +Respondents' defense, and thereby averted any potential due process harm. +(...continued) +requirement of competence on whatever lawyer is chosen or appointed." United States v. +Gonzales-Lopez, 548 U.S. 140, 148 (2006). The Court specifically reaffirmed the prejudice +requirement for a finding of ineffective assistance. Id. at 147. As noted in the text, Respondents +were not deprived of their right to the lawyer of their own choosing, and have not shown any +prejudice to their ability to defend themselves at the hearing. +91 Strickland v. Washington, 466 U.S. 668, 686 (1984) ("The benchmark for judging +any claim of ineffectiveness must be whether counsel's conduct so undermined the proper +functioning of the adversarial process that the trial cannot be relied on as having produced a just +result."); see also 2 Am. Jur. 2d Admin. Law § 120 (2008) ("As long as no legal rights are +adversely determined during the investigation, the demands of due process are satisfied if +procedural rights are granted in the subsequent proceedings."). +92 Clark T. Blizzard, 55 S.E.C. 650, 655 (2002) (disqualifying counsel proposing to +engage in simultaneous representation of parties at a hearing when this representation generated +"serious potential for prejudice to the integrity of the proceeding"). +93 Exchange Act Rel. No. 55989 (June 29, 2007), 90 SEC Docket 3098. +94 Id. at 3106. +95 Id. at 3105-3106. + + + +34 +3. Claimed "Arbitrary and Capricious" Institution of Proceedings. +Respondents attempt to distinguish Trautman Wasserman by claiming that the Division +conducted an "incomplete and biased investigation," and that Division bias in turn tainted the +Commission's decision to institute proceedings. However, Respondents do not offer any support +beyond mere speculation for their claim that the Division was motivated by improper bias in +assessing their explanations for their conduct, or in declining to take their investigative +testimony. Participants in the investigative process are not entitled to an uncritical or even a +neutral Division assessment of their asserted defenses, +96 or to a right to provide investigative +testimony.97 These aspects of the Division's investigation fall squarely within the scope of the +prosecutorial discretion that it routinely exercises in conducting multi-party investigations, and it +is well established that such investigations do not trigger "the full panoply" +98 of safeguards that +are required during an adjudication.99 This distinction is maintained in order to "prevent the +sterilization of investigations by burdening them with trial-like procedures."100 +In fact, the Supreme Court has recognized the propriety of affording Commission staff +"considerable discretion in determining when and how to investigate" potential securities law +violations, +101 and the pragmatic considerations weighing against requiring the Division to +"inform[] anyone, including targets, of the existence and progress of its investigations."102 As the +Court recognized, such a "remedy would . . . have the effect of laying bare the state of the +Commission's knowledge and intentions midway through investigations," and "could +significantly hamper the Commission's efforts to police violations of the securities laws." +103 +96 See Marshall v. Jerrico, 446 U.S. 238, 248 (1980) (stating that the neutrality +requirements "designed for officials performing judicial or quasi-judicial functions . . . are not +applicable to those acting in a prosecutorial or plaintiff-like capacity"). +97 Hannah, 363 U.S. at 445-46 ("[W]hen these agencies are conducting +nonadjudicative, fact-finding investigations, rights such as apprisal, confrontation, and +cross-examination generally do not obtain."). +98 Hannah, 363 U.S. at 442. +99 See O'Brien, 467 U.S. at 742-43 (holding that targets of SEC investigations are +not entitled to notice of third party subpoenas). +100 Hannah, 363 U.S. at 447-48. +101 O'Brien, 467 U.S. at 744-45. +102 Id. at 744-45, 749-751. +103 Id. at 750 n.23. + +35 +Moreover, Respondents' suggestion that the Commission's decision to institute these +proceedings could in some way have been tainted by any alleged improper conduct by the +Division's investigation ignores the independence of the Commission's decision-making +process. +104 We authorized and instituted these proceedings based on our "own consultations, +deliberations and conclusions with respect to [the Division's] recommendations."105 In the course +of doing so, we reviewed the Respondents' Wells submission, and Respondents have not pointed +to any defense they were prevented from including in this submission in connection with the +Counsel Investigation. +The decision to institute proceedings was not meant to resolve disagreements between the +Division and Respondents regarding the evidence; such disagreements are best left to be resolved +at the hearing authorized by the OIP. +106 The Supreme Court, recognizing the "different bases and +purposes" for a charging decision and a subsequent adjudication, has expressly stated that "there +is no incompatability between [an] agency filing a complaint based on probable cause and a +subsequent decision . . . that there has been no violation." +107 Such a resolution does not +demonstrate impropriety in the charging decision or investigation, but rather the nature of the +adjudication process itself. +Although the Division chose not to pursue the Prepayment Review Allegations at the +hearing, Respondents do not substantiate their claims that the original inclusion of those +104 We have previously rejected claims that "disqualifying bias on the part of the +Commission may be inferred from alleged bias of its members or staff." Jean-Paul Bolduc, 54 +S.E.C. 1195, 1199 (2001). +105 Edward H. Kohn, Freedom of Information Act Rel. No. 19, 1975 SEC LEXIS +1217 (July 15, 1975); see also Stuart-James Co., 50 S.E.C. 468, 469 (1991) (stating that the +Commission, "not the staff, [is] ultimately responsible for exercising control over the agency's +administrative proceeding docket"). +106 Procedures Relating to the Commencement of Enforcement Proceedings and +Termination of Staff Investigations, Exchange Act Rel. No. 9796 (Sept. 27, 1972) (noting that +disputes about facts underlying the institution of proceedings "likely . . . can be resolved in an +orderly manner only through litigation"). +107 Withrow, 421 U.S. at 57-58. Given this authority distinguishing between the +requirements for filing a complaint and the subsequent decision, we reject Hall's suggestion that +the Commission must justify the inclusion of these charges in the OIP based on the standard of +judicial review for "final agency action" under the APA. Issuance of an OIP is not final agency +action. See FTC v. Standard Oil Co., 449 U.S. 232, 493 (1980) (holding that issuance of +complaint is not "final agency action"). + + + +36 + +allegations in the OIP was improper.108 Moreover, the Division actively pursued the remaining +charges, and those charges, if established, would have provided a basis for discipline under +Rule 102(e). An order instituting proceedings satisfies the demands of due process if the +respondent is "afford[ed] full opportunity to justify [his or her] conduct during the course of the +litigation." +109 Respondents have not demonstrated how changes in the Division's presentation of +its case in any way prejudiced Respondents' ability to justify their conduct; they have not pointed +to any defense to the charged violations that they were prevented from raising during the +hearing. +110 +4. Claimed Reputational Harm +Although Respondents claim that the institution of proceedings caused them reputational +and professional harm, these claims do not give rise to due process relief unless they prejudiced +the hearing process. As noted above, Respondents' attempt to extend procedural protections for +adjudications to the investigation is misguided. Even if a government investigation could result +108 While the record does not specifically state the Division's original basis for +recommending the inclusion of the Prepayment Allegations in the OIP, we note that vendor +contracts containing prepayment provisions and 1998 audit workpapers initialed by Meyer +referencing the review of "executed promotional contracts," "executed contracts," and "vendor +contracts" could have suggested to an unbiased investigator that Meyer had, in fact, reviewed +such provisions. +109 Flying Food Group, Inc. v. NLRB, 471 F.3d 178, 183 (D.C. Cir. 2006) +("[P]leadings in administrative proceedings are not judged by the standards applied to an +indictment at common law. . . . Rather, '[i]t is sufficient if the [petitioner] understood the issue +and was afforded full opportunity to justify its conduct during the course of the litigation.'" +(internal citations and punctuation omitted)); see also Aloha Airlines, Inc. v. Civil Aeronautics +Bd., 598 F.2d 250, 261-62 (D.C. Cir. 1979) (finding no procedural defect when the factual basis +for the law judge's decision diverged from the factual allegations in the complaint because "the +entire issue was fully litigated in the course of the proceedings before the ALJ and the Board"); +RFG Options Co., 49 S.E.C. 878, 885 (1988) (finding no prejudice where nature of charged +violation changed during opening statement of the hearing). +110 Even assuming arguendo that the OIP was not based on an independent judgment, +Respondents "do[] not have a constitutional right to a conflict-free agency determination of +whether to sue him civilly unless the conflict laps over into the trial." Buntrock v. SEC, 347 F.3d +995, 999 (7th Cir. 2003); see also United States v. Oregon, 44 F.3d 758, 772 (9th Cir. 1994) +(stating that a due process claim based on allegations of a biased tribunal must at least +demonstrate "an unacceptable probability of actual bias" by "the tribunal that will adjudicate +[the] claims"); United States v. Parish, 468 F.2d 1129, 1133 (D.C. Cir. 1972) ("[T]he concern of +the Due Process Clause is erosion of the accused's capability to muster his response to the +charges."). + + + + + +37 + +in adverse consequences, including public opprobrium, job loss, or criminal prosecution, such +investigation is not subject to the same due process protections observed in proceedings +adjudicating legal rights. +111 +5. Claimed Ethical Violations. +Active government deceit or affirmative misrepresentations compromising a respondent's +defense at the hearing may implicate due process rights,112 but Respondents have not +demonstrated such misconduct in this case. Nor has Meyer substantiated her claim that the +institution of proceedings was inconsistent with Commission ethical canons encouraging +"unusually high standards of honesty, integrity, impartiality and conduct" and the "avoidance of +actual or apparent misconduct or conflicts of interest," or discouraging Commission staff from +"condon[ing] unprofessional conduct by attorneys." +113 Rather than condoning suspected +unprofessional conduct, the Division referred suspected misconduct by Former Counsel for +further investigation, and the separation of the Counsel Investigation by OGC from the +investigation of Respondents' conduct by the Division reflected an institutional safeguard against +inappropriate bias. +114 We note that government action is entitled to a presumption of good faith +"[i]n the absence of a clear showing of bad faith,"115 which Respondents have not made here. +The record does not support Respondents' claim that the decision not to take investigative +testimony was "contrary to the Commission's long-standing commitment to fundamental +fairness," particularly when taking such testimony could have fueled the type of due process +challenges Respondents now raise. For instance, disclosure of the Counsel Investigation to +Respondents, as Respondents contend was required, in connection with such testimony could +have provoked a charge of improper interference in their relationship with Former Counsel. +116 +111 Hannah, 363 U.S. at 443; see also FTC v. Standard Oil Co., 449 U.S. at 244 +("[T]he expense and annoyance of litigation is part of the social burden of living under +government." (internal citation omitted)). +112 See supra note 89. +113 17 C.F.R. §§ 200.735-2(a), 200.69. +114 See supra note 73. +115 Trautman Wasserman, 90 SEC Docket at 3105; see also Withrow, 421 U.S. at 47 +(noting the "presumption of honesty and integrity in those serving as adjudicators"). In any case, +violations of "legal or ethical rules governing [Commission] investigations" are "not, without +more, a defense to the SEC's suit." Buntrock, 347 F.3d at 998. +116 See Stringer, 521 F.3d at 1201 (stating that "had the government . . . warn[ed +defendant] about [his attorney's] conflict, bypassing his attorney, the government would have +(continued...) +38 + +6. Conclusion +Based on our review of Respondents' contentions, we find that Respondents have not +established a violation of their due process rights. Respondents have not demonstrated that +circumstances prior to the issuance of the OIP compromised their ability to defend themselves +against the charged violations at the hearing. +VI. +Under all the circumstances, and based on our de novo review of the record, we have +concluded that the record before us does not establish by a preponderance of the evidence that +Respondents committed the offenses charged. We will accordingly dismiss this proceeding. +An appropriate order will issue. +117 +By the Commission (Chairman SCHAPIRO and Commissioners CASEY, WALTER and +AGUILAR); Commissioner PAREDES concurs in the findings on the merits but believes that, as +the issues addressed in Section V are moot, the opinion should not address them. +Elizabeth M. Murphy + Secretary +116 (...continued) + +engaged in conduct that itself may have amounted to interference" violating defendant's due + +process rights). + +117 We have considered all of the contentions advanced by the parties. We have +rejected or sustained them to the extent that they are inconsistent or in accord with the views +expressed in this opinion. + +UNITED STATES OF AMERICA + +before the + +SECURITIES AND EXCHANGE COMMISSION + +SECURITIES EXCHANGE ACT OF 1934 +Rel. No. 61162 / December 14, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Rel. No. 3080 / December 14, 2009 +Admin. Proc. File No. 3-12208 +In the Matter of + +KEVIN HALL, CPA + +and + +ROSEMARY MEYER, CPA + +ORDER DISMISSING PROCEEDINGS +On the basis of the Commission's opinion issued this day, it is +ORDERED that the proceedings instituted on February 16, 2006 against Kevin Hall, CPA +and Rosemary Meyer, CPA, be, and they hereby are, dismissed. +By the Commission. + Elizabeth M. Murphy + Secretary \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3081.txt b/raw/aaer/2009/AAER-3081.txt new file mode 100644 index 0000000000000000000000000000000000000000..ad445c9880c20ec5041fefefd1d15357ffd941b2 --- /dev/null +++ b/raw/aaer/2009/AAER-3081.txt @@ -0,0 +1,780 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES ACT OF 1933 +Release No. 9092 / December 17, 2009 +SECURITIES EXCHANGE ACT OF 1934 +Release No. 61190 / December 17, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3081 / December 17, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13719 +In the Matter of +WILLIAM J. CARPENTER, +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 pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”), Sections 4C +1 and +21C of the Securities Exchange Act of 1934 (“Exchange Act”), and Rule 102(e)(1)(ii) of the +Commission’s Rules of Practice2 against William J. Carpenter (“Carpenter” or “Respondent”). +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) provides, in relevant part, that: +The Commission may censure a person or deny, temporarily or permanently, the privilege of appearing or +practicing before it . . . to any person who is found . . . + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +II. +In anticipation of the institution of these proceedings, Carpenter 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, Carpenter 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 +(“Order”), as set forth below. +III. +On the basis of this Order and Carpenter’s Offer, the Commission finds3 that: +Summary +1. This matter involves violations of the federal securities laws and improper +professional conduct by Carpenter in connection with the 2003 audit of Bally Total Fitness +Holding Corporation (“Bally”) conducted by Ernst & Young LLP (“E&Y”). Carpenter served as +the engagement partner for the 2003 audit. +* * * +(ii) to have engaged in unethical or improper professional conduct. + +* * * +(iv) With respect to persons licensed to practice as accountants, “improper professional conduct” under +§201.102(e)(1)(ii) means: +* * * +(B) Either of the following two types of negligent conduct: +* * * +(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. +3 The findings herein are made pursuant to Carpenter's Offer of Settlement and are not binding on any other person +or entity in this or any other proceeding. +2 + + + + + + + + + + + + + + + + + + + + + + +2. In connection with Bally’s 2003 financial statements, Bally engaged in fraudulent +financial accounting, including implementing two improper changes in accounting method rather +than restating for accounting errors. On November 30, 2005, Bally filed its 2004 Form 10-K, +which restated its previously reported financial statements for 2002 and 2003, and selected +financial data for 2000 and 2001. +3. Carpenter knew or should have known that E&Y’s unqualified audit opinion +regarding Bally’s 2003 financial statements, which stated that E&Y had conducted its audits in +accordance with auditing standards generally accepted in the United States (“GAAS”) and that +Bally’s financial statements were presented in conformity with accounting principles generally +accepted in the United States (“GAAP”) – was false because E&Y’s audit of Bally’s 2003 +financial statements was not performed in accordance with GAAS and Bally’s financial +statements were not in conformity with GAAP. +4. As a result of the false and misleading audit opinion, Carpenter was a cause of +Bally’s violations of Sections 17(a)(2) and (3) of the Securities Act and Sections 13(a) and +13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13. +Respondent +5. Carpenter is, and was at all relevant times, a Certified Public Accountant licensed in +Illinois. Carpenter also served as the engagement partner on the Bally audit from the first quarter +2003 through the first quarter 2004. Carpenter retired from E&Y in 2009. +Issuer +6. Bally, a Delaware corporation, purported to be the largest, and only nationwide, +commercial operator of fitness centers. At a ll relevant times, Bally'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”). The NYSE delisted Bally's common stock on June 8, +2007. After filing for reorganization under Chap ter 11 of the Bankruptcy Code, on September +17, 2007, Bally emerged as a privately held reorganized entity. On February 28, 2008, the +Commission filed a settled injunctive action against Bally in the United States District Court for +the District of Columbia, charging Bally with violating Section 17(a) of the Securities Act, +Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 10b-5, 12b- +20, 13a-1, 13a-11 and 13a-13 thereunder. The Dist rict Court issued permanent injunctions on +May 8, 2008. +Background +7. For many years up until it resigned in 2004, E&Y audited Bally’s financial +statements. Bally’s principal source of revenue was selling gym membership contracts, which +provided customers access to gyms in exchange for the payment of both a one-time initiation fee +and monthly dues. The one-time fee was typically several thousand dollars, while the monthly +dues typically were less than $10 per month. Most of Bally’s customers financed their initiation +3 + + + + + + + + + + + + + + + + + + +fees. To maintain their memberships, customers were required to pay their initiation fee in full +and pay monthly dues. The initiation fees were Bally’s biggest source of revenue. The +obligation to pay the initiation fee was legally enforceable; there was no legal obligation to pay +monthly dues beyond the initial contract period. +8. E&Y recognized Bally as a risky audit and, from at least 1996 through 2003, +designated Bally as a “close monitoring” account because Bally presented a risk that created “a +significant chance the firm [E&Y] will suffer damage to its reputation, monetarily, or both.” +Bally was designated a close monitoring account for several reasons, including, among other +things, that Bally’s managers were former E&Y audit partners who were “difficult” and had +“historically been aggressive in selecting accounting principles and determining estimates;” the +managers placed undue emphasis on maintaining stock prices; management used “(un)reliable . . +. estimation process[es] or questionable judgm ents;" and Bally’s compensation plans placed +undue emphasis on reported earnings. E&Y's internal guidance notes that a "history of +'aggressive' applications of accounting policies could indicate a predisposition to misstate the +financial statements." +9. In early 2002, E&Y sought to reduce its risk by identifying its riskiest clients and +resigning from them or otherwise managing the risk they presented to E&Y. Out of a total of +over 10,000 audit clients in North America, E&Y identified Bally as one of the riskiest 18 +accounts. These 18 accounts were so-called “Nat ional Focus Accounts” and were monitored by +the Americas Executive Board. Not only was Bally identified as a National Focus Account, it +was identified by E&Y as the riskiest account in E&Y’s Lake Michigan Area (LMA), based in +Chicago. +Bally’s Accounting Errors And E&Y’s Audit Failures + +Relating To Fiscal Years 2001 And 2002 + +10. In connection with fiscal years 2001 and 2002, as well as earlier years, Bally +engaged in certain practices relating to its recognition of reactivation revenue, initiation fee +revenue, and deferred costs that made its financial statements false and misleading. E&Y issued +unqualified audit opinions in connection with its audits of such financial statements, in violation +of GAAS. +4 +Premature Recognition of Reactivation Revenues +11. Bally recognized revenue from what it called “reactivations,” which were +payments from Bally members who had completed their initial contract period, but whose +memberships were canceled for failure to pay the monthly dues necessary to maintain their +membership. Bally did not attempt to recover those dues because there was no legal obligation +to pay dues. Accordingly, for those canceled me mbers who had completed the initial contract +period, Bally waited at least six months after receiving their last payment and then began +soliciting these canceled members to reactivate. Those who accepted the reactivation offers did +4 See AICPA’s Codification of Auditing Standards AU § 508, Reports on Audited Financial Statements. +4 + + + + + + + + + + + + + + + + +so, on average, 36 months after having stopped paying monthly dues. The reactivation offers did +not contain claims for or seek payment of "past due" amounts. Instead, they asked for either a +nominal reactivation fee or no reactivation fee at all, and the payment of monthly dues for a +period of future service. +12. Bally’s revenue recognition policy was to project (as of the balance sheet date) +the reactivation payments it anticipated receiving in the coming year and then immediately +recognize most of these projected payments by improperly allocating them to past periods. +Bally’s reactivation revenue recognition policy was not in conformity with GAAP because use of +the method enabled Bally to recognize revenue before it was earned and was realized or +realizable. +5 Bally recognized revenue before it was earned because, among other things, it barred +canceled former members from the gyms, and therefore, had not provided services to those of its +canceled members who might reactivate in the future. Additionally, Bally recognized revenue +before it was realized or realizable because it was recognizing revenue for reactivations that had +not yet occurred, which it anticipated from canceled former members whom it could not identify +individually and who had no legal obligation to reactivate or pay Bally anything at all. +13. In short, Bally violated GAAP by recognizing revenue related to the anticipated +future payments before the reactivation transactions occurred. The accounting was clearly not in +conformity with GAAP, and a reasonable accountant who understood Bally's accrual basis of +recognizing revenue for "reactivations" would conclude that it was not in conformity with +GAAP, because Bally was recognizing revenue that was not realized or realizable, and had not +been earned. +14. For at least six years, E&Y had audited Bally's "reactivation" revenue recognition +practices. In each of those years, E&Y provided Bally with an unqualified audit opinion. +Premature Recognition Of Initiation Fee Revenue +15. Members paid a substantial initiation fee in connection with new membership +contracts. Beginning in 1997, Bally recognized initiation fee revenue over the estimated average +membership life, which included an estimate for both the average initial contract period and the +average renewal period. Bally computed the weighted average expected membership life to be +22 months for financed memberships and 36 months for cash memberships. +16. Bally’s 1997 computations of the weighted average expected membership life +were flawed. A cursory inspection of the comput ations would have revealed these flaws. In +1997, E&Y had checked Bally’s arithmetic and suggested some minor adjustments, but failed to +test whether Bally's computations produced results that were consistent with reality, and failed to +determine that Bally’s computation was fundamentally incorrect. The errors in Bally’s estimates +5 See, e.g., Accounting Research Bulletin No. 43, Restatement and Revision of Accounting Research Bulletins +("ARB 43"), Chapter 1A (1953); Accounting Principles Board Opinion No. 10, Omnibus Opinion (1966); Statement +of Financial Accounting Concepts No. 5, Recognition and Measurement in Financial Statements of Business +Enterprises (1985); Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, Topic 13.A. +(1999). +5 + + + + + + + + + + + + + + + + +had the effect of understating the average membership life. As a result, Bally’s member life +estimates improperly accelerated revenue recognition and distorted the economic reality of +Bally’s business. +17. These errors continued through the relevant period and by recognizing initiation +fee revenue from financed contracts over 22 months, Bally improperly recognized revenue +before it was earned and realized or realizable in contravention of GAAP. +E&Y Seeks To Reduce Its Risk: 2002-2003 +18. In 2001 and 2002, a series of widely-known financial scandals led E&Y to assess +its audit risks and the firm took steps to identify and resign from or focus on certain of its riskiest +clients. Internally, E&Y was communicating the dangers of retaining high risk clients, but even +though E&Y identified Bally as one of its riskiest clients during the 2002 client continuance +process, E&Y did not resign from Bally. Instead, E&Y tried to reduce the risk that Bally’s +accounting practices posed to E&Y by, among other things, insisting for the first time that Bally +record the numerous accounting errors that had “historically been [placed by E&Y] on the +summary of audit differences.” +19. In addition, as a result of the implementation of the “Focus Accounts” program, +Bally, its accounting, and its retention as an E&Y client came under scrutiny from E&Y regional +and national management. E&Y’s National Office actively participated in events relating to +Bally’s critical accounting issues. From July 2002 through March 2003, E&Y had numerous +internal communications and meetings regarding the risks posed by Bally generally, as well as +particular risky accounting issues, including, among other things, Bally’s revenue recognition +estimates. Bally was the subject of a series of meetings with E&Y management, and Bally was +placed on a list of National Focus Accounts for Americas Executive Board attention. +Bally’s Accounting Errors And E&Y’s Audit Failures Relating To Fiscal Year 2003 +20. In March 2003, after the 2002 audit had concluded but before the company had +filed its 2002 Form 10-K, E&Y contemplated resigning from the Bally engagement “due to risk +issues.” E&Y decided against resigning in favor of staying on and reducing its risk. +21. Following the decision to remain as Bally’s auditor, E&Y selected Carpenter to +be the new E&Y audit engagement partner for the Bally audit. Carpenter rotated onto the Bally +audit engagement in April 2003. Carpenter had no prior contact with Bally or involvement in the +audits of its financial statements. +22. Carpenter was selected because he was experienced and capable of “delivering +tough messages.” Carpenter was briefed by the LMA Area Managing Partner (“AMP”) and the +LMA Advisory Business Services Managing Partner (“AABS-MP”). Carpenter was told that +Bally was considered one of the Firm's highest risk clients, and was instructed “to fix this +situation to reduce the firm's risk." +6 + + + + + + + + + + +Recognition Of Reactivation Revenue +23. After becoming the new engagement partner, Carpenter focused on reactivations +as posing risk to E&Y. He reviewed a memo randum E&Y had prepared in connection with the +FY 2000 audit (the “2000 memo”), which concluded, improperly, that Bally’s reactivation +revenue accrual “does not appear to be precluded by SAB 101.” The memorandum indicated +that (a) members who did not pay dues after the initial contract period were barred from the +gyms after a grace period, and (b) these members had no legally enforceable obligation to pay +dues after the initial contract period or to reactivate their memberships. Carpenter knew or +should have known that these facts undermined and contradicted the conclusion that the +reactivation accrual “does not appear to be precluded by SAB 101.” +24. Carpenter raised a number of questions challenging the 2000 memorandum’s +reasoning and conclusions, including whether the reactivation dues amount was “fixed and +determinable” in light of the 2000 memo’s statement that the amount of dues was modified on +occasion to entice reactivations. He also ques tioned how “customer acceptance,” a prerequisite +of revenue recognition acknowledged in the 2000 memo, could occur if a customer hasn’t used +Bally’s facilities. Carpenter conferred with members of the audit team and PPDs, who informed +Carpenter that Bally’s historical accounting for reactivation revenue, although in their view +GAAP-compliant, was “aggressive.” Carpenter remained concerned with Bally’s reactivation +revenue recognition policy and had the view that Bally’s reactivation revenue recognition policy +was more aggressive than he was willing to accept as the partner on the engagement. +25. In June 2003, Bally was in the process of refinancing its bank debt through a +private debt offering, to be followed by a public exchange offering. In connection therewith, +Bally needed E&Y to provide a comfort letter to the underwriters and a consent regarding +Bally’s use of E&Y’s unqualified audit opinion relating to the 2002 audit. E&Y, including +Carpenter, told Bally that unless it stopped accruing reactivation revenue, E&Y would not +provide those documents, which left Bally with no real alternative but to agree to stop accruing +reactivation revenue. Even t hough a few months earlier E&Y had issued an unqualified audit +opinion regarding Bally's 2002 financial statements that included its reactivation revenue +accrual, in a June 16, 2003 meeting, E&Y, including Carpenter, demanded that Bally change its +reactivation revenue recognition policy. That same day, after Carpenter and two senior E&Y +partners, consulted with E&Y’s National Office, E&Y agreed to provide Bally with a +preferability letter stating that the proposed change in reactivation revenue recognition policy to +a cash basis was a more preferable method of accounting for reactivation revenues. +26. In August 2003, Bally sent E&Y a written request for approval of the proposed +change in accounting. Under E&Y’s internal guidance, Carpenter and other senior E&Y partners +were each required to approve the issuance of E&Y’s preferability letter. Carpenter did so on +August 12, 2003. +27. Carpenter knew or should have known that Bally’s change in accounting for +reactivation revenues was not, in fact, a change in accounting principle, but rather was a +correction of an error that required a restatement because Bally’s original accrual methodology +was not in conformity with GAAP. A change in accounting can only be used to move from a +7 + + + + + + + + + + + + + + + +GAAP-compliant accounting methodology to a more preferable GAAP-compliant accounting +methodology; errors in previously issued financial statements cannot be corrected through an +accounting change.6 Bally’s 2003 financial statements, therefore, improperly included a +cumulative effect charge of $20.3 million associated with its change in accounting principle +when its prior years' financial statements should have been restated. Accordingly, Bally’s 2003 +financial statements were not presented in conformity with GAAP, yet Carpenter reviewed and +authorized E&Y’s issuance of an unqualified audit opinion on Bally’s 2003 financial statements, +in violation of GAAS. +Recognition Of Initiation Fee Revenue +28. For the year-end 2003 audit, E&Y and Carpenter turned their attention to Bally's +other accounting estimates, including the member life estimates used in determining the +amortization period of initiation fees that Carpenter knew or should have known were not in +conformity with GAAP. Carpenter knew that E&Y had repeatedly identified as a "critical +accounting policy" Bally's initiation fee revenue recognition methodology. Given the concerns +about fraud perpetrated by means of accounting estimates, for the 2003 audit, E&Y planned to +focus its attention on Bally’s membership revenue recognition methodology. +29. E&Y’s audit planning reflected its awareness that Bally had failed to update its +member life estimate since 1997 and that the company had ignored both its commitment to the +Commission staff to do so and E&Y’s repeated recommendations – in 1998, 2001 and 2002 - to do +so. Carpenter also knew or should have known that, having failed to obtain from the Company an +update of the average renewal period, E&Y had failed to arrive at its own independent estimate. +Consistent with its audit planning concerns about Bally’s aggressive estimates and the risk of +financial fraud, the E&Y engagement team requested that Bally provide support for the member +life estimate for the 2003 fiscal year. Despite repeated efforts to obtain the information, Carpenter +and E&Y never received the requested support. +30. Rather than continuing to press Bally for support for its complex accounting +estimates, at a meeting on January 25, 2004, E&Y, including Carpenter, encouraged Bally to +change its complex accounting methods, including initiation fee revenues. E&Y prepared an +agenda for the January 2004 meeting with Bally; four of the five agenda items related to +identified audit adjustments that subsequently totaled approximately $260 million. +31. At the January 2004 meeting, E&Y, including Carpenter, notified Bally that it +would have to take a charge relating to new accounting guidance that Bally had failed to +implement during the third quarter of 2003. E&Y also identified three adjustments that Bally +would have to book. E&Y made clear that th e new accounting guidance would require Bally to +apply a modified cash basis of accounting to some of its contracts. As Bally and E&Y discussed +the proposed change, Bally’s CFO proposed adopting a modified cash basis of accounting for all +of the company’s membership contracts. Carpenter knew or should have known that the change +to a modified cash basis for the rest of Bally’s revenue recognition accounting would have the +effect of allowing Bally to avoid or at least reduce the significance of some of the charges E&Y +6 See Accounting Principles Board Opinion No. 20, Accounting Changes. +8 + + + + + + + + + + + + + + + + + + +had identified. The proposed changes would also subsume some of the prior audit failures +relating to initiation fee revenues. Bally changed its accounting and Carpenter and other senior +E&Y partners each reviewed and authorized E&Y’s issuance of a preferability letter. Carpenter +knew or should have known that the preferability letter enabled Bally to improperly avoid a +restatement with respect to initiation fee revenue. +32. Bally’s change from accrual accounting to a modified cash basis of accounting was +not, in fact, a change in accounting principle, but rather involved a correction of an error that +required a restatement because Bally’s implementation of the deferral method for recognition of +initiation fee revenue was not in conformity with GAAP. Accordingly, Bally’s 2003 financial +statements were not presented in conformity with GAAP, but Carpenter nonetheless reviewed +and authorized E&Y’s issuance of an unqualified audit opinion on Bally’s 2003 financial +statements, in violation of GAAS. +E&Y’s Audit Was Deficient And Not Performed In Accordance With GAAS +33. E&Y's 2003 audit was deficient and not performed in accordance with GAAS. +E&Y and Carpenter failed to obtain sufficient competent evidential matter to support an opinion +that Bally's estimates, including the average member life estimates, were reasonable.7 E&Y told +Bally's audit committee that GAAS prescribed certain "mandatory procedures," including: +"reviewing accounting estimates for biases that could result in material misstatement due to +fraud, including retrospective review of significant prior year estimates. . . ." +34. E&Y and Carpenter also did not follow up on evidence that Bally's average +member life estimates were biased and unsubstantiated. +35. The change in accounting to a modified cash basis resulted in Bally recording a +cumulative effect adjustment (“CEA”) of more than $441 million, which was much more than +the effect of the identified audit adjustments referred to above, but allowed Bally to provide a +positive explanation for the effect. Given that a significant amount of the CEA related to how +Bally had amortized the initiation fees over a period of less than two years, Carpenter should +have, but did not, question how two supposedly GAAP-compliant methodologies resulted in +such a material disparity in earnings. If he had followed up, Carpenter would have determined +that Bally’s prior calculation of the member life estimates was not reasonable and the Company’s +straight-line amortization of the financed membership initiation fees over a 22-month period was +not in conformity with GAAP. +36. Just as E&Y’s issuance of a preferability letter with regard to the change in +accounting for reactivation dues was improper, so too was its issuance of a preferability letter +with regard to the change to a modified cash basis for initiation fees. By the time E&Y began +the 2003 audit, Carpenter was aware of the issues associated with the average member life +estimate that required vigorous audit procedures, yet he failed to respond adequately. +7 See AU § 326, Evidential Matter. +9 + + + + + + + + + + + + + + + + +37. Carpenter knew or should have known that Bally’s 2003 financial statements +were not presented in conformity with GAAP, and he failed to require E&Y to qualify its +opinion or issue an adverse opinion as required by GAAS. +Carpenter Knew Or Should Have Known Bally Made Improper Disclosures Concerning +The Lack Of Disagreements And Reportable Events With E&Y +38. When an auditor to a public company resigns, Item 304 of Regulation S-K +requires both the company and the auditor to disclose whether any "disagreements" or +"reportable events" occurred in the two most recent fiscal years or any subsequent interim period. +The term “disagreements” is interpreted broadly, to include any difference of opinion concerning +any matter of accounting principles or practices, financial statement disclosure, or auditing scope +or procedures which (if not resolved to the former auditor’s satisfaction) would have caused it to +make reference to the issue in its audit opinion. The term “reportable events” includes events +such as the auditor having advised the company that it questions the reliability of (1) the +company’s financial statements, (2) management’s representations, or (3) the company’s internal +controls. Item 304 also requires the former auditor to file a letter stating whether it agrees with +the company’s Item 304 disclosures and, if not, stating the areas of disagreement. +39. In March 2004, Carpenter, and other senior E&Y partners, including the Director +of the Professional Practice Group, participated in a meeting during which they decided to resign +as Bally’s auditor. A memorandum prepared by Carpenter for the meeting, and given to others +to review and comment prior to the meeting, identified reasons for resigning, including the +engagement team’s distrust of Bally’s senior financial management; its concerns regarding the +company’s internal controls and accuracy of accounting records and the accuracy of +management’s accounting estimates. In addition, Carpenter knew of contentious discussions +with Bally’s management over various issues, including E&Y’s demand that Bally end its +practice of recognizing revenue from reactivations that Bally projected would occur in the future. +40. Following the internal E&Y meeting, E&Y, including Carpenter, advised Bally’s +Audit Committee that it would resign from the engagement because of concerns regarding +management’s tone, the company’s need to demonstrate more concern regarding internal control +issues and the accuracy of its accounting records, and the accuracy of management’s estimates. +41. In Bally’s 2003 Form 10-K disclosure, the Company announced E&Y’s +resignation but represented that there were no disagreements or reportable events. Similarly, +E&Y filed a letter with the Commission stating that it agreed with Bally’s statements there had +been no disagreements or reportable events with Bally’s management. +42. The events described above reflect “disagreements” and "reportable events” that +were required to be disclosed under Item 304 of Regulation S-K. Carpenter knew or should have +known that these disagreements and reportable events were required to be disclosed, but did not +object to the representations in Bally’s 2003 Form 10-K stating there had been no +"disagreements" or "reportable events;” or prevent E&Y from issuing a letter agreeing with the +Company’s Item 304 disclosures. +10 + + + + + + + + + + + + + + + + +Violations +43. Section 17(a)(2) of the Securities Act prohibits obtaining money or property by +means of untrue statements of material fact or misleading omissions of material fact in the offer +or sale of securities. Section 17(a)(3) of the Securities Act prohibits engaging in transactions, +practices or courses of business which operate or would operate as a fraud or deceit upon the +purchaser in the offer or sale of securities. Information is material where there is a substantial +likelihood that a reasonable investor would consider the information important in making an +investment decision. Basic, Inc. v. Levinson, 485 U.S. 224, 231-32 (1988). Establishing +violations of Section 17(a)(2) and 17(a)(3) does not require a showing of scienter. Aaron v. SEC, +446 U.S. 680, 697 (1980). +44. Section 13(a) of the Exchange Act and Rules 13a-1, 13a-11 and 13a-13 +thereunder require all issuers with securities registered under Section 12 of the Exchange Act to +file annual, current and quarterly reports on Form 10-K, Form 8-K and Form 10-Q, respectively. +Exchange Act Rule 12b-20 further requires that, in addition to the information expressly required +to be included in such reports, the issuer must include such additional material information as +may be necessary to make the required statements, in light of the circumstances under which +they were made, not misleading. The obligation to file these periodic reports includes the +obligation that they be complete and accurate in all material respects. See, e.g., SEC v. IMC +Int’l, Inc., 384 F. Supp. 889, 893 (N.D. Tex.), aff’d mem., 505 F.2d 733 (5 +th Cir. 1974). No +showing of scienter is necessary to establish a violation of Section 13(a) of the Exchange Act and +Rules 13a-1, 13a-11, 13a-13 and 12b-20. See SEC v. McNulty, 137 F.3d 732, 740-741 (2d Cir. +1998). +45. 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.” +46. Bally violated Section 17(a)(2) and (3) of the Securities Act and Sections 13(a) +and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder by, +among other things, prematurely recognizing income and improperly deferring costs which +resulted in its books and records being false, failing to maintain accurate books and records, and +including misleading financial statements and information in annual, quarterly and current +reports filed with the Commission in connection with fiscal years 2001 through 2003. +47. Carpenter was a cause of Bally’s violations. For 2003, Carpenter reviewed and +authorized E&Y’s issuance of an audit report containing unqualified opinions stating that E&Y +had conducted an audit of the company’s annual financial statements in accordance with GAAS +and that Bally’s financial statements were presented in conformity with GAAP. This audit report +was included in Bally’s Forms 10-K for 2003. However, Carpenter knew or should have known +that E&Y’s audit report was false and misleading because E&Y failed to conduct the 2003 audit +in accordance with GAAS and Bally was engaged in accounting practices and disclosures that +were not in conformity with GAAP. +11 + + + + + + + + + + + + + + +48. In auditing Bally’s accounting practices relating to reactivation revenue and +initiation fee revenue, Carpenter failed under GAAS to exercise due professional care and +skepticism, failed to obtain sufficient competent evidential matter, and substituted managements’ +representations for competent evidence supporting the accounting. Carpenter never insisted that +Bally provide support for certain of these estimates, nor did Carpenter perform sufficient audit +procedures to test and determine whether these accounting actions resulted in appropriate +recognition of revenue. Had he done so, he would have reasonably determined that these +accounting practices were not in conformity with GAAP. +49. Despite these accounting and audit failures, and in further violation of GAAS, +Carpenter did not require E&Y to express a qualified or adverse audit opinion, or refuse by +disclaimer to express any opinion at all, but instead issued audit reports that contained an +unqualified opinion on Bally’s 2003 financial statements. Carpenter also knew or should have +known that Bally was making false and misleading disclosures. Nor did Carpenter propose that +Bally correct its improper accounting in the quarterly financial statements that E&Y reviewed +during 2003. Carpenter also review ed and authorized E&Y’s issuance of preferability letters that +allowed Bally to switch its accounting policies for reactivation revenue and initiation fee revenue +instead of restating for errors relating to that accounting. +50. Accordingly, Carpenter’s failure to comply with GAAS was a cause of Bally’s +violations of Section 17(a)(2) and (3) of the Securities Act and Sections 13(a) and 13(b)(2)(A) of +the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. +Findings +As a result of the conduct described above, Carpenter engaged in improper professional +conduct through repeated instances of unreasonable conduct pursuant to Rules 102(e)(1)(ii) and +102(e)(1)(iv)(B)(2) of the Commission’s Rules of Practice, each resulting in a violation of +applicable professional standards, that indicate a lack of competence to practice before the +Commission. Carpenter also was a cause of Bally’s violations of Sections 17(a)(2) and (3) of the +Securities Act and Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, +13a-11 and 13a-13 thereunder. +12 + + + + + + + + + + + + + + + + + + + + + + + + + + +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Carpenter’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Carpenter cease and desist from committing or causing any violations and any future +violations of Sections 17(a)(2) and (3) of the Securities Act, and from causing any violations and +any future violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, +13a-1, 13a-11 and 13a-13 thereunder; +B. Carpenter is denied the privilege of appearing or practicing before the +Commission as an accountant pursuant to Rule 102(e)(1)(ii) and Rule 102(e)(1)(iv)(B)(2); +C. After 2 years from the date of this order, Carpenter 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 Carpenter’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) Carpenter, 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) Carpenter, 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 Carpenter’s or the firm’s quality control system that would indicate that +Carpenter will not receive appropriate supervision; +(c) Carpenter 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) Carpenter acknowledges his responsibility, as long as Carpenter +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. +13 + + + + + + + + + + + +D. The Commission will consider an application by Carpenter 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 Carpenter’s +character, integrity, professional conduct, or qualifications to appear or practice before the +Commission. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +14 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3082.pdf b/raw/aaer/2009/AAER-3082.pdf new file mode 100644 index 0000000000000000000000000000000000000000..ed403ab72d4e899cd95614189bcfd1e515a6d200 Binary files /dev/null and b/raw/aaer/2009/AAER-3082.pdf differ diff --git a/raw/aaer/2009/AAER-3082.txt b/raw/aaer/2009/AAER-3082.txt new file mode 100644 index 0000000000000000000000000000000000000000..1394ce5ef58658793bd5b789a345ff57e606c6b1 --- /dev/null +++ b/raw/aaer/2009/AAER-3082.txt @@ -0,0 +1,380 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 61191 / December 17, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3082 / December 17, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13720 +In the Matter of +RANDY G. FLETCHALL, CPA, + +Respondent. +ORDER INSTITUTING PUBLIC +ADMINISTRATIVE PROCEEDINGS +PURSUANT TO SECTION 4C OF THE +EXCHANGE ACT OF 1934 AND RULE +102(e) OF THE COMMISSION’S +RULES OF PRACTICE, MAKING +FINDINGS, AND IMPOSING +REMEDIAL SANCTIONS +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that that public administrative proceedings be, and hereby are, instituted against +Randy G. Fletchall, CPA (“Fletchall” or “Respondent”) pursuant to Section 4C +1of the Securities +Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) of the Commission’s Rules of +Practice.2 +1 Section 4C provides, in relevant part, that: +The Commission may censure any person, or deny, temporarily or permanently, to any person the privilege +of appearing or practicing before the Commission in any way, if that person is found . . . (1) not to possess the +requisite qualifications to represent others . . . (2) to be lacking in character or integrity, or to have engaged in +unethical or improper professional conduct; or (3) to have willfully violated, or willfully aided and abetted the +violation of, any provision of the securities laws or the rules and regulations thereunder. +2 Rule 102(e)(1) provides, in relevant part: +The Commission may censure a person . . . who is found . . . +* * * +(ii) to have engaged in unethical or improper professional conduct. +* * * + + + + + + + + + + + + + + + + + + + + + + + + + + + + +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the purpose +of these proceedings and any other proceedings brought by or on behalf of the Commission, or to +which the Commission is a party, and without admitting or denying the findings herein, except as +to the Commission’s jurisdiction over him and the subject matter of these proceedings, which are +admitted, Respondent consents to the entry of this Order Instituting Public Administrative +Proceedings Pursuant to Section 4C of the Exchange Act of 1934 and Rule 102(e) of the +Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions (“Order”), +as set forth below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds3 that: +Summary +1. This matter involves improper professional conduct in 2003 by Fletchall, who was +the head of the National Office of Ernst & Young LLP (“E&Y”). Fletchall engaged in a single +instance of highly unreasonable conduct with respect to a change of accounting policy by an +E&Y audit client, Bally Total Fitness Holding Corporation (“Bally”), in connection with a +particular revenue recognition issue. Bally’s prior accounting policy for the revenue at issue, +which E&Y had audited for years, was clearly not in conformity with accounting principles +generally accepted in the United States (“GAAP”). +2. In connection with his role in a consultation on the change in Bally’s revenue +recognition policy, Fletchall did not make sufficient inquiries under circumstances where +heightened scrutiny was warranted. Notwithstandi ng the need for heightened scrutiny, Fletchall +failed to exercise due care as required by professional standards. +(iv) with respect to persons licensed to practice as accountants, “improper professional conduct” +under Rule 102(e)(1)(ii) means: +* * * +(B) either of 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. +3 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other +person or entity in this or any other proceeding. +2 + + + + + + + + + + + + + + + + + + + +Respondent +3. Randy G. Fletchall, age 57, is and was at all relevant times a certified public +accountant licensed in Arizona, New York and Texas and a partner at E&Y. Starting in 2001, +Fletchall was E&Y’s Vice-Chair for Assurance and Advisory Business Services (“AABS”) +Professional Practice through June 2003, when his title was changed to Vice-Chair, AABS +Professional Practice and Risk Management. Fletchall was appointed to E&Y’s Americas +Executive Board in July 2003. +Other Relevant Entities +4. E&Y is a national public accounting firm and, during the relevant period, served as +the independent auditor for Bally. +5. Bally is a Delaware corporation, purported to be the largest, and only nationwide, +commercial operator of fitness centers. At a ll relevant times, Bally'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”). The NYSE delisted Bally's common stock on June 8, +2007. After filing for reorganization under Chap ter 11 of the Bankruptcy Code, on September +17, 2007, Bally emerged as a privately held reorganized entity. On February 28, 2008, the +Commission filed a settled injunctive action against Bally in the United States District Court for +the District of Columbia, charging Bally with violating Section 17(a) of the Securities Act of +1933, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 10b-5, +12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The Di strict Court issued permanent injunctions +on May 8, 2008. +Bally’s “Reactivation” Revenue Recognition +6. The particular revenue recognition policy about which Fletchall was consulted +pertained to Bally’s “reactivation” revenue. “Reactivations” were payments from Bally +members who had completed their initial contract period, but whose memberships were canceled +for failure to pay the monthly dues necessary to maintain their membership. Bally did not +attempt to recover those dues because there was no legal obligation to pay such monthly dues. +Accordingly, for those canceled members who had completed the initial contract period, Bally +waited at least six months after receiving their last monthly dues payment and then began +soliciting those canceled members to reactivate. Those who accepted the reactivation offers did +so, on average, 36 months after having stopped paying their monthly dues. The reactivation +offers did not contain claims for or seek payment of “past due” amounts. Instead, they asked for +either a nominal reactivation fee or no reactivation fee at all, and the payment of monthly dues +for a period of future service. +7. Bally's reactivation revenue recognition policy was to project (as of the balance +sheet date) the reactivation payments it anticipated receiving during the coming year and then +immediately recognize most of these projected payments by improperly allocating them to past +periods. Bally's reactivation revenue recogniti on policy was not in conformity with GAAP +3 + + + + + + + + + + + + + + +because the use of this method enabled Bally to recognize revenue before it was earned and was +realized or realizable. 4 Bally recognized revenue before it was earned because, among other +things, it barred canceled former members from the gyms, and therefore, had not provided +services to those of its canceled members who might reactivate in the future. Additionally, Bally +recognized revenue before it was realized or realizable because it was recognizing revenue for +reactivations that had not yet occurred, which it anticipated from canceled former members +whom it could not identify individually and who had no legal obligation to reactivate or pay +Bally anything at all. In s hort, Bally violated GAAP by recognizing revenue related to the +anticipated future payments before the reactivation transactions occurred. +During the Consultation, Fletchall Did Not Exercise Due Care Where +Heightened Scrutiny Was Warranted +8. On June 16, 2003, Fletchall received a telephone call from E&Y partners Mark V. +Sever, Kenneth W. Peterson, and William J. Carpenter. Sever was the National Director of Area +Professional Practice and reported directly to Fletchall. Peterson was the Professional Practice +Director for E&Y’s Lake Michigan Area office while also serving as the Independent Review +Partner on the Bally audit. Carpenter was the Bally audit engagement partner. During this +consultation, which lasted 25 minutes, Sever, Peterson and Carpenter requested Fletchall’s +approval for E&Y to issue a preferability letter concerning Bally’s change from recognizing +“reactivation” revenue on an accrual basis to recognizing “reactivation” revenue on a cash basis. +9. Under E&Y’s internal procedures, approval from the National Office was a +mandatory prerequisite to E&Y issuing a preferability letter. In this case, Fletchall determined +whether to give National Office approval to issue the preferability letter. +10. A “preferability letter” is issued by an auditor to a client concerning a change in +accounting principle. A preferabil ity letter may only be issued when an auditor’s client is +changing from an accounting principle that is in conformity with GAAP to another accounting +principle that is both (a) in conformity with GAAP and (b) is “preferable” to the previously +applied principle. A preferability letter may not be issued if the change is from an error, that is, +an accounting principle that is not in conformity with GAAP to an accounting principle that is in +conformity with GAAP. If an error exists such that a company’s previously issued financial +statements were not fairly presented, in all material respects, in conformity with GAAP, the +auditor is required to insist upon a correction of the error. If the company does not restate its +financial statements to correct the error, the auditor must issue a qualified or adverse audit +opinion. +11. During the consultation on June 16, 2003, Fletchall did not exercise due care by +making sufficient inquiries, despite the fact that heightened scrutiny was warranted in connection +4 See, e.g., Accounting Research Bulletin No. 43, Restatement and Revision of Accounting Research Bulletins, +Chapter 1A (1953); Accounting Principles Board Opinion No. 10, Omnibus Opinion (1966); Statement of Financial +Accounting Concepts No. 5, Recognition and Measurement in Financial Statements of Business Enterprises (1985); +Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, Topic 13.A (1999). +4 + + + + + + + + + + + + + + + +with Bally’s accounting for reactivations. Fletchall had knowledge of circumstances that +warranted heightened scrutiny. +12. First, because he was in charge of risk management efforts for E&Y’s AABS +practice, Fletchall became aware in the fall of 2002 that, out of E&Y’s approximately 10,000 +North American clients, Bally was one of E&Y’s 18 highest risk clients. He also knew that in +2001 and 2002, a series of widely known financial scandals led E&Y to assess its audit risks and +the firm took steps to identify and resign from or focus on certain of its riskiest clients. These 18 +riskiest accounts -- including Bally -- were so-called “National Focus Accounts” and were +monitored by the Americas Executive Board. +13. Second, Fletchall had been informed previously that Bally’s accounting positions +were “aggressive.” In October 2002, Fletch all was provided with a memorandum regarding +E&Y’s 2002 client continuance process. An attachment to this memorandum provided +additional information about a list of E&Y clients designated for additional attention and stated, +among other things, Bally’s “CEO and CFO are former [E&Y] partners, have been aggressive in +accounting positions, and very focused on meeting or beating Wall Street expectations.” +Additionally, Sever discussed with Fletchall the list of National Focus Accounts and the reasons +why those accounts had been selected as National Focus Accounts. +14. Third, in the course of the consultation about the preferability letter, Sever +informed Fletchall that Bally’s revenue recognition policy for “reactivations,” while in his view +GAAP-compliant, was “aggressive.” +15. According to the E&Y firm-wide revenue recognition guidance co-issued by +Fletchall in 1997, “Aggressive accounting policies or practices” are a “warning signal” that +requires E&Y to “carefully evaluate the appropriateness of the client’s accounting for the +transaction . . . ” That guidance further notes that revenue recognition is an area that is +particularly susceptible to fraud. +16. Fourth and finally, Fletchall’s “first reaction [to the request for a preferability +letter] was it seemed a little strange, going from an accrual basis to a cash basis.” Under GAAP, +accrual accounting is presumptively the proper basis for accounting, and cash basis accounting is +presumptively wrong because it is proper under GAAP only when collectibility of amounts owed +by customers is not reasonably assured. +Fletchall’s Approval of the Preferability Letter Constituted A Single Instance of +Highly Unreasonable Conduct in Violation of His Duty to Exercise +Due Care in Accordance with Professional Standards +17. Article V of the Principles of Professional Conduct (ET Section 56) requires that +an accountant exercise due care when discharging professional responsibilities. Due care +requires the accountant to discharge professional responsibilities with competence and diligence. +Diligence imposes the responsibility to render services carefully, to be thorough, and to observe +applicable technical and ethical standards. +5 + + + + + + + + + + + + + +18. Notwithstanding the fact that heightened scrutiny was warranted, Fletchall did not +exercise due care. Specificall y, he failed to obtain sufficient information that was required for +him to: (1) overcome concerns regarding the historical accounting by Bally that should have +been raised by the warning signals associated with the proposed accounting change, and (2) +determine whether the proposed preferability letter could be issued. +19. With respect to the latter determination, Fletchall failed to exercise due care by +conducting sufficient inquiries regarding Bally’s prior accounting method. Fletchall was +required to understand the current accounting policy, the proposed new accounting policy, and +compare the two in order to determine whether the proposed new accounting policy was, indeed, +preferable. Second, Fletchall was required to determine if Bally had provided sufficient +justification for the change to overcome the “presumption that an accounting principle once +adopted should not be changed . . . .” Accountin g Principles Board Opinion No. 20, ¶¶ 15 & 16. +20. A reasonable accountant who understood Bally’s accrual basis of recognizing +revenue for “reactivations” would conclude that it was not in conformity with GAAP, because +Bally was recognizing revenue that was not realized or realizable, and had not been earned. +21. Thus, if Fletchall had exercised due care in determining whether to approve +E&Y’s issuance of the preferability letter, by making sufficient inquiries regarding Bally’s +accounting for reactivations, he would have concluded that: (1) Bally’s current accounting +policy was not in conformity with GAAP and was in fact an accounting error; (2) no preferability +letter could be issued, and (3) Bally was required to restate its previously issued financial +statements to correct that accounting error. +22. Nonetheless, during the call on June 16, 2003, Fletchall reached a “firm +conclusion” that cash basis accounting was preferable to accrual basis accounting for recognizing +“reactivation” revenue and he gave oral approval to Sever, Peterson, and Carpenter that, subject +to the receipt of an acceptable written request for a preferability letter from Bally, E&Y would +issue the preferability letter. Fletchall’s views did not change when he later received Bally’s +written request for a preferability letter, and on August 10, 2003, Fletchall gave his written +approval to issue the preferability letter. +23. As a result of Bally’s failure to correct its improper accounting for reactivations in +the appropriate manner, Bally improperly avoided restating its previously issued financial +statements and instead improperly recorded a $20.3 million (pre-tax effect) cumulative effect +charge to implement a cash basis of accounting for recognizing reactivation revenue. +Findings +Based on the foregoing, Fletchall engaged in improper professional conduct pursuant to +Rules 102(e)(1)(ii) and 102(e)(1)(iv)(B)(1) of the Commission’s Rules of Practice. Specifically, +the Commission finds Fletchall’s failure constitutes a single instance of highly unreasonable +6 + + + + + + + + + + + + + + + + +conduct that resulted in a violation of professional standards in circumstances in which Fletchall +knew or should have known that heightened scrutiny was warranted. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanction +agreed to in Respondent’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +Respondent Fletchall is censured pursuant to Rule 102(e)(1) of the Commission’s Rules +of Practice. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +7 diff --git a/raw/aaer/2009/AAER-3083.pdf b/raw/aaer/2009/AAER-3083.pdf new file mode 100644 index 0000000000000000000000000000000000000000..30b613b8cfc5d8f5ab473ed08f39e22b1b2be38e Binary files /dev/null and b/raw/aaer/2009/AAER-3083.pdf differ diff --git a/raw/aaer/2009/AAER-3083.txt b/raw/aaer/2009/AAER-3083.txt new file mode 100644 index 0000000000000000000000000000000000000000..19eef134bb98fbcbc7018d2a1102a96fab9eedbd --- /dev/null +++ b/raw/aaer/2009/AAER-3083.txt @@ -0,0 +1,877 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES ACT OF 1933 +Release No. 9093 / December 17, 2009 +SECURITIES EXCHANGE ACT OF 1934 +Release No. 61192 / December 17, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3083 / December 17, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13721 +In the Matter of +KENNETH W. PETERSON, +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 pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”), Sections 4C +1 +and 21C of the Securities Exchange Act of 1934 (“Exchange Act”), and Rule 102(e)(1)(ii) of the +Commission’s Rules of Practice2 against Kenneth W. Peterson (“Peterson” or “Respondent”). +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) provides, in relevant part, that: +The Commission may censure a person or deny, temporarily or permanently, the privilege of appearing or +practicing before it . . . to any person who is found . . . + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +II. +In anticipation of the institution of these proceedings, Peterson 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, Peterson 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 (“Order”), as +set forth below. +III. +On the basis of this Order and Peterson’s Offer, the Commission finds3 that: +Summary +1. This matter involves violations of the federal securities laws and improper +professional conduct by Peterson in connection with the 2001-2003 audits of Bally Total Fitness +Holding Corporation (“Bally”) conducted by Ernst & Young LLP (“E&Y”). Peterson, a +Professional Practice Director (“PPD”) in E&Y’s National Office, served as the Independent +Review Partner (“IRP”), or concurring partner, for the 2001-2003 audits. +* * * +(ii) to have engaged in unethical or improper professional conduct. + +* * * +(iv) With respect to persons licensed to practice as accountants, “improper professional conduct” under +§201.102(e)(1)(ii) means: +* * * +(B) Either of the following two types of negligent conduct: +* * * +(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. +3 The findings herein are made pursuant to Peterson's Offer of Settlement and are not binding on any other person or +entity in this or any other proceeding. +2 + + + + + + + + + + + + + + + + +2. In connection with Bally’s 2001-2003 financial statements, Bally engaged in +fraudulent financial accounting, including prematurely recognizing revenue and improperly +deferring costs, which overstated income and inflated stockholders’ equity, and implementing +two improper changes in accounting method rather than restating for accounting errors. Bally +also made false and misleading disclosures regarding a $55 million special charge in its 2002 +Form 10-K. On November 30, 2005, Bally filed its 2004 Form 10-K, which restated its +previously reported financial statements for 2002 and 2003, and selected financial data for 2000 +and 2001. +3. Peterson knew or should have known that E&Y’s unqualified audit opinions +regarding Bally’s 2001-2003 financial statements -- which stated that E&Y had conducted its +audits in accordance with auditing standards generally accepted in the United States (“GAAS”) +and that Bally’s financial statements were presented in conformity with accounting principles +generally accepted in the United States (“GAAP”) -- were false because E&Y’s audits of Bally’s +financial statements were not performed in accordance with GAAS and Bally’s financial +statements were not in conformity with GAAP. +4. As a result of the false and misleading audit opinions, Peterson was a cause of +Bally’s violations of Sections 17(a)(2) and (3) of the Securities Act and Sections 13(a) and +13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13. +Peterson also was a cause of E&Y’s violation of Section 10A(b) of the Exchange Act by not +ensuring that E&Y brought to the attention of Bally’s Audit Committee Bally’s false and +misleading disclosures of the $55 million special charge. +Respondent +5. Peterson is, and was at all relevant times, a Certified Public Accountant licensed in +Illinois. During the relevant period, Peterson was the Professional Practice Director for the Lake +Michigan Area and was based in E&Y’s Chicago office. Peterson also served as the IRP on the +Bally audits from the fourth quarter 2001 through the first quarter 2004 review. +Issuer +6. Bally, a Delaware corporation, purported to be the largest, and only nationwide, +commercial operator of fitness centers. At a ll relevant times, Bally'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”). The NYSE delisted Bally's common stock on June 8, +2007. After filing for reorganization under Chap ter 11 of the Bankruptcy Code, on September +17, 2007, Bally emerged as a privately held reorganized entity. On February 28, 2008, the +Commission filed a settled injunctive action against Bally in the United States District Court for +the District of Columbia, charging Bally with violating Section 17(a) of the Securities Act, +Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 10b-5, 12b- +20, 13a-1, 13a-11 and 13a-13 thereunder. The Dist rict Court issued permanent injunctions on +May 8, 2008. +3 + + + + + + + + + + + + + +Background +7. For many years up until it resigned in 2004, E&Y audited Bally’s financial +statements. Bally’s principal source of revenue was selling gym membership contracts, which +provided customers access to gyms in exchange for the payment of both a one-time initiation fee +and monthly dues. The one-time fee was typically several thousand dollars, while the monthly +dues typically were less than $10 per month. Most of Bally’s customers financed their initiation +fees. To maintain their memberships, customers were required to pay their initiation fee in full +and pay monthly dues. The initiation fees were Bally’s biggest source of revenue. The +obligation to pay the initiation fee was legally enforceable; there was no legal obligation to pay +monthly dues beyond the initial contract period. +8. E&Y recognized Bally as a risky audit and, from at least 1996 through 2003, +designated Bally as a “close monitoring” account because Bally presented a risk that created “a +significant chance the firm [E&Y] will suffer damage to its reputation, monetarily, or both.” +Bally was designated a close monitoring account for several reasons, including, among other +things, that Bally’s managers were former E&Y audit partners who were “difficult” and had +“historically been aggressive in selecting accounting principles and determining estimates;” the +managers placed undue emphasis on maintaining stock prices; management used +“(un)reliable . . . estimation process[es] or questionable judgments;" and Bally’s compensation +plans placed undue emphasis on reported earnings. E&Y's internal guidance notes that a "history +of 'aggressive' applications of accounting policies could indicate a predisposition to misstate the +financial statements." +9. In early 2002, E&Y sought to reduce its risk by identifying its riskiest clients and +resigning from them or otherwise managing the risk they presented to E&Y. Out of a total of +over 10,000 audit clients in North America, E&Y identified Bally as one of the riskiest 18 +accounts. These 18 accounts were so-called “Nat ional Focus Accounts” and were monitored by +the Americas Executive Board. Not only was Bally identified as a National Focus Account, it +was identified by Peterson as the riskiest account in E&Y’s Lake Michigan Area. +Bally’s Accounting Errors And E&Y’s Audit Failures + +Relating To Fiscal Years 2001 And 2002 + +10. In connection with fiscal years 2001 and 2002, as well as earlier years, Bally +engaged in certain practices relating to its recognition of reactivation revenue, initiation fee +revenue, and deferred costs that made its financial statements false and misleading. Peterson, +who knew or should have known of these practices, and other E&Y partners each reviewed and +authorized E&Y’s issuance of unqualified audit opinions, in violation of GAAS, in connection +with its audits of such financial statements. +Premature Recognition Of Reactivation Revenues +11. Bally recognized revenue from what it called “reactivations,” which were +payments from Bally members who had completed their initial contract period, but whose +memberships were canceled for failure to pay the monthly dues necessary to maintain their +4 + + + + + + + + + + + + +membership. Bally did not attempt to recover those dues because there was no legal obligation +to pay dues. Accordingly, for those canceled me mbers who had completed the initial contract +period, Bally waited at least six months after receiving their last payment and then began +soliciting these canceled members to reactivate. Those who accepted the reactivation offers did +so, on average, 36 months after having stopped paying monthly dues. The reactivation offers did +not contain claims for or seek payment of "past due" amounts. Instead, they asked for either a +nominal reactivation fee or no reactivation fee at all, and the payment of monthly dues for a +period of future service. +12. Bally’s reactivation revenue recognition policy was to project (as of the balance +sheet date) the reactivation payments it anticipated receiving in the coming year and then +immediately recognize most of these projected payments by improperly allocating them to past +periods. Bally’s reactivation revenue recognition policy was not in conformity with GAAP +because use of the method enabled Bally to recognize revenue before it was earned and was +realized or realizable.4 Bally recognized revenue before it was earned because, among other +things, it barred canceled former members from the gyms, and therefore, had not provided +services to those of its canceled members who might reactivate in the future. Additionally, Bally +recognized revenue before it was realized or realizable because it was recognizing revenue for +reactivations that had not yet occurred, which it anticipated from canceled former members +whom it could not identify individually and who had no legal obligation to reactivate or pay +Bally anything at all. +13. In short, Bally violated GAAP by recognizing revenue related to the anticipated +future payments before the reactivation transactions occurred. The accounting was clearly not in +conformity with GAAP, and a reasonable accountant who understood Bally's accrual basis of +recognizing revenue for "reactivations" would conclude that it was not in conformity with +GAAP, because Bally was recognizing revenue that was not realized or realizable, and had not +been earned. +14. For at least six years, E&Y had audited Bally's "reactivation" revenue recognition +practices. In each of those years, E&Y pr ovided Bally with an unqualified audit opinion. +15. Peterson knew or should have known that Bally’s accounting policy for +reactivation revenues was not in conformity with GAAP, yet he and other E&Y partners each +reviewed and authorized E&Y’s issuance of unqualified opinions regarding Bally’s 2001 and +2002 financial statements in violation of GAAS. +5 +4 See, e.g., Accounting Research Bulletin No. 43, Restatement and Revision of Accounting Research Bulletins +("ARB 43"), Chapter 1A (1953); Accounting Principles Board Opinion No. 10, Omnibus Opinion (1966); Statement +of Financial Accounting Concepts No. 5, Recognition and Measurement in Financial Statements of Business +Enterprises (1985); Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, Topic 13.A. +(1999) (“SAB 101”). +5 See AICPA’s Codification of Auditing Standards AU § 508, Reports on Audited Financial Statements, (“AU § +508”). +5 + + + + + + + + + + + + + + + + + +Premature Recognition of Initiation Fee Revenue +16. Members paid a substantial initiation fee in connection with new membership +contracts. Beginning in 1997, Bally recognized initiation fee revenue over the estimated average +membership life, which included an estimate for both the average initial contract period and the +average renewal period. Bally computed the wei ghted average expected membership life to be +22 months for financed memberships and 36 months for cash memberships. +17. Bally’s 1997 computations of the weighted average expected membership life +were flawed. A cursory inspection of the comput ations would have revealed these flaws. In +1997, E&Y had checked Bally’s arithmetic and suggested some minor adjustments, but failed to +test whether Bally's computations produced results that were consistent with reality, and failed to +determine that Bally’s computation was fundamentally incorrect. The errors in Bally’s estimates +had the effect of understating the average membership life. As a result, Bally’s member life +estimates improperly accelerated revenue recognition and distorted the economic reality of +Bally’s business. +18. These errors continued through the relevant period. Peterson knew or should +have known, that by recognizing initiation fee revenue from financed contracts over 22 months, +Bally was improperly recognizing revenue before it was earned and realized or realizable in +contravention of GAAP, yet he and other E&Y partners each reviewed and authorized E&Y’s +issuance of unqualified opinions regarding Bally’s 2001 and 2002 financial statements in +violation of GAAS. +Deferral Of Member Acquisition Costs +19. Bally deferred certain of its costs associated with acquiring new members and +recognized such costs over the same period that it deferred initiation fee revenue. +20. GAAP requires that any costs deferred must be direct and incremental to the +acquisition of a new contract or activities directly related to such acquisitions (i.e., they would +not have been incurred “but for” the acquisition of the contract). Costs associated with acquiring +new members are properly deferrable to the extent that they were direct and incremental to the +acquisition of a new member contract, while all other costs must be expensed as incurred. +6 +Bally, however, improperly deferred certain costs that were not eligible for deferral. +21. Peterson knew or should have known that Bally was improperly deferring certain +member acquisition costs, but he and other E&Y partners each reviewed and authorized E&Y’s +issuance of unqualified opinions regarding Bally’s 2001 and 2002 financial statements in +violation of GAAS. +6 See Statement of Financial Accounting Standards No. 91, Accounting for Nonrefundable Fees and Costs +Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases, (Dec. 1986); FASB Technical +Bulletin No. 90-1, Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts, (Dec. +1990); and SAB 101, Topic 13.A. +6 + + + + + + + + + + +E&Y’s Audits Were Deficient And Not Performed In Accordance With GAAS +22. E&Y’s audits of Bally’s reactivation revenues, initiation fee revenues, and +deferred acquisition costs were deficient and not performed in accordance with GAAS. As an +initial matter, Peterson knew that Bally was a risky client due to, among other things, +management’s aggressive accounting policies. +23. E&Y prepared a memorandum in connection with the FY 2000 audit (the “2000 +memo”), which concluded, improperly, that Bally’s reactivation revenue accrual “does not +appear to be precluded by SAB 101.” The memo randum indicated that (a) members who did not +pay dues after the initial contract period were barred from the gyms after a grace period, and (b) +these members had no legally enforceable obligation to pay dues after the initial contract period +or to reactivate their memberships. Peterson reviewed and approved the memorandum in +connection with subsequent audits even though he knew or should have known that these facts +undermined and contradicted the conclusion that the reactivation accrual “does not appear to be +precluded by SAB 101.” Peterson should not have concluded that Bally’s reactivation revenue +policy was in conformity with GAAP and thus Peterson failed to reasonably assess whether +Bally’s financial statements were presented in conformity with GAAP, as required by GAAS. +24. Peterson also knew or should have known that part of the rationale contained in +the 2000 memo supporting Bally’s reactivation revenue policy -- that reactivation revenue was a +continuation of the original contract -- was contrary to a representation that Bally had previously +made to the Commission staff, in connection with its calculation of the average membership life +estimate, that reactivation memberships were “in substance and in form, new contractual +arrangements.” Peterson did not direct the engagement team to address or resolve Bally’s +conflicting revenue recognition treatments of reactivation memberships. +25. Initiation fee revenue was the largest component of Bally’s revenue. In 1997, +Bally had committed to the Commission staff that the company would periodically update its +member life estimates. Contrary to that commitment, Bally failed to update its member life +estimates throughout the period that E&Y remained its auditor and Peterson remained the IRP. +26. Peterson knew or should have known of Bally’s failure to keep that commitment. +In fact, E&Y formally requested Bally to update its member life computations in 1998, 2001, and +2002, but Bally never did so. In response to E&Y’s 2001 request, Bally asserted that the 1997 +calculations were still “an appropriate approximation of the current historical average +membership length” because the original calculation constituted a “35-year historical average.” +In fact, the 1997 calculation did not constitute a 35-year historical average, but reflected an +average from a much smaller pool of data. Peterson knew or should have known that Bally’s +representations regarding the 1997 calculation were false +27. E&Y failed to perform adequate audit procedures with regard to the renewal +period estimate and the resulting amortization period. +7 Rather, E&Y simply carried forward the +1997 estimates pertaining to the average renewal period. Peterson knew or should have known +7 See AU § 342, Auditing Accounting Estimates. +7 + + + + + + + + + + + + +of E&Y’s audit failures. Given the critical nature of this accounting estimate, Peterson’s failure +to require E&Y to obtain from the Company an update or to arrive at its own independent +estimate constitutes a departure from GAAS. +28. Peterson also knew or should have known of Bally’s arbitrary and unsupported +allocation of various costs to the deferred member acquisition cost pool, but he failed to require +E&Y to perform adequate audit procedures with regard to those deferred member acquisition +costs. +29. Peterson knew or should have known that Bally’s 2001 and 2002 financial +statements were not presented in conformity with GAAP, but he failed to require E&Y to qualify +its opinion or issue an adverse opinion as required by GAAS. +E&Y Seeks To Reduce Its Risk: 2002-2003 +30. In 2001 and 2002, a series of widely-known financial scandals led E&Y to assess +its audit risks and the firm took steps to identify and resign from or focus on certain of its riskiest +clients. Internally, E&Y was communicating the dangers of retaining high risk clients, but even +though E&Y identified Bally as one of its riskiest clients during the 2002 client continuance +process, E&Y did not resign from Bally. Instead, E&Y tried to reduce the risk that Bally’s +accounting practices posed to E&Y by, among other things, insisting for the first time that Bally +record the numerous accounting errors that had “historically been [placed by E&Y] on the +summary of audit differences.” +31. In addition, as a result of the implementation of the “Focus Accounts” program, +Bally, its accounting, and its retention as an E&Y client came under scrutiny from E&Y regional +and national management. E&Y’s National Office, including Peterson, actively participated in +events relating to Bally’s critical accounting issues. From July 2002 through March 2003, E&Y, +including Peterson, had numerous internal communications and meetings regarding the risks +posed by Bally generally, as well as particular risky accounting issues, including, among other +things, Bally’s revenue recognition estimates. Bally was the subject of a series of meetings with +E&Y management, including Peterson, and Bally was placed on a list of National Focus +Accounts for Americas Executive Board attention. Because of the Focus Account program, +Peterson knew of Bally’s heightened risk designation and was responsible to engage in +heightened risk management efforts. +Peterson Knew Or Should Have Known Bally Made False And Misleading Disclosures + +Regarding A $55 Million Charge In Fiscal Year 2002 + +32. As of 2002, Bally’s allowance for doubtful accounts (“ADA”) had long been on +E&Y’s list of concerns regarding aggressive accounting. Bally’s estimate of the ADA was +another area in which management’s estimates appeared aggressive. Year in and year out, from +1997 through 2002, Bally consistently used a 41% reserve rate, despite changes in the economy +and in market conditions. The resulting ADA was always at the low end of the range that E&Y +had deemed to be reasonable. +8 + + + + + + + + + + + +33. During the third quarter of 2002, Peterson and others at E&Y determined that +Bally’s collections had deteriorated substantially, and they advised Bally that it needed to +increase its ADA in order to cover the shortfall resulting from the deteriorating collections. +Bally insisted that no change be made to the ADA until the fourth quarter to allow it time to +obtain waivers of debt covenants provisions from Bally’s lenders. +34. During the fourth quarter of 2002, Bally agreed to increase its ADA by +$55 million and ultimately presented it as a “special charge” in Bally’s year-end financial +statements. In its 2002 Form 10-K, Bally made false and misleading disclosures regarding the +reasons for the charge, and Peterson knew or should have known that the disclosures were +improper. The only reason for the charge cited in the Form 10-K was that Bally’s estimation was +based on an accelerated monetization scenario which would result in collecting less than book +value. No mention was made of the deterior ation of the collectability of Bally’s accounts +receivable portfolio, which had been identified by E&Y as requiring Bally to take a charge. +35. The $55 million special charge virtually eliminated Bally's 2002 earnings. +Peterson knew or should have known that Bally’s disclosures failed to disclose accurately the +reasons for the “special charge,” yet he and other E&Y partners did not object and each +authorized E&Y’s issuance of an unqualified audit opinion upon Bally's 2002 financial +statements in violation of GAAS. +8 Peterson also failed to require E&Y to tell Bally’s Audit +Committee about Bally’s false and misleading disclosures. +Bally’s Accounting Errors And E&Y’s Audit Failures Relating To Fiscal Year 2003 +36. In March 2003, after the 2002 audit had concluded but before the company had +filed its 2002 Form 10-K, E&Y, including Peterson, contemplated resigning from the Bally +engagement “due to risk issues.” E&Y decided against resigning in favor of staying on and +reducing its risk. +37. Following the decision to remain as Bally’s auditor, E&Y, in consultation with +Peterson, selected the new E&Y audit engagement partner for the Bally audit. The new +engagement partner rotated onto the Bally audit engagement in April 2003. The new +engagement partner, who was selected because he was experienced and capable of delivering +tough messages, was instructed to “fix this situation to reduce the firm’s risk.” +Recognition Of Reactivation Revenue +38. In June 2003, Bally was in the process of refinancing its bank debt through a +private debt offering, to be followed by a public exchange offering. In connection therewith, +Bally needed E&Y to provide a comfort letter to the underwriters and a consent regarding +Bally’s use of E&Y’s unqualified audit opinion relating to the 2002 audit. E&Y, including +Peterson, told Bally that unless it stopped accruing reactivation revenue, E&Y would not provide +those documents, which left Bally with no real alternative but to agree to stop accruing +reactivation revenue. Even t hough a few months earlier E&Y, with Peterson’s approval, had +8 See AU § 431, Adequacy of Disclosure in Financial Statements; AU § 508. +9 + + + + + + + + +issued an unqualified audit opinion regarding Bally's 2002 financial statements that included its +reactivation revenue accrual, in a June 16, 2003 meeting, E&Y, including Peterson, demanded +that Bally change its reactivation revenue recognition policy. That same day, after Peterson and +other senior E&Y partners consulted with E&Y’s National Office, E&Y agreed to provide Bally +with a preferability letter stating that the proposed change in reactivation revenue recognition +policy to a cash basis was a more preferable method of accounting for reactivation revenues. +39. In August 2003, Bally sent E&Y a written request for approval of the proposed +change in accounting. Under E&Y’s internal guidance, Peterson and other E&Y partners each +were required to approve the issuance of E&Y’s preferability letter. Peterson did so on August +5, 2003. +40. Peterson knew or should have known that Bally’s change in accounting for +reactivation revenues was not, in fact, a change in accounting principle, but rather was a +correction of an error that required a restatement because Bally’s original accrual methodology +was not in conformity with GAAP. A change in accounting can only be used to move from a +GAAP-compliant accounting methodology to a more preferable GAAP-compliant accounting +methodology; errors in previously issued financial statements cannot be corrected through an +accounting change.9 Bally’s 2003 financial statements, therefore, improperly included a +cumulative effect charge of $20.3 million associated with its change in accounting principle +when its prior years' financial statements should have been restated. Accordingly, Bally’s 2003 +financial statements were not presented in conformity with GAAP, yet Peterson and other E&Y +partners each reviewed and authorized E&Y’s issuance of an unqualified audit opinion on +Bally’s 2003 financial statements in violation of GAAS. +Recognition Of Initiation Fee Revenue +41. For the year-end 2003 audit, E&Y and Peterson turned their attention to Bally's +other accounting estimates, including the member life estimates used in determining the +amortization period of initiation fees that Peterson knew or should have known were not in +conformity with GAAP. Peterson knew that E&Y had repeatedly identified as a "critical +accounting policy" Bally's initiation fee revenue recognition methodology. Given the concerns +about fraud perpetrated by means of accounting estimates, for the 2003 audit, E&Y planned to +focus its attention on Bally’s membership revenue recognition methodology. +42. E&Y’s audit planning reflected its awareness that Bally had failed to update its +member life estimate since 1997 and that the company had ignored both its commitment to the +Commission staff to do so and E&Y’s repeated recommendations to do so. Consistent with its +audit planning concerns about Bally’s aggressive estimates and the risk of financial fraud, E&Y +requested that Bally provide support for the member life estimate for the 2003 fiscal year. Despite +repeated efforts to obtain the information, E&Y never received the requested support. +43. Rather than continuing to press Bally for support for its complex accounting +estimates, at a meeting on January 25, 2004, E&Y, including Peterson, encouraged Bally to +9 See APB Opinion No. 20, Accounting Changes. +10 + + + + + + + + + + + + + + + + + +change its complex accounting methods, including initiation fee revenues. E&Y prepared an +agenda for the January 2004 meeting with Bally; four of the five agenda items related to +identified audit adjustments that subsequently totaled approximately $260 million. +44. At the January 2004 meeting, E&Y, including Peterson, notified Bally that it +would have to take a charge relating to new accounting guidance that Bally had failed to +implement during the third quarter of 2003. E&Y also identified three adjustments that Bally +would have to book. E&Y made clear that th e new accounting guidance would require Bally to +apply a modified cash basis of accounting to some of its contracts. As Bally and E&Y discussed +the proposed change, Bally’s CFO proposed adopting a modified cash basis of accounting for all +of the company’s membership contracts. Peterson knew or should have known that the change +to a modified cash basis for the rest of Bally’s revenue recognition accounting would have the +effect of allowing Bally to avoid or at least reduce the significance of some of the charges E&Y +had identified. The proposed changes would also subsume some of the prior audit failures +relating to initiation fee revenues. Bally changed its accounting and Peterson and other E&Y +partners each reviewed and authorized E&Y’s issuance of a preferability letter. Peterson knew +or should have known that the preferability letter enabled Bally to improperly avoid a +restatement with respect to initiation fee revenue. +45. Bally’s change from accrual accounting to a modified cash basis of accounting was +not, in fact, a change in accounting principle, but rather involved a correction of an error that +required a restatement because Bally’s implementation of the deferral method for recognition of +initiation fee revenue was not in conformity with GAAP. Accordingly, Bally’s 2003 financial +statements were not presented in conformity with GAAP, but Peterson nonetheless reviewed and +authorized E&Y’s issuance of an unqualified audit opinion on Bally’s 2003 financial statements +in violation of GAAS. +E&Y’s Audit Was Deficient And Not Performed In Accordance With GAAS +46. E&Y's 2003 audit was deficient and not performed in accordance with GAAS. +E&Y and Peterson failed to obtain sufficient competent evidential matter to support an opinion +that Bally's estimates, including the average member life estimates, were reasonable. + 10 E&Y +told Bally's audit committee that GAAS prescribed certain "mandatory procedures," including: +"reviewing accounting estimates for biases that could result in material misstatement due to +fraud, including retrospective review of significant prior year estimates. . . ." +47. E&Y and Peterson also did not follow up on evidence that Bally's average +member life estimates were biased and unsubstantiated. +48. The change in accounting to a modified cash basis resulted in Bally recording a +cumulative effect adjustment (“CEA”) of more than $441 million, which was much more than +the effect of the identified audit adjustments referred to above, but allowed Bally to provide a +10 See AU § 230, Due Professional Care; AU § 326, Evidential Matter (“AU § 326”); AU § 333A, Management +Representations. +11 + + + + + + + +positive explanation for the effect. Given that a significant amount of the CEA related to how +Bally had amortized the initiation fees over a period of less than two years, Peterson should have +directed the engagement team to question how two supposedly GAAP-compliant methodologies +resulted in such a material disparity in earnings. Nonetheless, he failed to do so. If he had +followed up, Peterson would have determined that Bally’s prior calculation of the member life +estimates was not reasonable and the Company’s straight-line amortization of the financed +membership initiation fees over a 22-month period was not in conformity with GAAP. +49. Just as E&Y’s issuance of a preferability letter with regard to the change in +accounting for reactivation dues was improper, so too was its issuance of a preferability letter +with regard to the change to a modified cash basis for initiation fees. By the time E&Y began +the 2003 audit, Peterson knew or should have known of the issues associated with the average +member life estimate that required vigorous audit procedures, yet he failed to require E&Y to +respond adequately. +50. Peterson knew or should have known that Bally’s 2003 financial statements were +not presented in conformity with GAAP, and he failed to require E&Y to qualify its opinion or +issue an adverse opinion as required by GAAS. +Peterson Knew Or Should Have Known Bally Made Improper Disclosures Concerning The +Lack Of Disagreements And Reportable Events With E&Y +51. When an auditor to a public company resigns, Item 304 of Regulation S-K +requires both the company and the auditor to disclose whether any "disagreements" or +"reportable events" occurred in the two most recent fiscal years or any subsequent interim period. +The term “disagreements” is interpreted broadly, to include any difference of opinion concerning +any matter of accounting principles or practices, financial statement disclosure, or auditing scope +or procedures which (if not resolved to the former auditor’s satisfaction) would have caused it to +make reference to the issue in its audit opinion. The term “reportable events” includes events +such as the auditor having advised the company that it questions the reliability of (1) the +company’s financial statements, (2) management’s representations, or (3) the company’s internal +controls. Item 304 also requires the former auditor to file a letter stating whether it agrees with +the company’s Item 304 disclosures and, if not, stating the areas of disagreement. +52. In March 2004, Peterson, and other senior E&Y partners, including the +Engagement Partner, and the Director of the Professional Practice Group, participated in a +meeting during which they decided to resign as Bally’s auditor. A memorandum prepared by the +Engagement Partner for the meeting, and given to Peterson and others to review and comment +prior to the meeting, identified reasons for resigning, including the engagement team’s distrust of +Bally’s senior financial management; its concerns regarding the company’s internal controls and +accuracy of accounting records and the accuracy of management’s accounting estimates. In +addition, Peterson knew of contentious discussions with Bally’s management over various +issues, including E&Y’s demand that Bally end its practice of recognizing revenue from +reactivations that Bally projected would occur in the future. +12 + + + + + + + + + + + + + + +53. Following the internal E&Y meeting, E&Y advised Bally’s Audit Committee that +it would resign from the engagement because of concerns regarding management’s tone, the +company’s need to demonstrate more concern regarding internal control issues and the accuracy +of its accounting records, and the accuracy of management’s estimates. +54. In Bally’s 2003 Form 10-K disclosure, the Company announced E&Y’s +resignation but represented that there were no disagreements or reportable events. Similarly, +E&Y filed a letter with the Commission stating that it agreed with Bally’s statements there had +been no disagreements or reportable events with Bally’s management. +55. The events described above reflect “disagreements” and "reportable events” that +were required to be disclosed under Item 304 of Regulation S-K. Peterson knew or should have +known that these disagreements and reportable events were required to be disclosed, but did not +object to the representations in Bally’s 2003 Form 10-K stating there had been no +"disagreements" or "reportable events;” or prevent E&Y from issuing a letter agreeing with the +Company’s Item 304 disclosures. +Violations +56. Section 17(a)(2) of the Securities Act prohibits obtaining money or property by +means of untrue statements of material fact or misleading omissions of material fact in the offer +or sale of securities. Section 17(a)(3) of the Securities Act prohibits engaging in transactions, +practices or courses of business which operate or would operate as a fraud or deceit upon the +purchaser in the offer or sale of securities. Information is material where there is a substantial +likelihood that a reasonable investor would consider the information important in making an +investment decision. Basic, Inc. v. Levinson, 485 U.S. 224, 231-32 (1988). Establishing +violations of Section 17(a)(2) and 17(a)(3) does not require a showing of scienter. Aaron v. SEC, +446 U.S. 680, 697 (1980). +57. Section 13(a) of the Exchange Act and Rules 13a-1, 13a-11 and 13a-13 +thereunder require all issuers with securities registered under Section 12 of the Exchange Act to +file annual, current and quarterly reports on Form 10-K, Form 8-K and Form10-Q, respectively. +Exchange Act Rule 12b-20 further requires that, in addition to the information expressly required +to be included in such reports, the issuer must include such additional material information as +may be necessary to make the required statements, in light of the circumstances under which +they were made, not misleading. The obligation to file these periodic reports includes the +obligation that they be complete and accurate in all material respects. See, e.g., SEC v. IMC +Int’l, Inc., 384 F. Supp. 889, 893 (N.D. Tex.), aff’d mem., 505 F.2d 733 (5 +th Cir. 1974). No +showing of scienter is necessary to establish a violation of Section 13(a) of the Exchange Act and +Rules 13a-1, 13a-11, 13a-13 and 12b-20. See SEC v. McNulty, 137 F.3d 732, 740-741 (2d Cir. +1998). +13 + + + + + + + + + +58. 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.” +59. Bally violated Section 17(a)(2) and (3) of the Securities Act and Sections 13(a) +and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder by, +among other things, prematurely recognizing income and improperly deferring costs which +resulted in its books and records being false, failing to maintain accurate books and records and +including misleading financial statements and information in annual, quarterly and current +reports filed with the Commission in connection with fiscal years 2001 through 2003. +60. Peterson was a cause of Bally’s violations. For each of the years 2001-2003, +Peterson reviewed and authorized E&Y’s issuance of audit reports containing unqualified +opinions stating that E&Y had conducted an audit of the company’s annual financial statements +in accordance with GAAS and that Bally’s financial statements were presented in conformity +with GAAP. These audit reports were included in Bally’s Forms 10-K for 2001-2003. However, +Peterson knew or should have known that E&Y’s audit reports were false and misleading +because E&Y failed to conduct its audits in accordance with GAAS and Bally was engaged in +accounting practices and disclosures that were not in conformity with GAAP. +61. In auditing Bally’s accounting practices relating to reactivation revenue, initiation +fee revenue and deferred acquisition costs, Peterson failed under GAAS to exercise due +professional care and skepticism, failed to ensure that E&Y obtained sufficient competent +evidential matter, and substituted managements’ representations for competent evidence +supporting the accounting. Peterson failed to insist that Bally provide support for certain of these +estimates, nor did Peterson require that the engagement team perform sufficient audit procedures +to test and determine whether these accounting actions resulted in appropriate recognition of +revenue. Had he done so, he would have reasonably determined that these accounting practices +were not in conformity with GAAP. +62. Despite these accounting and audit failures, and in further violation of GAAS, +Peterson did not require E&Y to express a qualified or adverse audit opinion, or refuse by +disclaimer to express any opinion at all, but instead issued audit reports that contained +unqualified opinions on Bally’s 2001-2003 financial statements. Peterson also knew or should +have known that Bally was making false and misleading disclosures such as in connection with +its $55 million special charge. Nor did Peterson propose that Bally correct its improper +accounting.in the quarterly financial statements that E&Y reviewed during 2001-2003. Peterson +also authorized E&Y to improperly issue preferability letters that allowed Bally to switch its +accounting policies for reactivation revenue and initiation fee revenue instead of restating for +errors relating to that accounting. Accordingly, Peterson’s failure to comply with GAAS was a +cause of Bally’s violations of Section 17(a)(2) and (3) of the Securities Act and Sections 13(a) +and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. +63. Peterson also was a cause of E&Y’s violation of Section 10A(b) of the Exchange +Act in connection with Bally’s failure to disclose that the $55 million special charge recorded in +14 + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +its FY 2002 financial statements was due to a deterioration in the collectability of the Company’s +receivables. Peterson failed to require E&Y to report this illegal act to the Audit Committee in +accordance with Section 10A(b). +Findings +As a result of the conduct described above, Peterson engaged in improper professional +conduct through repeated instances of improper professional conduct pursuant to Rules +102(e)(1)(ii) and 102(e)(1)(iv)(B)(2) of the Commission’s Rules of Practice and was a cause of +Bally's violations of Sections 17(a)(2) and (3) of the Securities Act and Sections 13(a) and +13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. +Peterson also was a cause of E&Y’s violation of Section 10A(b) of the Exchange Act by not +ensuring that E&Y brought to the attention of Bally’s Audit Committee Bally’s false and +misleading disclosures of the $55 million special charge. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Peterson’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Peterson cease and desist from committing or causing any violations and any future +violations of Sections 17(a)(2) and (3) of the Securities Act, and from causing any violations and +any future violations of Sections 10A(b), 13(a) and 13(b)(2)(A) of the Exchange Act and Rules +12b-20, 13a-1, 13a-11 and 13a-13 thereunder; +B. Peterson is denied the privilege of appearing or practicing before the Commission +as an accountant pursuant to Rule 102(e)(1)(ii) and Rule 102(e)(1)(iv)(B)(2); +C. After 2 years from the date of this order, Peterson 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 Peterson’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: +15 + + + + + + + + + + + + + + + +(a) Peterson, 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) Peterson, 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 Peterson’s or the firm’s quality control system that would indicate that the +Peterson will not receive appropriate supervision; +(c) Peterson 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) Peterson acknowledges his responsibility, as long as Peterson +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 Peterson 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 Peterson’s character, +integrity, professional conduct, or qualifications to appear or practice before the Commission. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +16 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3084.pdf b/raw/aaer/2009/AAER-3084.pdf new file mode 100644 index 0000000000000000000000000000000000000000..5bf4170cdb2b8e0b0df76ef9e88d2632cdcfa19e Binary files /dev/null and b/raw/aaer/2009/AAER-3084.pdf differ diff --git a/raw/aaer/2009/AAER-3084.txt b/raw/aaer/2009/AAER-3084.txt new file mode 100644 index 0000000000000000000000000000000000000000..2081a8aae833b097befb3be2f1dfcc1e194ead07 --- /dev/null +++ b/raw/aaer/2009/AAER-3084.txt @@ -0,0 +1,890 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES ACT OF 1933 +Release No. 9094 / December 17, 2009 +SECURITIES EXCHANGE ACT OF 1934 +Release No. 61193 / December 17, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3084 / December 17, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13722 +In the Matter of +MARK V. SEVER, 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 pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”), Sections 4C +1 and +21C of the Securities Exchange Act of 1934 (“Exchange Act”), and Rule 102(e)(1)(iii) of the +Commission’s Rules of Practice2 against Mark V. Sever (“Sever” or “Respondent”). +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) provides, in pertinent part, that: + + + + + + + + + + + + + + + + + + + + + + + + + + +II. +In anticipation of the institution of these proceedings, Sever 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, Sever 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 (“Order”), as +set forth below. +III. +On the basis of this Order and Sever’s Offer, the Commission finds3 that: +Summary +1. This matter involves violations of the federal securities laws and improper +professional conduct by Sever in connection with the 2001-2003 audits of Bally Total Fitness +Holding Corporation (“Bally”) conducted by Ernst & Young LLP (“E&Y”). From 1997 through +the third quarter of 2001, Sever was a Professional Practice Director (“PPD”) in E&Y’s National +Office, and served as the Independent Review Partner (“IRP”), or concurring partner, for Bally’s +audits. Then, as the National Director of Ar ea Professional Practice, who also developed and +implemented E&Y’s Focus Account risk management program, Sever remained involved with +Bally’s 2001-2003 audits. +2. In connection with Bally’s 2001-2003 financial statements, Bally engaged in +fraudulent financial accounting, including prematurely recognizing revenue and improperly +deferring costs, which overstated income and inflated stockholders’ equity, and implementing +two improper changes in accounting method rather than restating for accounting errors. Bally +also made false and misleading disclosures regarding a $55 million special charge in its 2002 +Form 10-K. On November 30, 2005, Bally filed its 2004 Form 10-K, which restated its +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… +* * * +(iii) to have willfully violated, or willfully aided and abetted the violation of any provision of the +Federal securities laws or the rules and regulations thereunder. +3 The findings herein are made pursuant to Sever's Offer of Settlement and are not binding on any other person or +entity in this or any other proceeding. +2 + + + + + + + + + + + + + + + + + + + + + +previously reported financial statements for 2002 and 2003, and selected financial data for 2000 +and 2001. +3. Sever knew or should have known that E&Y’s unqualified audit opinions +regarding Bally’s 2001-2003 financial statements -- which stated that E&Y had conducted its +audits in accordance with auditing standards generally accepted in the United States (“GAAS”) +and that Bally’s financial statements were presented in conformity with accounting principles +generally accepted in the United States (“GAAP”) -- were false because E&Y’s audits of Bally’s +financial statements were not performed in accordance with GAAS and Bally’s financial +statements were not in conformity with GAAP. +4. As a result of the false and misleading audit opinions, Sever was a cause of +Bally’s violations of Sections 17(a)(2) and (3) of the Securities Act, and was a cause of and +willfully4 aided and abetted Bally’s violations of Sections 13(a) and 13(b)(2)(A) of the Exchange +Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13. Sever also was a cause of +E&Y’s violation of Section 10A(b) of the Exchange Act by not ensuring that E&Y brought to the +attention of Bally’s Audit Committee Bally’s false and misleading disclosures of the $55 million +special charge. +Respondent +5. Sever is, and was at all relevant times, a Certified Public Accountant licensed in +Illinois. From 1997 through the third quarter of 2001, Sever was the PPD for the Lake Michigan +Area and also was the IRP on the Bally audits. Sever then was appointed to be the National +Director of Area Professional Practice, but he remained involved in Bally’s audits. +Issuer +6. Bally, a Delaware corporation, purported to be the largest, and only nationwide, +commercial operator of fitness centers. At a ll relevant times, Bally'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”). The NYSE delisted Bally's common stock on June 8, +2007. After filing for reorganization under Chap ter 11 of the Bankruptcy Code, on September +17, 2007, Bally emerged as a privately held reorganized entity. On February 28, 2008, the +Commission filed a settled injunctive action against Bally in the United States District Court for +the District of Columbia, charging Bally with violating Section 17(a) of the Securities Act, +Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 10b-5, 12b- +20, 13a-1, 13a-11 and 13a-13 thereunder. The Dist rict Court issued permanent injunctions on +May 8, 2008. +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)). +3 + + + + + + + + + + + + + +Background +7. For many years up until it resigned in 2004, E&Y audited Bally’s financial +statements. Bally’s principal source of revenue was selling gym membership contracts, which +provided customers access to gyms in exchange for the payment of both a one-time initiation fee +and monthly dues. The one-time fee was typically several thousand dollars, while the monthly +dues typically were less than $10 per month. Most of Bally’s customers financed their initiation +fees. To maintain their memberships, customers were required to pay their initiation fee in full +and pay monthly dues. The initiation fees were Bally’s biggest source of revenue. The +obligation to pay the initiation fee was legally enforceable; there was no legal obligation to pay +monthly dues beyond the initial contract period. +8. E&Y recognized Bally as a risky audit and, from at least 1996 through 2003, +designated Bally as a “close monitoring” account because Bally presented a risk that created “a +significant chance the firm [E&Y] will suffer damage to its reputation, monetarily, or both.” +Bally was designated a close monitoring account for several reasons, including, among other +things, that Bally’s managers were former E&Y audit partners who were “difficult” and had +“historically been aggressive in selecting accounting principles and determining estimates;” the +managers placed undue emphasis on maintaining stock prices; management used +“(un)reliable . . . estimation process[es] or questionable judgments;" and Bally’s compensation +plans placed undue emphasis on reported earnings. E&Y's internal guidance notes that a "history +of 'aggressive' applications of accounting policies could indicate a predisposition to misstate the +financial statements." +9. In early 2002, E&Y sought to reduce its risk by identifying its riskiest clients and +resigning from them or otherwise managing the risk they presented to E&Y. Out of a total of +over 10,000 audit clients in North America, E&Y identified Bally as one of the riskiest 18 +accounts. These 18 accounts were so-called “Nat ional Focus Accounts” and were monitored by +the Americas Executive Board. Not only was Bally identified as a National Focus Account, +Sever knew it was identified as the riskiest account in E&Y’s Lake Michigan Area. +Bally’s Accounting Errors And E&Y’s Audit Failures + +Relating To Fiscal Years 2001 And 2002 + +10. In connection with fiscal years 2001 and 2002, as well as earlier years, Bally +engaged in certain practices relating to its recognition of reactivation revenue, initiation fee +revenue, and deferred costs that made its financial statements false and misleading. Sever, who +knew or should have known of these practices, reviewed and did not object to E&Y’s issuance of +unqualified audit opinions, in violation of GAAS, in connection with its audits of such financial +statements. +Premature Recognition Of Reactivation Revenues +11. Bally recognized revenue from what it called “reactivations,” which were +payments from Bally members who had completed their initial contract period, but whose +memberships were canceled for failure to pay the monthly dues necessary to maintain their +4 + + + + + + + + + + + +membership. Bally did not attempt to recover those dues because there was no legal obligation +to pay dues. Accordingly, for those canceled me mbers who had completed the initial contract +period, Bally waited at least six months after receiving their last payment and then began +soliciting these canceled members to reactivate. Those who accepted the reactivation offers did +so, on average, 36 months after having stopped paying monthly dues. The reactivation offers did +not contain claims for or seek payment of "past due" amounts. Instead, they asked for either a +nominal reactivation fee or no reactivation fee at all, and the payment of monthly dues for a +period of future service. +12. Bally’s reactivation revenue recognition policy was to project (as of the balance +sheet date) the reactivation payments it anticipated receiving in the coming year and then +immediately recognize most of these projected payments by improperly allocating them to past +periods. Bally’s reactivation revenue recognition policy was not in conformity with GAAP +because use of the method enabled Bally to recognize revenue before it was earned and was +realized or realizable.5 Bally recognized revenue before it was earned because, among other +things, it barred canceled former members from the gyms, and therefore, had not provided +services to those of its canceled members who might reactivate in the future. Additionally, Bally +recognized revenue before it was realized or realizable because it was recognizing revenue for +reactivations that had not yet occurred, which it anticipated from canceled former members +whom it could not identify individually and who had no legal obligation to reactivate or pay +Bally anything at all. +13. In short, Bally violated GAAP by recognizing revenue related to the anticipated +future payments before the reactivation transactions occurred. The accounting was clearly not in +conformity with GAAP, and a reasonable accountant who understood Bally's accrual basis of +recognizing revenue for "reactivations" would conclude that it was not in conformity with +GAAP, because Bally was recognizing revenue that was not realized or realizable, and had not +been earned. +14. For at least six years, E&Y had audited Bally's "reactivation" revenue recognition +practices. In each of those years, E&Y pr ovided Bally with an unqualified audit opinion. +15. Sever knew or should have known that Bally’s accounting policy for reactivation +revenues was not in conformity with GAAP, yet he reviewed and did not object to E&Y’s +issuance of unqualified opinions regarding Bally’s 2001 and 2002 financial statements in +violation of GAAS. +6 +5 See, e.g., Accounting Research Bulletin No. 43, Restatement and Revision of Accounting Research Bulletins +("ARB 43"), Chapter 1A (1953); Accounting Principles Board Opinion No. 10, Omnibus Opinion (1966); Statement +of Financial Accounting Concepts No. 5, Recognition and Measurement in Financial Statements of Business +Enterprises (1985); Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, Topic 13.A. +(1999)(“SAB 101”). +6 See AICPA’s Codification of Auditing Standards AU § 508, Reports on Audited Financial Statements, (“AU § +508”). +5 + + + + + + + + + + + + + + + + + + +Premature Recognition Of Initiation Fee Revenue +16. Members paid a substantial initiation fee in connection with new membership +contracts. Beginning in 1997, Bally recognized initiation fee revenue over the estimated average +membership life, which included an estimate for both the average initial contract period and the +average renewal period. Bally computed the wei ghted average expected membership life to be +22 months for financed memberships and 36 months for cash memberships. +17. Bally’s 1997 computations of the weighted average expected membership life +were flawed. A cursory inspection of the comput ations would have revealed these flaws. In +1997, E&Y had checked Bally’s arithmetic and suggested some minor adjustments, but failed to +test whether Bally's computations produced results that were consistent with reality, and failed to +determine that Bally’s computation was fundamentally incorrect. The errors in Bally’s estimates +had the effect of understating the average membership life. As a result, Bally’s member life +estimates improperly accelerated revenue recognition and distorted the economic reality of +Bally’s business. +18. These errors continued through the relevant period. Sever knew or should have +known, that by recognizing initiation fee revenue from financed contracts over 22 months, Bally +was improperly recognizing revenue before it was earned and realized or realizable in +contravention of GAAP, yet he reviewed and did not object to E&Y’s issuance of unqualified +opinions regarding Bally’s 2001 and 2002 financial statements in violation of GAAS. +Deferral Of Member Acquisition Costs +19. Bally deferred certain of its costs associated with acquiring new members and +recognized such costs over the same period that it deferred initiation fee revenue. +20. GAAP requires that any costs deferred must be direct and incremental to the +acquisition of a new contract or activities directly related to such acquisitions (i.e., they would +not have been incurred “but for” the acquisition of the contract). Costs associated with acquiring +new members are properly deferrable to the extent that they were direct and incremental to the +acquisition of a new member contract, while all other costs must be expensed as incurred. +7 +Bally, however, improperly deferred certain costs that were not eligible for deferral. +21. Sever knew or should have known that Bally was improperly deferring certain +member acquisition costs, but he reviewed and did not object to E&Y’s issuance of unqualified +opinions regarding Bally’s 2001 and 2002 financial statements in violation of GAAS. +7 See Statement of Financial Accounting Standards No. 91, Accounting for Nonrefundable Fees and Costs +Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases, (Dec. 1986); FASB Technical +Bulletin No. 90-1, Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts, (Dec. +1990); and SAB 101, Topic 13.A. +6 + + + + + + + + + + +E&Y’s Audits Were Deficient And Not Performed In Accordance With GAAS +22. E&Y’s audits of Bally’s reactivation revenues, initiation fee revenues, and +deferred acquisition costs were deficient and not performed in accordance with GAAS. As an +initial matter, Sever knew that Bally was a risky client due to, among other things, management’s +aggressive accounting policies. +23. E&Y prepared a memorandum in connection with the FY 2000 audit (the “2000 +memo”), which concluded, improperly, that Bally’s reactivation revenue accrual “does not +appear to be precluded by SAB 101.” The memo randum indicated that (a) members who did not +pay dues after the initial contract period were barred from the gyms after a grace period, and (b) +these members had no legally enforceable obligation to pay dues after the initial contract period +or to reactivate their memberships. Sever reviewed and approved the memorandum even though +he knew or should have known that that these facts undermined and contradicted the conclusion +that the reactivation accrual “does not appear to be precluded by SAB 101.” Sever should not +have concluded that Bally’s reactivation revenue policy was in conformity with GAAP and thus +Sever failed to reasonably assess whether Bally’s financial statements were presented in +conformity with GAAP, as required by GAAS. +24. Sever also knew or should have known that part of the rationale contained in the +2000 memo supporting Bally’s reactivation revenue policy -- that reactivation revenue was a +continuation of the original contract -- was contrary to a representation that Bally had previously +made to the Commission staff, in connection with its calculation of the average membership life +estimate, that reactivation memberships were “in substance and in form, new contractual +arrangements.” Sever did not direct the engagement team to address or resolve Bally’s +conflicting revenue recognition treatments of reactivation memberships. +25. Initiation fee revenue was the largest component of Bally’s revenue. In 1997, +Bally had committed to the Commission staff that the company would periodically update its +member life estimates. Contrary to that commitment, Bally failed to update its member life +estimates throughout the period that E&Y remained its auditor and that Sever remained the IRP +and subsequently remained involved with the Bally audit. +26. Sever knew or should have known of Bally’s failure to keep that commitment. In +fact, E&Y formally requested Bally to update its member life computations in 1998, 2001, and +2002, but Bally never did so. In response to E&Y’s 2001 request, Bally asserted that the 1997 +calculations were still “an appropriate approximation of the current historical average +membership length” because the original calculation constituted a “35-year historical average.” +In fact, the 1997 calculation did not constitute a 35-year historical average, but reflected an +average from a much smaller pool of data. Sever knew or should have known that Bally’s +representations regarding the 1997 calculation were false. +27. E&Y failed to perform adequate audit procedures with regard to the renewal +period estimate and the resulting amortization period. +8 Rather, E&Y simply carried forward the +8 See AU § 342, Auditing Accounting Estimates. +7 + + + + + + + + +1997 estimates pertaining to the average renewal period. Sever knew or should have known of +E&Y’s audit failures. Given the critical nature of this accounting estimate, Sever’s failure to +require E&Y to obtain from the Company an update or to arrive at its own independent estimate +constitutes a departure from GAAS. +28. Sever also knew or should have known of Bally’s arbitrary and unsupported +allocation of various costs to the deferred member acquisition cost pool, but he failed to require +E&Y to perform adequate audit procedures with regard to those deferred member acquisition +costs. +29. Sever knew or should have known that Bally’s 2001 and 2002 financial +statements were not presented in conformity with GAAP, but he failed to require E&Y to qualify +its opinion or issue an adverse opinion as required by GAAS. +E&Y Seeks To Reduce Its Risk: 2002-2003 +30. In 2001 and 2002, a series of widely-known financial scandals led E&Y to assess +its audit risks and the firm took steps to identify and resign from or focus on certain of its riskiest +clients. Internally, E&Y, including Sever, was communicating the dangers of retaining high risk +clients, but even though E&Y identified Bally as one of its riskiest clients during the 2002 client +continuance process, E&Y did not resign from Bally. Instead, E&Y tried to reduce the risk that +Bally’s accounting practices posed to E&Y by, among other things, insisting for the first time +that Bally record the numerous accounting errors that had “historically been [placed by E&Y] on +the summary of audit differences.” +31. In addition, during this period, Sever was responsible for developing and +implementing E&Y’s initiative to identify the firm’s highest risk clients. Sever, working with +the area PPDs, developed a list of the approximately 18 highest risk accounts. These accounts, +including Bally, were identified as National Focus Accounts for Americas Executive Board +attention. +32. As a result of the implementation of the “Focus Accounts” program, Bally, its +accounting, and its retention as an E&Y client came under scrutiny from E&Y regional and +national management. E&Y’s National Office, including Sever, actively participated in events +relating to Bally’s critical accounting issues. From July 2002 through March 2003, E&Y, +including Sever, had numerous internal communications and meetings regarding the risks posed +by Bally generally, as well as particular risky accounting issues, including, among other things, +Bally’s revenue recognition estimates. Bally was the subject of a series of meetings with E&Y +management, including Sever, and Bally was placed on the list of National Focus Accounts. +Despite his position as National Director of Area Professional Practice and his lack of any formal +role on the Bally’s audits, Sever was heavily involved with Bally’s accounting issues in 2002 and +2003. +8 + + + + + + + + + + + + +Sever Knew Or Should Have Known Bally Made False And Misleading Disclosures + +Regarding A $55 Million Charge In Fiscal Year 2002 + +33. As of 2002, Bally’s allowance for doubtful accounts (“ADA”) had long been on +E&Y’s list of concerns regarding aggressive accounting. Bally’s estimate of the ADA was +another area in which management’s estimates appeared aggressive. Year in and year out, from +1997 through 2002, Bally consistently used a 41% reserve rate, despite changes in the economy +and in market conditions. The resulting ADA was always at the low end of the range that E&Y +had deemed to be reasonable. +34. During the third quarter of 2002, Sever and others at E&Y determined that Bally’s +collections had deteriorated substantially, and they advised Bally that it needed to increase its +ADA in order to cover the shortfall resulting from the deteriorating collections. Sever also met +with both Bally’s CFO and CEO to discuss the need to increase Bally’s bad debt allowance. +Bally insisted that no change be made to the ADA until the fourth quarter to allow it time to +obtain waivers of debt covenants provisions from Bally’s lenders. +35. During the fourth quarter of 2002, Bally agreed to increase its ADA by +$55 million and ultimately presented it as a “special charge” in Bally’s year-end financial +statements. In its 2002 Form 10-K, Bally made false and misleading disclosures regarding the +reasons for the charge, and Sever knew or should have known that the disclosures were +improper. The only reason for the charge cited in the Form 10-K was that Bally’s estimation was +based on an accelerated monetization scenario which would result in collecting less than book +value. No mention was made of the deterior ation of the collectability of Bally’s accounts +receivable portfolio, which had been identified by E&Y as requiring Bally to take a charge. +36. The $55 million special charge virtually eliminated Bally's 2002 earnings. Sever +knew or should have known that Bally’s disclosures failed to disclose accurately the reasons for +the “special charge,” yet he did not object to E&Y’s issuance of an unqualified audit opinion +upon Bally's 2002 financial statements in violation of GAAS. +9 Sever also failed to require E&Y +to tell Bally’s Audit Committee about Bally’s false and misleading disclosures. +Bally’s Accounting Errors And E&Y’s Audit Failures Relating To Fiscal Year 2003 +37. In March 2003, after the 2002 audit had concluded but before the company had +filed its 2002 Form 10-K, E&Y, including Sever, contemplated resigning from the Bally +engagement “due to risk issues.” E&Y decided against resigning in favor of staying on and +reducing its risk. +38. Following the decision to remain as Bally’s auditor, a new E&Y audit +engagement partner rotated on to the Bally engagement in April 2003. The new engagement +partner, who was selected because he was experienced and capable of delivering tough +messages, was instructed to “fix this situation to reduce the firm’s risk.” +9 See AU § 431, Adequacy of Disclosure in Financial Statements; AU § 508. +9 + + + + + + + + +Recognition Of Reactivation Revenue +39. After the new engagement partner joined the Bally audit team, he reviewed +E&Y’s prior analysis of Bally’s accounting for reactivations, the 2000 audit file memo that Sever +had approved, and raised a number of questions challenging its reasoning. The new engagement +partner consulted with Sever and the former engagement partner, but the new engagement +partner remained concerned about whether Bally’s reactivation revenue recognition policy was +in conformity with GAAP. +40. In June 2003, Bally was in the process of refinancing its bank debt through a +private debt offering, to be followed by a public exchange offering. In connection therewith, +Bally needed E&Y to provide a comfort letter to the underwriters and a consent regarding +Bally’s use of E&Y’s unqualified audit opinion relating to the 2002 audit. E&Y, including +Sever, told Bally that unless it stopped accruing reactivation revenue, E&Y would not provide +those documents, which left Bally with no real alternative but to agree to stop accruing +reactivation revenue. +41. Even though a few months earlier E&Y had issued an unqualified audit opinion +regarding Bally's 2002 financial statements that included its reactivation revenue accrual, in a +June 16, 2003 meeting, E&Y, including Sever, demanded that Bally change its reactivation +revenue recognition policy. Initially, Sever suggested that Bally write off the reactivation +accrual in that quarter or over the next several quarters. Neither alternative was in conformity +with GAAP: the $20.3 million reactivation accrual could not be written off in one quarter +because a material error requires a restatement under Accounting Principles Board Opinion No. +20, Accounting Changes; and the $20.3 million was material to Bally’s income statement. +Similarly, spreading of the write-off of an error over several quarters is not in conformity with +GAAP. +42. In the same June 16, 2003 meeting, the issue of a preferability letter was then +raised. That same day, after Sever and other se nior E&Y partners consulted with the head of +E&Y’s National Office, E&Y agreed to provide Bally with a preferability letter stating that the +proposed change in reactivation revenue recognition policy to a cash basis was a more preferable +method of accounting for reactivation revenues. +43. In August 2003, Bally sent E&Y a written request for approval of the proposed +change in accounting. Sever reviewed and approved Bally’s written preferability request before +E&Y issued its final preferability letter. +44. Sever knew or should have known that Bally’s change in accounting for +reactivation revenues was not, in fact, a change in accounting principle, but rather was a +correction of an error that required a restatement because Bally’s original accrual methodology +was not in conformity with GAAP. A change in accounting can only be used to move from a +GAAP-compliant accounting methodology to a more preferable GAAP-compliant accounting +methodology; errors in previously issued financial statements cannot be corrected through an +10 + + + + + + + + + + + +accounting change.10 Bally’s 2003 financial statements, therefore, improperly included a +cumulative effect charge of $20.3 million associated with its change in accounting principle +when its prior years' financial statements should have been restated. Accordingly, Bally’s 2003 +financial statements were not presented in conformity with GAAP, yet Sever did not object to +E&Y issuing an unqualified audit opinion on Bally’s 2003 financial statements in violation of +GAAS. +Recognition Of Initiation Fee Revenue +45. For the year-end 2003 audit, E&Y and Sever turned their attention to Bally's other +accounting estimates, including the member life estimates used in determining the amortization +period of initiation fees that Sever knew or should have known were not in conformity with +GAAP. Sever knew that E&Y had repeatedly identified as a "critical accounting policy" Bally's +initiation fee revenue recognition methodology. Given the concerns about fraud perpetrated by +means of accounting estimates, for the 2003 audit, E&Y planned to focus its attention on Bally’s +membership revenue recognition methodology. +46. E&Y’s audit planning reflected its awareness that Bally had failed to update its +member life estimate since 1997 and that the company had ignored both its commitment to the +Commission staff to do so and E&Y’s repeated recommendations to do so. Consistent with its +audit planning concerns about Bally’s aggressive estimates and the risk of financial fraud, E&Y +requested that Bally provide support for the member life estimate for the 2003 fiscal year. Despite +repeated efforts to obtain the information, E&Y never received the requested support. +47. Rather than continuing to press Bally for support for its complex accounting +estimates, at a meeting on January 25, 2004, E&Y, including Sever, encouraged Bally to change +its complex accounting methods, including initiation fee revenues. E&Y prepared an agenda for +the January 2004 meeting with Bally; four of the five agenda items related to identified audit +adjustments that subsequently totaled approximately $260 million. +48. At the January 2004 meeting, E&Y, including Sever, notified Bally that it would +have to take a charge relating to new accounting guidance that Bally had failed to implement +during the third quarter of 2003. E&Y also identified three adjustments that Bally would have to +book. E&Y made clear that the new accounti ng guidance would require Bally to apply a +modified cash basis of accounting to some of its contracts. As Bally and E&Y discussed the +proposed change, Bally’s CFO proposed adopting a modified cash basis of accounting for all of +the company’s membership contracts. Sever knew or should have known that the change to a +modified cash basis for the rest of Bally’s revenue recognition accounting would have the effect +of allowing Bally to avoid or at least reduce the significance of some of the charges E&Y had +identified. The proposed changes would also subsum e some of the prior audit failures relating to +initiation fee revenues. Bally changed its accounting and Sever reviewed and did not object to +E&Y’s issuance of a preferability letter that he knew or should have known enabled Bally to +improperly avoid a restatement with respect to initiation fee revenue. +10 See APB Opinion No. 20, Accounting Changes. +11 + + + + + + + + + + + + + +49. Bally’s change from accrual accounting to a modified cash basis of accounting was +not, in fact, a change in accounting principle, but rather involved a correction of an error that +required a restatement because Bally’s implementation of the deferral method for recognition of +initiation fee revenue was not in conformity with GAAP. Accordingly, Bally’s 2003 financial +statements were not presented in conformity with GAAP, but Sever nonetheless reviewed and +did not object to E&Y’s issuance of an unqualified audit opinion on Bally’s 2003 financial +statements in violation of GAAS. +E&Y’s Audit Was Deficient And Not Performed In Accordance With GAAS +50. E&Y's 2003 audit was deficient and not performed in accordance with GAAS. +E&Y and Sever failed to obtain sufficient competent evidential matter to support an opinion that +Bally's estimates, including the average member life estimates, were reasonable. 11 E&Y told +Bally's audit committee that GAAS prescribed certain "mandatory procedures," including: +"reviewing accounting estimates for biases that could result in material misstatement due to +fraud, including retrospective review of significant prior year estimates. . . ." +51. E&Y and Sever also did not follow up on evidence that Bally's average member +life estimates were biased and unsubstantiated. +52. The change in accounting to a modified cash basis resulted in Bally recording a +cumulative effect adjustment (“CEA”) of more than $441 million, which was much more than +the effect of the identified audit adjustments referred to above, but allowed Bally to provide a +positive explanation for the effect. Given that a significant amount of the CEA related to how +Bally had amortized the initiation fees over a period of less than two years, Sever should have +questioned how two supposedly GAAP-compliant methodologies resulted in such a material +disparity in earnings. Nonetheless, he failed to do so. If he had followed up, Sever would have +determined that Bally’s prior calculation of the member life estimates was not reasonable and the +Company’s straight-line amortization of the financed membership initiation fees over a 22- +month period was not in conformity with GAAP. +53. Just as E&Y’s issuance of a preferability letter with regard to the change in +accounting for reactivation dues was improper, so too was its issuance of a preferability letter +with regard to the change to a modified cash basis for initiation fees. By the time E&Y began +the 2003 audit, Sever knew or should have known of the issues associated with the average +member life estimate that required vigorous audit procedures, yet he failed to respond +adequately. +54. Sever knew or should have known that Bally’s 2003 financial statements were not +presented in conformity with GAAP, and he failed to require E&Y to qualify its opinion or issue +an adverse opinion as required by GAAS. +11 See AU § 230, Due Professional Care; AU § 326, Evidential Matter (“AU § 326”); AU § 333A, Management +Representations. +12 + + + + + + + + + + + + + +Sever Knew Or Should Have Known Bally Made Improper Disclosures Concerning The +Lack Of Disagreements And Reportable Events With E&Y + +55. When an auditor to a public company resigns, Item 304 of Regulation S-K +requires both the company and the auditor to disclose whether any "disagreements" or +"reportable events" occurred in the two most recent fiscal years or any subsequent interim period. +The term “disagreements” is interpreted broadly, to include any difference of opinion concerning +any matter of accounting principles or practices, financial statement disclosure, or auditing scope +or procedures which (if not resolved to the former auditor’s satisfaction) would have caused it to +make reference to the issue in its audit opinion. The term “reportable events” includes events +such as the auditor having advised the company that it questions the reliability of (1) the +company’s financial statements, (2) management’s representations, or (3) the company’s internal +controls. Item 304 also requires the former auditor to file a letter stating whether it agrees with +the company’s Item 304 disclosures and, if not, stating the areas of disagreement. +56. In March 2004, Sever, and other senior E&Y partners, including the Engagement +Partner and the IRP, participated in a meeting during which they decided to resign as Bally’s +auditor. A memorandum prepared by the Engage ment Partner for the meeting, and given to +Sever and others to review and comment prior to the meeting, identified reasons for resigning, +including the engagement team’s distrust of Bally’s senior financial management; its concerns +regarding the company’s internal controls and accuracy of accounting records and the accuracy +of management’s accounting estimates. In addition, Sever knew of contentious discussions with +Bally’s management over various issues, including E&Y’s demand that Bally end its practice of +recognizing revenue from reactivations that Bally projected would occur in the future. +57. Following the internal E&Y meeting, E&Y advised Bally’s Audit Committee that +it would resign from the engagement because of concerns regarding management’s tone, the +company’s need to demonstrate more concern regarding internal control issues and the accuracy +of its accounting records, and the accuracy of management’s estimates. +58. In Bally’s 2003 Form 10-K disclosure, the Company announced E&Y’s +resignation but represented that there were no disagreements or reportable events. Similarly, +E&Y filed a letter with the Commission stating that it agreed with Bally’s statements there had +been no disagreements or reportable events with Bally’s management. +59. The events described above reflect “disagreements” and "reportable events” that +were required to be disclosed under Item 304 of Regulation S-K. Sever knew or should have +known that these disagreements and reportable events were required to be disclosed, but did not +object to the representations in Bally’s 2003 Form 10-K stating there had been no +"disagreements" or "reportable events;” or prevent E&Y from issuing a letter agreeing with the +Company’s Item 304 disclosures. +13 + + + + + + + + + + + + +Violations +60. Section 17(a)(2) of the Securities Act prohibits obtaining money or property by +means of untrue statements of material fact or misleading omissions of material fact in the offer +or sale of securities. Section 17(a)(3) of the Securities Act prohibits engaging in transactions, +practices or courses of business which operate or would operate as a fraud or deceit upon the +purchaser in the offer or sale of securities. Information is material where there is a substantial +likelihood that a reasonable investor would consider the information important in making an +investment decision. Basic, Inc. v. Levinson, 485 U.S. 224, 231-32 (1988). Establishing +violations of Section 17(a)(2) and 17(a)(3) does not require a showing of scienter. Aaron v. SEC, +446 U.S. 680, 697 (1980). +61. Section 13(a) of the Exchange Act and Rules 13a-1, 13a-11 and 13a-13 +thereunder require all issuers with securities registered under Section 12 of the Exchange Act to +file annual, current and quarterly reports on Form 10-K, Form 8-K and Form10-Q, respectively. +Exchange Act Rule 12b-20 further requires that, in addition to the information expressly required +to be included in such reports, the issuer must include such additional material information as +may be necessary to make the required statements, in light of the circumstances under which +they were made, not misleading. The obligation to file these periodic reports includes the +obligation that they be complete and accurate in all material respects. See, e.g., SEC v. IMC +Int’l, Inc., 384 F. Supp. 889, 893 (N.D. Tex.), aff’d mem., 505 F.2d 733 (5 +th Cir. 1974). No +showing of scienter is necessary to establish a violation of Section 13(a) of the Exchange Act and +Rules 13a-1, 13a-11, 13a-13 and 12b-20. See SEC v. McNulty, 137 F.3d 732, 740-741 (2d Cir. +1998). +62. 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.” +63. Bally violated Section 17(a)(2) and (3) of the Securities Act and Sections 13(a) +and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder by, +among other things, prematurely recognizing income and improperly deferring costs which +resulted in its books and records being false, failing to maintain accurate books and records, and +including misleading financial statements and information in annual, quarterly and current +reports filed with the Commission in connection with fiscal years 2001 through 2003. +64. Sever was a cause of and aided and abetted Bally’s violations. For each of the +years 2001-2003, Sever reviewed and did not object to E&Y’s issuance of audit reports +containing unqualified opinions stating that E&Y had conducted an audit of the company’s +annual financial statements in accordance with GAAS and that Bally’s financial statements were +presented in conformity with GAAP. These audit reports were included in Bally’s Forms 10-K +for 2001-2003. However, Sever knew or should have known that E&Y’s audit reports were false +and misleading because E&Y failed to conduct its audits in accordance with GAAS and Bally +was engaged in accounting practices and disclosures that were not in conformity with GAAP. +14 + + + + + + + + + + + + + + + +65. In auditing Bally’s accounting practices relating to reactivation revenue, initiation +fee revenue and deferred acquisition costs, Sever failed under GAAS to exercise due professional +care and skepticism, failed to ensure that E&Y obtained sufficient competent evidential matter, +and substituted managements’ representations for competent evidence supporting the accounting. +Sever failed to insist that Bally provide support for certain of these estimates, nor did Sever +require that the engagement team perform sufficient audit procedures to test and determine +whether these accounting actions resulted in appropriate recognition of revenue. Had he done so, +he would have reasonably determined that these accounting practices were not in conformity +with GAAP. +66. Despite these accounting and audit failures, and in further violation of GAAS, +Sever did not require E&Y to express a qualified or adverse audit opinion, or refuse by +disclaimer to express any opinion at all, but instead issued audit reports that contained +unqualified opinions on Bally’s 2001-2003 financial statements. Sever also knew or should have +known that Bally was making false and misleading disclosures such as in connection with its $55 +million special charge. Nor did Sever propose that Bally correct its improper accounting.in the +quarterly financial statements that E&Y reviewed during 2001-2003. Sever also did not object to +E&Y improperly issuing preferability letters that allowed Bally to switch its accounting policies +for reactivation revenue and initiation fee revenue instead of restating for errors relating to that +accounting. Accordingly, Sever’s failure to comply with GAAS was a cause of Bally’s +violations of Section 17(a)(2) and (3) of the Securities Act and was a cause of and aided and +abetted Bally’s violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b- +20, 13a-1, 13a-11 and 13a-13 thereunder. +67. Sever also was a cause of E&Y’s violation of Section 10A(b) of the Exchange +Act in connection with Bally’s failure to disclose that the $55 million special charge recorded in +its FY 2002 financial statements was due to a deterioration in the collectability of the Company’s +receivables. Sever failed to require E&Y to report this illegal act to the Audit Committee in +accordance with Section 10A(b). +Findings +As a result of the conduct described above, Sever was a cause of Bally's violations of +Sections 17(a)(2) and (3) of the Securities Act and was a cause of and willfully aided and abetted +Bally’s violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a- +1, 13a-11 and 13a-13 thereunder. Sever also was a cause of E&Y’s violation of Section 10A(b) +of the Exchange Act by not ensuring that E&Y brought to the attention of Bally’s Audit +Committee Bally’s false and misleading disclosures of the $55 million special charge. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Sever’s Offer. +15 + + + + + + + + + + + + + + + + + + + + + + + + +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Sever cease and desist from committing or causing any violations and any future +violations of Sections 17(a)(2) and (3) of the Securities Act, and from causing any violations and +any future violations of Sections 10A(b), 13(a) and 13(b)(2)(A) of the Exchange Act and Rules +12b-20, 13a-1, 13a-11 and 13a-13 thereunder; +B. Sever is denied the privilege of appearing or practicing before the Commission as +an accountant pursuant to Rule 102(e)(1)(iii); +C. After 3 years from the date of this order, Sever 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 Sever’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) Sever, 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) Sever, 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 Sever’s or the firm’s quality control system that would indicate that Sever +will not receive appropriate supervision; +(c) Sever 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) Sever acknowledges his responsibility, as long as Sever 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 Sever 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 +16 + + + + + + + + + +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 Sever’s character, +integrity, professional conduct, or qualifications to appear or practice before the Commission. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +17 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3085.pdf b/raw/aaer/2009/AAER-3085.pdf new file mode 100644 index 0000000000000000000000000000000000000000..7db080c9e073edb75aa42d5b2cfdb9e5e6ed185d Binary files /dev/null and b/raw/aaer/2009/AAER-3085.pdf differ diff --git a/raw/aaer/2009/AAER-3085.txt b/raw/aaer/2009/AAER-3085.txt new file mode 100644 index 0000000000000000000000000000000000000000..d6ff1daa55494bc292e8db3694432c77e739f769 --- /dev/null +++ b/raw/aaer/2009/AAER-3085.txt @@ -0,0 +1,653 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES ACT OF 1933 +Release No. 9095 / December 17, 2009 +SECURITIES EXCHANGE ACT OF 1934 +Release No. 61194 / December 17, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3085 / December 17, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13723 +In the Matter of +JOHN M. KISS, 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 pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”), Sections 4C +1 and +21C of the Securities Exchange Act of 1934 (“Exchange Act”), and Rule 102(e)(1)(iii) of the +Commission’s Rules of Practice2 against John M. Kiss (“Kiss” or “Respondent”). +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) provides, in pertinent part, that: +The Commission may censure a person or deny, temporarily or permanently, the privilege of appearing or +practicing before it . . . to any person who is found… + + + + + + + + + + + + + + + + + + + + + + + + + + + +II. +In anticipation of the institution of these proceedings, Kiss 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, Kiss 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 (“Order”), as +set forth below. +III. +On the basis of this Order and Kiss’ Offer, the Commission finds3 that: +Summary +1. This matter involves violations of the federal securities laws by Kiss in +connection with the 2001 and 2002 audits of Bally Total Fitness Holding Corporation (“Bally”) +conducted by Ernst & Young LLP (“E&Y”) while Kiss served as the engagement partner on +those audits. Kiss was the engagement partne r on E&Y's audits of Bally from 1996 through and +including 2002. +2. In connection with Bally’s 2001-2002 financial statements, Bally engaged in +fraudulent financial accounting, including prematurely recognizing revenue and improperly +deferring costs, which overstated income and inflated stockholders’ equity. Bally also made +false and misleading disclosures regarding a $55 million special charge in its 2002 Form 10-K. +On November 30, 2005, Bally filed its 2004 Form 10-K, which restated its previously reported +financial statements for 2002 and 2003, and selected financial data for 2000 and 2001. +3. Kiss knew or should have known that E&Y's unqualified audit opinions regarding +Bally’s 2001-2002 financial statements -- which stated that E&Y had conducted its audits in +accordance with auditing standards generally accepted in the United States (“GAAS”) and that +Bally’s financial statements were presented in conformity with accounting principles generally +accepted in the United States (“GAAP”) -- were false because E&Y’s audits of Bally’s financial +* * * +(iii) to have willfully violated, or willfully aided and abetted the violation of any provision of the +Federal securities laws or the rules and regulations thereunder. +3 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other +person or entity in this or any other proceeding. +2 + + + + + + + + + + + + + + + + + + + + + +statements were not performed in accordance with GAAS and Bally’s financial statements were +not presented in conformity with GAAP. +4. As a result of the false and misleading audit opinions, Kiss was a cause of Bally’s +violations of Sections 17(a)(2) and (3) of the Securities Act, and was a cause of and willfully4 +aided and abetted Bally’s violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and +Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13. Kiss also was a cause of E&Y’s +violation of Section 10A(b) of the Exchange Act by not bringing to the attention of Bally’s Audit +Committee Bally’s false and misleading disclosures of the $55 million special charge. +Respondent +5. Kiss is, and was at all relevant times, a Certified Public Accountant licensed in +Illinois. He worked in the Chicago office of E&Y during the relevant period and was the +engagement partner in charge of E&Y’s audits of Bally from 1996 through and including 2002. +Kiss retired from E&Y in January 2008. +Issuer +6. Bally Total Fitness Holding Corporation, a Delaware corporation, purported to be +the largest, and only nationwide, commercial operator of fitness centers. At all relevant times, +Bally'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”). The NYSE delisted +Bally's common stock on June 8, 2007. After filing for reorganization under Chapter 11 of the +Bankruptcy Code, on September 17, 2007, Bally emerged as a privately held reorganized entity. +On February 28, 2008, the Commission filed a settled injunctive action against Bally in the +United States District Court for the District of Columbia, charging Bally with violating +Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the +Exchange Act, and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The District +Court issued permanent injunctions on May 8, 2008. +Background +7. For many years up until it resigned in 2004, E&Y audited Bally’s financial +statements. Bally’s principal source of revenue was selling gym membership contracts, which +provided customers access to gyms in exchange for the payment of both a one-time initiation fee +and monthly dues. The one-time fee was typically several thousand dollars, while the monthly +dues typically were less than $10 per month. Most of Bally’s customers financed their initiation +fees. To maintain their memberships, customers were required to pay their initiation fee in full +and pay monthly dues. The initiation fees were Bally’s biggest source of revenue. The +obligation to pay the initiation fee was legally enforceable; there was no legal obligation to pay +monthly dues beyond the initial contract period. +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)). +3 + + + + + + + + + + +8. E&Y recognized Bally as a risky audit and, from at least 1996 through 2003, +designated Bally as a “close monitoring” account because Bally presented a risk that created “a +significant chance the firm [E&Y] will suffer damage to its reputation, monetarily, or both.” +Bally was designated a close monitoring account for several reasons, including, among other +things, that Bally’s managers were former E&Y audit partners who were “difficult” and had +“historically been aggressive in selecting accounting principles and determining estimates;” the +managers placed undue emphasis on maintaining stock prices; management used +“(un)reliable . . . estimation process[es] or questionable judgments;" and Bally’s compensation +plans placed undue emphasis on reported earnings. E&Y's internal guidance notes that a "history +of 'aggressive' applications of accounting policies could indicate a predisposition to misstate the +financial statements." +9. In early 2002, E&Y sought to reduce its risk by identifying its riskiest clients and +resigning from them or otherwise managing the risk they presented to E&Y. Out of a total of +over 10,000 audit clients in North America, E&Y identified Bally as one of the riskiest 18 +accounts. These 18 accounts were so-called “Nat ional Focus Accounts” and were monitored by +the Americas Executive Board. Not only was Bally identified as a National Focus Account, it +was identified as the riskiest account in E&Y’s Lake Michigan Area. +Bally’s Accounting Errors And E&Y’s Audit Failures + +Relating To Fiscal Years 2001 And 2002 + +10. In connection with fiscal years 2001 and 2002, as well as earlier years, Bally +engaged in certain accounting practices relating to its recognition of reactivation revenue, +initiation fee revenue, and deferred costs that made its financial statements false and misleading. +E&Y issued unqualified audit opinions, in violation of GAAS, in connection with its audits of +such financial statements. +Premature Recognition Of Reactivation Revenues +11. Bally recognized revenue from what it called “reactivations,” which were +payments from Bally members who had completed their initial contract period, but whose +memberships were canceled for failure to pay the monthly dues necessary to maintain their +membership. Bally did not attempt to recover those dues because there was no legal obligation +to pay dues. Accordingly, for those canceled me mbers who had completed the initial contract +period, Bally waited at least six months after receiving their last payment and then began +soliciting these canceled members to reactivate. Those who accepted the reactivation offers did +so, on average, 36 months after having stopped paying monthly dues. The reactivation offers did +not contain claims for or seek payment of "past due" amounts. Instead, they asked for either a +nominal reactivation fee or no reactivation fee at all, and the payment of monthly dues for a +period of future service. +12. Bally’s reactivation revenue recognition policy was to project (as of the balance +sheet date) the reactivation payments it anticipated receiving in the coming year and then +immediately recognize most of these projected payments by improperly allocating them to past +4 + + + + + + + + + + + + + + +periods. Bally’s reactivation revenue recognition policy was not in conformity with GAAP +because use of the method enabled Bally to recognize revenue before it was earned and was +realized or realizable.5 Bally recognized revenue before it was earned because, among other +things, it barred canceled former members from the gyms, and therefore, had not provided +services to those of its canceled members who might reactivate in the future. Additionally, Bally +recognized revenue before it was realized or realizable because it was recognizing revenue for +reactivations that had not yet occurred, which it anticipated from canceled former members +whom it could not identify individually and who had no legal obligation to reactivate or pay +Bally anything at all. +13. In short, Bally violated GAAP by recognizing revenue related to the anticipated +future payments before the reactivation transactions occurred. The accounting was clearly not in +conformity with GAAP, and a reasonable accountant who understood Bally's accrual basis of +recognizing revenue for "reactivations" would conclude that it was not in conformity with +GAAP, because Bally was recognizing revenue that was not realized or realizable, and had not +been earned. +14. For at least six years, E&Y had audited Bally's "reactivation" revenue recognition +practices. In each of those years, E&Y pr ovided Bally with an unqualified audit opinion. +15. Kiss knew or should have known that Bally’s accounting policy for reactivation +revenues was not in conformity with GAAP, yet he caused E&Y to issue unqualified opinions +regarding Bally’s 2001 and 2002 financial statements in violation of GAAS. +6 +Premature Recognition Of Initiation Fee Revenue +16. Members paid a substantial initiation fee in connection with new membership +contracts. Beginning in 1997, Bally recognized initiation fee revenue over the estimated average +membership life, which included an estimate for both the average initial contract period and the +average renewal period. Bally computed the weighted average expected membership life to be +22 months for financed memberships and 36 months for cash memberships. +17. Bally’s 1997 computations of the weighted average expected membership life +were flawed. A cursory inspection of the comput ations would have revealed these flaws. In +1997, E&Y had checked Bally’s arithmetic and suggested some minor adjustments, but had +failed to test whether Bally's computations produced results that were consistent with reality, and +failed to determine that Bally’s computation was fundamentally incorrect. The errors in Bally’s +estimates had the effect of understating the average membership life. As a result, Bally’s +5 See, e.g., Accounting Research Bulletin No. 43, Restatement and Revision of Accounting Research Bulletins +("ARB 43"), Chapter 1A (1953); Accounting Principles Board Opinion No. 10, Omnibus Opinion (1966); Statement +of Financial Accounting Concepts No. 5, Recognition and Measurement in Financial Statements of Business +Enterprises (1985); Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, Topic 13.A. +(1999)(“SAB 101”). +6 See AICPA’s Codification of Auditing Standards AU § 508, Reports on Audited Financial Statements, (“AU § +508”). +5 + + + + + + + + + + + + + + + + + + + + +member life estimates improperly accelerated revenue recognition and distorted the economic +reality of Bally’s business. +18. These errors continued through the relevant period. Kiss knew or should have +known that by recognizing initiation fee revenue from financed contracts over 22 months, Bally +was improperly recognizing revenue before it was earned and realized or realizable in +contravention of GAAP, yet he caused E&Y to issue unqualified opinions regarding Bally’s +2001 and 2002 financial statements in violation of GAAS. +Deferral Of Member Acquisition Costs +19. Bally deferred certain of its costs associated with acquiring new members and +recognized such costs over the same period that it deferred initiation fee revenue. +20. GAAP requires that any costs deferred must be direct and incremental to the +acquisition of a new contract or activities directly related to such acquisitions (i.e., they would +not have been incurred “but for” the acquisition of the contract). Costs associated with acquiring +new members are properly deferrable to the extent that they were direct and incremental to the +acquisition of a new member contract, while all other costs must be expensed as incurred.7 +Bally, however, improperly deferred certain costs that were not eligible for deferral. +21. Kiss knew or should have known that Bally was improperly deferring certain +member acquisition costs; nonetheless, he caused E&Y to issue unqualified opinions regarding +Bally’s 2001 and 2002 financial statements in violation of GAAS. +E&Y’s Audits Were Deficient And Not Performed In Accordance With GAAS +22. E&Y’s audits of Bally’s reactivation revenues, initiation fee revenues and +deferred acquisition costs were deficient and not performed in accordance with GAAS. As an +initial matter, Kiss knew that Bally was a risky client due to, among other things, management’s +aggressive accounting policies. On the client continuance forms, Kiss repeatedly identified +aggressive accounting by Bally's management as one of the principal reasons for Bally's +riskiness. In 1997, he wrote: "Management has a history of being aggressive from an +accounting standpoint." As part of the client continuance process in 1998, he wrote that he +wanted to discuss with E&Y management, inter alia, Bally's "aggressive [management]." +23. In response to a request for an "[e]xplanation of risk factors," Kiss wrote in 1999, +"There are a number of former EY employees at the Company. The CEO and CFO have +historically taken some aggressive accounting positions." In 2000, Kiss’ "explanation of risk +factors" provided, in relevant part: "Management is very focused on meeting or beating the +7 See Statement of Financial Accounting Standards No. 91, Accounting for Nonrefundable Fees and Costs +Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases, (Dec. 1986); FASB Technical +Bulletin No. 90-1, Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts, (Dec. +1990); and SAB 101, Topic 13.A. +6 + + + + + + + + + + + +Street's EPS. This at times leads to aggressive accounting practices." In 2001, Kiss explained, +"management tends to be aggressive in their accounting." +24. From at least 1996, E&Y annually identified Bally as a "close-monitoring" +account. Each year, E&Y's partners and manage ment assessed the level of risk presented by +each of its audit clients, including Bally, as part of E&Y's "client continuance process." Higher +risk accounts were denominated "close-monitoring accounts." +25. E&Y prepared, and Kiss read and concurred in, a memorandum in connection +with the FY 2000 audit, which concluded, improperly, that Bally’s reactivation revenue accrual +“does not appear to be precluded by SAB 101.” The memorandum indicated that (a) members +who did not pay dues after the initial contract period were barred from the gyms after a grace +period, and (b) these members had no legally enforceable obligation to pay dues after the initial +contract period or to reactivate their memberships. Kiss knew or should have known that these +facts undermined and contradicted the conclusion that the reactivation accrual “does not appear +to be precluded by SAB 101.” In concluding th at Bally’s reactivation revenue policy was in +conformity with GAAP, Kiss failed to reasonably assess whether Bally’s financial statements +were presented in conformity with GAAP, as required by GAAS. +26. Initiation fee revenue was the largest component of Bally’s revenue. In 1997, +Bally had committed to the Commission staff that the company would periodically update its +member life estimates. Contrary to that commitment, Bally failed to update its member life +estimates throughout the period that Kiss remained as engagement partner. +27. Kiss knew of Bally’s failure to keep that commitment. In letters to Bally's +management, E&Y formally requested Bally to update its member life computations in 1998, +2001, and 2002, but Bally never did so. In response to the 2001 request, Bally asserted that the +1997 calculations were still “an appropriate approximation of the current historical average +membership length” because the original calculation constituted a “35-year historical average.” +In fact, the 1997 calculation did not constitute a 35-year historical average, but reflected an +average from a much smaller pool of data. Kiss knew or should have known that Bally’s +representations regarding the 1997 calculation were false and should not have been relied on as +persuasive evidence supporting its opinion. +8 +28. E&Y and Kiss failed to perform adequate audit procedures with regard to the +renewal period estimate and the resulting amortization period.9 Rather, E&Y simply carried +forward the 1997 estimates pertaining to the average renewal period. Given the critical nature of +this accounting estimate, Kiss’ failure to obtain from the Company an update or to arrive at its +own independent estimate constitutes a departure from GAAS. +8 See AU § 230, Due Professional Care; AU § 326, Evidential Matter (“AU § 326”); AU § 333A, Management +Representations. +9 See AU § 342, Auditing Accounting Estimates. +7 + + + + + + + + + + +29. Kiss also knew or should have known of Bally’s arbitrary and unsupported +allocation of various costs to the deferred member acquisition cost pool, but failed to perform +adequate audit procedures with regard to those deferred member acquisition costs. +30. Kiss knew or should have known that Bally’s 2001 and 2002 financial statements +were not presented in conformity with GAAP, but he failed to qualify the audit opinion or issue +an adverse opinion as required by GAAS. +E&Y Seeks To Reduce Its Risk +31. In 2001 and 2002, a series of widely-known financial scandals led E&Y to assess +its audit risks and the firm took steps to identify and resign from or focus on certain of its riskiest +clients. Internally, E&Y was communicating the dangers of retaining high risk clients, but even +though E&Y identified Bally as one of its riskiest clients during the 2002 client continuance +process, E&Y did not resign from Bally. Instead, E&Y tried to reduce the risk that Bally’s +accounting practices posed to E&Y by, among other things, insisting for the first time that Bally +record the numerous accounting errors that had “historically been [placed by E&Y] on the +summary of audit differences.” +32. From July 2002 through March 2003, E&Y, including Kiss, had numerous +internal communications and meetings regarding the risks posed by Bally generally, as well as +particular risky accounting issues, including, among other things, Bally’s revenue recognition +estimates. Bally was the subject of a series of meetings with E&Y management, and Bally was +placed on a list of National Focus Accounts for Americas Executive Board attention. +Bally’s False And Misleading Disclosures + +Regarding A $55 Million Charge In Fiscal Year 2002 + +33. As of 2002, Bally’s allowance for doubtful accounts (“ADA”) had long been on +E&Y’s list of concerns regarding aggressive accounting. Bally’s estimate of the ADA was +another area in which Bally's management’s estimates appeared aggressive. Year in and year +out, from 1997 through 2002, Bally consistently used a 41% reserve rate, despite changes in the +economy and in market conditions. The resulting ADA was always at the low end of the range +that E&Y had deemed to be reasonable. +34. During the third quarter of 2002, Kiss and others at E&Y determined that Bally’s +collections had deteriorated substantially, and they advised Bally that it needed to increase its +ADA in order to cover the shortfall resulting from the deteriorating collections. Bally insisted +that no change be made to the ADA until the fourth quarter to allow it time to obtain waivers of +debt covenants provisions from Bally’s lenders. +35. During the fourth quarter of 2002, Bally agreed to increase its ADA by +$55 million and ultimately presented it as a “special charge” in Bally’s year-end financial +statements. In its 2002 Form 10-K, including in the notes to the financial statements, Bally made +false and misleading disclosures regarding the reasons for the charge, and Kiss knew or should +have known that the disclosures were improper. The reason for the charge cited in the +8 + + + + + + + + + + + + +Form 10-K was that Bally’s estimation was based on an accelerated monetization scenario which +would result in collecting less than book value. No mention was made of the deterioration of the +collectability of Bally’s accounts receivable portfolio, which had been identified by E&Y as +requiring Bally to take a charge. +36. The $55 million special charge virtually eliminated Bally's 2002 earnings. Kiss +knew or should have known that Bally’s disclosures failed to disclose accurately the reasons for +the “special charge,” yet he did not object and he caused E&Y to issue an unqualified audit +opinion upon Bally's 2002 financial statements in violation of GAAS.10 Kiss also failed to cause +E&Y to inform Bally’s Audit Committee about Bally’s false and misleading disclosures, and no +such information was provided to Bally's Audit Committee. +Violations +37. Section 17(a)(2) of the Securities Act prohibits obtaining money or property by +means of untrue statements of material fact or misleading omissions of material fact in the offer +or sale of securities. Section 17(a)(3) of the Securities Act prohibits engaging in transactions, +practices or courses of business which operate or would operate as a fraud or deceit upon the +purchaser in the offer or sale of securities. Information is material where there is a substantial +likelihood that a reasonable investor would consider the information important in making an +investment decision. Basic, Inc. v. Levinson, 485 U.S. 224, 231-32 (1988). Establishing +violations of Section 17(a)(2) and 17(a)(3) does not require a showing of scienter. Aaron v. SEC, +446 U.S. 680, 697 (1980). +38. Section 13(a) of the Exchange Act and Rules 13a-1, 13a-11 and 13a-13 +thereunder require all issuers with securities registered under Section 12 of the Exchange Act to +file annual, quarterly and current reports on Form 10-K, Form 8-K and Form10-Q respectively. +Exchange Act Rule 12b-20 further requires that, in addition to the information expressly required +to be included in such reports, the issuer must include such additional material information as +may be necessary to make the required statements, in light of the circumstances under which +they were made, not misleading. The obligation to file these periodic reports includes the +obligation that they be complete and accurate in all material respects. See, e.g., SEC v. IMC +Int’l, Inc., 384 F. Supp. 889, 893 (N.D. Tex.), aff’d mem., 505 F.2d 733 (5 +th Cir. 1974). No +showing of scienter is necessary to establish a violation of Section 13(a) of the Exchange Act and +Rules 13a-1, 13a-11, 13a-13 and 12b-20. See SEC v. McNulty, 137 F.3d 732, 740-741 (2d Cir. +1998). +39. 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.” +40. Bally violated Sections 17(a)(2) and (3) of the Securities Act and Sections 13(a) +and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder by, +among other things, prematurely recognizing income and improperly deferring costs which +10 See AU § 431, Adequacy of Disclosure in Financial Statements; AU § 508. +9 + + + + + + + + + + + + + + +resulted in its books and records being false, failing to maintain accurate books and records and +including material false and misleading financial statements and information in annual, quarterly +and current reports filed with the Commission in connection with fiscal years 2001 and 2002. +41. Kiss was a cause of and/or aided and abetted Bally’s violations. For each of the +years 2001-2002, Kiss was a cause of E&Y issuing audit reports containing unqualified opinions +stating that E&Y had conducted an audit of the company’s annual financial statements in +accordance with GAAS and that Bally’s financial statements were presented in conformity with +GAAP. These audit reports were included in Bally’s Forms 10-K for 2001-2002. However, Kiss +knew or should have known that E&Y’s audit reports were false and misleading because E&Y +failed to conduct its audits in accordance with GAAS and Bally was engaged in accounting +practices and disclosures that were not in conformity with GAAP. +42. In auditing Bally’s accounting practices relating to reactivation revenue, initiation +fee revenue and deferred acquisition costs, Kiss failed under GAAS to exercise due professional +care and skepticism, failed to obtain sufficient competent evidential matter, and substituted +managements’ representations for competent evidence supporting the accounting. Kiss never +insisted that Bally provide support for certain of these estimates, nor did Kiss perform sufficient +audit procedures to test and determine whether these accounting actions resulted in appropriate +revenue. Had he done so, he would have reasonably determined that these accounting practices +were not in conformity with GAAP. +43. Kiss also knew or should have known that Bally was making false and misleading +disclosures in connection with its $55 million special charge. Kiss did not propose that Bally +correct its improper accounting in the quarterly financial statements that E&Y reviewed during +2001-2002. Accordingly, Kiss was a cause of Bally's violations of Sections 17(a)(2) and (3) of +the Securities Act and was a cause of and aided and abetted Bally’s violations of Sections 13(a) +and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. +44. Kiss also was a cause of E&Y's violation of Section 10A(b) of the Exchange Act +in connection with Bally’s failure to disclose that the $55 million special charge recorded in its +FY 2002 financial statements was due to a deterioration in the collectability of the Company’s +receivables and E&Y’s failure to report this illegal act to the Audit Committee. +Findings +As a result of the conduct described above, Kiss was a cause of Bally's violations of +Sections 17(a)(2) and (3) of the Securities Act and was a cause of and willfully aided and abetted +Bally’s violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a- +1, 13a-11 and 13a-13 thereunder. Kiss also was a cause of E&Y’s violation of Section 10A(b) of +the Exchange Act by not ensuring that E&Y brought to the attention of Bally’s Audit Committee +Bally’s false and misleading disclosures of the $55 million special charge. +10 + + + + + + + + + + + + + + + + + + + + + + + +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Kiss’ Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: + A. Kiss cease and desist from committing or causing any violations and any future +violations of Sections 17(a)(2) and (3) of the Securities Act, and from causing any violations and +any future violations of Sections 10A(b), 13(a) and 13(b)(2)(A) of the Exchange Act and Rules +12b-20, 13a-1, 13a-11 and 13a-13 thereunder; +B. Kiss is denied the privilege of appearing or practicing before the Commission as +an accountant pursuant to Rule 102(e)(1)(iii); +C. After 3 years from the date of this order, Kiss 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 Kiss’ 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) Kiss, 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) Kiss, 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 Kiss’ or the firm’s quality control system that would indicate that Kiss will +not receive appropriate supervision; +(c) Kiss 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) Kiss acknowledges his responsibility, as long as Kiss 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. +11 + + + + + + + + + + + + +D. The Commission will consider an application by Kiss 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 Kiss’ character, +integrity, professional conduct, or qualifications to appear or practice before the Commission. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +12 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3086.pdf b/raw/aaer/2009/AAER-3086.pdf new file mode 100644 index 0000000000000000000000000000000000000000..c1e94e4a1902ded1af94bb3bf828c1f127502e19 Binary files /dev/null and b/raw/aaer/2009/AAER-3086.pdf differ diff --git a/raw/aaer/2009/AAER-3086.txt b/raw/aaer/2009/AAER-3086.txt new file mode 100644 index 0000000000000000000000000000000000000000..c843f9b219cb1eb859ce3df0e1c679b4be5338fc --- /dev/null +++ b/raw/aaer/2009/AAER-3086.txt @@ -0,0 +1,485 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 61195 / December 17, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3086 / December 17, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13724 +In the Matter of +THOMAS D. VOGELSINGER, CPA, +Respondent. +ORDER INSTITUTING PUBLIC +ADMINISTRATIVE PROCEEDINGS +PURSUANT TO SECTION 4C OF THE +SECURITIES EXCHANGE ACT OF 1934 +AND RULE 102(e) OF THE +COMMISSION’S RULES OF +PRACTICE, MAKING FINDINGS, AND +IMPOSING REMEDIAL SANCTIONS +I. +The Securities and Exchange Commission (“Commission”) deems it appropriate and in the +public interest that public administrative proceedings be, and hereby are, instituted against Thomas +D. Vogelsinger, CPA (“Vogelsinger” or “Respondent”) pursuant to Sections 4C +1 of the Securities +and Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) of the Commission’s Rules of +Practice.2 +1 Section 4C provides, in relevant part, that: +The Commission may censure any person, or deny, temporarily or permanently, to any person the privilege +of appearing or practicing before the Commission in any way, if that person is found . . . (1) not to possess the +requisite qualifications to represent others . . . (2) to be lacking in character or integrity, or to have engaged in +unethical or improper professional conduct; or (3) to have willfully violated, or willfully aided and abetted the +violation of, any provision of the securities laws or the rules and regulations thereunder. +2 Rule 102(e)(1) provides, in relevant part, that: +The Commission may censure a person or deny, temporarily or permanently, the privilege of appearing or +practicing before it . . . to any person who is found . . . +* * * +(ii) to have engaged in unethical or improper professional conduct. +* * * + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +II. +In anticipation of the institution of these proceedings, Vogelsinger 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, Vogelsinger consents to the entry of this Order Instituting Public Administrative +Proceedings Pursuant to Section 4C of the Securities Exchange Act of 1934 and Rule 102(e) of the +Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions (“Order”), +as set forth below. +III. +On the basis of this Order and Vogelsinger’s Offer, the Commission finds3 that: +Summary +1. This matter involves improper professional conduct by Vogelsinger during his +tenure as the Area Managing Partner of the Lake Michigan Area of Ernst & Young LLP +("E&Y"). The Lake Michigan Area (“LMA” ) included the Chicago, Grand Rapids and +Milwaukee offices. Vogelsinger engaged in re peated instances of unreasonable conduct in +failing to detect problems with respect to a revenue recognition policy of an E&Y audit client, +Bally Total Fitness Holding Corporation ("Bally"). Bally’s prior accounting policy for the +revenue at issue, which E&Y had audited for years, was clearly not in conformity with +accounting principles generally accepted in the United States (“GAAP”). +(iv) with respect to persons licensed to practice as accountants, “improper professional conduct” under +§201.102(e)(1)(ii) means: +* * * +(B) either of the following two types of negligent conduct: +* * * +(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. +3 The findings herein are made pursuant to Vogelsinger’s Offer of Settlement and are not binding on any other +person or entity in this or any other proceeding. +2 + + + + + + + + + + + + + + + + + + + + + + + + + + + + +2. Vogelsinger did not exercise due care as required by professional standards.4 Had +he done so, he would have discovered that the revenue recognition policy was not in conformity +with GAAP. +Respondent +3. Vogelsinger, age 59, was a certified public accountant licensed in Illinois and +Iowa during the relevant period. Vogelsinger was the LMA Managing Partner from 2000 until +October 2003, and was in charge of E&Y's Chicago, Grand Rapids and Milwaukee offices. He +was responsible for overseeing all activities in those offices, including, among others, +participating in client continuance decisions and risk management efforts with respect to certain +of E&Y’s highest risk audit clients. Vogelsinger retired from E&Y in 2009. +Other Relevant Entities +4. E&Y is a national public accounting firm and, during the relevant period covered +by this Order, served as the independent auditor for Bally. +5. Bally, a Delaware corporation, purported to be the largest, and only nationwide, +commercial operator of fitness centers. At a ll relevant times, Bally'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”). The NYSE delisted Bally's common stock on June 8, +2007. After filing for reorganization under Chap ter 11 of the Bankruptcy Code, on September +17, 2007, Bally emerged as a privately held reorganized entity. On February 28, 2008, the +Commission filed a settled injunctive action against Bally in the United States District Court for +the District of Columbia, charging Bally with violating Section 17(a) of the Securities Act of +1933, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 10b-5, +12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The Di strict Court issued permanent injunctions +on May 8, 2008. +Bally’s "Reactivation" Revenue Recognition +6. The particular revenue recognition policy with respect to which Vogelsinger +failed to exercise due care pertained to Bally’s “reactivation” revenue. +7. Bally recognized revenue from what it called "reactivations," which were +payments from Bally members who had completed their initial contract period, but whose +memberships were canceled for failure to pay the monthly dues necessary to maintain their +membership. Bally did not attempt to recover those dues because there was no legal obligation +to pay dues. Accordingly, for those canceled me mbers who had completed the initial contract +4 Article V of the Principles of Professional Conduct (ET Section 56) requires that an accountant exercise due care +when discharging professional responsibilities. Due care requires the accountant to discharge professional +responsibilities with competence and diligence. Diligence imposes the responsibility to render services carefully, to +be thorough, and to observe applicable technical and ethical standards. +3 + + + + + + + + + + + + + + + + + + + + + + +period, Bally waited at least six months after receiving their last payment and then began +soliciting those canceled members to reactivate. Those who accepted the reactivation offers did +so, on average, 36 months after having stopped paying monthly dues. The reactivation offers did +not contain claims for or seek payment of "past due" amounts. Instead, they asked for either a +nominal reactivation fee or no reactivation fee at all, and the payment of monthly dues for a +period of future service. +8. Bally's reactivation revenue recognition policy was to project (as of the balance +sheet date) the reactivation payments it anticipated receiving in the coming year and then +immediately recognize most of these projected payments by improperly allocating them to past +periods. Bally's reactivation accounting was not in conformity with GAAP because use of the +method enabled Bally to recognize revenue before it was earned and was realized or realizable.5 +Bally recognized revenue before it was earned because, among other things, it barred canceled +former members from the gyms, and therefore, had not provided services to those of its canceled +members who might reactivate in the future. Additionally, Bally recognized revenue before it +was realized or realizable because it was recognizing revenue for reactivations that had not yet +occurred, which it anticipated from canceled former members whom it could not identify +individually and who had no legal obligation to reactivate or pay Bally anything at all. +9. In short, Bally violated GAAP by recognizing revenue related to the anticipated +future payments before the reactivation transactions occurred. A reasonable accountant who +understood Bally's accrual basis of recognizing revenue for "reactivations" would conclude that +it was not in conformity with GAAP, because Bally was recognizing revenue that was not +realized or realizable, and had not been earned. +10. For at least six years, E&Y had audited Bally's "reactivation" revenue recognition +practices. In each of those years, E&Y provided Bally with an unqualified audit opinion in +violation of GAAS. +6 +Vogelsinger’s Involvement In E&Y’s Risk Management Efforts +11. In 2001 and 2002, a series of widely known financial scandals led E&Y to assess +its audit risks and the firm took steps to identify and resign from or focus on certain of its riskiest +clients. These 18 riskiest accounts -- includ ing Bally -- were so-called “National Focus +Accounts” and were monitored by the Americas Executive Board. Bally was not only identified +as a National Focus Account, it was identified as the riskiest account in E&Y's Lake Michigan +Area. +5 See, e.g., Accounting Research Bulletin No. 43, Restatement and Revision of Accounting Research Bulletins, +Chapter 1A (1953); Accounting Principles Board Opinion No. 10, Omnibus Opinion (1966); Statement of Financial +Accounting Concepts No. 5, Recognition and Measurement in Financial Statements of Business Enterprises (1985); +Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, Topic 13.A (1999). +6 See AICPA’s Codification of Auditing Standards AU § 508, Reports on Audited Financial Statements. +4 + + + + + + + + + + + + + + + + + + + + +12. Because of the high risk posed by Bally, and the heightened scrutiny that was +warranted for engagements identified as “National Focus Accounts,” as the LMA Managing +Partner, Vogelsinger was actively involved in helping manage the risk posed to E&Y by Bally. +As discussed below, Vogelsinger participated in multiple internal E&Y meetings that focused on +the risks presented by the Area and National Focus Accounts, including Bally, and on the steps +taken by E&Y to mitigate those risks. Additionally, he participated in two meetings with Bally +executives that were intended to improve Bally’s accounting and mitigate E&Y’s risk. +The 2002 Meetings +13 Beginning in June 2002, Vogelsinger atte nded meetings with other senior E&Y +partners which focused on the risks presented to E&Y by certain audit clients, including Bally, +and on the steps taken by E&Y to mitigate those risks. +14 On June 14, 2002, Vogelsinger met to discuss client continuance with, among +others, Mark Sever and Kenneth Peterson. Both Sever and Peterson were members of E&Y’s +National Office. Bally was one of ten high-risk accounts in the Lake Michigan Area that were +discussed in that meeting. Among the risks posed by Bally that were discussed at that meeting +was Bally’s management, which was difficult and engaged in aggressive accounting. +15 On July 16, 2002, Vogelsinger attended another meeting with, among others, +Sever, Peterson, and John Kiss, who had been the Bally audit engagement partner since 1996. +That meeting likewise focused on the risks presented to E&Y by Bally and on the steps taken by +E&Y to mitigate those risks. +16 On September 11, 2002, Vogelsinger ha d another meeting with Peterson to +discuss Bally’s risks. +17 On October 28, 2002, Vogelsinger, Peterson, Sever, and Kiss met again to discuss +mitigating Bally’s risks. Those risks concerned Bally’s management, which engaged in +“aggressive” accounting with respect to accounting policies and estimates. Among the topics +discussed was Bally’s accounting for reactivations. +18 By January 2003, E&Y was contemplating resigning from Bally "due to risk +issues." Ultimately, Vogelsinger and other seni or E&Y partners decided not to resign. That +decision was made at a meeting on March 6, 2003. +The March 6, 2003 Internal E&Y Meeting +19. On March 6, 2003, Vogelsinger met with, among others, Sever, Peterson, and +Kiss. The subject of the meeting was whethe r E&Y should resign as Bally's auditor. Kiss +prepared a one-page list of the reasons to retain Bally and the reasons to resign. The participants +at the meeting discussed the list of reasons to retain and resign and discussed E&Y's exposure. +5 + + + + + + + + + + + + + + + + + + + +Under the heading, “Estimates/Complexity in Business Model,” “Reactivations” was listed as +one of the reasons to resign. +20. At the end of the discussion, Vogelsinger and the others decided not to resign but +to stay on and reduce the firm’s risk. +The March 11, 2003 Meeting With Bally’s CFO +21. On March 11, 2003, Vogelsinger met privately with Bally CFO John Dwyer, who +was a former E&Y audit partner, and delivered a one-page document, the “Terms of +Engagement,” containing E&Y’s conditions for remaining as Bally’s auditor. During the +meeting, Vogelsinger and Dwyer discussed various accounting issues, but Vogelsinger did not +request any information about Bally’s reactivation revenue recognition policy. +Selection Of A New Engagement Partner +22. Because Kiss was required to rotate off the Bally account, E&Y needed to +designate a new engagement partner for the 2003 audit. Vogelsinger and others identified +William J. Carpenter as a suitable successor to Kiss. They selected Carpenter because of his +ability to "deliver tough messages." +23. Vogelsinger and the AABS Managing Partner briefed Carpenter about the Bally +engagement. They advised him that Bally was considered one of the firm’s highest-risk clients. +They instructed Carpenter to “fix this situation to reduce the firm’s risk.” +The June 16, 2003 Meeting Regarding Reactivation Accounting +24. After becoming the new engagement partner, Carpenter focused on reactivations +as posing risk to E&Y. Carpenter conferred with other members of the audit team, but remained +concerned with Bally’s reactivation accounting and had the view that Bally’s reactivation +accounting was more aggressive than he was willing to accept and he was unwilling to sign off +on the financial statements that included the reactivation accrual. Carpenter, Sever, Peterson and +Vogelsinger planned a meeting with Bally to demand that the Company change its reactivation +accounting. +25. In June 2003, Bally was in the midst of refinancing its debt. E&Y called a +meeting for June 16, 2003 at Bally's offices. Bally was represented at that meeting by its senior +officers. E&Y was represented at the meeting by Vogelsinger, Carpenter, Peterson, Sever, and +Kiss. The presence of Vogelsinger, the managi ng partner of E&Y's Lake Michigan Area office, +was unusual, as was the presence of Sever, who was in charge of all of E&Y’s Professional +Practice Directors in the United States. +26. Vogelsinger began the meeting by stating that Bally had the most aggressive +accounts receivable in E&Y's entire Lake Michigan Area. +6 + + + + + + + + + + + + + + + + + + + + + + + + +27. At that same meeting, E&Y announced that it would not provide Bally with the +comfort letter and consent that it needed to complete its debt refinance if Bally continued to +recognize reactivation revenue the way it had in the past. Additionally, E&Y offered to permit +Bally to write off the reactivation accrual over several quarters, a course of action which is +clearly not in conformity with GAAP. +28. By participating in substantive aspects of the engagement, Vogelsinger knew or +should have known that the reactivation accounting policy was not in conformity with GAAP; +there would be no reason to withhold the comfort letter and consent if such policy was in +conformity with GAAP even if it was aggressive; similarly, there would have been no reason to +offer to allow Bally to violate GAAP by spreading the write off over several quarters. +29. As discussed above, Vogelsinger did not fulfill his obligation to exercise due care +by not requiring the engagement team to take appropriate action concerning E&Y’s 2002 and +2003 audits of Bally, despite: (1) having risk management responsibilities; (2) knowing that +Bally was one of E&Y’s riskiest 18 clients; (3) knowing that Bally’s management employed +“aggressive” accounting principles and estimates; and (4) knowing that Bally’s reactivation +revenue recognition policy was one of the issues that led to Bally’s identification as one of +E&Y’s riskiest clients. +Findings +Based on the foregoing, Vogelsinger engaged in improper professional conduct pursuant +to Rules 102(e)(1)(ii) and 102(e)(1)(iv)(B)(2) of the Commission's Rules of Practice. +Specifically, the Commission finds that Vogelsinger engaged in 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. +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Vogelsinger's Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Vogelsinger is denied the privilege of appearing or practicing before the +Commission as an accountant pursuant to Rule 102(e)(1)(ii) and Rule 102(e)(1)(iv)(B)(2). +B. After 9 months from the date of this order, Vogelsinger 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 +7 + + + + + + + + + + + + + + + + + + + + +an application must satisfy the Commission that Vogelsinger'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) Vogelsinger, 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) Vogelsinger, 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 Vogelsinger's or the firm's quality control system that would +indicate that Vogelsinger will not receive appropriate supervision; +(c) Vogelsinger 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) Vogelsinger acknowledges his responsibility, as long as +Vogelsinger 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 Vogelsinger 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 Vogelsinger's +character, integrity, professional conduct, or qualifications to appear or practice before the +Commission. +By the Commission. + Elizabeth M. Murphy + S e c r e t a r y +8 diff --git a/raw/aaer/2009/AAER-3087.txt b/raw/aaer/2009/AAER-3087.txt new file mode 100644 index 0000000000000000000000000000000000000000..7ed3fd8e73483e445414ddd4a3bb62652a57c8ba --- /dev/null +++ b/raw/aaer/2009/AAER-3087.txt @@ -0,0 +1,903 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES ACT OF 1933 +Release No. 9096 / December 17, 2009 +SECURITIES EXCHANGE ACT OF 1934 +Release No. 61196 / December 17, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3087 / December 17, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13725 +In the Matter of +ERNST & YOUNG LLP +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 pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”), Sections 4C +1 and +21C of the Securities Exchange Act of 1934 (“Exchange Act”), and Rule 102(e)(1)(iii) of the +Commission’s Rules of Practice against Ernst & Young LLP (“Respondent”).2 +1 Section 4C provides, in relevant part, that: +The Commission may censure any person, or deny, temporarily or permanently, to any person the privilege +of appearing or practicing before the Commission in any way, if that person is found . . . (1) not to possess the +requisite qualifications to represent others . . . (2) to be lacking in character or integrity, or to have engaged in +unethical or improper professional conduct; or (3) to have willfully violated, or willfully aided and abetted the +violation of, any provision of the securities laws or the rules and regulations thereunder. +2 Rule 102(e)(1) provides, in pertinent part, that: +The Commission may censure a person or deny, temporarily or permanently, the privilege of appearing or +practicing before it . . . to any person who is found… + + + + + + + + + + + + + + + + + + + + + + + + + +II. +In anticipation of the institution of these proceedings, Respondent has submitted an Offer +of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +herein, except as to the Commission’s jurisdiction over it and the subject matter of these +proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Public +Administrative and Cease-and-Desist Proceedings Pursuant to 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 finds3 that: +Summary +1. This matter involves violations of the federal securities laws by Ernst & Young +LLP (“E&Y”) while serving as public auditor for Bally Total Fitness Holding Corporation +(“Bally”) from 2001 through 2004. In connection with Bally’s 2001-2003 financial statements, +Bally engaged in fraudulent financial accounting, including prematurely recognizing revenue and +improperly deferring costs, which overstated income and inflated stockholders’ equity. Bally +also made false and misleading disclosures regarding a $55 million special charge in its 2002 +Form 10-K. On November 30, 2005, Bally filed its 2004 Form 10-K, which restated its +previously reported financial statements for 2002 and 2003, and selected financial data for 2000 +and 2001. +2. Notwithstanding that it knew or should have known of Bally’s fraudulent +financial accounting and false and misleading disclosures, E&Y issued unqualified audit +opinions regarding Bally’s 2001-2003 financial statements, which stated that E&Y had +conducted its audits in accordance with auditing standards generally accepted in the United +States (“GAAS”) and that Bally’s financial statements were presented in conformity with +accounting principles generally accepted in the United States (“GAAP”). Contrary to the audit +opinions, E&Y’s audits of Bally’s financial statements were not performed in accordance with +GAAS and Bally’s financial statements were not in conformity with GAAP. +*** +(iii) to have willfully violated, or willfully aided and abetted the violation of any provision of the Federal +securities laws or the rules and regulations thereunder. +3 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other +person or entity in this or any other proceeding. +2 + + + + + + + + + + + + + + + + + +3. By issuing these false and misleading audit opinions, E&Y was a cause of and +aided and abetted Bally’s violations of Sections 17(a)(2) and (3) of the Securities Act and +Sections 13(a) and (b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a- +11, and 13a-13. E&Y also violated Section 10A of the Exchange Act by not bringing to the +attention of Bally’s Audit Committee Bally’s false and misleading disclosures of the $55 million +special charge. +Respondent +4. Ernst & Young LLP was Bally’s independent auditor throughout the relevant +period. On March 30, 2004, Bally announced that E& Y had resigned as its independent auditor. +Issuer +5. Bally Total Fitness Holding Corporati on, a Delaware corporation, purported to be +the largest, and only nationwide, commercial operator of fitness centers. At all relevant times, +Bally'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”). The NYSE delisted +Bally's common stock on June 8, 2007. After filing for reorganization under Chapter 11 of the +Bankruptcy Code, on September 17, 2007, Bally emerged as a privately held reorganized entity. +On February 28, 2008, the Commission filed a settled injunctive action against Bally in the +United States District Court for the District of Columbia, charging Bally with violating Section +17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange +Act, and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The District Court issued +permanent injunctions on May 8, 2008. +Background +6. For many years up until it resigned in 2004, E&Y audited Bally’s financial +statements. Bally’s principal source of revenue was selling gym membership contracts, which +provided customers access to gyms in exchange for the payment of both a one-time initiation fee +and monthly dues. The one-time fee was typically several thousand dollars, while the monthly +dues typically were less than $10 per month. Most of Bally’s customers financed their initiation +fees. To maintain their memberships, customers were required to pay their initiation fee in full +and pay monthly dues. The initiation fees were Bally’s biggest source of revenue. The +obligation to pay the initiation fee was legally enforceable; there was no legal obligation to pay +monthly dues beyond the initial contract period. +7. E&Y recognized Bally as a risky audit and, from at least 1996 through 2003, +designated Bally as a “close monitoring” account because Bally presented a risk that created “a +significant chance the firm [E&Y] will suffer damage to its reputation, monetarily, or both.” +Bally was designated a close monitoring account for several reasons, including, among other +things, that Bally’s managers were former E&Y audit partners who were “difficult” and had +“historically been aggressive in selecting accounting principles and determining estimates;” the +managers placed undue emphasis on maintaining stock prices; management used “(un)reliable +3 + + + + + + + + + + + + . . . estimation process[es] or questionable j udgments;" and Bally’s compensation plans placed +undue emphasis on reported earnings. E&Y's internal guidance notes that a "history of +'aggressive' applications of accounting policies could indicate a predisposition to misstate the +financial statements." +8. In early 2002, E&Y sought to reduce its risk by identifying its riskiest clients and +resigning from them or otherwise managing the risk they presented to E&Y. Out of a total of +over 10,000 audit clients in North America, E&Y identified Bally as one of the riskiest 18 +accounts. These 18 accounts were so-called “Nat ional Focus Accounts” and were monitored by +the Americas Executive Board. Not only was Bally identified as a National Focus Account, it +was identified as the riskiest account in E&Y’s Lake Michigan Area. +Bally’s Accounting Errors and E&Y’s Audit Failures + +Relating to Fiscal Years 2001 and 2002 + +9. In connection with fiscal years 2001 and 2002, as well as earlier years, Bally +engaged in certain practices relating to its recognition of reactivation revenue, initiation fee +revenue, and deferred costs that made its financial statements false and misleading. E&Y, which +knew or should have known of these practices, issued unqualified audit opinions in connection +with its audits of such financial statements. +Premature Recognition of Reactivation Revenues +10. Bally recognized revenue from what it called “reactivations,” which were +payments from Bally members who had completed their initial contract period, but whose +memberships were canceled for failure to pay the monthly dues necessary to maintain their +membership. Bally did not attempt to recover those dues because there was no legal obligation +to pay dues. Accordingly, for those canceled me mbers who had completed the initial contract +period, Bally waited at least six months after receiving their last payment and then began +soliciting these canceled members to reactivate. Those who accepted the reactivation offers did +so, on average, 36 months after having stopped paying monthly dues. The reactivation offers did +not contain claims for or seek payment of "past due" amounts. Instead, they asked for either a +nominal reactivation fee or no reactivation fee at all, and the payment of monthly dues for a +period of future service. +11. Bally’s reactivation accounting policy was to project (as of the balance sheet date) +the reactivation payments it anticipated receiving in the coming year and then immediately +recognize most of these projected payments by improperly allocating them to past periods. +Bally’s reactivation accounting was not in conformity with GAAP because Bally recognized +revenue before it was earned and was realized or realizable. Bally recognized revenue before it +was earned because, among other things, it barred canceled former members from the gyms, and +therefore, had not provided services to those of its canceled members who might reactivate in the +future. Additionally, Bally recognized revenue before it was realized or realizable because it was +recognizing revenue for reactivations that had not yet occurred, which it anticipated from +canceled former members whom it could not identify individually and who had no legal +obligation to reactivate or pay Bally anything at all. In short, Bally violated GAAP by +4 + + + + + + + + + + +recognizing revenue related to the anticipated future payments before the reactivation +transactions occurred. +12. E&Y knew or should have known that Bally’s accounting policy for reactivation +revenues was not in conformity with GAAP, yet it issued unqualified opinions regarding Bally’s +2001 and 2002 financial statements. +Premature Recognition of Initiation Fee Revenue +13. Members paid a substantial initiation fee in connection with new membership +contracts. Beginning in 1997, Bally recognized initiation fee revenue over the estimated average +membership life, which included an estimate for both the average initial contract period and the +average renewal period. Bally computed the weighted average expected membership life to be +22 months for financed memberships and 36 months for cash memberships. +14. Bally’s 1997 computations of the weighted average expected membership life +were flawed. A cursory inspection of the comput ations would have revealed these flaws. In +1997, E&Y had checked Bally’s arithmetic and suggested some minor adjustments, but had +failed to test whether Bally's computations produced results that were consistent with reality, and +failed to determine that Bally’s computation was fundamentally incorrect. The errors in Bally’s +estimates had the effect of understating the average membership life. As a result, Bally’s +member life estimates improperly accelerated revenue recognition and distorted the economic +reality of Bally’s business. +15. These errors continued through the relevant period and E&Y knew or should have +known that by recognizing initiation fee revenue from financed contracts over 22 months, Bally +was improperly recognizing revenue before it was earned and realized or realizable in +contravention of GAAP. +E&Y’s Audits Were Deficient and Not Performed in Accordance with GAAS +16. E&Y’s audits of Bally’s reactivation accounting and initiation fee revenues were +deficient and not performed in accordance with GAAS. As an initial matter, E&Y knew that +Bally was a risky client due to, among other things, management’s aggressive accounting +policies. +17. E&Y prepared a memorandum in connection with the FY 2000 audit, which +concluded, improperly, that Bally’s reactivation revenue accrual “does not appear to be +precluded by SAB 101.” The memorandum indicated that (a) members who did not pay dues +after the initial contract period were barred from the gyms after a grace period, and (b) these +members had no legally enforceable obligation to pay dues after the initial contract period or to +reactivate their memberships. E&Y knew or should have known that these facts undermined and +contradicted the conclusion that the reactivation accrual “does not appear to be precluded by +SAB 101.” E&Y should not have concluded that Bally’s reactivation revenue policy was in +conformity with GAAP and thus E&Y failed to reasonably assess whether Bally’s financial +statements were presented in conformity with GAAP, as required by GAAS. +5 + + + + + + +18. E&Y also knew or should have known that part of the rationale contained in the +2000 memo supporting Bally’s reactivation revenue policy -- that reactivation revenue was a +continuation of the original contract -- was contrary to a representation that Bally had previously +made to the Commission staff, in connection with its calculation of the average membership life +estimate, that reactivation memberships were “in substance and in form, new contractual +arrangements.” E&Y failed to address or resolve Bally’s conflicting revenue recognition +treatments of reactivation memberships. +19. Initiation fee revenue was the largest component of Bally’s revenue. In 1997, +Bally had committed to the Commission staff that the company would periodically update its +member life estimates. Contrary to that commitment, Bally failed to update its member life +estimates throughout the period E&Y remained its auditor. +20. E&Y knew of Bally’s failure to keep that commitment. In fact, E&Y formally +requested Bally to update its member life computations in 1998, 2001, and 2002, but Bally never +did so. In response to E&Y’s 2001 request, Bally asserted that the 1997 calculations were still +“an appropriate approximation of the current historical average membership length” because the +original calculation constituted a “35-year historical average.” In fact, the 1997 calculation did +not constitute a 35-year historical average, but reflected an average from a much smaller pool of +data. E&Y knew or should have known that Bally’s representations regarding the 1997 +calculation were false. +21. E&Y failed to perform adequate audit procedures with regard to the renewal +period estimate and the resulting amortization period. Rather, E&Y simply carried forward the +1997 estimates pertaining to the average renewal period. Given the critical nature of this +accounting estimate, E&Y’s failure to obtain from the Company an update or to arrive at its own +independent estimate constitutes a departure from GAAS. +22. E&Y knew or should have known that Bally’s 2001 and 2002 financial statements +were not presented in conformity with GAAP, and it failed to qualify its opinion or issue an +adverse opinion as required by GAAS. +E&Y Seeks To Reduce Its Risk: 2002-2003 +23. In 2001 and 2002, a series of widely-known financial scandals led E&Y to assess +its audit risks and the firm took steps to identify and resign from or focus on certain of its riskiest +clients. Internally, E&Y was communicating the dangers of retaining high risk clients, but even +though E&Y identified Bally as one of its riskiest clients during the 2002 client continuance +process, E&Y did not resign from Bally. Instead, E&Y tried to reduce the risk that Bally’s +accounting practices posed to E&Y by, among other things, insisting for the first time that Bally +record the numerous accounting errors that had “historically been [placed by E&Y] on the +summary of audit differences.” +24. In addition, as a result of the implementation of the “Focus Accounts” program, +Bally, its accounting, and its retention as an E&Y client came under scrutiny from E&Y regional +and national management. E&Y’s National Office actively participated in events relating to +6 + + + + + + + + + + + +Bally’s critical accounting issues. From July 2002 through March 2003, E&Y had numerous +internal communications and meetings regarding the risks posed by Bally generally, as well as +particular risky accounting issues, including, among other things, Bally’s revenue recognition +estimates. Bally was the subject of a series of meetings with E&Y management, and Bally was +placed on a list of National Focus Accounts for Americas Executive Board attention. +E&Y Knew or Should Have Known Bally Made False and Misleading Disclosures + +Regarding a $55 Million Charge in Fiscal Year 2002 + +25. As of 2002, Bally’s allowance for doubtful accounts (“ADA”) had long been on +E&Y’s list of concerns regarding aggressive accounting. Bally’s estimate of the ADA was +another area in which management’s estimates appeared aggressive. Year in and year out, from +1997 through 2002, Bally consistently used a 41% reserve rate, despite changes in the economy +and in market conditions. The resulting ADA was always at the low end of the range that E&Y +had deemed to be reasonable. +26. During the third quarter of 2002, E&Y determined that Bally’s collections had +deteriorated substantially, and E&Y advised Bally that it needed to increase its ADA in order to +cover the shortfall resulting from the deteriorating collections. Bally insisted that no change be +made to the ADA until the fourth quarter to allow it time to obtain waivers of debt covenants +provisions from Bally’s lenders. +27. During the fourth quarter of 2002, Bally agreed to increase its ADA by +$55 million and ultimately presented it as a “special charge” in Bally’s year-end financial +statements. In its 2002 Form 10-K, Bally made false and misleading disclosures regarding the +reasons for the charge, and E&Y knew or should have known that the disclosures were improper. +The only reason for the charge cited in the Form 10-K was that Bally’s estimation was based on +an accelerated monetization scenario which would result in collecting less than book value. No +mention was made of the deterioration of the collectability of Bally’s accounts receivable +portfolio, which had been identified by E&Y as requiring Bally to take a charge. +28. The $55 million special charge virtually eliminated Bally's 2002 earnings. E&Y +knew or should have known that Bally’s disclosures failed to disclose accurately the reasons for +the “special charge,” yet E&Y did not object. E&Y also failed to tell Bally’s Audit Committee +about Bally’s false and misleading disclosures. +Bally’s Accounting Errors and E&Y’s Audit Failures Relating to Fiscal Year 2003 +29. In March 2003, after the 2002 audit had concluded but before the company had +filed its 2002 Form 10-K, E&Y contemplated resigning from the Bally engagement “due to risk +issues.” E&Y decided against resigning in favor of staying on and reducing its risk. +30. Following the decision to remain as Bally’s auditor, a new E&Y audit +engagement partner rotated on to the Bally engagement in April 2003. The new engagement +partner, who was selected because he was experienced and capable of delivering tough +messages, was instructed to “fix this situation to reduce the firm’s risk.” +7 + + + + + + +Recognition of Reactivation Revenue +31. In June 2003, Bally was in the process of refinancing its bank debt through a +private debt offering, to be followed by a public exchange offering. In connection therewith, +Bally needed E&Y to provide a comfort letter to the underwriters and a consent regarding +Bally’s use of E&Y’s unqualified audit opinion relating to the 2002 audit. E&Y told Bally that +unless it stopped accruing reactivation revenue, E&Y would not provide those documents, which +left Bally with no real alternative but to agree to stop accruing reactivation revenue. Even +though a few months earlier E&Y had issued an unqualified audit opinion regarding Bally's 2002 +financial statements that included its reactivation revenue accrual, in a June 16, 2003 meeting, +E&Y demanded that Bally change its reactivation accounting. That same day, after the audit +team consulted with E&Y’s National Office, E&Y agreed to provide Bally with a preferability +letter stating that the proposed change in reactivation accounting to a cash basis was a more +preferable method of accounting for reactivation revenues. +32. E&Y knew or should have known that Bally’s change in accounting for +reactivation revenues was not, in fact, a change in accounting, but rather was a correction of an +error that required a restatement because Bally’s original accrual methodology was not in +conformity with GAAP. A change in accounting can only be used to move from a GAAP- +compliant accounting methodology to a more preferable GAAP-compliant accounting +methodology; errors in previously issued financial statements cannot be corrected through an +accounting change. Bally’s 2003 financial statements, therefore, improperly included a +cumulative effect charge of $20.3 million associated with its change in accounting principle +when its prior years' financial statements should have been restated. Accordingly, Bally’s 2003 +financial statements were not presented in conformity with GAAP, yet E&Y issued an +unqualified audit opinion on Bally’s 2003 financial statements. +Recognition of Initiation Fee Revenue +33. For the year-end 2003 audit, E&Y turned its attention to Bally's other accounting +estimates, including the member life estimates used in determining the amortization period of +initiation fees that E&Y knew or should have known were not in conformity with GAAP. E&Y +had repeatedly identified as a "critical accounting policy" Bally's initiation fee revenue +recognition methodology. Given the concerns about fraud perpetrated by means of accounting +estimates, for the 2003 audit, E&Y planned to focus its attention on Bally’s membership revenue +recognition methodology. +34. E&Y’s audit planning reflected its awareness that Bally had failed to update its +member life estimate since 1997 and that the company had ignored both its commitment to the +Commission staff to do so and E&Y’s repeated recommendations to do so. Consistent with its +audit planning concerns about Bally’s aggressive estimates and the risk of financial fraud, E&Y +requested that Bally provide support for the member life estimate for the 2003 fiscal year. Despite +repeated efforts to obtain the information, E&Y never received the requested support. +35. Rather than continuing to press Bally for support for its complex accounting +estimates, at a meeting on January 25, 2004, E&Y encouraged Bally to change its complex +8 + + + + + + + + + + + + + + +accounting methods, including initiation fee revenues. E&Y prepared an agenda for the January +2004 meeting with Bally; four of the five agenda items related to identified audit adjustments +totaling approximately $260 million. +36. At the January 2004 meeting, E&Y notified Bally that it would have to take a +charge relating to new accounting guidance that Bally had failed to implement during the third +quarter of 2003. E&Y also identif ied three adjustments that Bally would have to book. E&Y +made clear that the new accounting guidance would require Bally to apply a modified cash basis +of accounting to some of its contracts. As Bally and E&Y discussed the proposed change, +Bally’s CFO proposed adopting a modified cash basis of accounting for all of the company’s +membership contracts. E&Y knew or should have known that the change to a modified cash +basis for the rest of Bally’s revenue recognition accounting would allow Bally to avoid or at least +reduce the significance of some of the charges E&Y had identified. The proposed changes +would also subsume some of the prior audit failures relating to initiation fee revenues. Bally +changed its accounting and E&Y issued a preferability letter that it knew or should have known +enabled Bally to improperly avoid a restatement. +37. Bally’s change from accrual accounting to a modified cash basis of accounting was +not, in fact, a change in accounting, but rather involved a correction of an error that required a +restatement because Bally’s implementation of the deferral method for recognition of initiation fee +revenue was not in conformity with GAAP. Accordingly, Bally’s 2003 financial statements were +not presented in conformity with GAAP, but E&Y nonetheless issued an unqualified audit +opinion on Bally’s 2003 financial statements. +E&Y’s Audit Was Deficient and Not Performed in Accordance with GAAS +38. E&Y's 2003 audit was deficient and not performed in accordance with GAAS. +E&Y failed to obtain sufficient competent evidential matter to support an opinion that Bally's +estimates, including the average member life estimates, were reasonable. E&Y told Bally's audit +committee that GAAS prescribed certain "mandatory procedures," including: "reviewing +accounting estimates for biases that could result in material misstatement due to fraud, including +retrospective review of significant prior year estimates. . . ." +39. E&Y also did not follow up on evidence that Bally's average member life +estimates were biased and unsubstantiated. +40. The change in accounting to a modified cash basis resulted in Bally recording a +cumulative effect adjustment (“CEA”) of more than $441 million, which was much more than +the effect of the identified audit adjustments referred to above, but allowed Bally to provide a +positive explanation for the effect. Given that a significant amount of the CEA related to how +Bally had amortized the initiation fees over a period of less than two years, E&Y should have +questioned how two supposedly GAAP-compliant methodologies resulted in such a material +disparity in earnings. Nonethele ss, E&Y failed to do so. If it had followed up, E&Y would have +determined that Bally’s prior calculation of the member life estimates was not reasonable and the +9 + + + + + + + + + + + +Company’s straight-line amortization of the financed membership initiation fees over a 22- +month period was not in conformity with GAAP. +41. Just as E&Y’s issuance of a preferability letter with regard to the change in +accounting for reactivation dues was improper, so too was its issuance of a preferability letter +with regard to the change to a modified cash basis for initiation fees. By the time E&Y began +the 2003 audit, E&Y was aware of the issues associated with the average member life estimate +that required vigorous audit procedures, yet E&Y failed to respond adequately. +42. E&Y knew or should have known that Bally’s 2003 financial statements were not +presented in conformity with GAAP, and it failed to qualify its opinion or issue an adverse +opinion as required by GAAS. +Legal Analysis +43. Section 17(a)(2) of the Securities Act prohibits obtaining money or property by +means of untrue statements of material fact or misleading omissions of material fact in the offer +or sale of securities. Section 17(a)(3) of the Securities Act prohibits engaging in transactions, +practices or courses of business which operate or would operate as a fraud or deceit upon the +purchaser in the offer or sale of securities. Information is material where there is a substantial +likelihood that a reasonable investor would consider the information important in making an +investment decision. Basic, Inc. v. Levinson, 485 U.S. 224, 231-32 (1988). Establishing +violations of Section 17(a)(2) and 17(a)(3) does not require a showing of scienter. Aaron v. SEC, +446 U.S. 680, 697 (1980). +44. Section 13(a) of the Exchange Act and Rules 13a-1, 13a-11 and 13a-13 +thereunder require all issuers with securities registered under Section 12 of the Exchange Act to +file annual, current and quarterly reports on Form 10-K, Form 8-K and Form 10-Q, respectively. +Exchange Act Rule 12b-20 further requires that, in addition to the information expressly required +to be included in such reports, the issuer must include such additional material information as +may be necessary to make the required statements, in light of the circumstances under which +they were made, not misleading. The obligation to file these periodic reports includes the +obligation that they be complete and accurate in all material respects. See, e.g., SEC v. IMC +Int’l, Inc., 384 F. Supp. 889, 893 (N.D. Tex.), aff’d mem., 505 F.2d 733 (5 +th Cir. 1974), cert. +denied sub nom. No showing of scienter is necessary to establish a violation of Section 13(a) of +the Exchange Act and Rules 13a-1, 13a-11, 13a-13 and 12b-20. See SEC v. McNulty, 137 F.3d +732, 740-741 (2d Cir. 1998). +45. 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.” +47. Bally violated Section 17(a)(2) and (3) of the Securities Act and Sections 13(a) +and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder by, +among other things, prematurely recognizing income and improperly deferring costs which +resulted in its books and records being false, failing to maintain accurate books and records and +10 + + + + + + + + + +including material, false and misleading financial statements and information in annual, quarterly +and current reports filed with the Commission in connection with fiscal years 2001 through +2003. +48. E&Y’s failure to comply with GAAS was a cause of and aided and abetted +Bally’s violations. For each of the years 2001-2003, E&Y issued audit reports containing +unqualified opinions stating that E&Y had conducted an audit of the company’s annual financial +statements in accordance with GAAS, that Bally’s financial reporting was in conformity with +GAAP, and that Bally’s reported results fairly represented the financial condition of the +company. E&Y consented to the inclusion of these audit reports in Bally’s Forms 10-K for +2001-2003. However, E&Y’s audit reports were misleading because E&Y failed to conduct its +audits in accordance with GAAS. E&Y also kne w or should have known that Bally was engaged +in non-GAAP and other accounting actions that were not disclosed to investors and prevented +Bally’s reported financial results from fairly representing its financial condition. +49. In auditing Bally’s accounting practices relating to reactivation revenue and +initiation fee revenue, E&Y failed under GAAS to exercise due professional care and skepticism, +failed to obtain sufficient competent evidential matter and substituted managements’ +representations for competent evidence supporting the accounting. In fact, E&Y never insisted +that Bally provide support for certain of these estimates, nor did E&Y itself perform sufficient +audit procedures to test and determine whether these accounting actions resulted in appropriate +revenue. Had it done so, it would have reasonably determined that these accounting practices +were not in conformity with GAAP. +50. Despite these accounting and audit failures, and in further violation of GAAS, +E&Y did not express a qualified or adverse audit opinion, or refuse by disclaimer to express any +opinion at all, but instead issued audit reports that contained unqualified opinions on Bally’s +2001-2003 financial statements. E&Y also knew or should have known that Bally was making +false and misleading disclosures such as in connection with its $55 million special charge. Nor +did E&Y propose that Bally correct its improper accounting in the quarterly financial statements +that E&Y reviewed during 2001-2003. E&Y also im properly issued preferability letters that +allowed Bally to switch its reactivation accounting and initiation fee revenue accounting instead +of restating for errors relating to that accounting. Accordingly, E&Y’s failure to comply with +GAAS was a cause of and aided and abetted Bally’s violations of Section 17(a)(2) and (3) of the +Securities Act and Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, +13a-11 and 13a-13 thereunder. +51. E&Y also willfully violated Section 10A(b) of the Exchange Act in connection +with Bally’s failure to disclose that the $55 million special charge recorded in its FY 2002 +financial statements was due to a deterioration in the collectability of the Company’s receivables. +E&Y failed to report this illegal act to the Audit Committee in accordance with Section 10A(b). +11 + + + + + + + + + + + + + + + + + + + + + + + + + +Findings +As a result of the conduct described above, E&Y willfully4 violated Section 10A(b) of the +Exchange Act and was a cause of and willfully aided and abetted Bally’s violations of Section +17(a)(2) and (3) of the Securities Act and Sections 13(a) and 13(b)(2)(A) of the Exchange Act and +Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. +Undertakings +Respondent has agreed to the following undertakings: +A. Undertaking Concerning a Payment in the Nature of a Penalty +E&Y shall, within 10 days of the entry of an Order, make a payment in the nature of a +penalty in the amount of $8.5 million to the United States Treasury. If timely payment is not +made, additional interest shall accrue pursuant to 31 U.S.C. 3717. Such payment shall be: (A) +made by United States postal money order, certified check, bank cashier's check or bank money +order; (B) made payable to the Securities and Exchange Commission; (C) hand-delivered or +mailed to the Office of Financial Management, Securities and Exchange Commission, Operations +Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover +letter that identifies E&Y as a Respondent in these proceedings, and the file number of these +proceedings. A copy of the cover letter and money order or check shall be sent to Kenneth R. +Lench, Division of Enforcement, Securities and Exchange Commission, 100 F St., N.E., +Washington, D.C. 20549. +B. Undertaking Concerning Ongoing Cooperation +E&Y agrees that E&Y (including its partners, principals, officers, agents and employees) +shall cooperate fully with the Commission with respect to any matter relating to the +Commission's investigation of Bally, including but not limited to any litigation or other +proceeding related to or resulting from that investigation. Such cooperation shall include, but is +not limited to: +(a) production of information-- at the Commission's request, upon reasonable notice, and +without subpoena, E&Y (including its partners, principals, officers, agents and +employees) shall truthfully and completely disclose all information requested by SEC +staff in connection with the Commission's investigation, litigation or other proceedings, +except with respect to information related to clients other than Bally, which information +shall be produced in response to subpoena; +(b) production of documents -- at the Commission's request, upon reasonable notice, and +without subpoena, E&Y (including its partners, principals, officers, agents and +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)). +12 + + + + + + + + + + + + + + +employees) shall provide any document, record, or other tangible evidence requested by +SEC staff in connection with the Commission's investigation, litigation or other +proceedings, except with respect to documents related to clients other than Bally, which +documents shall be provided in response to subpoena; +(c) production of cooperative personnel -- at the Commission's request, upon reasonable +notice, and without subpoena, E&Y (including its partners, principals, officers, agents +and employees) shall use its best efforts to secure the attendance and truthful statements +or testimony of any E&Y partner, principal, officer, agent, or employee, excluding any +such person who is a party to litigation with the Commission, at any meeting, interview, +testimony, deposition, trial, or other legal proceeding. +The foregoing obligations are subject to E&Y's reservation of rights: +(i) to claim that documents or information requested is subject to attorney client privilege +or attorney work-product protection; and +(ii) to seek entry of a confidentiality order as to (aa) sensitive business documents or +information, (bb) sensitive personnel documents or information, or (cc) confidential information +pertaining to clients other than Bally. +C. Undertakings Concerning Auditing Matters +1. National Office Consultations. The goal of this undertaking is for E&Y to +avoid circumstances under which a member of the National Office Professional Practice group, +or any person in a comparable position, is consulted on a matter for which he or she may lack +sufficient objectivity based on prior involvement with the same client. E&Y shall adopt, +implement and enforce written policies and procedures to provide reasonable assurances that no +member of the Professional Practice group, or any person in a comparable position, engages in a +consultation on an accounting, auditing, reporting or other issue relating to an audit or review of +a public company client, if that member or person currently serves, or within the prior seven +years has served, as a member of the engagement team or an independent or engagement quality +review partner for such client; notwithstanding the foregoing, any person excluded based on +prior involvement may provide background factual information relating to the client, or may +inform others providing the consultation of the applicable technical guidance relating to issues +that are not the same as or similar to issues with which the person was previously involved at the +client. +2. High Risk Clients. The goal of this undertaking is to require E&Y to +adopt, implement and enforce written policies and procedures to provide reasonable assurances +that E&Y National Office Professional Practice partners, or persons in comparable positions, +engaged in risk management roles do not lack sufficient objectivity because of their current or +prior duties or responsibilities with respect to clients identified as presenting high risk to E&Y, +including without limitation all Focus Account clients. Such policies and procedures shall +require, at a minimum, that any partner who currently serves as, or has served as within the prior +13 + + + + + + +seven years, a member of the engagement team or an independent or engagement quality review +partner for such client, shall refrain from the exercise of the risk management duties and +responsibilities of a National Office Professional Practice partner, or of a comparable position, +with respect to such client identified as presenting high risk to E&Y; notwithstanding the +foregoing, any person excluded based on prior involvement may provide background factual +information relating to the client, or may inform others of the applicable technical guidance +relating to issues that are not the same as or similar to issues with which the person was +previously involved at the client. + 3 . Preferability Letters. The purpose of this undertaking is to require E&Y +to engage in an internal review of its existing policies and procedures concerning the issuance of +preferability letter opinions, make such revisions as may be necessary, and then engage in steps +to implement and enforce such policies and procedures so as to provide reasonable assurances +that, prior to the issuance of any preferability letter, E&Y applies sufficient professional scrutiny +to, and documents the application of such scrutiny to, requests by public company clients to +change to an alternative method of accounting. E&Y shall make such revisions as may be +necessary in order to adopt, implement and enforce written policies and procedures, concerning +the review and approval of preferability letters issued by E&Y to public company clients, in +order to provide reasonable assurances that E&Y complies with all applicable professional +standards, regulatory and legal requirements, and E&Y policies. E&Y’s obligation hereunder +shall include, without limitation, a requirement to document in the audit workpapers a complete +analysis as to: (a) whether the prior method of accounting is in conformity with GAAP; (b) +whether the new proposed method is in conformity with GAAP; (c) whether the client proposed +the change in accounting principle; (d) whether or not the client has provided sufficient +justification for the change in accounting principle; and (e) whether or not the change in +accounting principle is presented in accordance with GAAP. In addition, E&Y shall make such +revisions as may be necessary in order to adopt, implement and enforce written policies and +procedures to provide reasonable assurances that that documentation of the review and approval +of preferability letters issuable to public company clients, including the review of the +aforementioned workpapers, is completed and included in the workpapers prior to the issuance of +any such letters. + 4 . Documentation of Consultations. The purpose of this undertaking is to +require E&Y to engage in an internal review of its existing policies and procedures concerning +documentation of National Office Professional Practice group, or any person in a comparable +position, consultations, make such revisions as may be necessary, and then engage in steps to +implement and enforce such policies and procedures. E&Y shall make such revisions as may be +necessary in order to adopt, implement and enforce written policies and procedures to provide +reasonable assurances that workpapers prepared in connection with audits and reviews of the +financial statements of public companies include documentation of consultations with E&Y’s +National Office Professional Practice group, persons in comparable positions, firm specialists or +others within or without the firm. The documentation of such consultations shall include a +description of the issue considered, any action taken with respect to the issue, and the basis for +conclusion with respect to the issue. Such documentation shall be retained for seven years and +subject to inspection by the Public Company Accounting Oversight Board. The policies and +14 + + + + + + + + + + + +procedures also should address documentation of inquiries of employees of public audit clients +pertaining to such consultations. +5. Disagreements and Reportable Events. The goal of this undertaking is to +require E&Y to engage in an internal review of its existing policies and procedures concerning +compliance with the provisions of Item 304 of Regulation S-K (“Item 304”). E&Y shall adopt, +implement and enforce written policies and procedures providing reasonable assurance that E&Y +complies with Item 304, including ensuring that training is provided to E&Y’s National Office +Professional Practice group, persons in comparable positions and its engagement teams. + 6 . Detection and Reporting of Illegal Client Activity (Section 10A +Compliance). The goal of this undertaking is to require E&Y to engage in an internal review of +its existing policies and procedures concerning compliance with Section 10A of the Exchange +Act, make such revisions as may be necessary, and then engage in steps to implement and +enforce such policies and procedures so as to provide reasonable assurances that E&Y will +comply with its obligations under Section 10A. E&Y shall make such revisions as may be +necessary in order to adopt, implement and enforce written policies and procedures providing +reasonable assurance that E&Y complies with Section 10A of the Securities of Exchange Act of +1934, as amended, including without limitation, for each audit subject to Section 10A, +procedures designed to provide reasonable assurance of detecting illegal acts that would have a +direct and material effect on the determination of financial statement amounts, and to comply +with all requirements under the standards of the Commission and the Public Company +Accounting Oversight Board and Section 10A to evaluate and report suspected illegal acts. +7. Certification of Compliance. The chairman of E&Y shall certify in +writing compliance with each of the above undertakings (the “Certificate of Compliance”). The +certification shall identify each of the above undertakings with which E&Y believes it has +complied and shall provide written evidence of compliance in the form of a narrative which is +supported by exhibits sufficient to demonstrate compliance. The Commission staff may make +reasonable requests for further evidence of compliance, and E&Y agrees to provide such +evidence. The certification and supporting material shall be submitted to Assistant Director +Kenneth R. Lench of the Division of Enforcement. This certification shall be submitted no later +than six months from the date of this order. +8. Independent Consultant. No later than 3 months after successfully +certifying to the Commission that all of the above undertakings have been completed, E&Y shall +select and retain an Independent Consultant, qualified to examine and assess compliance with the +above Undertakings Concerning Auditing Matters. In advance of retention by E&Y, the selected +Independent Consultant shall be confirmed to be acceptable to the Commission staff. E&Y may +not retain as Independent Consultant any individual or entity that has provided legal, auditing or +other services to, or has had any affiliation with, E&Y during the prior two years. Moreover, +E&Y shall require the Independent Consultant to enter into an agreement that provides that, for +the period of engagement and for a period of two years from completion of the engagement, the +Independent Consultant shall not enter into any employment, consultant, attorney-client, auditing +or other professional relationship with E&Y, or any of its present or former affiliates, partners, +15 + + + + + + + + + + + + + + + +directors, officers, employees, or agents acting in their capacity as such. The agreement will also +provide that the Independent Consultant will require that any firm with which he/she is affiliated +or of which he/she is a member, and any person engaged to assist the Independent Consultant in +performance of his/her duties under this Order shall not, without prior written consent of the staff +of the Division of Enforcement, enter into any employment, consultant, attorney-client, auditing +or other professional relationship with E&Y, or any of its present or former affiliates, partners, +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. +E&Y shall provide a copy of the complete Certification of Compliance, including all +attachments, previously submitted to the Commission staff, together with such other evidence as +E&Y may deem appropriate to enable the Independent Consultant to reasonably evaluate E&Y’s +compliance with the undertakings in this Order and their effectiveness in achieving their stated +goals. E&Y shall provide the Independent Cons ultant with reasonable access to such E&Y +personnel, records and information, as the Independent Consultant may request in connection +with the Independent Consultant’s review. +Following completion of the Independent Consultant’s review, the Independent +Consultant shall prepare a detailed written report describing the actions taken by E&Y in +response to the above undertakings and the effectiveness of such actions, and certifying that (i) +E&Y has complied with the above undertakings, and (ii) the undertakings appear to be effective +in achieving their stated goals. If the consul tant cannot so certify, the consultant shall (i) +describe in the written report the reason that the consultant is unable to so certify, (ii) prepare and +submit to E&Y written recommendations to E&Y designed to bring E&Y into effective +compliance with the goals of the undertakings, and (iii) attach a copy of such written +recommendations as an exhibit to the written report. A copy of the Independent Consultant’s +report, certification and recommendations, if any, shall be submitted to Assistant Director +Kenneth R. Lench of the Division of Enforcement within twelve months of the commencement +of the Independent Consultant’s review, or such additional time as necessary for the Independent +Consultant to complete the review and make the required certification. +In determining whether to accept the Offer, the Commission has considered these +undertakings. Respondent agrees that if the Division of Enforcement believes that Respondent has +not satisfied these undertakings, it may petition the Commission to reopen the matter to determine +whether additional sanctions are appropriate. +16 + + + + + + + + + + + + + + + + + + + + + + + +IV. +In view of the foregoing, the Commission deems it appropriate to impose the sanctions +agreed to in Respondent E&Y’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 cease and desist from committing or causing any violations and any +future violations of Section 10A of the Exchange Act and Sections 17(a)(2) and (3) of the Securities +Act, and from causing any violations and any future violations of Sections 13(a) and 13(b)(2)(A) of +the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder; +B. Respondent is censured pursuant to Rule 102(e)(1)(iii) of the Commission’s Rules +of Practice; +C. Respondent shall comply with the undertakings enumerated in Section III.C above. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +17 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3089.txt b/raw/aaer/2009/AAER-3089.txt new file mode 100644 index 0000000000000000000000000000000000000000..a9bd9adb5b4a55c2531ec7d12154e2a69d2d665c --- /dev/null +++ b/raw/aaer/2009/AAER-3089.txt @@ -0,0 +1,1397 @@ + + + + + + + + + + + + + + + + SEC.gov | Richard E. McDonald, et al. + + + + + + + + !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); + {"path":{"baseUrl":"\/","pathPrefix":"","currentPath":"node\/507296","currentPathIsAdmin":false,"isFront":false,"currentLanguage":"en"},"pluralDelimiter":"\u0003","suppressDeprecationErrors":true,"gtag":{"tagId":"","consentMode":false,"otherIds":[],"events":[],"additionalConfigInfo":[]},"ajaxPageState":{"libraries":"eJxdT0GOwzAI_JBdn_oei2DkeINNZLC22devlaZS2wtiBhhmcKNUTPo97jxyaXEH3GJpiZrFhQW38A4cMqgeYQGlV19JFTKpQ-kUmvQKXP7I0cO4tC2kPnbg2wVdFslM0SCHPMs3vsEPPD7J6hgOGdPCKJyoRxxqUuePHjLLAuzVjimenRJGSLW08NoBK9LUn6SHlrytVOlcpJShB63QLSpBx_WkOzHNePol4fRQo_qMPvQ36ZXsAmd99lMNr2t_GUR9n60EyX9a_wePd5ns","theme":"uswds_sec","theme_token":null},"ajaxTrustedUrl":[],"gtm":{"tagId":null,"settings":{"data_layer":"dataLayer","include_classes":false,"allowlist_classes":"","blocklist_classes":"","include_environment":false,"environment_id":"","environment_token":""},"tagIds":["GTM-TD3BKV"]},"data":{"extlink":{"extTarget":false,"extTargetAppendNewWindowDisplay":true,"extTargetAppendNewWindowLabel":"(opens in a new window)","extTargetNoOverride":false,"extNofollow":false,"extTitleNoOverride":false,"extNoreferrer":false,"extFollowNoOverride":false,"extClass":"0","extLabel":"(link is external)","extImgClass":false,"extSubdomains":true,"extExclude":".*\\.gov|http:\/\/www.xbrl.org\/utr\/2013-05-17\/utr.xml|http:\/\/www.xbrl.org\/dtr\/type\/numeric-2009-12-16.xsd|http:\/\/www.xbrl.org\/dtr\/type\/nonNumeric-2009-12-16.xsd|https:\/\/secir.secure.force.com\/ombudsman\/OMMSForm","extInclude":"","extCssExclude":".data-exempt","extCssInclude":"","extCssExplicit":"","extAlert":true,"extAlertText":"You are now leaving the SEC Website. 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McDonald, et al. + + + + + + + + + + + + Richard E. McDonald, et al. + + + + + + + + + + + + + + + + + + + U.S. SECURITIES AND EXCHANGE COMMISSION + + Litigation Release No. 21350 / December 23, 2009 + + Accounting and Auditing Enforcement Release No. 3089 / December 23, 2009 + + Securities and Exchange Commission v. Richard E. McDonald, et al. , Case No. 09-CV-01685 (W.D. Pa.) + + SEC CHARGES FORMER PRESIDENT OF WORLD HEALTH ALTERNATIVES, INC. AND THREE OTHERS FOR CONDUCTING FINANCIAL FRAUD + + The Securities and Exchange Commission announced that, on December 23, 2009, it filed a civil action in the United States District Court for the Western District of Pennsylvania against Richard E. McDonald of Leechburg, Pennsylvania, former President, CEO and Chairman of World Health Alternatives, Inc. ("World Health"), a now defunct medical staffing company previously located in Pittsburgh, Pennsylvania. The Commission's complaint alleges that McDonald was the principal architect of a wide-ranging financial fraud at World Health by which McDonald misappropriated approximately $6.4 million for his personal benefit. Also named as defendants are Deanna Seruga of Pittsburgh, the company's former controller and a CPA, Marc D. Roup, of Murrysville, Pennsylvania and Miami, Florida, a former CEO of World Health, and Joseph I. Emas, of Surfside, Florida, World Health's former outside securities counsel. The complaint charges the defendants with violations of the antifraud and other provisions of the federal securities laws. Without admitting or denying the Commission's allegations, all four defendants have agreed to settle the matter. The settlements are pending final approval by the court. + + The complaint alleges that, from at least May 2003 through August 2005, McDonald, along with Seruga and Roup, engaged in a wide array of fraudulent and improper conduct. A key aspect of the fraud involved the manipulation of World Health's accounting entries. McDonald and Seruga repeatedly falsified accounting entries in World Health's financial books and records, understating expenses and liabilities. This made the Company appear more financially sound, and masked McDonald's misappropriation of funds. During the relevant period, every annual and quarterly report that World Health filed with the Commission contained false financial statements. + + The complaint further alleges that McDonald caused World Health to make misrepresentations and omissions in documents publicly filed with the Commission concerning, among other things, the Company's financial performance, the registration of millions of shares of World Health stock, certain material financial transactions, the number of shares authorized and outstanding, and the Company's business plan. McDonald signed and certified these filings, knowing they contained misstatements. + + The complaint further alleges that, during his tenure as CEO, Roup also signed and certified false public filings, and did so with no basis to assess the veracity of the information contained therein. McDonald and Roup also failed to properly publicly report their personal sales of World Health stock to the Commission. + + As alleged in the complaint, McDonald also improperly attempted to issue and register for immediate sale millions of shares of World Health stock by misusing a Form S-8 registration statement. In addition, McDonald also caused World Health to file with the Commission two false post-effective amendments drafted by Emas, World Health's outside securities counsel. + + McDonald has consented to the entry of an order permanently enjoining him from violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Sections 10(b), 13(b)(5) and 16(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1, 13b2-2 and 13a-14 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The order will also bar McDonald from serving as an officer or director of a public reporting company. The order finds McDonald liable for disgorgement of approximately $6.4 million plus prejudgment interest. Based on sworn financial statements and other documents and information submitted to the Commission, payment of disgorgement and prejudgment interest will be waived and civil penalties not imposed. + + Roup has consented to the entry of an order permanently enjoining him from violating Sections 5(a), 5(c) and 17(a) of the Securities Act, Sections 10(b) and 16(a) of the Exchange Act, and Rules 10b-5 and 13a-14 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. The order will also bar Roup from serving as an officer or director of a public reporting company. Roup will also be ordered to pay disgorgement and prejudgment interest of $5,324,187, and a $120,000 civil penalty. Roup consented to transfer his assets to a court-appointed receiver to satisfy payment of these amounts. + + Seruga has consented to the entry of an order permanently enjoining her from violating Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1 and13b2-2 thereunder, and aiding and abetting violations of Section 13(a) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 thereunder. The order finds Seruga liable for disgorgement of $383,662 plus prejudgment interest. Based on sworn financial statements and other documents and information submitted to the Commission, payment of disgorgement and prejudgment interest will be waived and civil penalties not imposed. In addition, Seruga agreed to settle a related administrative proceeding by consenting to the entry of an order suspending her from appearing or practicing before the Commission as an accountant. + + Emas has consented to the entry of an order permanently enjoining him from violating Sections 5(a), 5(c), 17(a)(2) and 17(a)(3) of the Securities Act. Emas will also be ordered to pay disgorgement and prejudgment interest of $163,083, and a $15,000 civil penalty. In addition, Emas agreed to settle a related administrative proceeding by consenting to the entry of an order suspending him from appearing or practicing before the Commission as an attorney for two years. + + + SEC Complaint + + +  + + + + + + + + + + + Resources + + + + + SEC Complaint + + + + + + + + + + + + + + + + + + + + + + + + Return to top + + + + + SEC homepage + + + + + + + + + + + + + + About the SEC + + + + + + Budget & Performance + + + Careers + + + Commission Votes + + + Contact + + + Contracts + + + + + + + + Transparency + + + + + + Accessibility & Disability + + + Super Intelligence + + + FOIA + + + Inspector General + + + No FEAR Act Data + + + Ombuds + + + SEC Excess Personal Property Guidance + + + + + + + + Websites + + + + + + Investor.gov + + + Related Sites + + + USA.gov + + + + + + + + Site Information + + + + + + Plain Writing + + + Privacy & Security + + + Site Map + + + + + + + + + + + + + + + + + + Stay connected. Sign up for email updates. + + + + + + Your email address + + Sign Up + + + + + + + + + + + + X + + + + + + + + Facebook + + + + + + + + Instagram + + + + + + + + RSS + + + + + + + + YouTube + + + + + + + + Email Updates + + + + + + + + + + + + + + + + + + + diff --git a/raw/aaer/2009/AAER-3090.txt b/raw/aaer/2009/AAER-3090.txt new file mode 100644 index 0000000000000000000000000000000000000000..35351cbefd4a278203ba75768969cadc6b3a256d --- /dev/null +++ b/raw/aaer/2009/AAER-3090.txt @@ -0,0 +1,209 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + +UNITED STATES OF AMERICA +Before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 61245 / December 28, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3090 / December 28, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13729 +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +ANNA M. BAIRD, 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 Anna M. Baird (“Respondent” or “Baird”) pursuant to Rule 102(e)(3)(i) +of the Commission’s Rules of Practice. +1 +II. +In anticipation of the institution of these proceedings, Respondent has submitted +an Offer of Settlement (the “Offer”) which the Commission has determined to accept. +Solely for the purpose of these proceedings and any other proceedings brought by or on +behalf of the Commission, or to which the Commission is a party, and without admitting +or denying the findings herein, except as to the Commission’s jurisdiction over her and +Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public interest and without preliminary hearing, +may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has +been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his +or her misconduct in an action brought by the Commission, from violating or aiding and abetting +the violation of any provision of the Federal securities laws or of the rules and regulations +thereunder. +1 + + + + + + + + + + + + +the subject matter of these proceedings, and the findings contained in Section III.3. +below, which are admitted, Respondent consents to the entry of this Order Instituting +Administrative Proceedings Pursuant to Rule 102(e) of the Commission’s Rules of +Practice, Making Findings, and Imposing Remedial Sanctions (“Order”), as set forth +below. +III. +On the basis of this Order and Respondent’s Offer, the Commission finds that: +1. Baird, age 52, has been a certified public accountant licensed to +practice in the Commonwealth of Pennsylvania. She served as Chief Financial Officer, +Vice President and Treasurer of Black Box Corporation (“Black Box”) from May 1997 +until December 2002. Baird was licensed as a CPA in Pennsylvania from 1982 through +early 2003, when her license lapsed. +2. Black Box is a Delaware corporation with its principal place of +business in Lawrence, PA. Black Box is a network infrastructure services provider of +communication systems. At all relevant times, Black Box’s common stock was +registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act +of 1934 (“Exchange Act”) and traded on NASDAQ’s Global Select Market System under +the symbol “BBOX.” +3. On December 4, 2009, the Commission filed a complaint against +Baird in SEC v. Black Box Corporation, et al. (Civil Action No. 09-CV-1591, W.D. PA). +On December 8, 2009, the court entered an order permanently enjoining Baird, by consent, +from future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, and +Section 13(b)(5) of the Exchange 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. Baird was also ordered to pay $87,243 in disgorgement and $31,402 in +prejudgment interest. +4. The Commission’s complaint alleged, among other things, that, +while she was the Chief Financial Officer of Black Box, Baird participated in backdating +stock options purportedly issued in October 2000 as part of a plan to reduce expenses. The +complaint alleged that Baird knew or should have known that Black Box had failed to +properly record compensation expenses for these options, which were granted at below +market prices and were, therefore, “in the money.” The complaint further alleged that +Baird knew or should have known that Black Box’s filings with the Commission, +specifically the Form 10-Q for the quarter ending December 31, 2000 and the Form 10-K +for the year ending March 31, 2001 contained materially false and misleading statements. +The complaint also alleged that Baird failed to implement a system of internal accounting +controls to accurately reflect the granting of stock options, and aided and abetted Black +Box’s violations of the company’s books and records and internal accounting controls +requirements as they pertained to the administration and implementation of its stock option +programs. +2 + + + + + + + + + + + + + + + + + + + + + + + + +IV. +In view of the foregoing, the Commission deems it appropriate and in the public +interest to impose the sanction agreed to in Respondent Baird’s Offer. +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Baird 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 her reinstatement by submitting an application (attention: +Office of the Chief Accountant) to resume appearing or practicing before the +Commission as: +1. a preparer or reviewer, or a person responsible for the preparation +or review, of any public company’s financial statements that are filed with the +Commission. Such an application must satisfy the Commission that Respondent’s work +in her practice before the Commission will be reviewed either by the independent audit +committee of the public company for which she works or in some other acceptable +manner, as long as she practices before the Commission in this capacity; and/or +2. an independent accountant. Such an application must satisfy the +Commission that: +(a) Respondent, or the public accounting firm with which she +is associated, is registered with the Public Company Accounting Oversight Board +(“Board”) in accordance with the Sarbanes-Oxley Act of 2002, and such registration +continues to be effective; +(b) Respondent, or the registered public accounting firm with +which she is associated, has been inspected by the Board and that inspection did not +identify any criticisms of or potential defects in the Respondent’s or the firm’s quality +control system that would indicate that the Respondent will not receive appropriate +supervision; +(c) Respondent has resolved all 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 her responsibility, as long as +Respondent appears or practices before the Commission as an independent accountant, to +comply with all requirements of the Commission and the Board, including, but not +limited to, all requirements relating to registration, inspections, concurring partner +reviews and quality control standards. +3 + + + + + + + + + + + + + + + +C. The Commission will consider an application by Respondent to resume +appearing or practicing before the Commission provided that her state CPA license is +current and she has resolved all other disciplinary issues with the applicable state boards +of accountancy. However, if state licensu re is dependent on reinstatement by the +Commission, the Commission will consider an application on its other merits. The +Commission’s review may include consideration of, in addition to the matters referenced +above, any other matters relating to Respondent’s character, integrity, professional +conduct, or qualifications to appear or practice before the Commission. +By the Commission. + Elizabeth M. Murphy + S e c r e t a r y +4 + \ No newline at end of file diff --git a/raw/aaer/2009/AAER-3092.pdf b/raw/aaer/2009/AAER-3092.pdf new file mode 100644 index 0000000000000000000000000000000000000000..6d43a1301f6529f1b0529c693ad1e625bf6ad6f3 Binary files /dev/null and b/raw/aaer/2009/AAER-3092.pdf differ diff --git a/raw/aaer/2009/AAER-3092.txt b/raw/aaer/2009/AAER-3092.txt new file mode 100644 index 0000000000000000000000000000000000000000..2162dd9e39baea94460519e56020c527c8951d1f --- /dev/null +++ b/raw/aaer/2009/AAER-3092.txt @@ -0,0 +1,208 @@ + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + UNITED STATES OF AMERICA + before the +SECURITIES AND EXCHANGE COMMISSION +SECURITIES EXCHANGE ACT OF 1934 +Release No. 61262 / December 30, 2009 +ACCOUNTING AND AUDITING ENFORCEMENT +Release No. 3092 / December 30, 2009 +ADMINISTRATIVE PROCEEDING +File No. 3-13732 +: +: +: +In the Matter of : ORDER INSTITUTING ADMINISTRATIVE +: PROCEEDINGS PURSUANT TO RULE +STEPHEN C. GINGRICH (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 Stephen +C. Gingrich (“Respondent” or “G ingrich”) 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”), wh ich the Commission has determined to accept. Solely for the +purpose of these proceedings and any other proceedings brought by or on behalf of the +Commission, or to which the Commission is a party, and without admitting or denying the findings +1 Rule 102(e)(3)(i) provides, in relevant part, that: +The Commission, with due regard to the public in terest 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. + + + + + + + + + + + + + + + + + + + + + + + + +herein, except as to the Commission’s jurisd iction over him and the subject matter of these +proceedings, and the findings contained in Section III. 3. below, which are admitted, Respondent +consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) +of the Commission’s Rules of Practice, Maki ng 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. Gingrich, age 41, possesses a certifi cate of certified public accountant +(“CPA”) in the Commonwealth of Pennsylvania. His license to practice has +voluntarily been on inactive status since April 2002. He has been employed +by Home Solutions of America, Inc. (“HSOA”) since July 2006, and served +as controller of its subsidiary Firelin e Restoration, Inc. (“Fireline”) from +July 2006 through July 2008. +2. On November 30, 2009, the Commission filed a Complaint in the U.S. +District Court for the Northern District of Texas in a civil action captioned +Securities and Exchange Commission v. Home Solutions of America, Inc., +et al., Civil Action Number 3:09-CV- 02269-N. The Complaint named +Gingrich as a defendant. As to Gingrich, the Complaint alleged that in +connection with the preparation and a udit of HSOA’s financial statements +for its year ended December 31, 2006 , and preparation and review of +HSOA’s financial statements for its quarters ending March 31, 2007 and +June 30, 2007, Gingrich (a) instructed Fireline employees to sign documents +that materially misrepresented the progress of certain construction projects, +and provided the documents to HSOA’s auditor; and (b) at the direction of +HSOA’s chief financial officer, made accounting entries on Fireline’s books +and records that materially misrepresented HSOA’s revenues. +3. On December 10, 2009, the District Court entered an agreed final judgment +against Gingrich, permanently enjoining him from direct or indirect future +violations of Sections 17(a)(2) and (3) of the Securities Act of 1933 and +from aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the +Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, and 13a-13 +thereunder. Gingrich was also ordered to pay a civil penalty of $25,000. +Gingrich consented to the entry of th e final judgment without admitting or +denying the allegations made in the Commission’s Complaint. +IV. +In view of the foregoing, the Commission deems it appropriate and in the public interest to +impose the sanction agreed to in Respondent Gingrich’s Offer. +2 + + + + + + + + + + +Accordingly, it is hereby ORDERED, effective immediately, that: +A. Respondent is suspended from appeari ng or practicing before the Commission as +an accountant. +B. After three years from the date of th is order, Respondent may request that the +Commission consider his reinstatement by submitting an application (attention: +Office of the Chief Accountant) to resu me 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 applicati on must satisfy the Commission that +Respondent’s work in his practi ce before the Commission will be +reviewed either by the independent audit committee of the public company +for which he works or in some othe r 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 acc ounting firm with which he is +associated, is registered with the Public Company Accounting +Oversight Board (“Board”) in accordance with the Sarbanes-Oxley +Act of 2002, and such registration continues to be effective; +(b) 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 qualit y 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 an d 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 +3 + + + + + + + + + +and he has resolved all other disciplinary issues with the applicable state boards of +accountancy. However, if state licensure is dependant on reinstatement by the +Commission, the Commission will consider an application on its other merits. +The Commission’s review may include consideration of, in addition to the matters +referenced above, any other matters relating to Respondent’s character, integrity, +professional conduct, or qualifications to appear or practice before the +Commission. + By the Commission. + E l i z a b e t h M . M u r p h y + S e c r e t a r y +4 + \ No newline at end of file