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+     SEC.gov | Transcrypt International, Inc. 
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+              Transcrypt International, Inc.
+           
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+   
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+     
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+      
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+             
+        Transcrypt International, Inc.
+       
+
+             
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+                   
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+  
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+
+ SECURITIES EXCHANGE ACT OF 1934 
+ Release No. 43809 / January 4, 2001 
+
+ Accounting and Auditing Enforcement 
+ Release No. 1358 / January 4, 20001 
+
+ Administrative Proceedings
+ File No. 3-10402 
+
+        In the Matter of 
+  Transcrypt International, Inc.
+  Respondent.  
+    
+  : : : : : : : :   
+  ORDER INSTITUTING
+ PUBLIC PROCEEDINGS,
+ MAKING FINDINGS
+ AND IMPOSING A
+ CEASE-AND-DESIST
+ ORDER     I. 
+
+   The Securities and Exchange Commission ("Commission") deems it appropriate that public 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") to determine whether Transcrypt International, Inc. ("Transcrypt") violated Section 17(a) of the Securities Act and Sections 10(b), 13(a) and 13(b)(2) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13 and 13b2-1 thereunder. 
+
+ II. 
+
+   In anticipation of the institution of these proceedings, Transcrypt 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 in which the Commission is a party, and without admitting or denying the findings contained herein, except that Transcrypt admits the jurisdiction of the Commission over it and over the subject matter of these proceedings, Transcrypt consents to the issuance of this Order Instituting Public Proceedings, Making Findings, and Imposing a Cease-and-Desist Order ("Order") and to the entry of findings and the imposition of the relief set forth below. 
+
+ III. 
+
+   On the basis of this Order and Transcrypt's Offer, the Commission finds the following:
+
+    A. Transcrypt is a Delaware corporation based in Lincoln, Nebraska, whose stock has been registered under Section 12(g) of the Exchange Act from about January 1997 through the present.
+
+    B. Transcrypt manufactures information security products which prevent unauthorized access to sensitive voice communications.  These products are generally referred to in the industry as "scramblers" and "encryptors."  Through its wholly-owned subsidiary, E.F. Johnson, Inc., Transcrypt also designs, manufactures and sells mobile and portable radio systems.  End-users of Transcrypt's products include police and other public safety departments and businesses such as taxi fleets and railroads.  Transcrypt often sells products to end-users through distributors.
+
+    C. From the fourth quarter of 1996 though the fourth quarter of 1997, Transcrypt improperly recognized revenue on certain transactions.  On some of these transactions the recognition of revenue was improper because Transcrypt had not yet earned the revenue.  For example, Transcrypt sometimes allowed distributors to exchange products or return them for modification after the company had recorded revenue on these sales.  Other revenue was improper because Transcrypt's collection of the sales price was not reasonably assured.  Many of these transactions involved what were, in effect, consignment sales to distributors, or sales including a right to return the product in instances where Transcrypt could not reasonably estimate returns.  Transcrypt also improperly recorded revenue on transactions with a government customer; this revenue was improper because the company did not have a contract with the customer at the time the revenue was recorded.  
+
+    D. Due to this improper revenue recognition, Transcrypt's financial statements for the fourth quarter of 1996, the 1996 year-end, the second, third and fourth quarters of 1997, and the 1997 year-end were materially misstated.  Transcrypt included some of these financial statements in the following filings with the Commission:  quarterly reports on Form 10-Q for the second and third quarters of 1997; an annual report on Form 10-K for 1996; a current report on Form 8-K filed on September 23, 1997; and, a registration statement on Form S-1 filed on September 12, 1997, and amendments thereto.  Transcrypt also disseminated false financial statements through press releases issued on February 20, 1997, July 15, 1997, October 13, 1997, October 29, 1997, and February 6, 1998.  
+
+    E. Because Transcrypt improperly recorded revenue, its books, records and accounts did not, in reasonable detail, accurately and fairly reflect the relevant transactions.  Moreover, Transcrypt's internal accounting controls failed to provide reasonable assurances that the company's financial statements were prepared in accordance with generally accepted accounting principles in that persons qualified to make revenue recognition decisions were not given complete and accurate information about the terms of transactions before they recorded revenue, and certain of Transcrypt's officers overrode revenue-recognition decisions made by the company's internal accountants.
+
+    F. Transcrypt, through certain of its officers, knew or was reckless in not knowing that it disseminated the false and misleading financial statements noted above, maintained false books and records, and had deficient internal controls.  Accordingly, Transcrypt violated Section 17(a) of the Securities Act and Sections 10(b), 13(a) and 13(b)(2) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13 and 13b2-1 thereunder. 
+
+ IV. 
+
+   Accordingly, IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, that Transcrypt cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act and Sections 10(b), 13(a) and 13(b)(2) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13,and 13b2-1 thereunder.
+
+    By the Commission. 
+
+               Jonathan G. Katz
+
+               Secretary 
+
+ 
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diff --git a/raw/aaer/2001/AAER-1359.txt b/raw/aaer/2001/AAER-1359.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d34b4640017774ddd8c10a500b467ab51bea63e7
--- /dev/null
+++ b/raw/aaer/2001/AAER-1359.txt
@@ -0,0 +1,1466 @@
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+        Mark Steven Lynch, CPA
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.   43850 / January 17, 2001  
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.    1359 / January 17, 2001
+  ADMINISTRATIVE PROCEEDING
+ File No.  3-10406
+  
+      In the Matter of  
+  MARK STEVEN LYNCH,  CPA,
+  Respondent  
+    
+  : : : : : : : :   
+  ORDER INSTITUTING PUBLIC
+ PROCEEDINGS, MAKING FINDINGS
+ AND ORDER PURSUANT TO
+ RULE 102(e) OF THE 
+ COMMISSION's RULES OF 
+ PRACTICE       I. 
+ The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest to institute public administrative proceedings against Respondent Mark Steven Lynch pursuant to paragraph (3) of Rule 102(e) of the Commission's Rules of Practice [17 C.F.R.§ 201.102(e)].  1   
+ In anticipation of the institution of these proceedings, Lynch has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the findings contained herein, except that he admits the jurisdiction of the Commission over him for the purpose of these proceedings and over the matters set forth in this Order and admits the Commission's finding that a Final Judgment of Permanent Injunction has been entered against him as set forth in Section II.,  Lynch consents to the entry of findings and the imposition of the remedial sanctions set forth below.  2   
+ II. 
+  The Commission finds the following  3  :
+  A. Lynch, age 37, is a certified public accountant registered in the state of Pennsylvania, and was at all relevant times Chief Financial Officer of MicroStrategy, Inc.; 
+ B. MicroStrategy is a Delaware corporation with its principal place of business in Vienna, VA.  MicroStrategy's common stock was at all relevant times registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act") and listed on NASDAQ National Market System.  
+ C. On December 14, 2000, the Commission filed a complaint against Lynch and others in the United States District Court for the District of Columbia.   SEC v. Michael Jerry Saylor, Sanjeev Kumar Bansal, and Mark Steven Lynch , Civil Action No. 1: 00CV02995.  The Commission's complaint alleged, among other things, that  (1) from at least June 1998 through March 2000, Lynch, as Chief Financial Officer of MicroStrategy, knowingly or recklessly participated in the material overstatement of MicroStrategy's revenues and earnings in its financial statements included in periodic reports and registration statements filed with the Commission; and (2) Lynch directly or indirectly falsified or caused to be falsified books and records subject to Section 13(b)(2)(A) of the Exchange Act.    
+ D. On December 18, 2000, a final judgment was entered by the United States District Court for the District of Columbia permanently enjoining Lynch from violating Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Exchange Act and Rules 10b-5 and 13b2-1 promulgated thereunder.  Lynch consented to the entry of the final judgment without admitting or denying the allegations of the Commission's complaint. 
+ III. 
+ Based on the foregoing, the Commission deems it appropriate and in the public interest to accept Lynch's Offer of Settlement and accordingly,  
+ IT IS HEREBY ORDERED, effective immediately, that Lynch is denied the privilege of appearing or practicing before the Commission as an accountant. 
+ IT IS FURTHER ORDERED, that after three (3) years from the date of this Order, Lynch 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) Lynch, or the firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section"),  
+ (b) Lynch, or the firm, has received an unqualified report relating to his firm's most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section, and (c) as long as Lynch appears or practices before the Commission as an independent accountant he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education. 
+ IT IS FURTHER ORDERED, that the Commission's review of an application by Lynch to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Lynch's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.  
+      By the Commission.  
+       Jonathan G. Katz
+       Secretary                
+  
+ 
+ Footnotes 
+   1     Rule 102(e) provides, in pertinent part:
+(3)(i) 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: 
+ (A) Permanently enjoined by any court of competent jurisdiction by reason of his misconduct in an action brought by the Commission, from violation or aiding and abetting the violation of any provision of the Federal securities laws (15 U.S.C. §§ 77a-80b-20) or of the rules and regulations thereunder . . . 
+ (iv) . . . A person who has consented to the entry of a permanent injunction.  . . without admitting the facts set forth in the complaint shall be presumed for all purposes under this paragraph (3) to have been enjoined by reason of the misconduct alleged in the complaint. 
+   2     This matter is related to  SEC v. Michael Jerry Saylor, Sanjeev Kumar Bansal and Mark Steven Lynch , (Civ. Action No. 1: 00CV02995),  In the Matter of MicroStrategy, Inc.   (Admin. Proc. No. 3-10388),  In the Matter of Antoinette A. Parsons and Stacy L. Hamm  (Admin. Proc. No. 3-10389). 
+   3     The findings herein are made pursuant to the Respondent's Offer and are not binding on any other person or entity in this or any other proceeding. 
+ 
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diff --git a/raw/aaer/2001/AAER-1361.txt b/raw/aaer/2001/AAER-1361.txt
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index 0000000000000000000000000000000000000000..141d0398d007a66fe0689bf080f52224e977777b
--- /dev/null
+++ b/raw/aaer/2001/AAER-1361.txt
@@ -0,0 +1,1412 @@
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+              SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 16866 / January 23, 2001 
+
+   Accounting and Auditing Enforcement Release No. 1361 / January 23, 2001 
+
+   SEC CHARGES MULTI-MILLION DOLLAR FINANCIAL REPORTING FRAUD AGAINST FORMER CHAIRMAN AND OTHER FORMER SENIOR OFFICERS AND EMPLOYEES OF AURORA FOODS INC. 
+
+ SEC V. AURORA FOODS INC., ET AL., 01 CIV 0554 (AKH) S.D.N.Y. 
+
+   The Commission announced today that it has brought securities fraud charges against three former senior officers and four employees of Aurora Foods Inc. ("Aurora" or the "Company"), a producer and marketer of branded food products, in connection with a scheme that caused Aurora to under-report trade marketing expenses and substantially inflate reported earnings in 1998 and 1999.  In addition, the Complaint charges Aurora and another former employee with corporate reporting and record keeping violations.  The Commission further announced that, simultaneous with the filing of the Complaint, it settled the charges against Aurora and two of the individual defendants. 
+
+   The Complaint alleges that, during 1998 and the first three quarters of 1999, Aurora under-reported trade marketing expenses by more than $43 million.  Aurora's senior management, consisting of defendants Ian R. Wilson ("Wilson"), M. Laurie Cummings ("Cummings") and Ray Chung ("Chung"), was aware that Aurora was not accurately reporting trade marketing expense, which is the expense Aurora incurs to induce grocery stores to purchase its products, for example, a case discount or other similar incentive.  Instead of properly booking the expense, Wilson, Cummings and Chung tried to conceal it from the auditors by directing division level officers and employees to make false entries in various accounts on the Company's books.  The effect was to falsely and substantially inflate the Company's financial results.    
+
+   The defendants are as follows: 
+
+    Aurora  is a Delaware corporation with its principal place of business in St. Louis, Missouri.  During the relevant time period, Aurora had its principal places of business in St. Louis, Missouri and Columbus, Ohio, and its corporate headquarters at the offices of Dartford Partnership, LLC in San Francisco, California.   Aurora's common stock trades on the New York Stock Exchange.   At all relevant times, Aurora's business was divided into two divisions, the Aurora Foods division ("AFI") and the Van de Kamp's division ("VDK").  Aurora markets products including Duncan Hines baking mix, Mrs. Butterworth's and Log Cabin syrup, Van de Kamp's and Mrs. Paul's frozen seafood, Aunt Jemima frozen breakfast products and Celeste frozen pizza. 
+
+    Wilson , age 71, was Chairman of the Board and Chief Executive Officer of Aurora from June 1998 until he resigned on February 17, 2000.   Wilson is a resident of San Francisco, California.
+
+     Cummings , age 36, was the Chief Financial Officer of Aurora from June 1998 until she resigned on February 17, 2000.   Cummings is a resident of San Francisco, California. 
+
+    Chung , age 51, was the Executive Vice-President of Aurora from June 1998 until he resigned on February 17, 2000.   Chung is a resident of Houston, Texas.  
+
+    Dirk Grizzle  ("Grizzle") was the vice-president of finance and principal financial officer of Aurora's AFI division until June 2000.   Grizzle is a resident of Westerville, Ohio. 
+
+    Tammy Fancelli  ("Fancelli") was a Senior Financial Analyst at Aurora's AFI division until September 2000.   Fancelli is a resident of Columbus, Ohio. 
+
+    James Elliott  ("Elliott") was the Manager of Customer Financial Services at Aurora's AFI division until September 2000.   Elliott is a resident of Powell, Ohio.  
+
+   Timothy B. Andersen  ("Andersen") was the vice-president of finance and principal financial officer at Aurora's VDK division until June 2000.   Andersen is a resident of St. Louis, Missouri. 
+
+    Keith Luechtefeld  ("Luechtefeld") was the Controller at Aurora's VDK division until June 2000.  Luechtefeld is a resident of St. Louis, Missouri. 
+
+   The Complaint alleges as follows:   
+
+   During 1998 and the first three quarters of 1999, defendants Wilson, Cummings and Chung systematically understated Aurora's trade promotion expense associated with the marketing of the Company's products.  They accomplished this by directing the division-level defendants to (i) make inadequate or no accruals for known trade marketing expenses incurred in connection with sales already booked and (ii) hide these inadequate accruals from the Company's auditors by making false entries in various accounts on the Company's books.  The result was materially to understate expenses and liabilities on the Company's publicly filed financial statements.  The object of the scheme was to conceal from the investing public the fact that the Company had not met its earnings targets from quarter to quarter. 
+
+   At the Company's AFI division, the key participant was defendant Grizzle, AFI's principal financial officer.  Beginning in or about March 1999, Grizzle and Cummings discussed putting known trade promotion expenses in accounts receivable, rather than simply recording them on the books of the Company.  The effect would be to conceal these expenses from the auditors.  Thereafter, on a regular basis, Cummings and/or Chung instructed Grizzle to move large portions of the expense to accounts receivable.  Grizzle carried out these instructions by directing defendants Fancelli and Elliott to make false entries in the accounts receivable ledgers and subsidiary ledgers.   Beginning in about April 1999, Grizzle also prepared, at least quarterly, two versions of AFI's trade promotions reserve analysis, one for the Company's internal use, which showed an ever-growing trade underaccrual, consisting primarily of items of actual, known expense, and the other to be provided to the auditors, which falsely showed AFI in an overaccrued position. 
+
+   At the Company's VDK division, defendant Andersen, VDK's principal financial officer, carried out Cummings' and Chung's instructions to reduce expenses on the books to enable Aurora to hit "must make" numbers on a quarterly or more frequent basis.  In almost every instance, in order to hit these earnings targets, Andersen reduced trade promotion expense and the accompanying trade promotion accrual, even though he knew that VDK had already recorded insufficient trade expense and had underaccrued the trade promotion reserve.   
+
+   Andersen accomplished this by directing VDK's Director of Budget and Planning to reduce the trade promotion accrual.  Because the division's computers automatically posted accruals to the reserve account as sales were posted, the automated entries had to be adjusted manually.  However, as Cummings eventually became concerned that these manual entries would draw audit scrutiny, Cummings directed Andersen to turn off the automated posting system.  Thereafter, all accruals were posted by hand at the levels dictated by Cummings.   
+
+   In order to conceal further the underaccrual from the auditors, Cummings directed VDK's Director of Budgeting and Planning to prepare for the auditors a version of the trade reserve analysis employing incorrect assumptions, which, had they been disclosed, would have immediately revealed the inadequacy of the accruals.   
+
+   Defendant Luechtefeld, VDK's Controller, was aware of these deliberate underaccruals, and, on at least one occasion, carried out Andersen's instruction to conceal the underaccruals by shifting $2 million from other liability accounts on VDK's books to the trade promotion reserve.  These entries had no purpose other than to make it appear to the auditors that the accrual was adequate, when, in fact, it was not.  
+
+   Throughout 1999, division officers at both AFI and VDK regularly informed Aurora CEO Wilson of the substantial trade accrual deficit, but Wilson refused to take action to correct the problem and, from time to time, noted his concurrence in actions directed by his subordinates Cummings and Chung to conceal the underaccrual.  Wilson also made several public statements in 1999 concerning the Company's financial condition, which failed to disclose the substantial unrecorded trade marketing expense.  By January 2000, Wilson actively participated in efforts to conceal the false accounting entries from the auditors and personally directed division employees to lie to the auditors. 
+
+   The Commission alleges that, as a result of the foregoing, Wilson, Chung, Cummings, Grizzle, Fancelli, Andersen and Luechtefeld violated, or aided and abetted violations of, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rule 10b-5; that all of the individual defendants violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 in connection with a financial reporting fraud involving Aurora; that Wilson, Chung and Cummings also violated Rule 13b2-2 promulgated under the Exchange Act; that Aurora violated Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13; and that Wilson, Chung and Cummings, as control persons of Aurora, are liable for Aurora's violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20 and 13a-13. 
+
+   The Commission seeks a Final Judgment (i) permanently enjoining each defendant from future violations of the securities laws; (ii) ordering Wilson, Chung, Cummings and Grizzle to disgorge performance bonuses paid to them on the basis of materially overstated earnings, plus prejudgment interest; (iii) imposing civil penalties against each defendant (except Aurora); and (iv) barring Wilson, Chung, Cummings and Grizzle from serving as an officer or director of a public company.   
+
+   The Company has consented to the entry of a final judgment that permanently enjoins the Company from further violations of the reporting and internal control provisions of the federal securities law. 
+
+   Defendant Fancelli has consented to the entry of a final judgment that permanently enjoins her from further violations of the antifraud and reporting and internal control provisions of the federal securities laws and that orders her to pay a civil penalty in the amount of $20,000. 
+
+   Defendant Elliott has consented to the entry of a final judgment that permanently enjoins him from further violations of the reporting and internal control provisions of the federal securities laws and that orders him to pay a civil penalty in the amount of $10,000. 
+
+   The litigation is pending in the United States District Court for the Southern District of New York. 
+
+   The Commission acknowledges the assistance of the United States Attorney's Office, Southern District of New York, in this investigation. 
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diff --git a/raw/aaer/2001/AAER-1363.txt b/raw/aaer/2001/AAER-1363.txt
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+              Swart, Baumruk & Co., LLP, Harry J. Swart, CPA
+           
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+        Swart, Baumruk & Co., LLP, Harry J. Swart, CPA
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+   SECURITIES EXCHANGE ACT OF 1934
+
+   Release No.   43883 / January 25, 2001 
+
+   ACCOUNTING AND AUDITING ENFORCEMENT
+
+   Release No.   1363 / January 25, 2001 
+
+   Administrative Proceeding File No. 3-10410
+    
+
+  
+  
+           
+     
+         
+        In the Matter of 
+        SWART, BAUMRUK & CO., LLP,
+       HARRY J. SWART, CPA, 
+	      Respondents
+                
+          
+     
+     
+       : : : : : : : : :   
+       
+     ORDER INSTITUTING PROCEEDINGS
+      PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934,
+	  AND RULE 102(e)  OF THE COMMISSIONS RULES OF PRACTICE, MAKING FINDINGS AND IMPOSING  REMEDIAL SANCTIONS AND IMPOSING A CEASE-AND-DESIST ORDER         I.    
+
+     The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 102(e)(1)(ii) and (iii)  1   of the Commission's Rules of Practice, be and hereby are instituted against Swart, Baumruk & Co., LLP ("Swart Baumruk") and Harry J. Swart, CPA ("Swart")  (collectively "the Respondents"). 
+
+    II.  
+
+     In anticipation of the institution of these proceedings, the Respondents have each submitted Offers of Settlement ("Offer") to the Commission, 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, the Respondents, without admitting or denying the findings contained herein, except that they admit to the Commission's jurisdiction over them and over the subject matter of these proceedings, consent to the issuance of this Order Instituting Public Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, and Rule 102(e) of the Commission's Rules of Practice, Making Findings and Imposing Remedial Sanctions and Imposing a Cease-and-Desist Order ("Order"). 
+
+     Accordingly, it is ordered that proceedings pursuant to Exchange Act Section 21C and Rule 102(e) of the Commission's Rules of Practice be, and hereby are, instituted. 
+
+    III.  
+
+     On the basis of this Order and the Respondents' Offers, the Commission makes the following findings:  2   
+
+    A.    RESPONDENTS   
+
+      1.   Swart Baumruk   is a public accounting firm located in Kissimmee, Florida.  Its predecessor firm H.J. Swart & Co., P.A. ("H.J. Swart") was engaged in September 1996 to audit the financial statements of Am-Pac International, Inc. ("Am-Pac"), a publicly held issuer for the transition period July 1 through December 31, 1996.  Under the name Swart, Baumruk & Twohig, LLP ("Swart, Baumruk & Twohig"), it audited Am-Pac's 1997 financial statements.  After Twohig left the firm during 1998, the firm became known as Swart Baumruk.  Swart Baumruk is no longer retained by Am-Pac. 
+
+      2.    Harry Swart  , a certified public accountant licensed in Florida, is one of two partners of Swart Baumruk.  He was the sole partner of H.J. Swart and was one of three partners of Swart, Baumruk & Twohig.  During the period relevant to these proceedings, Swart served as audit and billing partner for the audits of Am-Pac's financial statements for the period July through December 1996 and for fiscal 1997. 
+
+    B.   FACTS   
+
+      1.  Summary  
+
+     This case involves violations of the auditor independence rules and financial reporting requirements.  Swart Baumruk,  3   a certified public accounting firm, and its  partner, Harry Swart, lacked professional independence in auditing Am-Pac's financial statements for the six months ended December 31, 1996.  Specifically, after preparing Am-Pac's financial statements and performing other internal accounting functions for it during the final three months of 1996, Swart Baumruk audited the financial statements it had prepared. 
+
+     During 1997 Am-Pac's principals, Thomas Tedrow and Jeffrey Martin approached Swart, inquiring whether there was a means by which Am-Pac's financial books and records could reflect the asserted appreciation of certain real property Am-Pac had acquired.   Swart advised them that they could do so by selling the property at market value, and leasing it back from the purchaser to continue the business operations.  Tedrow and Martin then engaged in a sale-leaseback, in which they "sold" the property to themselves and in turn "leased" it back to themselves, a transaction wholly lacking in economic substance.  Without making adequate inquiry, Swart prepared the financial statements reflecting the transaction.  Am-Pac incorporated those financial statements in its Forms 10-QSB for the second and third quarters of 1997.     
+
+   Swart Baumruk and Swart (the audit partner on the engagement) also lacked professional independence in auditing Am-Pac's 1997 financial statements. Although by this time Am-Pac had hired a bookkeeper, Swart Baumruk maintained a more complete general ledger than that maintained by the company, prepared trial balances for Am-Pac subsidiaries, performed Am-Pac's consolidation, and prepared its financial statements.  As in 1996, Swart Baumruk audited the very financial statements it had prepared and, accordingly, lacked independence in doing so. 
+
+      2.  During 1996 Swart and his Firm Prepare Am-Pac's Financial Statements then Audit their Own Work  
+
+         In Spring 1996, Tedrow and Martin began arranging a reverse acquisition between Pacific Foods (a British Virgin Islands corporation with no assets or operations, formed in May 1996 and privately held by Tedrow and, nominally, Jeff Martin's wife Sharron), and a public company called Captain Tony's Pizza, Inc.  In September 1996, Captain Tony's changed its name to Am-Pac.  On September 21, Am-Pac retained the Swart Baumruk firm to audit its financial statements for the six month period ended December 31, 1996.  Am-Pac's president Tedrow retained Swart Baumruk.   
+
+   After its retention, Swart Baumruk proceeded to act as Am-Pac's  de   facto  internal accountant with respect to the preparation of quarterly and annual financial statements.  No Am-Pac employee had the expertise to prepare its financial statements.  Although Am-Pac maintained some components of a general ledger, Swart Baumruk employees maintained the complete general ledger on Swart Baumruk's own accounting software.  Swart Baumruk used that general ledger to prepare Am-Pac's financial statements.  In addition, Swart Baumruk employees performed or reviewed bank reconciliations, and prepared Am-Pac's journal entries, its consolidated trial balance summarizing the general ledger, and its financial statements.  Swart Baumruk then audited the financial statements it had prepared.  Throughout the Am-Pac engagement, Harry Swart was the engagement and billing partner. 
+
+     On December 31, 1996, Am-Pac completed its reverse acquisition of Pacific Foods, after which Tedrow and Sharron Martin (who had each owned fifty percent of Pacific Foods' stock) each owned forty-four percent of Am-Pac's common stock.  That same day Am-Pac acquired an Orlando, Florida tavern it named "Headlightz." 
+
+      3.  During 1997 Swart Baumruk Continues to Perform Internal Accounting Tasks   
+
+     Having acquired the Headlightz tavern on the last day of 1996, Am-Pac's bookkeeping and other internal accounting needs increased.  In part to meet this need, in March 1997 Am-Pac hired a bookkeeper whose duties included maintaining the general ledger for Headlightz of Orlando, Inc. ("Headlightz, Inc."), the Am-Pac subsidiary that held the operating assets of the tavern, preparing checks for officers to sign, and reconciling the bank statements of the company and its various subsidiaries. 
+
+     Notwithstanding Am-Pac's having hired a bookkeeper, during 1997 Swart Baumruk personnel continued to perform substantial internal accounting tasks.  For example, when Am-Pac's bookkeeper was unsure how to classify an invoice, she obtained the advice of a Swart Baumruk senior accountant.  Also, this senior accountant instructed Am-Pac's bookkeeper on reconciling bank statements, gave her a bank reconciliation form to simplify the task, and from time to time reviewed her work.  Moreover, Swart Baumruk  conducted a portion of Am-Pac's bank account reconciliation work. 
+
+     Am-Pac's bookkeeper prepared general and sales ledgers for Headlightz, Inc., and its accounts payable and receivable reports.  The bookkeeper's general ledger (reflecting sales and corresponding accounts receivable, and purchases and corresponding accounts payable) was incomplete because it did not account for fixed assets.  Accordingly, a Swart Baumruk employee prepared Headlightz, Inc.'s fixed assets report, calculated depreciation, then made the appropriate entries in a separate Am-Pac general ledger the firm maintained.  This general ledger included fixed assets, depreciation calculations and all adjusting entries Swart Baumruk made.  Thus it reflected all the company's transactions and account adjustments whereas the general ledger the bookkeeper maintained did not. 
+
+     During the year ended December 31, 1997, a Swart Baumruk employee reviewed both a lengthy journal entry to make adjustments to Headlightz, Inc.'s general ledger, and a trial balance summarizing the general ledger activity.  (The journal entry had been prepared by another Swart Baumruk employee.)  Swart Baumruk employees prepared trial balances for the other Am-Pac subsidiaries directly from the subsidiaries' books and records, although only Headlightz, Inc. engaged in significant financial activity. 
+
+      4.  Tedrow and Martin Devise a Plan to Inflate Am-Pac's Net Income for the Quarters Ended June 30, 1997, and September 30, 1997  
+
+     Am-Pac acquired the Headlightz property in a pooling of interests transaction in which it paid the seller 333,939 Am-Pac shares.  Because Am-Pac was trading at $3.75 per share on December 31, 1996 (the date of the transaction), the theoretical sale price exceeded $1.25 million.  Am-Pac carried the property on its books and records at $253,696, the seller's historical cost.   
+
+     In or about June 1997, Tedrow and Martin asked Swart whether Am-Pac could  recognize the higher market value of the property while continuing to operate the Headlightz tavern.  Swart advised Tedrow and Martin that they could do so through a sale-leaseback transaction. 
+
+     Tedrow and Martin thereafter entered into a sale-leaseback transaction to sell the property to J.T. Investments, an entity they owned, then lease back the property to enable Am-Pac to operate the tavern.  On June 29, 1997, Am-Pac purportedly sold its real estate to J.T. Investments for $1.4 million.  J.T. Investments took the property subject to a $440,363 mortgage and executed a $959,637 note payable to Am-Pac, pursuant to which no principal and interest were due for two years.  The sales agreement reflects that Tedrow, on behalf of J.T. Investments, bought the property from Martin, on behalf of Am-Pac.  Three days after the sale, Am-Pac subsidiary Headlightz leased back the property from J.T. Investments.  (For this agreement Martin rather than Tedrow signed for J.T. Investments; and Tedrow signed for Am-Pac subsidiary Headlightz.) 
+
+     Other facts reflect that Am-Pac's sale-leaseback with J.T. Investments was an artifice.  J.T. Investments did not even file its corporate charter until August 7, 1997, more than a month  after  it had purportedly purchased the real estate.  Moreover, notwithstanding the sale-leaseback transaction, Headlightz never paid rent to J.T. Investments.  Rather, Am-Pac continued to make mortgage payments as it had always done. 
+
+      5.  Swart's Firm Prepares Am-Pac's 1997 Second and Third Quarter Financial Statements  
+
+     Swart's firm prepared financial statements for Am-Pac for the quarter ended June 30, 1997, which reflected a $1.13 million "gain on sale of property," and more than $1 million in net income.  In so doing Swart improperly accounted for the sale-leaseback transaction.  4    Swart provided these financial statements to Am-Pac's attorney, who subsequently included them in Am-Pac's Form 10-QSB.  Swart's firm likewise prepared the financial statements for the quarter ended September 30, 1997.  Those financial statements reflected net income of more than $750,000 for the first three quarters.  They were subsequently incorporated in Forms 10-QSB that Am-Pac filed with the Commission.  5   
+
+      6.  Swart and his Firm Prepare Am-Pac's 1997 Year-End Financial Statements, then Audit their Own Work  
+
+     Not only did Swart Baumruk perform much of Am-Pac's internal accounting during fiscal 1997 but also, at Am-Pac's request, its personnel prepared Am-Pac's quarterly and annual financial statements.  Specifically, a senior accountant in the firm performed Am-Pac's consolidation.  Swart Baumruk employees then made journal entries (recording adjustments), and compiled the financial statements, the components of which were a consolidated statement of operations, a consolidated balance sheet, and a consolidated statement of cash flows.  Swart then reviewed the financial statements and the underlying accounting documents. 
+
+     In January 1998, Am-Pac retained Swart Baumruk to audit its fiscal 1997 financial statements.  As for fiscal 1996, at year-end the firm audited the financial statements it had prepared.  Swart himself did much of the planning and administration for the audit, and one of the firm's senior accountants performed most of the audit fieldwork.  In November 1998 Am-Pac filed its Form 10-KSB for fiscal 1997, including Swart Baumruk's audit reports containing unqualified opinions on Am-Pac's financial statements. 
+
+    C.   LEGAL ANALYSIS   
+
+      1.  The Requirement of Auditor Independence  
+
+     The Supreme Court has made it clear that an independent auditor "assumes a public responsibility transcending any employment relationship with the client [and] owes ultimate allegiance to the corporation's creditors and stockholders, as well as to the investing public.  This `public watchdog' function demands that the accountant maintain   total independence   from the client at all times and requires complete fidelity to the public trust"  ( United States v. Arthur Young & Co ., 465 U.S. 805, 817-18 (1984) (emphasis added)). 
+
+     The Exchange Act (§§12 and 13(a)(2)) requires that financial statements filed with the Commission must be certified by "independent" accountants.  Regulation S-X (Rule 2-01) provides: (i) that "the Commission will not recognize any certified public accountant or public accountant as independent who is not in fact independent"; (ii) that, in assessing an auditor's independence, the Commission "will give appropriate consideration to all relevant circumstances, including evidence bearing on all relationships between" the auditor and the audit client; and (iii) that the accountant's report must state whether the audit was conducted in accordance with GAAS (generally accepted auditing standards). 
+
+   Section 602.02.c.i. of the Commission's Codification of Financial Reporting Policies ("Codification") provides: "It is the Commission's position that an accounting firm cannot be deemed independent with regard to auditing financial statements of a client if it has participated closely, either manually or through its computer services, in maintenance of the basic accounting records and preparation of the financial statements." 
+
+      2.  The Respondents' Professional Independence was Impaired  
+
+     Swart and his firm maintained accounting records for Am-Pac that were critical to the preparation of the company's financial statements during the last three months of 1996.  Swart Baumruk generated the trial balances, performed the consolidation, then prepared Am-Pac's financial statements.  They then audited their own work.  In 1997 Swart and his firm maintained Headlightz, Inc.'s fixed assets ledger, calculated depreciation, then made the appropriate entries in the general ledger Swart's firm maintained for Am-Pac.  As in 1996, Swart Baumruk employees then generated the trial balances, performed Am-Pac's consolidation, and prepared Am-Pac's financial statements.  They audited the very financial statements they had generated.  By virtue of their having participated closely in the maintenance of Am-Pac's basic accounting records and having prepared its financial statements, Swart Baumruk and Harry Swart cannot be deemed independent with regard to auditing Am-Pac's financial statements. 
+
+      3.  Swart and Swart Baumruk Caused and Willfully Aided and Abetted Am-Pac's Violations of Section 13(a) of the Exchange Act and Rule 13a-13 Thereunder  
+
+     When Tedrow and Martin sought a means of recognizing what they asserted was the higher market value of property Am-Pac owned, Swart advised them to effect a sale-leaseback.  Without adequate inquiry, Swart and Swart Baumruk then prepared financial statements, which were subsequently incorporated in Am-Pac's 1997 second and third quarter Forms 10-QSB, reflecting the resulting gain.  These financial statements were materially false because they overstated Am-Pac's net income by a material amount for the three and six months ended June 30, 1997, and for the nine months ended September 30, 1997.  These financial statements were prepared in a manner that did not accord with the rules for sale-leaseback accounting previously described.  Moreover, in view of all the circumstances, Swart and Swart Baumruk should have made further inquiry into the purported transaction.  By acting as they did, Swart and Swart Baumruk provided substantial assistance to Tedrow's and Martin's scheme to inflate Am-Pac's net income.  As a result, Am-Pac's 1997 second and third quarter reports filed with the Commission were materially false in violation of Exchange Act Section 13(a) and Rule 13a-13 thereunder, and Swart and Swart Baumruk caused and willfully aided and abetted these violations. 
+
+      4.  The Respondents Engaged in Improper Professional Conduct.  
+
+     The Respondents engaged in improper professional conduct under the negligence standards of Rule 102(e)(1)(ii) of the Commission's Rules of Practice, as defined in Rule 102(e)(1)(iv)(B).  These provisions state that, "[w]ith respect to persons licensed to practice as accountants, `improper professional conduct' under Section 201.102(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. 
+
+         (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." 
+
+          a.  Respondents' Conduct was Highly Unreasonable In Circumstances           Where Heightened Scrutiny Is Warranted                      
+
+     "Because of the importance of an accountant's independence to the integrity of the financial reporting system, the Commission has concluded that circumstances that raise questions about an accountant's independence always merit heightened scrutiny."   See  §III.C.1. of  Amendment to Rule 102(e) of the Commission's Rules of Practice , Release No. 33-7593 (October 19, 1998).  The respondents maintenance of Am-Pac's basic accounting records and their preparation of Am-Pac's financial statements was highly unreasonable conduct that resulted "in a violation of applicable professional standards in circumstances in which an accountant knows, or should know, that heightened scrutiny is warranted."  In addition, Swart's conduct in advising Tedrow and Martin to structure the transaction as a sale-leaseback, then preparing the financial statements for the 1997 second and third quarters reporting the material gain of more than $1 million was highly unreasonable conduct which merited heightened scrutiny.  As the Commission has stated, "'[h]eightened scrutiny' would be warranted when matters are important or material."  §III.C.1. of  Amendment to Rule 102(e) of the Commission's Rules of Practice , Release No. 33-7593.  Recognition of a gain of $1.13 million was clearly important and material to Am-Pac's financial statements, and Swart should have been aware of this fact. 
+
+      b.  Swart Baumruk Engaged in Repeated Instances of Unreasonable               Conduct, Each Resulting in a Violation of Applicable Professional          Standards                
+
+     By auditing its own work during successive years, Swart and Swart Baumruk engaged in  repeated instances of unreasonable conduct which indicates a lack of competence to practice before the Commission.  Swart likewise repeatedly engaged in unreasonable conduct by preparing Am-Pac's financial statements reporting the gain for the quarter ended June 30, 1997, then again for the quarter ended September 30, 1997.  
+
+    IV.  
+
+     On the basis of this Order and the Offers submitted by the Respondents, the Commission finds that   Swart and Swart Baumruk failed to comply with Rule 2-02 of Regulation S-X, caused and willfully aided and abetted violations of Section 13(a) of the Exchange Act and Rules 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. 
+
+    V.  
+
+     In view of the foregoing, the Commission has determined that it is appropriate to accept the Respondents' Offers.  Accordingly, IT IS HEREBY ORDERED, effective immediately, that 
+
+      A.   The Respondents, pursuant to Section 21C of the Exchange Act, cease and desist from committing or causing any violation and any future violation of Rule 2-02 of Regulation S-X, Section 13(a) of the Exchange Act, and Rules 13a-1 and 13a-13 thereunder. 
+
+      B.    The Respondents are hereby suspended from the privilege of appearing or practicing before the Commission as accountants. 
+
+      C.   After three (3) years from the date of this Order, Swart 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 the Swart'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.  Swart, or any firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section"); 
+
+             b.  Swart has received an unqualified report relating to his or the firm's most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and 
+
+             c.  as long as Swart appears or practices before the Commission as an independent accountant he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education. 
+
+      D.   After three (3) years from the date of this Order, Swart Baumruk may request that the Commission consider its reinstatement by submitting an application (attention:  Office of the Chief Accountant) to resume appearing or practicing before the Commission as: 
+
+         1.  a preparer or reviewer, or a firm 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 Swart Baumruk's work in its practice before the Commission will be reviewed either by the independent audit committee of the public company for which it works or in some other acceptable manner, as long as it practices before the Commission in this capacity; and/or 
+
+         2.  an independent accounting firm.  Such an application must satisfy the Commission that: 
+
+             a.  Swart Baumruk is a member of the SEC Practice Section; 
+
+             b.  Swart Baumruk has received an unqualified report relating to the firm's most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and 
+
+             c.  as long as Swart Baumruk appears or practices before the Commission as an independent accounting firm it will remain a member of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education. 
+
+      E.   The Commission's review of any request or application by either Respondent to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matter relating to that Respondent's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+
+    F.   Respondents shall be liable jointly and severally for disgorging $32,750 in fees obtained from the Am-Pac audits plus $9,231.03 in prejudgment interest, which shall be paid pursuant to the following schedule:  $20,000 shall be paid within ten (10) days of the date of this Order; $10,000 shall be paid within forty-five (45) days of the date of this Order; and $11,981.03 shall be paid within three (3) months of the date of this Order.  Such payments shall be:  (1) made by United States postal money order, certified check, bank cashier's check or bank money order; (2) made payable to the Securities and Exchange Commission; (3) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Mail Stop 0-3, Alexandria, VA 22312; and (4) submitted under cover letter which identifies Swart and Swart Baumruk as Respondents in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Erich T. Schwartz, Assistant Director, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549-0706. 
+
+         By the Commission.
+
+                         Jonathan G. Katz
+
+                                           Secretary 
+  Footnotes  
+   1    Rule 102(e)(1) of the Commission's Rules of Practice provides, in pertinent part: 
+
+ The Commission may censure a person or deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by  the Commission after notice and opportunity for hearing in the matter . . . (ii) to be lacking in character or integrity or to have engaged in unethical or improper professional conduct; or (iii) to have willfully violated, or willfully aided and abetted the violation of any provision of the Federal securities laws or the rules and regulations thereunder. 
+
+   2     The findings herein are made pursuant to the Respondents' Offers and are not binding on any other persons or entities in these or any other proceedings. 
+
+   3     The firm that is the respondent in this Order was known by three different names during the relevant period.  The term "Swart Baumruk" is used in this Order to refer to H.J. Swart, its immediate successor firm Swart, Baumruk & Twohig, and the latter's successor firm Swart Baumruk. 
+
+   4     Under the sale-leaseback accounting rules, as prescribed by Statement of Financial Accounting Standards ("SFAS") 28, the gain should not be recognized at the time of the transaction, but rather should be deferred and amortized over the life of the lease.  However, paragraph 13c of SFAS 98, on accounting for leases, precludes the use of sale-leaseback accounting if the seller-lessee demonstrates continuing involvement in the risks and rewards of ownership.  That provision states that a seller-lessee has such involvement if he can "participate in any future profits of the buyer-lessor or the appreciation of the leased property, for example, a situation in which the seller-lessee owns . . . any interest in the buyer-lessor."  Since Tedrow and Martin controlled both Am-Pac and J.T. Investments, the transaction did not qualify for sale-leaseback accounting.  The transaction should have been accounted for pursuant to SFAS 66, titled "Accounting for Sales of Real Estate," and the deposit method of accounting.  Specifically, paragraph 65 of SFAS 66 provides: 
+
+   Under the deposit method, the seller does not recognize any profit, does not record notes receivable, continues to report in its financial statements the property and the related existing debt even if it has been assumed by the buyer, and discloses that those items are subject to a sales contract. 
+
+   Moreover, pursuant to Interpretation No. 39 of Accounting Principles Board Opinion (APB) 16, "Business Combinations," under no circumstances would it be appropriate for Am-Pac to recognize income on the transaction.  Rather, the difference between Am-Pac's cost and the consideration paid by J.T. Investments would properly be accounted for as a capital contribution.  
+
+   5      Am-Pac restated its 1997 second and third quarter reports on September 23, 1998.  In the restated reports the net income for the quarter ended June 30, 1997, originally more than $1 million, was reduced to a loss of $87,292.  For the six months ended June 30, 1997, net income declined from $863,956 to a net loss of $273,108.  For the nine months ended September 30, 1997, net income declined from more than $750,000, to a loss of $393,810. 
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diff --git a/raw/aaer/2001/AAER-1364.txt b/raw/aaer/2001/AAER-1364.txt
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+              Charles P. Morrison CPA
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+        Charles P. Morrison CPA
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+ SECURITIES EXCHANGE ACT OF 1934
+
+ Release No.  43910 / January 31, 2001 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT
+
+ Release No.  1364 / January 31, 2001 
+
+ ADMINISTRATIVE PROCEEDING
+
+ File No.  3-10415 
+
+
+ 
+  
+     
+        In the Matter of 
+        CHARLES P. MORRISON, CPA,
+	      Respondent
+         
+     
+       : : : : : : :   
+       
+      ORDER INSTITUTING PUBLIC PROCEEDINGS
+      PURSUANT TO RULE 10(e) OF THE COMMISSION'S 
+	  RULES OF PRACTICE, MAKING FINDINGS AND IMPOSING 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 Charles P. Morrison ("Morrison") pursuant to Rule 102(e) of the Commission's Rules of Practice.  1   
+
+   In anticipation of the institution of these proceedings, Morrison has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept.  Solely for the purpose of this proceeding and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained herein, except for those set forth below in Section II, paragraph C., which are admitted, Morrison, by his Offer, consents to the entry of the findings and imposition of sanctions contained in this Order Instituting Public Proceedings, Making Findings and Imposing Sanctions ("Order"). 
+
+   Accordingly, IT IS ORDERED that proceedings against Morrison be, and hereby are, instituted. 
+
+  II.  
+
+   On the basis of this Order and the Offer submitted by Morrison, the Commission finds that:
+
+    
+A.  Allegheny Health, Education and Research Foundation  ("AHERF") is a Pennsylvania nonprofit healthcare organization formed in 1983.  Until 1998, it was the parent holding company and sole member or owner of numerous subsidiaries.  On July 21, 1998, AHERF instituted bankruptcy proceedings under Chapter 11 of the United States Bankruptcy Code on behalf of itself and four of these subsidiaries in the U.S. District Court for the Western District of Pennsylvania. 
+
+    
+
+   B.         Charles P. Morrison , age 41, resides in Venetia, Pennsylvania.  He has been licensed in the state of Pennsylvania as a certified public accountant since 1983.   From at least 1994 through August 1998, Morrison was the chief financial officer of a group of AHERF subsidiaries collectively known as the Delaware Valley Obligated Group ("Delaware Valley").  Morrison also was an AHERF Senior Vice President of Finance and Treasurer for related entities of AHERF based in the Delaware Valley.   Prior to joining AHERF, Morrison worked as an accountant for a large accounting firm for eight years.  In that position Morrison participated in one or more audits of the financial statements of public companies, which were included in filings with the Commission.
+
+
+    C. On January 31, 2001, a Final Judgment and Order was entered against Morrison by the United States District Court for the Eastern District of Pennsylvania, in  Securities and Exchange Commission v. David W. McConnell, et al. , Civil Action No.  
+
+ 00-2261, pursuant to his consent.  The Final Judgment and Order permanently enjoined Morrison from future violations of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder; and ordered him to pay a civil penalty in the amount of $25,000. 
+
+   D. The Commission's Complaint alleged that, as an umbrella holding company, AHERF managed and provided centralized corporate support services for the acquired entities, but did not assume liability for their pre-existing debt.  The obligation to repay debt within AHERF was placed on collections of one or more of its non-profit subsidiaries known as "obligated groups."   
+
+ E. The Commission's Complaint alleged that, pursuant to contractual obligations, the obligated groups, through AHERF as their agent, provided to nationally recognized repositories annual Secondary Market Disclosure Reports ("Disclosure Reports") containing audited financial statements prepared in accordance with Generally Accepted Accounting Principles ("GAAP"), debt coverage ratios and other information.  These Disclosure Reports were made available to the public through these repositories and were the most easily accessible source of information for investors and potential investors in AHERF bonds.    
+F. The Commission's Complaint further alleged that AHERF made material misstatements in documents issued to the public in December 1996 and February 1998.  Among other things, in published financial statements, AHERF overstated:  (a) the 1996 income of Delaware Valley by approximately $40 million; (b) the 1997 income of AHERF by approximately $59.6 million; and (c) the 1997 income of Delaware Valley by approximately $59.6 million.  G. The Commission's Complaint alleged that, from at least December 1996 through July 1998, Morrison violated Section 10(b) of the Exchange Act and Rule 10b-5 by, among other things, creating, reviewing and approving false financial statements and Disclosure Reports of AHERF and Delaware Valley, thereby masking AHERF's severely deteriorating financial condition.    The Complaint further alleged that, in accordance with Delaware Valley obligations under certain debt agreements, Morrison falsely certified to the Delaware Valley bond trustee and others that the 1997 audited financial statements fairly presented the consolidated financial position and the results of operations for AHERF, including Delaware Valley, as of and for the fiscal year ended June 30, 1997, and that they were prepared in accordance with GAAP. 
+
+  III.  
+
+   On the basis of the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer submitted by Morrison and to impose the sanctions specified therein. 
+
+   Accordingly, IT IS HEREBY ORDERED, effective immediately, that: 
+
+   A.    Morrison is suspended from appearing or practicing before the Commission as an accountant. 
+
+   B.     After three years from the date of this Order, Morrison 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 Morrison'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) Morrison or the firm with which he is associated is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section"); (b) Morrison or the firm has received an unqualified report relating to his or the firm's most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and (c) as long as Morrison appears or practices before the Commission as an independent accountant, he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education. 
+
+ C. The Commission's review of an application by Morrison to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Morrison's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.  
+
+   By the Commission.
+
+              Jonathan G. Katz
+
+             Secretary 
+  Footnotes  
+   1     Rule 102(e)(3)(i), in relevant part, provides that the Commission may suspend from appearing or practicing before it any accountant who by name has been permanently enjoined, by a court of competent jurisdiction in an action brought by the Commission, from violating any provision of the federal securities laws or the rules and regulations thereunder.  17 C.F.R. 201.102(e)(3)(i)(A). 
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diff --git a/raw/aaer/2001/AAER-1368.txt b/raw/aaer/2001/AAER-1368.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f6a9c542fdb18f44ab3520c7b75832893aab7883
--- /dev/null
+++ b/raw/aaer/2001/AAER-1368.txt
@@ -0,0 +1,1517 @@
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+ SECURITIES ACT OF 1933
+
+ Release No.    7948 / February 7, 2001 
+
+ SECURITIES EXCHANGE ACT OF 1934
+
+ Release No.  43935 / February 7, 2001 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT
+
+ Release No.   1368 / February 7, 2001  
+
+ ADMINISTRATIVE PROCEEDING
+
+ File No. 3-10317 
+
+ 
+    
+      
+
+     In the Matter of 
+      ISAAC HAGER
+      	    Respondent
+      
+      
+     
+     : : : : : :   
+       
+      ORDER OF THE COMMISSION MAKING FINDINGS AND ISSUING ORDER TO CEASE AND DESIST       I.  
+
+ On September 27, 2000, the Securities and Exchange Commission ("Commission")  instituted administrative proceedings 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 Isaac Hager ("Hager" or "Respondent"). 
+
+  II.  
+
+ In response to the institution of these proceedings, Hager 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 in which the Commission is a party, and without admitting or denying the findings contained herein, except to admit the jurisdiction of the Commission over him and the subject matter herein, Respondent consents to the entry of this Order of the Commission Making Findings and Issuing Order to Cease and Desist ("Order"). 
+
+  III.  
+
+
+
+  FACTS  
+
+ The Commission finds that:   
+
+ A. Summary 
+
+ The senior management of Power Phone, Inc. ("Power Phone") orchestrated a fraudulent scheme to falsify and inflate the company's financial condition in filings with the Commission.  Power Phone accomplished the fraudulent scheme by claiming in filings with the Commission to own two assets, consisting of software and artwork, even though Power Phone did not own either asset.  These two assets, which comprised ninety-five percent of Power Phone's total assets, were falsely valued at $4 million in Power Phone's audited financial statements for the fiscal year ended June 30, 1995.  Power Phone included those false financial statements in an Annual Report on Form 10-K that was filed with the Commission in 1995, and a Form 10 registration statement that was filed with the Commission in 1996.  As an officer and director of Power Phone, Hager failed to take any action to determine the accuracy of the filings with the Commission.  Instead, Hager signed the Form 10-K and the Form 10 registration statement with knowledge that these documents would be filed with the Commission. 
+
+ B. Respondent  
+
+  Isaac Hager , age 72, is a resident of Brooklyn, New York, and at all relevant times was a vice president and officer of Power Phone and a director of both Power Phone and TMC Agroworld Corporation. 
+
+ C. The Issuer 
+
+  Power Phone, Inc. , during all relevant times, was a New York corporation headquartered in Brooklyn, New York.  From June 1995 through February 1998, Power Phone's common stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act, and traded in the over-the-counter market.  On October 8, 1996, the company changed its name to TMC Agroworld Corporation, and on August 14, 1997, the company changed its name to the Dominican Cigar Corporation. 
+
+ D. Power Phone Filed Fraudulent Financial Statements with the Commission 
+
+ Power Phone's audited financial statements for its fiscal year ended June 30, 1995, improperly included two assets:  (i) certain artwork held for resale, with a purported value of $2 million and (ii) a software program known as "ASAP," also with a purported value of $2 million.  1    Collectively, these assets accounted for ninety-five percent of Power Phone's total assets.  Power Phone's financial statements for the year ended June 30, 1995, were included in a Form 10-K filed with the Commission on October 26, 1995 and in a registration statement on Form 10, which was filed with the Commission on June 4, 1996.  The Form 10, seeking to register 7,421,818 shares of Power Phone's common stock, went effective through lapse of time on September 9, 1996.  2   
+
+ Significantly, Power Phone did not own either the artwork or the ASAP software as of June 30, 1995.  Power Phone never owned the ASAP software because the entity that purportedly sold the software to Power Phone did not own it and thus was in no position to transfer title of the software to Power Phone.  Indeed, Power Phone never acquired the "source code" or underlying master key to the operation of the software program.  Moreover, the evidence indicates that Power Phone simply acquired a license to use the software rather than outright ownership.   
+
+ Similarly, Power Phone could not claim that it owned the artwork as of June 30, 1995, because as of that date, Power Phone's contract with the purported vendor of the artwork reflected a consignment of the artwork to Power Phone rather than an outright sale to Power Phone.  After Power Phone's 1995 fiscal year end, Power Phone executed a contract with the vendor of the artwork which reflected a sale rather than a consignment.  Notably, Power Phone backdated that contract to June 21, 1995, in a blatant effort to make it appear that Power Phone owned the artwork prior to the end of the company's 1995 fiscal year. 
+
+ Irrespective of whether Power Phone actually owned the artwork and the software, Power Phone materially overstated the value of these assets.  Power Phone issued 80,000 shares of preferred stock to the purported vendor of the artwork and 80,000 shares of preferred stock to the purported vendor of the software.  In each instance, the preferred stock was stated to be redeemable by Power Phone at any time at a redemption price of $25 per share and was convertible into ten common shares for each preferred share.  Power Phone recorded the artwork on its balance sheet at $2 million based on the stated redemption value of the preferred shares (i.e., 80,000 shares x $25).  Power Phone used the exact same calculation to arrive at a $2 million value for the software.  No other independent or credible evidence supported the $2 million valuations of the artwork or the software.  Moreover, there was no evidence to support the $25 per share value for the preferred stock, which apparently was established arbitrarily by Power Phone's management.  At the time of these transactions, no market existed for the preferred stock, and Power Phone did not have other assets available which could have been used to redeem the preferred shares. 
+
+ As an officer and director of Power Phone, Hager signed Power Phone's annual report and registration statement with knowledge that these documents would be filed with the Commission.  Although Hager, one of only three officers of Power Phone, had never seen the ASAP software or the artwork, he failed to take any steps either to verify the existence of the assets or assure himself of the value of the assets which comprised ninety-five percent of Power Phone's balance sheet. 
+
+  IV.  
+
+  LEGAL DISCUSSION  
+
+ Section 8A of the Securities Act and Section 21C of the Exchange Act authorize the Commission to enter a cease-and-desist order against an individual that the Commission finds caused a violation of the federal securities laws because of an act or omission that the person knew or should have known would contribute to such violation.  Power Phone violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by filing with the Commission an annual report on Form 10-K and a registration statement on Form 10 that contained materially false and misleading financial statements for the fiscal year ended June 30, 1995.  For the reasons discussed above, Hager caused such violations by signing the Form 10 registration statement and the annual report on Form 10-K that were filed with the Commission. 
+
+  V.  
+
+  FINDINGS  
+
+ Based on the above, the Commission finds that Hager caused Power Phone's violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. 
+
+  VI.  
+
+  ORDER  
+
+ Accordingly, IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, that Hager cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. 
+
+ For the Commission, by its Secretary, pursuant to delegated authority.
+  Jonathan G. Katz
+
+ Secretary  
+
+ Footnotes 
+
+     1   
+		 On April 14, 1999, the Commission instituted and simultaneously settled public administrative proceedings, pursuant to Rule 102(e) of the Commission's Rules of Practice, against Michael, Adest & Blumenkrantz, P.C., David Michael and Paul Adest in connection with their deficient audit of Power Phone's financial statements for the fiscal year ended June 30, 1995.  Without admitting or denying the Commission's findings, the three respondents consented to the entry of an Order denying them the privilege of appearing or practicing before the Commission as accountants.  Exch. Act Rel. No. 41284; AAER Rel. No. 1125 (April 14, 1999). 
+	     2   
+		 On September 28, 1999, the Commission filed a separate action against Noah Steinberg, Enrique Reyes Carrion, Gershon Tannenbaum, Jay M. Vermonty and Carmen Vermonty (as a relief defendant) in the United States District Court for the Eastern District of New York.  See S.E.C. v. Noah Steinberg et al., Civ. Action No. 99-6050 (E.D.N.Y.)(RJ).  The Commission's complaint alleges that the defendants engaged in a fraudulent scheme to falsify and inflate Power Phone and TMC Agroworld's financial statements in filings with the Commission and in press releases, in violation of the anti-fraud provisions of the federal securities laws. 
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diff --git a/raw/aaer/2001/AAER-1369.txt b/raw/aaer/2001/AAER-1369.txt
new file mode 100644
index 0000000000000000000000000000000000000000..94f8fe8fcfe38edbafe067cdcf882ea21004f69b
--- /dev/null
+++ b/raw/aaer/2001/AAER-1369.txt
@@ -0,0 +1,1372 @@
+
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+ 
+ 
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+     SEC.gov | Martin R. Frankel, John A. Hackney. Robert J. Guyer,Liberty National Securities, Inc., Gary Atnip and Sonia Howe Radencovici 
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+              Martin R. Frankel, John A. Hackney. Robert J. Guyer,Liberty National Securities, Inc., Gary Atnip and Sonia Howe Radencovici
+           
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+        Martin R. Frankel, John A. Hackney. Robert J. Guyer,Liberty National Securities, Inc., Gary Atnip and Sonia Howe Radencovici
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+ LITIGATION RELEASE NO. 16888 / February 6 , 2001 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1369 
+
+ SECURITIES AND EXCHANGE COMMISSION v. MARTIN R. FRANKEL, JOHN A. HACKNEY. ROBERT J. GUYER, LIBERTY NATIONAL SECURITIES, INC., GARY ATNIP AND SONIA HOWE RADENCOVICI, 3:00 CV 1778 (EBB) 
+
+   The Securities and Exchange Commission today filed a motion to amend the complaint filed in  SEC v. Martin R. Frankel, et al. , 3:00 CV 1778 (EBB), to add charges against two additional Frankel associates, Gary Atnip (Atnip) and Sonia Howe Radencovici (Howe).  The Commission originally filed this action on September 18, 2000, charging Liberty National Securities, Inc. (LNS), a registered broker-dealer located in Dundee, Michigan, and Robert J. Guyer (Guyer), LNS' president, with aiding and abetting Frankel's fraud.  See Lit. Release No.16707.  On September 22, 2000, the Commission filed an amended complaint alleging that Martin R. Frankel (Frankel), who was permanently enjoined from committing securities fraud and barred from the securities industry in 1992, masterminded a massive fraud to loot the assets of Franklin American Corporation (FAC), a public holding company, and numerous insurance companies located in Tennessee, Alabama, Oklahoma, Mississippi, Missouri and Arkansas. See Lit. Release No.16719.  The amended complaint also alleged that John A. Hackney (Hackney), FAC's Chief Executive Officer, participated in Frankel's fraud and deliberately hid Frankel's control of FAC, and his control over FAC's investments, from the Commission, state insurance regulators, employees of FAC and the public. Today's proposed second amended complaint alleges that Atnip, the Chief Financial Officer of FAC, worked closely with Frankel and Hackney, and deliberately hid Frankel's control of FAC, and his control over FAC's investments, from the Commission, state insurance regulators, employees of FAC and the public.  The proposed second amended complaint alleges that Howe, Frankel's former fianc©e and long-time business associate, participated in Frankel's fraud by preparing false monthly account statements and trade confirmations and otherwise misrepresenting to FAC and its insurance company subsidiaries that Frankel was investing their assets through LNS. 
+
+   The proposed second amended complaint alleges the following:   
+
+ Frankel commenced his fraudulent scheme in 1990, when he wanted to obtain a source of funds to buy and sell securities, and he decided to acquire businesses with liquid assets.  Frankel retained Hackney in October 1990 to help Frankel acquire a bank and, subsequently, an insurance company.  Hackney retained Atnip, an accountant, to assist in the process.  Hackney and Atnip knew that Frankel wished to hide his identity from the outset of their relationship.  Hackney helped Frankel establish the Thunor Trust (Thunor) to acquire FAC, a reporting company and the parent company of Franklin American Life Insurance Company (Franklin Life), while concealing Frankel's identity.  Frankel appointed Hackney as Trustee of Thunor.  When Thunor acquired FAC and Franklin Life, Frankel appointed Hackney to be CEO, President and a director of both companies.  Atnip was appointed to be CFO and a director of both companies.  Hackney and Atnip were positioned to serve as fronts for Frankel. 
+
+   Through Thunor, Frankel ultimately acquired 83% of the outstanding stock of FAC.  From 1991 through April 1999, Frankel directed FAC to acquire additional insurance company subsidiaries.  Pursuant to Frankel's direction, Thunor also acquired and became the sole shareholder of International Financial Corporation (IFC), a holding company for four insurance companies.  Frankel, Hackney and Atnip caused FAC, IFC and their subsidiary insurance companies to invest their assets, which are reported to exceed $215 million, through Frankel.  Specifically, Frankel claimed to invest funds forwarded to him by FAC, IFC and their insurance company subsidiaries in government securities through accounts purportedly maintained at LNS. 
+
+ Frankel did not, however, set up accounts for FAC, IFC and the insurance company subsidiaries at LNS.  Instead, Frankel fabricated trades, which Howe, a former broker, reported on phony LNS monthly account statements, and fake trade confirmations that Howe generated and sent to FAC, IFC and their insurance company subsidiaries.  Frankel invested a portion of the funds transferred to him by the insurance companies through brokerage accounts maintained at other broker-dealers.  Frankel, however, used a significant portion of the insurance companies' funds for lavish living expenses for himself and Howe, among others, misappropriating millions of dollars.   
+
+   Finally, FAC's periodic reports were materially inaccurate.  In order to hide Frankel's involvement with FAC and the insurance companies, Hackney and Atnip filed inaccurate annual and quarterly reports with the Commission. FAC's annual and quarterly reports failed to disclose that Frankel was a controlling shareholder of FAC, and that Frankel was also responsible for investing FAC's and its insurance company subsidiaries' assets through LNS in a related party arrangement.  The annual and quarterly reports also materially misrepresented FAC's financial condition.  For instance, FAC's annual and quarterly reports materially misstated FAC's revenues from investments that were purportedly being executed through LNS.  Hackney and Atnip also provided FAC's auditors with false information about the relationship among Frankel, Thunor, LNS and FAC.  Additionally, Hackney and Atnip filed proxy statements on behalf of FAC that were materially misleading. 
+
+             Accordingly, the Commission filed a motion to amend the complaint in  SEC v. Martin R. Frankel, John A. Hackney, Robert J. Guyer and Liberty National Securities, Inc. , 3:00 CV 1778 (EBB), to add Howe as a defendant alleging that Howe violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and to add Atnip as a defendant alleging that he violated Sections 10(b) and 13(b) of the Exchange Act and Rules10b-5 and 13b2-2 thereunder; and, as a control person, violated Sections 13(a) and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, and 14a-9 thereunder.  The Commission is seeking permanent injunctions against future violations of these provisions of the securities laws; disgorgement of ill-gotten gains and pre-judgment interest; civil penalties; and orders barring Frankel, Atnip and Hackney from serving as an officer or director of a public company.   
+
+ The Commission acknowledges the assistance of the U.S. Attorney's Office for the District of Connecticut in bringing this case. 
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diff --git a/raw/aaer/2001/AAER-1372.txt b/raw/aaer/2001/AAER-1372.txt
new file mode 100644
index 0000000000000000000000000000000000000000..831fa8694a82dc7da66a9def47033443c8302dad
--- /dev/null
+++ b/raw/aaer/2001/AAER-1372.txt
@@ -0,0 +1,1383 @@
+
+
+ 
+ 
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+              Walter A. Forbes and E. Kirk Shelton
+           
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+        Walter A. Forbes and E. Kirk Shelton
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+  Litigation Release No. 16910  /  February 28, 2001   
+
+  ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO.  1372           
+
+   Securities And Exchange Commission v. Walter A. Forbes and E. Kirk Shelton , Civil Action No. 01-987(AJL)  (D.N.J.  Feb. 28, 2001)  
+
+ SEC CHARGES WALTER A. FORBES AND E. KIRK SHELTON, FORMER TOP OFFICERS OF CUC INTERNATIONAL INC., AND CENDANT CORP., 
+
+ WITH DIRECTING AND PROFITING FROM A MASSIVE FINANCIAL FRAUD 
+
+   The Securities and Exchange Commission today filed a civil enforcement action in the U.S. District Court for the District of New Jersey against Walter A. Forbes and E. Kirk Shelton, the top two former officers of CUC International Inc. ("CUC"), alleging that they directed a massive financial fraud while selling millions of dollars worth of the company's common stock.  For the period 1995-1997 alone, pre-tax operating income reported to the public by CUC was inflated by an aggregate amount of over $500 million.  The Commission, among other relief, seeks disgorgement of their fraudulent stock gains (with prejudgment interest), payment of civil money penalties, orders barring Forbes or Shelton from serving as an officer of a public company, and injunctions against violations of the federal securities laws. 
+
+   CUC merged with HFS Incorporated on December 17, 1997, to form Cendant Corporation ("Cendant").  The litigation results from the Commission's investigation of a long-running financial fraud that began at CUC in the 1980s and continued until its discovery and disclosure by Cendant in April 1998.  Upon disclosure of the fraud, the price of Cendant common stock plummeted, causing billions of dollars in losses for investors.   
+
+   SEC Director of Enforcement Richard H. Walker said, "As this case graphically illustrates, large, complex, and long-running financial frauds often originate at the highest levels of a company.  When senior officers entrusted by investors to run public companies engage in fraud, the Commission will respond aggressively to assure continued investor confidence in the quality of financial reporting." 
+
+   The Commission's complaint alleges the following: 
+    Forbes, CUC's Chairman and Chief Executive Officer, directed the fraud from its beginnings in 1985.  From at least 1991 on, Shelton, CUC's President and Chief Operating Officer, joined Forbes in directing the scheme.
+
+
+         Forbes and Shelton reviewed and managed schedules listing fraudulent adjustments to be made to CUC's quarterly and annual financial statements.  CUC senior management used the adjustments to artificially pump up income and earnings, defrauding investors by creating the illusion of a company that had ever-increasing earnings and making millions for themselves along the way.  
+
+        Forbes and Shelton undertook a program of mergers and acquisitions on behalf of CUC in order to generate inflated merger and purchase reserves at CUC to be used in connection with the fraud.  Forbes and Shelton sought out HFS as a merger partner because they believed the reserves that would be created would be big enough to bury the fraud.  To entice HFS management into the merger, Forbes and Shelton inflated CUC's earnings and earnings projections.  Soon after CUC merged with HFS to create Cendant, Forbes and Shelton explicitly congratulated each other on being masterful "financial engineers" who had been able to nurture the fraud through the years and who had assured their continued success by duping HFS into agreeing to a merger with CUC.  
+
+        Forbes and Shelton profited from their own wrongdoing by selling CUC and Cendant securities at inflated prices while the fraud they had directed was underway and undisclosed.  The sales brought Forbes and Shelton millions of dollars in ill-gotten gains.
+
+        After the Cendant merger, Forbes served as Cendant's Chairman of the Board until his resignation in July 1998.  At the time of the merger, Shelton became a Cendant director and Vice Chairman.  Shelton resigned from Cendant in April 1998. 
+   The Commission seeks to enjoin Forbes and Shelton from violating Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b) and 14(a) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, 13b2-2, and 14a-9.  In addition, as noted above, the Commission seeks disgorgement of their fraudulent stock gains, prejudgment interest, civil money penalties and orders barring Forbes and Shelton from serving as an officer and director of  a public company. 
+
+   The Commission previously brought related civil actions and administrative proceedings against seven individuals, as well as against the issuer.  In those actions, the Commission charged among others, CUC's former Chief Financial Officer, Controller and Senior Vice President, Vice President of Accounting and Reporting, and Director of Financial Reporting.   See  Litigation Release No. 16587 (June 14, 2000); Exchange Act Rel. No. 42933 (June 14, 2000); Exchange Act Rel. No. 42934 (June 14, 2000); Exchange Act Rel. No. 42935 (June 14, 2000); Exchange Act Rel. No. 42936 (June  14, 2000); Exchange Act Rel. No. 43034 (July 13, 2000).  These actions remain pending as to Cosmo Corigliano and Ann Pember. 
+
+   The Commission acknowledges the assistance provided by the U.S. Attorney for the District of New Jersey.  The Commission's investigation in this matter is continuing.  
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diff --git a/raw/aaer/2001/AAER-1374.txt b/raw/aaer/2001/AAER-1374.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b95120586276e7e4ea68581cddad1c5e20e40c6c
--- /dev/null
+++ b/raw/aaer/2001/AAER-1374.txt
@@ -0,0 +1,221 @@
+ 
+ 
+ 
+
+  Release No.  34-44050 / March 8, 2001 (Administrative Proceedings)  
+ 
+  
+ 
+
+ 
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+
+ UNITED STATES OF AMERICA
+ before the
+ SECURITIES AND EXCHANGE COMMISSION 
+
+ SECURITIES EXCHANGE ACT OF 1934
+ Release No. 44050 / March 8, 2001
+
+ ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  1374 / March 8, 2001
+
+ Admin. Proc. File No. 3-9500 
+
+  
+   
+ In the Matter of 
+ KPMG PEAT MARWICK LLP 
+ c/o Michael Carroll, Esq.
+          Davis Polk & Wardwell   
+          450 Lexington Avenue   
+      New York, New York 10017  
+   
+  : : : : : : : :  
+        
+
+ 
+ Order Denying Request for Reconsideration 
+
+   On January 19, 2001, we issued an opinion finding that KPMG Peat Marwick LLP ("Peat Marwick"), an accounting firm that provided auditing services to its clients,   1   was not independent from a Commission registrant when it conducted an audit of the registrant's financial statements and issued an audit report while it had a loan outstanding to an officer of the registrant and while it had the right to receive a fee contingent on the registrant's financial success.  We further determined that Peat Marwick acted negligently and that its conduct resulted both in its primary violation of Rule 2-02(b) of Regulation S-X (because its audit report stated, inaccurately, that the audit was made in accordance with Generally Accepted Auditing Standards ("GAAS"))   2   and in its being a "cause" of the registrant's violations of Section 13(a) of the Securities Exchange Act of 1934 and Rule 13a-1 thereunder(because the financial statements included as part of the registrant's annual report, were not, as represented, audited by independent accountants).   3  
+
+   Based on our findings, we concluded that it was in the public interest to order, under Section 21C of the Exchange Act,   4   that Peat Marwick cease and desist from being a cause of violations of Section 13(a) of the Exchange Act and Rule 13a-1 thereunder, or from committing violations of Rule 2-02(b), by having any transactions, interests, or relationships that would impair its independence under GAAS or under the Commission's independence standards.   5  
+
+   On January 30, 2001, Peat Marwick submitted a motion seeking reconsideration of our opinion.  Peat Marwick bases its motion on two grounds.  First, Peat Marwick argues that, in derogation of its due process rights, we have sanctioned it for negligence "based on the record of a hearing held under a scienter standard" in accordance with the "express instruction" of the law judge. Second, Peat Marwick argues that, after adopting a standard for use in determining whether to issue a cease-and-desist order, we disregarded the standard in determining to sanction Peat Marwick.
+
+   We consider Peat Marwick's motion under Rule of Practice 470.   6    This rule gives the Commission the opportunity to reconsider its decisions when it deems appropriate.  We see no reason to do so here.   7  
+
+ I.
+
+   Peat Marwick claims that it was not put on notice of the culpability standard we applied to certain charges of misconduct in these proceedings.  It asserts that the presentation of evidence below was done under the law judge's "express instruction" that the "case" would be tried under a scienter standard, and that, on review, we applied a negligence standard without giving it notice or fair opportunity to address why this standard should not apply.   8    We disagree.  Here, the law judge ruledonly that certain charged misconduct, that under Rule 102(e), would be governed by a scienter standard, and the Division made it clear in a timely fashion that it would premise its litigation of other charges, those under Section 21C, on a negligence standard.  Accordingly, we conclude that Peat Marwick was given ample notice that both the law judge and we would be considering negligence claims under Section 21C.  Indeed, as we discuss below, Peat Marwick acknowledged this during oral argument before us. 
+
+   As long as a party to an administrative proceeding is reasonably apprised of the issues in controversy and is not misled, notice is sufficient.   See ,  e.g. ,  Long v. Board of Governors of the Federal Reserve System , 117 F.3d 1145, 1158 (10th Cir. 1997);  see   also   Aloha Airlines v. CAB , 598 F.2d 250, 262 (D.C. Cir. 1979) (notice is "sufficient if the respondent `understood the issue' and `was afforded full opportunity' to justify its conduct during the course of the litigation").   From the outset of these proceedings in December 1997, it was clear that more than one violation was charged, more than one remedial ground invoked, and, therefore, that more than one culpability standard might be applied.  
+
+   The Order Instituting Proceedings ("OIP") charged that by virtue of its alleged conduct Peat Marwick "engaged in improper professional conduct under Rule 102(e), directly violated Rule 2-02 of Regulation S-X, and caused violations of Section 13(a) of the Exchange Act and Rule 13a-1 thereunder."  The OIP stated that, in view of these allegations, we deemed it appropriate to institute proceedings under Rule 102(e) and Section 21C of the Exchange Act to determine, among other things, what remedial actions or sanctions, if any, were appropriate under Rule 102(e) and Section 21C.  The OIP did not articulate the culpability standards that would apply to the charges.  In its answer, Peat Marwick alleged that the OIP provided "no notice . . . as to a requisite element of the charges: the scienter requirement for the alleged violations." 
+
+   Counsel for the Division of Enforcement and the Office of the Chief Accountant (together the "Division") addressed that concern.  During an April 1998 pretrial hearing, the Division's counsel stated that, while there might be an issue as to the culpability standard governing the "half of this case th[at] charges . . . 102E [sic] of the Commission's rules," as to "the other half of the case . . . seek[ing] a cease and desist order under Section 21 [sic] of the Exchange Act . . . I would suggest the standard is clear and that the standard should be negligence . . . . [I]t will be at least that half of the case, which we will premise on a negligence standard so that there should not be any doubt in terms of preparation or getting ready . . . ."  Counsel for Peat Marwick did not respond.  
+
+   Again, in its prehearing memorandum, the Division briefed the culpability standard for the allegations under Exchange Act Section 21C separately from that governing the Rule 102(e) allegations. As to Section 21C, it took the position, citing to authorities concerning "causing" liability under Section21C, that "[i]n determining . . . Peat Marwick's liability under Section 21C, it should be held to a negligence standard."  The Division took the position that the Rule 102(e) allegations also should be governed by a negligence standard.  
+
+   By contrast, in its pretrial submission, Peat Marwick expressly limited its briefing on culpability to the question of what "standard of culpability . . . applies to enforcement actions under Rule [10]2(e)."  After citing a number of authorities concerning the culpability standard governing Rule 102(e) charges, Peat Marwick concluded, under a heading entitled "Scienter is the Only Legal Standard Under which this Case Can Proceed to Trial," that "the proper standard to apply to alleged violations of Rule [10]2(e)" was scienter.  Under a separate heading, Peat Marwick noted that "[t]he Commission is also bringing a charge pursuant to Section 13(a) of the Exchange Act in which it is seeking a cease and desist order under Section 21C of the Exchange Act against Peat Marwick."  Peat Marwick did not brief the question of what culpability standard would apply to that charge. 
+
+   With this submission, Peat Marwick filed its "Motion to Try This Case Under a Scienter Standard or, in the Alternative, to Postpone Trial Until After the Commission Decides on Some Other Legal Standard."  Peat Marwick relies heavily on this motion and the law judge's ruling on it in arguing that the hearing was "held under a scienter standard."
+
+   Peat Marwick filed its motion against a backdrop of some uncertainty as to the scope of Rule 102(e).  In March 1998, the United States Court of Appeals for the District of Columbia Circuit decided, in  Checkosky v. SEC , 139 F.3d 221 (D.C. Cir. 1998), that the Commission had failed in that case to articulate clearly the mental state it had applied to find "improper professional conduct" under Rule 102(e) and, in particular, the court faulted the Commission for not articulating with some degree of specificity when negligent conduct by an accountant constitutes "improper professional conduct." Based on its reading of  Checkosky , Peat Marwick asserted that the Commission had failed to adopt a "clear and coherent Rule 102(e) [culpability] standard."  Accordingly, Peat Marwick requested that, until the Commission issued such a standard, the hearing be postponed, unless the Division agreed to try the "case" under a scienter standard.  
+
+   Even though Peat Marwick's answer raised an issue about "the scienter requirement for the alleged violations" and its pretrial submission and its motion addressed the culpability standard for Rule 102(e) charges, its motion did not address the culpability standards for charges sought to be remedied under Section 21C of the Exchange Act.  It argued only that, if the law judge decided "to postpone trial of the Rule [10]2(e) claim, then trial on the Section 21A [sic] claim should be postponed concurrently." Significantly, Peat Marwick did not argue that scienter was required for a cease-and-desist order to issue under Section 21C.  Instead, it argued that "[p]rosecuting this case in piecemeal fashion" would be "burdensome" and "wasteful."  The Division's response to the motion focused only on the culpability standard for the Rule 102(e) charge (again arguing that it should be tried under a negligence standard),and expressly noted that the 21C part of proceedings would focus on whether Peat Marwick was negligent.   9  
+
+   On May 21, 1998, the law judge ruled on Peat Marwick's motion.  He denied a stay and held that "scienter is the correct standard in this case, and that is the one I will apply."  He did not, as Peat Marwick contends, issue an "express instruction" that the "case" -- embracing each and every charge -- would be tried under a scienter standard.  His ruling, which nowhere addressed the Section 21C charges, concerned only the Rule 102(e) allegations:
+
+   This area of law is somewhat in flux maybe, in light of  Checkosky  and maybe a few other things.  I've thought about this, and my view is on this . . . .  Well, I do agree that in a [10]2E [sic] case, negligence could very well be the standard . . . .  [B]ut here w[h]ere you're talking about corporate relationships, intertwined with negotiations with the SEC, I'm going to apply a scienter standard . . . . 
+
+ Under the circumstances, we conclude that it would have been apparent to a reasonable person that the law judge's ruling pertained only to the Rule 102(e) charge.   10  
+
+   Peat Marwick directs us to nothing in the transcript of the hearing that is inconsistent with this determination, and we find much that is consistent.  Thus, on June 15, 1998, after opening the trial and stating that the proceedings were taking place pursuant to Rule 102(e) and Exchange Act Section 21C, the law judge addressed a motion by the Division to conform the "trial standard" of the "Rule 102(e) portion of the case" to a negligence standard.  He stated: "With respect to the 102(e) standard issue, we visited this about two weeks ago . . . .  I'll just carry the motion.  I'm not going to back off what I said before."  In our view, this statement again put Peat Marwick on notice that the law judge's May 21 ruling concerned the trial of only the Rule 102(e) allegations.  A number of statements by counsel for the Division in his opening argument further apprised Peat Marwick that the Division interpreted the law judge's May 21 order to pertain to the trial of only the Rule 102(e) allegations.  For example, at the close of his opening argument, the Division's counsel stated that "regardless of what standard . . .[might] apply on the 102(e) half of this case, . . . the cease and desist portion . . . is tried under a negligence standard."
+
+   Later argument was consistent.  For example, when, at the close of the Division's case, Peat Marwick's counsel moved for summary disposition, claiming, among other things, that "insufficient evidence . . . has been offered that would allow for a finding of any scienter violation," the Division's counsel responded that the Division was "confident" that it had "carried [its] burden in this case whether it's the negligence standard of proof applicable to the cease [and] desist order part of the case or on the Rule 102(e) part of the case whether it's ultimately a scienter standard, recklessness or whether it's ultimately some form of negligence, whichever the Court determines upon consideration of the parties' briefs."
+
+   After the Division asserted, in closing argument, that it had carried its burden under the negligence standard applicable to the charges brought under Section 21C, Peat Marwick for the first time clearly stated that, in its view, all charges, regardless of the remedy invoked, should be subject to the same culpability standard, because they all stemmed from the same conduct.   11    Then, in its post-hearing submissions, Peat Marwick asserted for the first time that it had  "prepared and conducted its defense to the Division's Section 21C claim in reliance on the Court's [May 21] ruling that scienter was the appropriate standard for  this case " and that "to subject Peat Marwick to a lower standard now would violate Peat Marwick's due process rights" (emphasis in original).   12   
+
+   In his initial decision, the law judge rejected this view of his May 21 ruling.  First, he noted, under a heading entitled "The Applicable Standard Under Rule 102(e)(1)(ii)," that he had ruled on May 21 that he would "apply a scienter standard because of the  Checkosky  holding and the circumstances that brought about this proceeding."  Then, after holding that the scienter standard would embrace recklessness, he concluded that Peat Marwick did not recklessly engage in improper professional conduct within the meaning of Rule 102(e).  Despite his conclusion that Peat Marwick did not act with scienter, the law judge proceeded (a) to conclude that Peat Marwick violated Rule 2-02 and caused violations of Section 13(a) of the Exchange Act and Rule 13a-1 thereunder, and (b) to consider whether a cease-and-desist order should be imposed.   Given his finding that Peat Marwick did not act with scienter, the law judge could not have reached these conclusions without also concluding that something less than scienter was a sufficient basis to find these violations.   13    Thus, the law judge necessarily, if implicitly, rejected Peat Marwick's argument that, by virtue of the May 21 ruling or due process, a scienter standard applied to all charges regardless of their nature and the remedy invoked.   14   
+
+   On its appeal to us of the law judge's decision, the Division, while conceding that the law judge had stated that the culpability standard for the Rule 102(e) allegations was recklessness, also argued that the culpability standard for "causing cases" under Section 21C was negligence and that the standard for the Rule 2-02 primary violation sought to be remedied under Section 21C was strict liability.   15    In response, Peat Marwick did not brief the question of the culpability standards for charges under Section 21C but simply alluded to the Division's "new [strict liability] approach" to theRule 2-02 primary violation, stating that it presented "a striking contrast to [the Division's] pre-trial assertions that a negligence standard applies to the request for cease and desist relief - which the Division/OCA concedes in its brief."   16    
+
+   On appeal, Peat Marwick did not assert that the entire "case" had been tried on a scienter standard or that it would be a due process violation to apply a negligence standard to any of the charges involved in these proceedings.   17    In fact, much of Peat Marwick's briefing was framed in negligence terms: e.g., that the law judge had "affirm[ed] the reasonableness of Peat Marwick's conduct," that testimony presented at the hearing "demonstrated how Peat Marwick had acted reasonably in its discussions" with our staff, and that it was "entirely reasonable to think that . . . the . . . [subject] audit engagement[] . . . could proceed."
+
+   This briefing alone would be enough to lead us to conclude that Peat Marwick was not denied due process by our consideration of whether its conduct was negligent.  But, in addition, Peat Marwick conceded in oral argument before us that these proceedings were not necessarily governed by a single culpability standard and that the "reasonableness" of its conduct (as evinced by what it described as the "reasonableness findings" of the law judge) should affect our determination under Section 21C.  In "touch[ing] . . . on the legal framework" involved in these proceedings, Peat Marwick's counsel stated:
+
+   We were tried under 102(e) which required scienter as it was applied in this case.  And it was a finding that there was no scienter.  On the C&D side, 21(c) [sic] in this case . . . requires a finding that we knew or should have known.  I think, based up to now, the Commission has not finally settled the issue of what legal standard that requires.  But it certainly requires some.  The staff submits, in their papers, it requires at least negligence.  And I would submit to you that when you look through the binder of the findings I've tendered, taken out of [the law judge's] opinion, and you see all the reasonableness findings that are inthere based on his weighing of the evidence, there is no basis for reversing it.
+
+   Under the circumstances, we conclude that Peat Marwick was reasonably apprised of the issues as to culpability in controversy in these proceedings and had a full and fair opportunity to litigate them. 
+
+ II.
+
+   Peat Marwick also urges us to reconsider our imposition of a cease-and-desist order.  Peat Marwick contends that, although we determined "correctly" that there must be some likelihood of future violations whenever we issue a cease-and-desist order, we "nullified this standard by finding that there is a presumption of future likelihood whenever a past violation is shown" since the "question of whether or not to issue a cease-and-desist order only arises after there has been a finding of a past violation, and issuance of a cease-and-desist order would become automatic if nothing more were required to show future likelihood."  Peat Marwick asserts that in these proceedings our "finding" of  "a likelihood of future harm" was based on a record (concerning a "single past violation") devoid of any evidence to support that "finding" and, therefore, our imposition of the cease-and-desist order was arbitrary and capricious.  Peat Marwick's arguments, which, in large measure, merely reiterate arguments we have already considered, are without merit.
+
+   Peat Marwick's arguments misapprehend our decision.  It is clear that the requirement that we adopted was not the "likelihood of future violation" requirement that governs the issuance of injunctions in court proceedings and that serves as the focus of Peat Marwick's motion.  Thus, the precedents Peat Marwick relies on, to the effect that a single past violation is insufficient to demonstrate the likelihood of future violations, are inapplicable.
+
+
+
+   Instead, after recounting the history leading up to the enactment of our cease-and-desist authority, we concluded that, although Congress intended that cease-and-desist orders be forward-looking like injunctions, it intended that the showing of risk of future violations be significantly less than that required for an injunction.  Therefore, we concluded that, although "`some' risk" of future violation is necessary, it need not be very great to warrant issuing a cease-and-desist order and that in the ordinary case and absent evidence to the contrary, a finding of past violation raises a sufficient risk of future violation. 
+
+   This does not mean, however, that even in the ordinary case issuance of a cease-and-desist order is "automatic" on a finding of past violation.  Instead, as we made clear in our opinion, "[a]long with the risk of future violations, we will continue to consider our traditional factors in determining whether a cease-and-desist order is an appropriate sanction based on the entire record."  In this case, only after considering those factors, including the seriousness of the violations, Peat Marwick's failure to appreciate that seriousness, and the remedial function to be served by the cease-and-desist order,together with the question of the level of risk of future violations, did we conclude that cease-and-desist relief was "fully warranted." 
+
+   In applying the "some risk" requirement to these proceedings, we concluded that there was a "serious" risk of future violation.  Although Peat Marwick contends, as it has before, that its violative conduct was isolated, inadvertent, and unconnected to any ongoing conduct or engagement, we considered these contentions in our opinion.  We observed that the isolated nature of the violations tended to counsel against relief.  But we did not, and do not, consider the lack of care at senior levels that attended the independence determinations in this case to have been merely inadvertent or to be "unconnected" to any ongoing conduct or engagement.  As we stated in our opinion based on a lengthy exposition of the facts, particularly facts bearing on the negligence of the head of Peat Marwick's Department of Professional Practice ("DPP"), the risk of future violation here arises from the manifestly inadequate level of scrutiny given to independence issues and Peat Marwick's consistent failure to recognize the seriousness of this misconduct.
+
+   As we stated in our opinion, independence is the keystone of our disclosure system.  We found that one of the independence impairing circumstances in these proceedings - the loan to an officer of a registrant -- was correctly characterized by one witness as "an absolute blatant out-and-out violation" of GAAS.  We found that this impairment, as well as the impairment flowing from Peat Marwick's right to receive a fee contingent on the registrant's success, resulted in serious violations and that Peat Marwick failed to appreciate that seriousness.  We also determined that the violations flowed from the negligent failures of the head of Peat Marwick's DPP and the audit partner to inform themselves about facts material to specific issues about independence attending Peat Marwick's audit engagement -when both had questions or concerns about the propriety of the audit and had ready access to relevant information.  
+
+ These findings, as well as others detailed in our opinion, are based on the record as a whole and are more than adequate to support our conclusion that there was not just "some" risk but a "serious" risk of future violation, which, together with the traditional sanctioning factors we considered, fully warranted the cease-and-desist relief we issued.   18  
+
+   Accordingly, IT IS ORDERED that the motion for reconsideration filed by Peat Marwick be, and it hereby is, denied. 
+
+   By the Commission (Acting Chairman UNGER and Commissioner HUNT); Commissioner CAREY not participating.
+
+               Jonathan G. Katz
+
+                     Secretary
+ 
+
+ 
+ Footnotes 
+ 
+
+      1     Peat Marwick has changed its name to KPMG LLP.  For purposes of this order, however, the firm will be referred to as Peat Marwick.
+
+      2     17 C.F.R. § 210.2-02(b).
+
+      3     15 U.S.C. § 78m(a) and 17 C.F.R. § 240.13a-1.
+
+      4     15 U.S.C. § 78u-3.
+
+      5     Because the law judge had determined that a scienter standard would apply to these proceedings insofar as they were based on allegations that Peat Marwick engaged in improper professional conduct under Rule 102(e) of the Commission's Rules of Practice (17 C.F.R. § 201.102(e)), however, we declined to sustain those allegations.
+
+      6     17 C.F.R. § 201.470.
+
+      7     Preliminarily, we note that settled principles of federal court practice establish that a party may not seek rehearing of an appellate decision in order to advance an argument that it could have made previously but elected not to ( see ,  e.g. ,  Anderson v. Beatrice Foods Co. , 900 F.2d 388, 397 (1st Cir. 1990)) or to "shift position and present an issue which was previously conceded."  United States v. Smith , 781 F.2d 184, 185 (10th Cir. 1986).  In considering motions for reconsideration of federal district court rulings, courts have likewise cautioned that "`[t]he purpose of a motion for reconsideration is to correct manifest errors of law or fact or to present newly discovered evidence'" and that a "motion for reconsideration should not be used as a vehicle to present authorities available at the time of the first decision or to reiterate argumentspreviously made . . . ."   Z.K. Marine, Inc. v. M/V Archigetis , 808 F. Supp. 1561, 1563 (S.D. Fla. 1992) (quoting  Harsco Corp. v. Zlotnicki , 779 F.2d 906, 909 (3d Cir. 1985)).  The efficiency and fairness concerns that underlie these settled principles of federal court practice likewise inform our review of motions for reconsideration under Rule 470.   Cf.   Summitt Investigative Service, Inc. v. Herman , 34 F. Supp.2d 16, 27 (D.D.C. 1998) ("The Court can divine no reasonable basis for concluding that, although a federal appellate court will refuse to review matters raised for the first time in a motion to reconsider, an agency's appellate board must nonetheless `enable a party to complete presenting his case after the court has ruled against him.'") (quoting  Frietsch v. Refco, Inc. , 56 F.3d 825, 828 (7th Cir. 1995)).  As will become clear below, Peat Marwick's motion runs afoul of these principles.  Its first ground of error rests on an argument Peat Marwick made and lost below and then abandoned on review. We deny the motion for reconsideration on this ground both because it lacks merit for the reasons discussed in text and, independently, because Peat Marwick is foreclosed from resurrecting this argument as part of a motion for reconsideration.  As to its second ground of error, Peat Marwick repeats in large part arguments previously made and considered. 
+
+      8     Accordingly, Peat Marwick argues that due process requires, at a minimum, that these proceedings be remanded to the law judge "for the taking of additional evidence under a negligence standard."  Peat Marwick does not identify what such evidence would be or how it would differ from what has already been presented.  Indeed, despite its apparent protestations to the contrary, Peat Marwick did present evidence pertaining to whether its conduct was negligent.  For example, it elicited testimony about its course of dealings with our staff, which, together with other evidence, led the law judge to conclude that Peat Marwick had acted "reasonably" in certain respects.  As stated below, Peat Marwick relied on these "reasonableness" findings on appeal before us.
+
+   We note that Peat Marwick is not arguing that it did not have notice that Section 21C "causing" liability could extend to negligent conduct.  Our decision in these proceedings marks the first time we stated on review of contested adjudicative proceedings that negligence is sufficient to give rise to causing liability.  As we explained in our opinion, however, our holding was consistent with prior Commission pronouncements, congressional testimony, statements in anumber of consent orders, and numerous decisions by law judges.
+
+      9     In its response to the motion, the Division argued, in part, that Peat Marwick would "not be disadvantaged by a hearing in which it has to meet the . . . claim that the evidence should be tested under a negligence standard . . . [since it] will have to deal with the negligence standard in the other portion of this case that is founded on Section 21C . . . ."
+
+      10     The Division's request that Peat Marwick waive any argument that the case would have to be retried in the event that the Commission determined that the standard should be less than scienter does not undermine this understanding because, given the context of the request, it is clear that it related to the trial of the Rule 102(e) allegations.
+
+      11     Counsel stated:  
+
+   [The Division] made reference to the fact that maybe under the C&D part of [its] case [it] should somehow get a negligence standard.  Your Honor, we'll brief this again.  It is not correct, for starters, that every time there has been a C&D type proceeding there has been agreement it's negligence.  Previously, [the Division] has acknowledged there has been some division of authority on that.  But more to the point, in this proceeding where it's the same conduct that's being alleged to have been wrong under any theory that you're talking about, it makes no sense to now, after the case has been presented, split and have a different standard that would somehow be applicable.  And it especially makes no sense, Your Honor, because the primary violation, if you will, the securities violation being charged in this case, is causing someone else to violate [the] securities laws. 
+
+      12     Peat Marwick submitted a proposed conclusion of law that "any retroactive application to the evidence presented at the Hearing in this matter of any standard other than scienter" was prohibited and that "[b]ecause Peat Marwick relied on the Court's [May 21] ruling in conducting its entire defense, it would be unfairly prejudiced by the application of any standardother than a scienter standard to the entire proceeding."
+
+      13     Thus, when Peat Marwick asserts, in its motion, that the law judge "held to his original statements and proceeded to apply a scienter (including recklessness) standard," it fails to point out that the law judge did so only with respect to the Rule 102(e) allegations.  When Peat Marwick asserts that "[n]owhere in his opinion" did the law judge "purport to apply any standard other than scienter," Peat Marwick fails to acknowledge the obvious import of the law judge's findings of a primary violation of Rule 2-02 and a "causing" violation of Section 13(a) under a culpability standard necessarily less than scienter.
+
+      14     Peat Marwick did not petition for our review of any aspect of the law judge's ruling, including this one.
+
+      15     We recognize that the Division first made the strict liability argument in its post-hearing submission to the law judge.  Although this might raise a concern about a shifting theory of liability as to the Rule 2-02 primary violation (not addressed in Peat Marwick's motion for reconsideration and only alluded to in its brief on review), our decision that Peat Marwick violated Rule 2-02 was based on conduct we determined was negligent.
+
+      16     Peat Marwick then cited to that portion of the Division's brief that argued that the culpability standard for "causing cases" under Section 21C was negligence.   Peat Marwick also argued at length that the strict liability approach to the Rule 2-02 primary violation, without the requirement of a finding of likelihood of future violation, would amount, inappropriately, to "an automatic cease and desist for every independence violation."  
+
+      17     Indeed, it discussed the May 21 ruling under a heading entitled "The Law Judge Correctly Concluded That BayMark [sic] Was Not Reckless and, Therefore, Did Not Violate Rule 102(e)."  It stated: "In response to Peat Marwick's pre-trial motion requesting clarification of the applicable standard after  Checkosky , [the law judge] ruled that a scienter standard should apply, given the nature of this case." 
+
+      18     On February 27, 2001, the American Institute of Certified Public Accountants ("AICPA") submitted a motion to participate in these proceedings as amicus, together with a statement of its position supporting Peat Marwick.  The AICPA's request, submitted nearly one month after Peat Marwick filed its motion for reconsideration of our January 19 decision, is untimely and inappropriate.  As Rule of Practice 201.210(d)(2) provides: "[e]xcept as all parties otherwise consent, any amicus curiae shall file its brief within the time allowed the party whose position the amicus will support, unless the Commission . . . for cause shown, grants leave for a later filing." 17 C.F.R. 201.210(d)(2).   The AICPA has not attempted to show cause for its late filing.  Such a filing is particularly problematic given that our rule concerning motions for reconsideration prohibits responses to such motions absent our request (17 C.F.R. 201.470),and we have not requested a response in this case.  We would accept amicus filings on reconsideration only under extraordinary circumstances leading us to conclude that it was necessary or appropriate to do so in the public interest.   See  17 C.F.R. 201.210(f).  This is not such a circumstance.  The AICPA tenders argument, which, for the most part, merely reiterates that of Peat Marwick and does not call on the expertise of the AICPA.  Its argument therefore does not assist our deliberations.  The AICPA's motion to file an amicus submission is denied. For the same reasons, we deny the AICPA's alternative request to state its views pursuant to Rule 201.210(e).  17 C.F.R. 201.210(e).   
+ 
+
+ 
+  http://www.sec.gov/litigation/admin/34-44050.htm  
+ 
+ 
+ 
+ 
+	  Home  |  Previous Page  
+	  Modified: 03/08/2001  
+ 
+ 
+  
+ 
+ 
+   
+ 
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+     SEC.gov | Amazon Natural Treasures, Inc. Michael A. Sylver and Domingos Loricchio Jr. 
+     
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+              Amazon Natural Treasures, Inc. Michael A. Sylver and Domingos Loricchio Jr.
+           
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+        Amazon Natural Treasures, Inc. Michael A. Sylver and Domingos Loricchio Jr.
+       
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+                        
+              SECURITIES AND EXCHANGE COMMISSION 
+
+
+
+ LITIGATION RELEASE NO. 16924 / March 2, 2001 
+
+  SECURITIES AND EXCHANGE COMMISSION v AMAZON NATURAL TREASURES, INC. MICHAEL A. SYLVER AND DOMINGOS LORICCHIO JR.,  Civ. No. CVS-01-0229 (D. Nev.) 
+
+   The Commission announced today that it filed a federal court action for securities fraud against Amazon Natural Treasures, Inc., a Las Vegas-based dietary supplement company, its president, Michael Sylver, and one of its former officers, Domingos Loricchio Jr.  The complaint alleges that, from at least 1997 through March 2000, Amazon made numerous false and misleading statements and omissions in public filings with the Commission, press releases, its Internet web site, and other documents disseminated to the public.  The statements and omissions broadly fall into four categories:  (1) overstatement of sales revenue for the year ended December 31, 1998; (2) undisclosed cash and stock given to Sylver by Amazon; (3) baseless and unreasonable revenue projections and other financial information; and (4) false and misleading claims about the benefits and safety of Amazon's products.  The Complaint also alleges that Amazon unlawfully sold millions of shares of unregistered, non-exempt stock and violated laws requiring that the company create and maintain adequate books and records and internal controls and file timely periodic reports with the Commission.  
+
+   The Commission's action, filed in the U.S. District Court in Las Vegas, Nevada, seeks a permanent injunction against Amazon for violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b), 13(a), 13(b)(2)(A) and (B) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 12b-25, 13a-1, 13a-13, and 13b2-1 thereunder.  Against Sylver, the Commission seeks an order of permanent injunction, disgorgement (including prejudgment interest), civil money penalties, and an officer and director bar for violations of Sections 5(a), 5(c) and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5 and 13b2-2 thereunder, and for aiding and abetting Amazon's violations of Section 13(a) and 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20, 12b-25, 13a-1, 13a-13, and 13b2-1 thereunder.  Finally, the Commission seeks a permanent injunction and civil penalties against Loricchio Jr. for violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and for aiding and abetting Amazon's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 12b-25, 13a-1 and 13a-13 thereunder.    
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diff --git a/raw/aaer/2001/AAER-1378.txt b/raw/aaer/2001/AAER-1378.txt
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@@ -0,0 +1,1418 @@
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+              UNITED STATES OF AMERICA  Before the  SECURITIES AND EXCHANGE COMMISSION  SECURITIES EXCHANGE ACT OF 1934  Release No. 44130 / March 29, 2001  ACCOUNTING AND AUDITING ENFORCEMENT  Release No. 1378 / March 29, 2001  ADMINISTRATIVE PROCEEDING  File No. 3-10446       In the Matter of  NATIONAL STEEL CORPORATION,  Respondent.       : : : : : : : :     ORDER INSTITUTING 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 administrative proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against National Steel Corporation ("National Steel" or "Respondent").  II.  In anticipation of the institution of these administrative proceedings, National Steel has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Solely for the purposes of these proceedings, and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the findings set forth below, except as to the jurisdiction of the Commission over itself and over the subject matter of these proceedings, which it admits, National Steel consents to the entry of this Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order ("Order").  III.   FACTS   The Commission makes the following findings:  1    A.  Summary   This matter concerns the material over accrual of reserve accounts and other accounting errors at National Steel, and the gradual, improper and undisclosed reduction of those reserves, and simultaneous inflation of income, at the direction of National Steel´s controller and vice president of finance, Carl M. Apel.  Through accounting errors and other negligence National Steel´s finance department allowed numerous liability accrual and asset allowance accounts (the "reserves") to become over accrued by approximately $51 million as of 1997. The build up of the excess reserves dated back many years, in some cases from the 1980s and before. When members of the finance department brought certain over accrued reserves to Apel´s attention in 1995 and 1996, Apel did not adjust the accounts in conformity with Generally Accepted Accounting Principles ("GAAP"). Instead, Apel ordered certain reserve accounts to be reduced gradually -- in even dollar amounts on a monthly basis -- without disclosing these gradual reductions to the public. These gradual reductions were not in conformity with GAAP and had the effect of hiding both the errors which had led to the over accruals and the subsequent adjustment of the accounts. This process of gradually reducing reserve accounts is sometimes referred to as "accreting" or "bleeding" the reserves into income. The undisclosed accretions materially inflated the income that National Steel reported to investors in at least two quarters in 1996 and one quarter in 1997. A subordinate reported the excess reserves and Apel's actions to National Steel´s Audit Committee in August 1997. The Audit Committee initiated an internal investigation and the Company voluntarily restated National Steel´s financial statements from 1992 through the second quarter of 1997.  B.  Respondent and Responsible Officer   National Steel is a Delaware corporation headquartered in Mishawaka, Indiana and together with its subsidiaries is the fourth largest integrated steel manufacturer in the United States. As of the end of the third quarter 1997, NKK Corporation, through its subsidiary NKK U.S.A. Corporation, held a 51 percent interest in National Steel, and had a 67.6 percent voting interest, due to its holding weighted voting stock. NKK is the second largest steel company in Japan and the seventh largest in the world as measured by production. National Steel´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. For the years ended December 31, 1994, 1995 and 1996, before its restatement, National Steel reported net sales of $2.70-billion, $2.95-billion and $2.95-billion respectively, and net income applicable to common stock of $157 million, $100 million and $34 million respectively.  Carl M. Apel was National Steel´s controller from 1992 to April 1997, when he was appointed vice president of finance, the top financial position at National Steel at that time. Because of high turnover in the chief financial officer position at National Steel during the 1990s, as the controller Apel was responsible for all accounting matters at National Steel, including the preparation of financial statements and Commission filings.  2   Apel is a certified public accountant, licensed to practice in Pennsylvania, and was formerly employed by a national accounting and auditing firm.  C.  Relevant Accounting Principles   GAAP require the establishment and accrual of reserves for expenses, losses and liabilities, even though payment of the expense, or realization of the loss, may be contingent upon future events. Pursuant to Statement of Financial Accounting Standards No. 5 ("FAS 5"),  Accounting for Contingencies  (March 1975), &8:     8. An estimated loss from a loss contingency . . . shall be accrued by a charge to income if  both  of the following conditions are met [emphasis in original]:  a. Information available prior to the issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements . . . [and]  b. The amount of loss can be reasonably estimated [footnotes omitted].  If the reasonable estimate of a particular loss contingency is a range, an amount shall be accrued for the loss. When some amount within the range appears at the time to be a better estimate than any other amount within the range, that amount shall be accrued. When no amount within the range is a better estimate than any other amount, however, the minimum amount in the range shall be accrued.  See  FASB Interpretation No. 14,  Reasonable Estimation of the Amount of a Loss  (September 1976). If there is at least a reasonable possibility that an additional loss has been incurred, beyond the amount accrued, disclosure of the nature of the contingency and an estimate of the possible loss or range of loss shall be made.  See  FAS 5, &10.  GAAP specifically forbid the accrual of "general" reserves.  See  FAS 5, &14:  14. Some enterprises have in the past accrued so-called "reserves for general contingencies." General or unspecified business risks do not meet the conditions for accrual in paragraph 8, and no accrual for loss shall be made . . .  Accounting estimates, including estimates for loss contingencies, may change as new events occur, as more experience is acquired, or as additional information is obtained. A change in an accounting estimate should be accounted for in (a) the period of change if the change affects that period only, or (b) the period of change and future periods if the change affects both. Although not dispositive of an issuer's disclosure obligations under the federal securities laws, if the change in estimate affects several future periods, GAAP require disclosure of the effect on income. If the effect on income is material, disclosure is recommended for changes in estimates made each period in the ordinary course of accounting. Materiality should be considered in relation to both the effects of each change separately and the combined effect of all changes.  See  APB Opinion No. 20 ("APB 20"),  Accounting Changes  (July 1971).  A change in estimate made in an interim accounting period should be accounted for in the interim period in which the estimate is changed. The effect on earnings should be reported in the current period and in subsequent interim periods, if the effect of the change is material in relation to any period presented.  See  APB 28,  Interim Financial Reporting  (May 1973).  Changes in estimates are distinguishable from the correction of errors in previously issued financial statements. Errors result from mathematical mistakes, mistakes in the application of accounting principles, or oversight or misuse of facts that existed at the time the financial statements were prepared. The correction of error, including erroneous estimates related to loss contingencies, should be disclosed in the period in which the error is discovered. The correction is accounted for and reported as a prior period adjustment, that is, by restating the financial statements of the affected prior periods.  See  FAS 16,  Prior Period Adjustments  (June 1977) [as partially superseded by FAS 109,  Accounting For Income Taxes  (February 1992) &288(n)]; APB 20, &&13, 36 and 37; and APB 9,  Reporting the Results of Operations  (December 1966) &&18 and 26.  As these provisions make clear, GAAP do not allow for the deferral of accounting adjustments arising from a change in estimate or the correction of error. If a change in estimate affects one period only, the change may not be accounted for over two or more periods in order to diminish the effect of the change on income, or for any other purpose. Correction of error may not be accounted for prospectively, or over two or more periods, in order to diminish the effect of the correction on any one period.  D.  National Steel Over Accrues Reserves   Under Apel, National Steel's finance department reviewed and analyzed most reserve accounts on a quarterly basis. From the early 1980s through 1996, however, National Steel over accrued reserves or made other accounting errors which caused income to be understated by a total of $62 million. Of this amount, $51 million derived from over accrued reserves. The accounts in question included reserves for bad debts, state and local taxes, post employment and post retirement benefits, and other miscellaneous liabilities. Over half of the excess reserves were accrued prior to 1992, before Apel became controller. These were:      Account    Amounts Over Accrued as of 12/91 (in 000s)     "General Office" Reserve  $7,000    State Franchise Tax Reserve       State Income Tax Reserve  2,465    Post Employment/Retirement Benefits Reserve  1,046    Reserve for ore mine shutdown  4,158    Reserve for bankrupt joint venture partner  3,657    Misc.   232     Total of Pre-1992 Over Accrued Reserves:  $30,914     In 1994 and 1996, National Steel over accrued reserves and made other accounting errors totaling $16.8 million and $21 million, respectively. The details are (in 000s):      Account    1994    1996     Michigan Single Business Tax Reserve  $3,715  $2,871    Post Employment/ Retirement Benefits Reserve  13,101       Bad Debt Reserve     2,000    Management Incentive Plan Reserve     1,800    Change in Measurement Date for Benefits Calculation (FAS 87 and 106)     11,100    Aged Inventory Allowance      3,459     Totals:  $16,816  $21,230     As the above tables indicate, the over accruals and other accounting errors were spread over several different types of accounts and not concentrated within any specific area of responsibility. As to each account, National Steel´s finance department staff made accounting mistakes or mis-estimates, applied incorrect accounting standards, failed to apply correctly new accounting standards, failed to consult with other departments within National Steel as needed, applied incorrect discounting factors and time periods, and/or neglected to adjust estimates in response to changed facts and circumstances. As time passed, it became known within the finance department that National Steel´s reserves for certain liabilities were excessive, but the issue was neglected until 1996.  The over accruals and other accounting errors (including minor errors restated as of 1992, 1993 and 1995) had the following effect on National Steel's income statements for the years 1992 through 1996:  EFFECT OF ACCOUNTING ERRORS ON  PRETAX INCOME OF NATIONAL STEEL (IN 000's)           Period ending:  12/31/92  12/31/93  12/31/94  12/31/95  12/31/96    Pretax Income (loss) originally reported:  (74,527)  (279,919)  151,836  91,772  28,829    Adjustments:  642  (1,213)  16,816  (1,802)  14,900   3       Pretax Income Restated:  (73,885)  (281,132)  168,652  89,970   43,729    Percentage Change:  0.9%  0.4%  11.1%  2.0%  51.7%     National Steel's failure to correct its over accrued reserves had the following effect on its balance sheets during the years 1992 through 1996:  EFFECT OF EXCESS RESERVES ON  BALANCE SHEET OF NATIONAL STEEL (IN 000's)           Period ending:  12/31/92  12/31/93  12/31/94  12/31/95  12/31/96    Retained Earnings ("R/E") Originally Reported:  70,795  (207,366)  (43,958)  54,115  89,478    Cumulative Changes to R/E:  31,556  30,343  47,029  43,777  52,642    R/E Restated:  102,351  (177,023)  3,071  97,892  142,120    Percent R/E Understated:  44.6%  14.6%  107%  80.9%  58.8%    Percent Shareholders' Equity Understated:  9.6%  16.0%  13.3%  7.9%  8.9%     E.  Carl Apel Informed of Excess Reserves   In connection with the 1995 year-end close of National Steel's books, Apel distributed a routine memo to his managers requesting their proposed year-end adjustments. The manager for state taxes responded with a hand written note recommending "favorable adjustments" in the reserves for the Michigan Single Business Tax and the State Income Tax of $1.1 million and $3 million, respectively. The manager wrote further:  I would also like to note that only $1,000,000.00 of the $12,847,462 in account 22999-1000 is specifically earmarked for actual [State] Franchise Tax Liabilities. As you know the rest has been carried on the books since we arrived from Pittsburgh [in 1992].  No one in the finance department took any steps in response to this memo to determine why, how or when such reserves came to be over accrued. The finance department did not adjust the account in conformity with GAAP.  By year end 1996, Apel had received written notice of other potential excess reserves from his staff. In December 1996, a finance department employee analyzed the reserves for State Income Tax and Michigan Single Business Tax and recommended reduction by $2.6 million and $4 million, respectively. In January 1997, the manager for financial-customer service analyzed National Steel's reserves for bad debts and recommended reduction by $2 million as of December 31, 1996. National Steel´s manager of general accounting analyzed National Steel's reserves in connection with the expenses related to the closure of a facility and found they were approximately $2.5 million higher than needed per actuarial estimates.  4   And National Steel´s controller for closed coal mines analyzed various shutdown reserves and concluded that several were, in total, $9.1 million higher than needed per actuarial estimates.  F.  Carl Apel Orders Gradual Accretion of Excess Reserves to Income   Carl Apel addressed the issue of excess reserves by attempting to reduce gradually the excess balances in certain reserve accounts, without disclosing these accounting adjustments to the public, during 1996 and the first two quarters of 1997. Gradually reducing the excess reserves was not in conformity with GAAP, specifically FAS 5 and APB 20, and had the effect of inflating the income (or reducing the losses) that National Steel reported to the public in 1996 and the first two quarters of 1997. Adjusting the reserve accounts in conformity with GAAP would have required a fully disclosed restatement, as National Steel ultimately concluded was necessary, and would have had no effect on current income.  5    In January 1996, Apel directed a finance department employee to prepare a recurring journal entry form to debit the State Franchise Tax reserve by $166,666.67 per month until further notice, thus reducing the account by $500,000.01 per quarter in 1996. Apel gave no further instructions regarding adjustments to this account. The finance department performed no analysis pursuant to FAS 5 or APB 20 to justify this reduction. The facts and circumstances relating to National Steel´s liabilities for state franchise taxes did not change in any quarter in 1996 such as to justify the reduction of the reserve by $500,000. In preparing National Steel´s Forms 10-Q and 10-K for 1996, Apel made no public disclosure of these adjustments.  6   During 1996 National Steel continued to use the State Franchise Tax reserve for its intended purpose -- to accrue and pay for that year´s state franchise tax expenses, which amounted to $783,316. By year end, the balance in the account had fallen to $10,748,150.  In 1997, Apel expanded significantly the gradual reduction of National Steel´s excess reserves -- in total dollar amount and in the number of accounts affected. In January 1997, Apel directed finance department employees to prepare recurring journal entry forms to: (i) debit the State Franchise Tax reserve by $166,666.67 per month, continuing the gradual reduction of this account begun the previous year; (ii) debit the State Income Tax reserve by $100,000.00 per month; (iii) debit the General Office reserve by $50,000.00 per month; (iv) debit the allowance for bad debts by $125,000.00 per month; (v) debit the Michigan Single Business Tax reserve by $167,000.00 per month; and (vi) debit certain shutdown reserves by $500,000.00 per month. In April 1997, Apel directed a finance department employee to prepare a recurring journal entry form to debit the reserve for the management incentive compensation plan by $200,000.00 per month. Thus, the accretions to income from these reserves totaled $3,326,000.01 in the first quarter of 1997 and $3,926,000.01 in the second quarter of 1997. National Steel´s finance department performed no analyses to justify these reserve reductions. The facts and circumstances relating to the various liabilities in question had not changed in the first or second quarters of 1997 to justify these reductions in the accruals. In preparing National Steel´s Forms 10-Q for the first and second quarters of 1997, Apel made no public disclosure of these adjustments.  The finance department accounted for the gradual reduction of the reserves as pre-tax adjustments. With the exception of the State Income Tax reserve, they were used to decrease the "Cost of Goods Sold" and the ´selling, General and Administrative Expenses" line items on National Steel´s financial statements. As such, they flowed directly to National Steel's bottom line. The table below illustrates the effect of the gradual reductions on the income (loss) reported by National Steel to the investing public in 1996 and 1997. The table compares (i) the amounts improperly accreted to income on a quarterly and year-to-date basis; with (ii) the income (or loss) that National Steel would have reported but for the accretions. In brackets are the percentages by which the accretions inflated National Steel's profits (or reduced losses).  7    EFFECT OF UNDISCLOSED GRADUAL REDUCTION OF EXCESS RESERVES  ON THE INCOME (LOSS) REPORTED BY NATIONAL STEEL (IN 000's)          PERIOD       1 st  Q 1996    ACCRETIONS       500    INCOME FROM OPERATIONS  (12,691) [ 3.9 ]    PRETAX INCOME       (21,462) [ 2.3 ]    NET INCOME       (16,075) [ 3.1 ]    NET INCOME  APPLICABLE TO COMMON STOCK  (18,817) [ 2.7 ]                         2 nd  Q 1996  500  13,852  [ 3.6 ]  4,503 [ 11.1 ]  9,891 [ 5.0 ]  7,151 [ 7.0 ]    YTD  1,000  1,161 [ 86.1 ]  (16,959) [ 5.9 ]  (6,184) [ 16.2 ]  (11,666) [ 8.6 ]                        3 rd  Q 1996  500  26,426 [ 1.9 ]  20,707 [ 2.4 ]  23,789 [ 2.1 ]  21,049 [ 2.4 ]    YTD  1,500  27,587 [ 5.4 ]  3,748 [ 40.0 ]  17,605 [ 8.5 ]  9,383 [ 16.0 ]                        4 th  Q 1996  500  31,759 [ 1.6 ]  23,081 [ 2.2 ]  24,952 [ 2.0 ]  22,213 [ 2.3 ]    YTD  2,000  59,346 [ 3.4 ]  26,829 [ 7.5 ]  42,557 [ 4.7 ]  31,598 [ 6.3 ]                        1 st  Q 1997  3,026*  33,673 [ 9.0 ]  25,449 [ 11.9 ]  22,860 [ 13.2 ]  20,119 [ 15.0 ]                        2 nd  Q 1997  3,626*  55,710 [ 6.5 ]  68,207 [ 5.3 ]  53,452 [ 6.8 ]  50,715 [ 7.1 ]    YTD  6,652*  89,383 [ 7.4 ]  93,706 [ 7.1 ]  76,312 [ 8.7 ]  70,834 [ 9.4 ]      (* These amounts do not include the adjustments of $300,000 per quarter from the State Income Tax reserve, which were applied to the Income Tax provision line item in National Steel's 10-Qs. These adjustments reduced the 1Q 97 Income Tax provision by 11.3%, and the 2Q 97 provision by 3.2%.)  Although small relative to certain measures, such as National Steel's net sales, the above table demonstrates that, in certain quarters in 1996 and 1997, the gradual reduction of the reserve accounts significantly inflated the quarterly and/or year-to-date income (or reduced the losses) National Steel reported to the public. In other quarters the effects were less significant. For the period 1994 - 1996, the income trend was downward as a result of operations. In 1996, the accretions generally had the additional impact of softening that trend and, in 1997, when income began to grow, they increased the rate of that growth.  F.  National Steel's Audit Committee Conducts a Self-Investigation and National Steel Voluntarily Restates Its Financial Statements   In the summer of 1997, a finance department employee reported information to National Steel´s general counsel as to the size and adequacy of National Steel´s reserves and as to the ongoing gradual reduction of those reserves. In August 1997, the general counsel reported these matters to the Audit Committee of National Steel´s board of directors. The Audit Committee promptly retained outside counsel, which engaged an independent accounting consultant and conducted an investigation. The Audit Committee voluntarily advised the Commission staff of the inquiry, reported the results of the investigation to the staff, and made disclosure of the self-investigation in public filings with the Commission. In early 1998, National Steel announced the voluntary restatement of its financial statements for the years 1992 through 1996 and the first two quarters of 1997. National Steel continued to cooperate with the Commission staff following the restatement. Based upon the recommendation of the Audit Committee, National Steel engaged the independent accountants to conduct quarterly reviews of National Steel's financial statements pursuant to Statement on Auditing Standards No. 71. Further, National Steel hired a different independent accounting firm to conduct a review of its internal controls (pursuant to Statements on Standards for Attestation Engagements, AT Section 400) and National Steel implemented all recommendations arising out of that review.  IV.   LEGAL ANALYSIS   A.  National Steel Violated the Reporting Provisions of the Exchange Act   Section 13(a) of the Exchange Act requires that issuers with securities registered pursuant to Section 12 of the Exchange Act file such information and documents as the Commission shall prescribe by its rules and regulations. Rules 13a-1 and 13a-13 require issuers to file annual and quarterly reports, respectively. Rule 12b-20 requires that these periodic reports contain such further information as is necessary to make the required statements, in the light of the circumstances under which they are made, not misleading. The filing of a periodic report containing materially false or misleading information constitutes a violation of these provisions.  SEC v. Savoy Indus., Inc. , 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert. denied , 440 U.S. 913 (1979);  SEC v. Kalvex, Inc. , 425 F. Supp. 310, 316 (S.D.N.Y. 1975).  National Steel violated Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder by filing annual reports on Form 10-K for the years ended December 31, 1992, 1993, 1994, 1995 and 1996, and quarterly reports on Form 10-Q up to the first two quarters of 1997, that contained materially false and misleading financial statements. National Steel's balance sheets were materially false and misleading throughout this time because of the over accrued reserves. National Steel's income statements were materially false and misleading in 1994, 1996 and the first two quarters of 1997 because of National Steel's failure to accrue reserves properly and because of National Steel's gradual and undisclosed accretion of those excess reserves to income in a manner not in conformity with GAAP.  B. National Steel Violated the Record Keeping and  Internal Control Provisions of the Exchange Act   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. National Steel violated Section 13(b)(2)(A) of the Exchange Act by accruing reserves far in excess of its probable and reasonably estimable loss contingencies, and by gradually reducing those reserves in a manner not in conformity with GAAP. This created books, records, and accounts which did not, in reasonable detail, accurately and fairly reflect the loss contingencies or the income of National Steel.  Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP. National Steel violated Section 13(b)(2)(B) of the Exchange Act by failing to devise and maintain a system of internal accounting controls sufficient to prevent the accrual of reserves in excess of its probable and reasonably estimable loss contingencies, and sufficient to prevent the gradual and undisclosed reduction of those excess reserves in a manner not in conformity with GAAP.  V.  Based on the foregoing, the Commission finds that National Steel Corporation violated 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 promulgated thereunder.  VI.  In view of the foregoing, the Commission deems it appropriate to accept National Steel Corporation´s Offer. In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by National Steel and cooperation afforded the Commission staff.  VII.  Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Securities Exchange Act of 1934, that National Steel Corporation cease and desist from committing or causing any violation and any future violation of 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 promulgated thereunder.  By the Commission.   Jonathan G. Katz  Secretary   Footnotes     1     The findings herein are made pursuant to the Offer and are not binding on any other person or entity in this or any other proceeding.   2  National Steel had six CFOs between 1992 and Apel´s termination in December 1997. For a brief period in August 1996, Apel was not employed by National Steel.    3     Figures for 1996 are net of other adjustments made in the restatement.    4     The manager of general accounting orally advised Apel that the reserves for the closed facility were too high in the previous year, 1995, as well. The manager of general accounting and Apel had also discussed the "General Office" reserve account, which had been established in connection with the "quick close" of National Steel´s books, but which had been unused and unchanged (at exactly $7 million) since 1994.    5     Depending on the facts and circumstances, National Steel may have concluded that adjustments to certain reserve accounts were"changes in estimates" in the current period, as opposed to the correction of error. If so, this would have affected current period income, with disclosure governed by APB 20.    6     Apel was not employed by National Steel on the date it issued its Form 10-Q for the second quarter of 1996.    7     The profits (losses) actually reported by National Steel in its 10-K and 10-Qs may be calculated by adding the accretions back into the profits shown on the table (or subtracting from the losses). The percentages relating to Net Income and Net Income Applicable to Common Stock (after preferred stock dividends of approximately $11-million per year) are not adjusted for any presumptive tax effect; National Steel paid no federal income tax in 1996 or the first two quarters of 1997. The table does not take into account the effect of other adjustments made by National Steel during its restatement.     
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+              Carl M. Apel
+           
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+        Carl M. Apel
+       
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+
+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  44136 / March 30, 2001
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.   1379 / March 30, 2001
+  ADMINISTRATIVE PROCEEDING
+ File No.  3-10448
+
+        In the Matter of
+   CARL M. APEL,  
+   Respondent. 
+     
+   : : : : : : :   
+  ORDER INSTITUTING 
+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 administrative proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Carl M. Apel ("Apel").
+
+  II.
+
+              In anticipation of the institution of these administrative proceedings, Apel has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept.  Solely for the purposes of these proceedings, and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the findings set forth below, except as to the jurisdiction of the Commission over himself and over the subject matter of these proceedings,which he admits, Apel consents to the entry of this Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order ("Order").
+
+  III.
+
+   FACTS 
+
+              The Commission makes the following findings:  1    A.  Summary 
+
+              This matter concerns the material over accrual of reserve accounts and other accounting errors at National Steel Corporation ("National Steel"), and the gradual, improper and publicly undisclosed reduction of those reserves at the direction of National Steel's controller and vice president of finance, Carl M. Apel.
+
+              Through accounting errors and other negligence National Steel's finance department allowed numerous liability accrual and asset allowance accounts (the "reserves") to become over accrued by approximately $51 million as of 1997.  The build up of the excess reserves dated back many years, in some cases from the 1980s and before.  In 1996, National Steel's finance department began to adjust certain over accrued reserves at Apel's direction, but these adjustments were not in conformity with Generally Accepted Accounting Principles ("GAAP").  Apel ordered certain reserve accounts to be reduced gradually -- in even dollar amounts on a monthly basis --without disclosing these gradual reductions to the public.  This process of gradually reducing reserve accounts is sometimes referred to as "accreting" the reserves into income.  The publicly undisclosed accretions materially increased the income that National Steel reported to investors in at least two quarters in 1996 and one quarter in 1997.  An employee reported the excess reserves and the gradual reductions to National Steel's Audit Committee in August 1997.  The Audit Committee initiated an internal investigation and the Company voluntarily restated National Steel's financial statements from 1992 through the second quarter of 1997.  
+
+              B.  Respondent and Issuer National Steel 
+
+              National Steel is a Delaware corporation headquartered in Mishawaka, Indiana and together with its subsidiaries is the fourth largest integrated steel manufacturer in the United States.  National Steel'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.  
+
+              Carl M. Apel was National Steel's controller from 1992 to April 1997, when he was appointed vice president of finance, the top financial position at National Steel at that time.  Apel oversaw all accounting matters at National Steel, including the preparation of financial statements and Commission filings.  2    Apel is a certified public accountant, licensed to practice in Pennsylvania, and was formerly employed by a national accounting and auditing firm.
+
+    C.  Relevant Accounting Principles  
+
+              GAAP require the establishment and accrual of reserves for expenses, losses and liabilities, even though payment of the expense, or realization of the loss, may be contingent upon future events.  Pursuant to Statement of Financial Accounting Standards  No. 5 ("FAS 5"),  Accounting for Contingencies  (March 1975), ¶8:
+
+    
+ 8.  An estimated loss from a loss contingency  . . .  shall be accrued by a charge to income if  both  of the following conditions are met [emphasis in original]:
+
+       a.  Information available prior to the issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements  . . .  [and]
+
+      b.  The amount of loss can be reasonably estimated [footnotes omitted].
+
+                If the reasonable estimate of a particular loss contingency is a range, an amount shall be accrued for the loss.  When some amount within the range appears at the time to be a better estimate than any other amount within the range, that amount shall be accrued.  When no amount within the range is a better estimate than any other amount, however, the minimum amount in the range shall be accrued.   See  FASB Interpretation No. 14,  Reasonable Estimation of the Amount of a Loss  (September 1976).  If there is at least a reasonable possibility that an additional loss has been incurred, beyond the amount accrued, disclosure of the nature of the contingency and an estimate of the possible loss or range of loss shall be made.   See  FAS 5, ¶10.  
+
+              GAAP specifically forbid the accrual of "general" reserves.   See  FAS 5, ¶14: 
+
+     14.  Some enterprises have in the past accrued so-called "reserves for general contingencies."  General or unspecified business risks do not meet the conditions for accrual in paragraph 8, and no accrual for loss shall be made  . . .  
+
+               Accounting estimates, including estimates for loss contingencies, may change as new events occur, as more experience is acquired, or as additional information is obtained.  A change in an accounting estimate should be accounted for in (a) the period of change if the change affects that period only, or (b) the period of change and future periods if the change affects both.  Although not dispositive of an issuer's disclosure obligations under the federal securities laws, if the change in estimate affects several future periods, GAAP require disclosure of the effect on income.  If the effect on income is material, disclosure is recommended for changes in estimates made each period in the ordinary course of accounting.  Materiality should be considered in relation to both the effects of each change separately and the combined effect of all changes.   See  APB Opinion No. 20 ("APB 20"),  Accounting Changes  (July 1971).  
+
+              A change in estimate made in an interim accounting period should be accounted for in the interim period in which the estimate is changed.  The effect on earnings should be reported in the current period and in subsequent interim periods, if the effect of the change is material in relation to any period presented.   See  APB 28,  Interim Financial Reporting  (May 1973).  
+
+              Changes in estimates are distinguishable from the correction of errors in previously issued financial statements.  Errors result from mathematical mistakes, mistakes in the application of accounting principles, or oversight or misuse of facts that existed at the time the financial statements were prepared.  The correction of error, including erroneous estimates related to loss contingencies, should be disclosed in the period in which the error is discovered.  The correction is accounted for and reported as a prior period adjustment, that is, by restating the financial statements of the affected prior periods.   See  FAS 16,  Prior Period Adjustments  (June 1977) [as partially superseded by FAS 109,  Accounting For Income Taxes  (February 1992) ¶288(n)]; APB 20, ¶¶13, 36 and 37; and APB 9,  Reporting the Results of Operations  (December 1966) ¶¶18 and 26.
+
+              As these provisions make clear, GAAP do not allow for the deferral of accounting adjustments arising from a change in estimate or the correction of error.  If a change in estimate affects one period only, the change may not be accounted for over two or more periods in order to diminish the effect of the change on income, or for anyother purpose.  Correction of error may not be accounted for prospectively, or over two or more periods, in order to diminish the effect of the correction on any one period.  
+
+              D.  National Steel Over Accrues Reserves 
+
+              From the early 1980s through 1996 National Steel over accrued reserves or made other accounting errors which caused income to be understated by a total of $62 million.  Of this amount, $51 million derived from over accrued reserves.  The accounts in question included reserves for bad debts, state and local taxes, post employment and post retirement benefits, and other miscellaneous liabilities.  Over half of the excess reserves were accrued prior to 1992.  These were:  
+
+       Account    Amounts Over Accrued  as of 12/91 (in 000s)  
+
+    "General Office" Reserve                  $7,000
+    State Franchise Tax Reserve                 12,356
+    State Income Tax Reserve                2,465
+    Post Employment/Retirement Benefits Reserve        1,046
+    Reserve for ore mine shutdown                      4,158
+    Reserve for bankrupt joint venture partner            3,657
+    Misc.                     232 
+    Total of Pre-1992 Over Accrued Reserves:    $30,914    In 1994 and 1996, National Steel over accrued reserves and made other accounting errors totaling $16.8 million and $21 million, respectively.  The details are (in 000s):
+
+       Account         1994            1996 
+    Michigan Single Business Tax Reserve     $3,715      $2,871
+    Post Employment/ Retirement Benefits Reserve   13,101       
+    Bad Debt Reserve                 2,000
+    Management Incentive Plan Reserve              1,800
+    Change in Measurement Date for Benefits  Calculation (FAS 87 and 106)       11,100
+    Aged Inventory Allowance                            3,459
+    Totals:                   $16,816              $21,230    As the above tables indicate, the over accruals and other accounting errors were spread over several different types of accounts and not concentrated within any specific area of responsibility.  As to each account, National Steel's finance department staff made accounting mistakes or mis-estimates, applied incorrect accounting standards, failed to apply correctly new accounting standards, failed to consult withother departments within National Steel as needed, applied incorrect discounting factors and time periods, and/or neglected to adjust estimates in response to changed facts and circumstances.  
+
+              The over accruals and other accounting errors (including minor errors restated as of 1992, 1993 and 1995) had the following effect on National Steel's income statements for the years 1992 through 1996:
+       Effect of Accounting Errors on
+ Pretax Income of National Steel (in 000's)     Period ending: 
+ 12/31/92  
+ 12/31/93 
+ 12/31/94 
+  12/31/95  
+    12/31/96     Pretax Income (loss) originally reported:  
+      (74,527) 
+      (279,919) 
+        151,836 
+         91,772 
+       28,829    Adjustments: 
+             642 
+          (1,213) 
+          16,816 
+          (1,802) 
+       14,900  3      Pretax Income Restated:
+ 
+       (73,885)
+ 
+     (281,132)
+ 
+       168,652
+ 
+         89,970
+ 
+       43,729
+    Percentage Change:
+ 
+            0.9%
+ 
+            0.4%
+ 
+          11.1%
+ 
+           2.0%
+ 
+       51.7%    National Steel's failure to correct its over accrued reserves had the following effect on its balance sheets during the years 1992 through 1996:
+
+
+  
+     Effect of Excess Reserves on
+ Balance Sheet of National Steel (in 000's)     Period ending: 
+        12/31/92  
+            12/31/93   
+              12/31/94  
+ 12/31/95  
+      12/31/96    Retained Earnings ("R/E") Originally Reported:
+ 
+         70,795
+ 
+       (207,366)
+ 
+        (43,958)
+ 
+          54,115
+ 
+         89,478
+    Cumulative Changes to R/E:
+ 
+          31,556
+ 
+         30,343
+ 
+        47,029
+ 
+        43,777
+ 
+          52,642
+    R/E Restated:
+ 
+        102,351
+ 
+     (177,023)
+ 
+          3,071
+ 
+        97,892
+ 
+        142,120
+    Percent R/E Understated:
+ 
+           44.6%
+ 
+         14.6%
+ 
+          107%
+ 
+         80.9%
+ 
+          58.8%
+    Percent Shareholders' Equity Understated:
+ 
+           9.6%
+ 
+          16.0%
+ 
+        13.3%
+ 
+           7.9%
+ 
+            8.9%    E.  Carl Apel Orders Gradual Accretion of Excess Reserves to Income 
+
+              In January 1996, Apel directed a finance department employee to prepare a recurring journal entry form to debit the State Franchise Tax reserve by $166,666.67 per month until further notice, thus reducing the account by $500,000.01 per quarter in 1996.  Apel gave no further instructions regarding adjustments to this account.  The finance department performed no analysis pursuant to FAS 5 or APB 20 to justify this reduction.  The facts and circumstances relating to National Steel's liabilities for state franchise taxes did not change in any quarter in 1996 such as to justify the reduction of the reserve by $500,000.  No public disclosure of these adjustments was made in National Steel's Forms 10-Q or 10-K for 1996.  4    During 1996 National Steel continued to use the State Franchise Tax reserve for its intended purpose -- to accrue and pay for that year's state franchise tax expenses, which amounted to $783,316.  By year end, the balance in the account had fallen to $10,748,150.  
+
+              In January 1997, Apel directed finance department employees to prepare recurring journal entry forms to:  (i) debit the State Franchise Tax reserve by $166,666.67 per month, continuing the gradual reduction of this account begun the previous year; (ii) debit the State Income Tax reserve by $100,000.00 per month; (iii) debit the General Office reserve by $50,000.00 per month; (iv) debit the allowance for bad debts by $125,000.00 per month; (v) debit the Michigan Single Business Tax reserve by $167,000.00 per month; and (vi) debit certain shutdown reserves by $500,000.00 per month.  In April 1997, Apel directed a finance department employee to prepare a recurring journal entry form to debit the reserve for the management incentive compensation plan by $200,000.00 per month.  Thus, the accretions to income from these reserves totaled $3,326,000.01 in the first quarter of 1997 and $3,926,000.01 in the second quarter of 1997.  National Steel's finance department performed no analyses to justify these reserve reductions.  The facts and circumstances relating to the various liabilities in question had not changed in the first or second quarters of 1997 to justify these reductions in the accruals.  No public disclosure of these adjustments was made in National Steel's Forms 10-Q for the first and second quarters of 1997.
+
+              The finance department accounted for the gradual reduction of the reserves as pre-tax adjustments.  With the exception of the State Income Tax reserve, they were used to decrease the "Cost of Goods Sold" and the "Selling, General and Administrative Expenses" line items on National Steel's financial statements.  As such, they flowed directly to National Steel's bottom line.  The table below illustrates the effect of the gradual reductions on the income (loss) reported by National Steel to the investing public in 1996 and 1997.  The table compares (i) the amounts improperly accreted to income on a quarterly and year-to-date basis; with (ii) the income (or loss) that National Steel would have reported but for the accretions.  In brackets are the percentages by which the accretions increased National Steel's profits (or reduced losses).  5    
+     Effect of Undisclosed Gradual Reduction of Excess Reserves
+ on the Income (Loss) Reported by National Steel (in 000's)      Period  
+  Accretions  
+  Income from Operation  
+  Pretax Income  
+  Net Income  
+  Net Income Applicable to Common Stock  
+   1 st  Q 1996
+ 
+        500
+ 
+ (12,691)     [ 3.9 ]
+ 
+ (21,462)     [ 2.3 ]
+ 
+ (16,075)     [ 3.1 ]
+ 
+ (18,817)     [ 2.7 ]
+     
+ 
+    
+ 
+   
+ 
+   
+ 
+   
+ 
+  
+    2 nd  Q 1996
+ 
+          500
+ 
+  13,852       [ 3.6 ]
+ 
+     4,503    [ 11.1 ]
+ 
+    9,891       [ 5.0 ]
+ 
+     7,151      [ 7.0 ]
+    YTD
+ 
+       1,000
+ 
+    1,161     [ 86.1 ]
+ 
+ (16,959)     [ 5.9 ]
+ 
+   (6,184)   [ 16.2 ]
+ 
+ (11,666)     [ 8.6 ]
+     
+ 
+     
+ 
+    
+ 
+   
+ 
+   
+ 
+  
+    3 rd  Q 1996
+ 
+         500 
+ 
+  26,426      [ 1.9 ]
+ 
+  20,707       [ 2.4 ]
+ 
+  23,789       [ 2.1 ]
+ 
+  21,049       [ 2.4 ]
+    YTD
+ 
+      1,500
+ 
+  27,587      [ 5.4 ]
+ 
+    3,748     [ 40.0 ]
+ 
+  17,605       [ 8.5 ]
+ 
+    9,383     [ 16.0 ]
+     
+ 
+   
+ 
+   
+ 
+   
+ 
+   
+ 
+  
+    4 th  Q 1996
+ 
+        500
+ 
+  31,759      [ 1.6 ]
+ 
+  23,081       [ 2.2 ]
+ 
+  24,952       [ 2.0 ]
+ 
+  22,213       [ 2.3 ]
+    YTD
+ 
+     2,000
+ 
+  59,346      [ 3.4 ]
+ 
+  26,829       [ 7.5 ] 
+ 
+  42,557       [ 4.7 ]
+ 
+  31,598       [ 6.3 ]
+     
+ 
+   
+ 
+   
+ 
+   
+ 
+   
+ 
+  
+    1 st  Q 1997
+ 
+     3,026*
+ 
+  33,673      [ 9.0 ]
+ 
+ 25,449     [ 11.9 ]
+ 
+ 22,860     [ 13.2 ]
+ 
+ 20,119     [ 15.0 ]
+     
+ 
+  
+ 
+  
+ 
+  
+ 
+  
+ 
+  
+    2 nd  Q 1997
+ 
+    3,626*
+ 
+  55,710      [ 6.5 ]
+ 
+  68,207       [ 5.3 ]
+ 
+  53,452       [ 6.8 ]
+ 
+  50,715       [ 7.1 ]
+    YTD
+ 
+    6,652*
+ 
+  89,383      [ 7.4 ]
+ 
+  93,706       [ 7.1 ]
+ 
+  76,312       [ 8.7 ]
+ 
+  70,834       [ 9.4 ]    (*  These amounts do not include the adjustments of $300,000 per quarter from the State Income Tax reserve, which were applied to the Income Tax provision line item in National Steel's 10-Qs.  These adjustments reduced the 1Q 97 Income Tax provision by 11.3%, and the 2Q 97 provision by 3.2%.)
+
+              Although small relative to certain measures, such as National Steel's net sales, the above table demonstrates that, in certain quarters in 1996 and 1997, the gradual reduction of the reserve accounts significantly increased the quarterly and/or year-to-date income (or reduced the losses) National Steel reported to the public.  In other quarters the effects were less significant.  For the period 1994 - 1996, the annual incometrend was downward as a result of operations.  In 1996, the accretions generally had the additional impact of softening that trend and, in 1997, when income began to grow, they increased the rate of that growth.
+
+  IV.
+
+   LEGAL ANALYSIS 
+
+              A.  Apel Violated Rule 13b2-1 of the Exchange Act 
+
+              Rule 13b2-1, promulgated under the Exchange Act, provides that no person shall, directly or indirectly, falsify or cause to be falsified, any book, record or account subject to Section 13(b)(2)(A) of the Exchange Act.  Apel violated Rule 13b2-1 when he directed the gradual, publicly undisclosed reduction of reserve accounts in a manner not in conformity with GAAP.  These adjustments to National Steel's reserve accounts were false because they did not accurately reflect changes in the probable and reasonably estimable liabilities of National Steel.  In addition, these adjustments caused National Steel's income statements in 1996 and the first two quarters of 1997 to be false, as reflected in the factual discussion in this Order. 
+
+              B. Apel Was a Cause of National Steel's Violations of the Books and Records
+
+                      and Internal Control Provisions of Section 13 of the Exchange Act 
+
+              Section 21C of the Exchange Act provides that the Commission may order that any person, who is or was a cause of a violation of any provision of the Exchange Act, to cease and desist from causing such violation.  Apel was a cause of National Steel's violations of Section 13(a) the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.  As controller and vice president of finance at National Steel, Apel directed the preparation of National Steel's annual reports on Form 10-K for the years ended December 31, 1995 and 1996, and quarterly reports on Form 10-Q up to the first two quarters of 1997, which contained materially false and misleading financial statements.  
+
+              Apel was a cause of National Steel's violations of Section 13(b)(2)(A) of the Exchange Act by directing the accrual of certain reserves in excess of National Steel's probable and reasonably estimable loss contingencies, and by directing the gradual reduction of those reserves in a manner not in conformity with GAAP.  This created books, records, and accounts which did not, in reasonable detail, accurately and fairly reflect the loss contingencies or the income of National Steel.  
+
+              Apel was a cause of National Steel's violations of Section 13(b)(2)(B) of the Exchange Act by overseeing National Steel's failure to devise and maintain a system of internal accounting controls sufficient to prevent the accrual of certain reserves in excess of its probable and reasonably estimable loss contingencies, and sufficient to prevent the gradual and publicly undisclosed reduction of those excess reserves in a manner not in conformity with GAAP.  
+
+  V.
+
+              Based on the foregoing, the Commission finds that Apel violated Rule 13b2-1 promulgated under the Exchange Act, and that Apel was a cause of National Steel'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.
+
+  VI.
+
+              In view of the foregoing, the Commission deems it appropriate to accept the Offer of Apel.  
+
+  VII.
+
+              Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that Apel cease and desist from causing any violation and any future violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-13 thereunder, and that Apel cease and desist from committing any violation and any future violation of Rule 13b2-1 promulgated thereunder.
+
+  By the Commission.
+
+                      Jonathan G. Katz
+                     Secretary
+  
+
+ 
+ Footnotes 
+     1       The findings herein are made pursuant to the Offer and are not binding on any other person or entity in this or any other proceeding.
+
+      2       For a brief period in August 1996, Apel was not employed by National Steel.  
+
+      3      Figures for 1996 are net of other adjustments made in the restatement.
+
+      4       Apel was not employed by National Steel on the date it issued its Form 10-Q for the second quarter of 1996.
+
+      5       The profits (losses) actually reported by National Steel in its 10-K and 10-Qs may be calculated by adding the accretions back into the profits shown on the table (or subtracting from the losses).  The percentages relating to Net Income and Net Income Applicable to Common Stock (after preferred stock dividends of approximately $11-million per year) are not adjusted for any presumptive tax effect; National Steel paid no federal income tax in 1996 or the first two quarters of 1997.  The table does not take into account the effect of other adjustments made by National Steel during its restatement.  As noted above, Apel was not employed by National Steel in August 1996, when the Form 10-Q for the second quarter was filed.    
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diff --git a/raw/aaer/2001/AAER-1380.txt b/raw/aaer/2001/AAER-1380.txt
new file mode 100644
index 0000000000000000000000000000000000000000..663af5054c8972ea79e1b96984b1c32f8fd45a6e
--- /dev/null
+++ b/raw/aaer/2001/AAER-1380.txt
@@ -0,0 +1,1370 @@
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+ Litigation Release No.    16948 / March 30, 2001       
+  Accounting and Auditing Enforcement Release No.  1380 / March 30, 2001       
+
+   SECURITIES AND EXCHANGE COMMISSION v. MONTEDISON, S.p.A. , Civil Action 
+No. 1:96CV02631 (RWR) (D. D.C.) 
+
+    Montedison, S.p.A., an Italian company whose senior management at the time fraudulently overstated company income by at least $398 million through early 1993, was ordered by the U.S. District Court for the District of Columbia to pay a civil penalty of $300,000 for violating the antifraud, financial reporting and books and records provisions of the U.S. federal securities laws.  The order was the result of a settlement between the Commission and Montedison in which Montedison neither admitted nor denied liability for the allegations in the complaint.  The Commission filed the complaint in 1996.
+
+    The Commission complaint alleged that Montedison disguised hundreds of millions of dollars in payments that, among other things, were used to bribe politicians in Italy and other persons.  The fraudulent conduct was disclosed only after new management was appointed when Montedison disclosed it was unable to service its bank debt. Virtually all of the former senior management at Montedison responsible for the fraud were convicted by Italian criminal authorities and were sued by the company.
+
+    Montedison, which was an Italian corporation with headquarters in Milan, had interests in the agro-industry, chemicals, energy and engineering sectors.  Until late 2000, American Depositary Receipts ("ADRs") were listed on the New York Stock Exchange.  Montedison was required to file reports with the Commission pursuant to Section 13(a) of the Exchange Act, including annual reports on Form 20-F.
+
+    
+
+    Montedison was acquired by Compart, S.p.A., in late 2000 and its ADRs were delisted. Compart then changed its name to Montedison.  No securities of Compart are listed for sale by U.S. stock exchanges.  Compart, which agreed to the settlement on behalf of the former Montedison, was not a defendant in the Commission's complaint.
+
+    In its complaint, the Commission alleged that Montedison violated Exchange Act sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Rules 10b-5, 12b-20 and 13a-1 thereunder.  See also Litigation Release No. 15164, Accounting and Auditing Enforcement Release No. 859 (Nov. 21, 1996).
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diff --git a/raw/aaer/2001/AAER-1381.txt b/raw/aaer/2001/AAER-1381.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8558630f28b07f72b091cdb8ec40c56b63c661c9
--- /dev/null
+++ b/raw/aaer/2001/AAER-1381.txt
@@ -0,0 +1,1362 @@
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+ Litigation Release No. 16962 \ April 16, 2001
+ Accounting and Auditing Enforcement Release No. 1381 \ April 16, 2001 
+   SECURITIES AND EXCHANGE COMMISSION V. JOHN N. BRINCAT, Sr. and BRADLEY VALLEM , U.S. District Court for the Northern District of Illinois, Civil Action No. 01 - C - 2670 (N.D. Ill. April 16, 2001) 
+
+    On April 16, 2001, the Commission filed financial fraud charges in the United States District Court for the Northern District of Illinois against John N. Brincat, Sr. (Brincat), the former CEO of Mercury Finance Co. (Mercury), and Bradley Vallem (Vallem), Mercury's former Treasurer. The Complaint seeks a permanent injunction and civil penalties against Brincat and Vallem.  The Complaint also seeks an order requiring Brincat to disgorge his ill-gotten gains and barring him from serving as an officer or director of a public company.
+
+    In its Complaint, the Commission alleges that, in 1996, Brincat instructed Mercury employees to refrain from charging off approximately $26 million in loan losses incurred when automobiles were repossessed and subsequently sold.  In addition, the Complaint alleges that, again in 1996, Brincat instructed Mercury employees to refrain from charging off more than $24 million in loan losses that should have been charged off because the loans were more than 150 days past due.  As a result of this improper reporting of loan losses, Mercury filed with the Commission, and disseminated to the public, fraudulent quarterly financial statements in May, August and November of 1996 and overstated its annual income in January 1997.  The Commission also alleges that in early 1996, Vallem learned that Mercury employees falsified a bank statement to cover-up a sham transaction that affected Mercury's reported commercial paper balance.  Despite his knowledge of this and other wrongdoing, Vallem signed the fraudulent quarterly filings.  Finally, the Complaint alleges that Brincat committed, and aided and abetted, violations of various books and records provisions.
+
+    The Complaint seeks entry of a Final Judgment enjoining both Brincat and Vallem from future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and enjoining Brincat from future violations, and aiding and abetting violations, of Sections 13(b)(2)(A) and 13(b)(2)(B(ii) of the Securities Act and Section 13(b)(5) of the Exchange Act.  The Complaint also seeks to require both defendants to pay civil penalties pursuant to Section 21A of the Exchange Act.  Finally, the Complaint seeks disgorgement of ill-gotten gains against Brincat and an order barring him from acting as an officer or director of a public company.  
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diff --git a/raw/aaer/2001/AAER-1383.txt b/raw/aaer/2001/AAER-1383.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d98addc05b732e3380b8c90183e6072345ae80a4
--- /dev/null
+++ b/raw/aaer/2001/AAER-1383.txt
@@ -0,0 +1,1502 @@
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+        Bruce J. Kingdon, Kenneth Goglia, and Harvey Plante
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+              UNITED STATES OF AMERICA  Before the  SECURITIES AND EXCHANGE 
+
+      COMMISSION 
+
+      
+
+
+
+ Securities Exchange Act of 1934 
+
+ Release No.   44193 / April 18, 2001 
+
+ Accounting and Auditing Enforcement
+
+ Release No.   1383 / April 18, 2001 
+
+ Administrative Proceeding
+
+ File No.  3-10457 
+ 
+     
+        In the Matter of 
+        BRUCE J. KINGDON, KENNETH GOGLIA, and HARVEY PLANTE,    
+      	      Respondents.
+              
+         
+     
+       : : : : : : : : : :   
+    
+      ORDER INSTITUTING PUBLIC 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 public administrative proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") to determine whether Bruce J. Kingdon, Kenneth Goglia, and Harvey Plante ("Respondents") violated Rule 13b2-1 of the Exchange Act.   
+
+ II. 
+
+ In anticipation of the institution of these administrative proceedings, Respondents each submitted an Offer of Settlement ("Offer") that the Commission has determined to accept.  Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the findings contained herein, except as to jurisdiction over Respondents and over the subject matter of these proceedings, which Respondents admit, Respondents consent to the entry of this Order Instituting Public Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order ("Order").  The Commission has determined that it is appropriate to accept the Respondents' Offers and accordingly is issuing this Order. 
+
+ III. 
+
+ Based on the foregoing, the Commission finds that: 
+
+ A.  Respondents   
+
+   Bruce J. Kingdon, age 49, was, during the relevant period, the Managing Director in charge of Bankers Trusts' Global Institutional Services unit (described below) and a Partner of Bankers Trust.  Kingdon reported directly, at various times, to the President, Vice-Chairman, and Chairman of Bankers Trust Corporation. 
+
+   Kenneth Goglia, age 53, served in a variety of capacities at Global Institutional Services, including as Managing Director for Finance and Control.  Goglia reported directly to Kingdon, and at times indirectly to the Chief Financial Officer of Bankers Trust Corporation. 
+
+   Harvey Plante, age 40, served in a variety of capacities at Global Institutional Services, including Vice President for Accounting and Control for Global Securities Services, one of its subsidiaries.  Plante at times reported directly to Goglia, and at times directly to the Managing Director of Global Securities Services and indirectly to Kingdon. 
+
+ B.  Relevant Bankers Trust Entities  
+
+ During the relevant time period, Bankers Trust was a wholly-owned subsidiary of   Bankers Trust New York Corporation ("BTNY") (now known as Bankers Trust Corporation), a publicly-held bank holding company incorporated in New York, New York.  At all relevant times BTNY's stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act and was listed and traded on the New York Stock Exchange.  1    On June 4, 1999, Deutsche Bank A.G. completed its acquisition of Bankers Trust Corporation.  Bankers Trust Corporation subsequently was merged with a wholly-owned subsidiary of Deutsche Bank, with Bankers Trust Corporation as the surviving corporation. 
+
+ Global Institutional Services ("GIS"), which was also known as Client Processing Services ("CPS"), is one of the organizational units within Bankers Trust, through which Bankers Trust provides processing, fiduciary and trust services to institutional and individual clients.  GIS is subdivided into various business units, including: (i) Global Retirement & Securities Services ("GRSS"), also known as Retirement Services Group ("RSG"), which provides, among other things, custodial, trust administration and asset management services to employee benefit and pension plans of corporations, governments and their agencies; (ii) Global Securities Services ("GSS"), which provides, among other things, custodial, processing and clearing services to purchasers and sellers of securities; and (iii) Corporate Trust & Agency Services ("CTAG"), which provides, among other things, paying agent and fiduciary services to issuers of securities.  During the relevant period, fees that GRSS, GSS and CTAG earned from providing these services were a significant component of the overall income of Bankers Trust. 
+
+ C.  Discussion  
+
+   During the normal course of its business, GIS accumulated unclaimed funds.  Some unclaimed funds, to the extent they remained unclaimed for an extended period of time and otherwise satisfied the requirements of state escheatment laws, would become the property of one or more of the states.  For at least three years ending in 1996, Respondents, while employed in the Client Processing Services unit of Bankers Trust Company, transferred unclaimed funds in the bank's custody to other Bankers Trust accounts.  In transferring some unclaimed funds, Respondents directly or indirectly falsified books and records of the Global Institutional Services unit, Bankers Trust, and Bankers Trust's immediate corporate parent, BTNY, thereby violating Exchange Act Rule 13b2-1.  The financial statements were not, however, materially misstated as a result of these transfers. 
+
+  Bank-Wide Expense Reduction Plan 
+
+  During 1994 and 1995, Bankers Trust's income declined significantly, and in response, Bankers Trust management implemented a bank-wide expense reduction plan.  Respondent Kingdon directed his subordinates, including Goglia and Plante, to identify additional revenue sources and to identify expenses that could be reduced.  CPS employees, under the direction of Respondents, identified such unclaimed funds as potential revenue sources or expense reduction opportunities, and suggested that those unclaimed funds be used by CPS to increase revenue and to decrease operating expenses. 
+
+  Transfer of Unclaimed Funds 
+
+  From January 1994 through September 1995, Respondents participated in the transferring of unclaimed funds from CTAG to various reserve accounts, expense accounts, and income accounts, including the transfer of approximately $700,000 of unclaimed funds in CTAG to an income account.  The transfers of these unclaimed funds increased Bankers Trusts' earnings to the extent that unclaimed funds either were transferred to income or expense accounts or were transferred to reserve accounts and later used to write off unrelated operating losses or expenses.  
+
+ IV. 
+
+ 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.  The Commission finds that Respondents violated Exchange Act Rule 13b2-1 by transferring unclaimed funds into income and reserve accounts and then charging certain of these accounts with operating expenses.   
+
+ V. 
+
+ ACCORDINGLY, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange 
+
+Act, that Respondents cease and desist from committing or causing any violations and any future violations of Exchange Act Rule 13b2-1. 
+
+   By the Commission.
+
+              Jonathan G. Katz 
+
+             Secretary 
+  Footnotes  
+
+   1     On June 4 1999, Bankers Trust Corporation filed a Form 15 providing certification and notice of termination of registration under section 12(g) of the Exchange Act.   
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diff --git a/raw/aaer/2001/AAER-1384.txt b/raw/aaer/2001/AAER-1384.txt
new file mode 100644
index 0000000000000000000000000000000000000000..87c5c30f2d830fe71153f564848eb21881c65120
--- /dev/null
+++ b/raw/aaer/2001/AAER-1384.txt
@@ -0,0 +1,1366 @@
+
+
+ 
+ 
+   
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+     SEC.gov | Bruce J. Kingdon, Kenneth Goglia, and Harvey Plante 
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+              Bruce J. Kingdon, Kenneth Goglia, and Harvey Plante
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+        Bruce J. Kingdon, Kenneth Goglia, and Harvey Plante
+       
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+ Litigation Release No. 16968 / April 18, 2001 
+
+ Accounting and Auditing Enforcement Release No. 1384 / April 18, 2001 
+
+  SEC SETTLES CASE AGAINST FORMER EXECUTIVES OF BANKERS TRUST CO. 
+
+  Securities and Exhange Commission v.  Bruce J. Kingdon, Kenneth Goglia, and Harvey Plante, Civil Action No. 99-CIV-5720 (S.D.N.Y.) (Filed July 19, 1999)
+
+    The Securities and Exchange Commission today announced that it dismissed civil injunctive proceedings previously filed against Bruce J. Kingdon, Kenneth Goglia, and Harvey Plante, all former executives of Bankers Trust Company.  The Commission further announced that Kingdon, Goglia and Plante have agreed to consent to the entry of a cease-and-desist order to settle charges arising out of their participation in the transferring of unclaimed funds to various reserve accounts, expense accounts, and income accounts to an income account.
+
+    The Commission found that for at least three years ending in 1996, respondents, while employed in the Client Processing Services unit of Bankers Trust Company, transferred unclaimed funds in the bank's custody to other Bankers Trust accounts.  In transferring the unclaimed funds, respondents directly or indirectly falsified the books and records of the Global Institutional Services unit, Bankers Trust, and Bankers Trust's immediate corporate parent, BTNY, thereby violating Exchange Act Rule 13b2-1.  
+
+    Without admitting or denying the findings in the Commission's order, Kingdon, Goglia and Plante agreed to cease and desist from committing or causing any violations and any future violations of Exchange Act Rule 13b2-1.  
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diff --git a/raw/aaer/2001/AAER-1386.txt b/raw/aaer/2001/AAER-1386.txt
new file mode 100644
index 0000000000000000000000000000000000000000..1fb6fb0c74c7cd05f91f4a95e7f12dee9f176251
--- /dev/null
+++ b/raw/aaer/2001/AAER-1386.txt
@@ -0,0 +1,1466 @@
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+       
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+                        
+              UNITED STATES OF AMERICA  Before the  SECURITIES AND EXCHANGE 
+
+      COMMISSION 
+
+      
+
+
+
+ SECURITIES EXCHANGE ACT OF 1934
+
+ Release No.  44229 / April 27, 2001 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT
+
+ Release No.  1386 / April 27, 2001 
+
+ ADMINISTRATIVE PROCEEDING 
+
+ File No. 3-8667 
+ 
+     
+        
+        In the Matter of 
+         Arden Franklin, CPA
+     
+         
+     
+       : : : : : :   
+    
+      ORDER GRANTING APPLICATION FOR  REINSTATEMENT TO PRACTICE AN AN  ACCOUNTANT RESPONSIBLE FOR THE  PREPARATION OR REVIEW OF FINANCIAL STATEMENTS REQUIRED TO BE FILED  WITH THE COMMISSION      On April 12, 1995, Arden Franklin, CPA ("Franklin") was denied the privilege of appearing or practicing before the Commission as an accountant as a result of settled public administrative proceedings instituted by the Commission against Franklin pursuant to Rule 2(e) of the Commission's Rules of Practice.  1    This order is issued in response to his 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. 
+
+   Franklin, a certified public accountant in the state of California, was the controller of L.A. Gear from October 1986 to July 1990, and a vice president from July 1990 to April 1992.  The original order alleged that Franklin falsified and caused others to falsify L.A. Gear's books and records to report a higher gross profit margin in the company's Form 10-Q for the quarter ended February 28, 1990.  To cover the fraud and deceive L.A. Gear's independent auditors, Franklin directed the accounting staff to alter an inventory report to substantiate the journal entry concerning ending inventory.  After publication of L.A. Gear's overstated earnings, Franklin sold L.A. Gear stock at artificially inflated prices. 
+
+   In his capacity as an accountant responsible for the preparation or review of financial statements of a public company to be filed with the Commission, Franklin has undertaken to have his work reviewed by the independent audit committee of any future employer, or in some other manner acceptable to the Commission, while practicing before the Commission in this manner.  Franklin is not, at this time, seeking to practice before the Commission as an independent accountant and has represented to the Commission staff that if he should wish to resume practicing before the Commission as an independent accountant, he will 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, Franklin's suspension from practice before the Commission as an independent accountant continues in effect until the Commission determines that a sufficient showing has been made in this regard in accordance with the terms of the original suspension order. 
+
+   On the basis of information supplied, representations made, and undertakings agreed to by Franklin, it appears that Franklin has complied with the terms of the April 12, 1995 order suspending him from practice before the Commission as an accountant responsible for the preparation or review of financial statements of a public company to be filed with the Commission, 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 Franklin pursuant to Rule 102(e) of the Commission's Rules of Practice, and that Franklin's undertaking to have his work reviewed by the independent audit committee of any future employer, 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 is in the public interest.  Therefore, it is accordingly, 
+
+   ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that Arden Franklin, 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.
+
+              Jonathan G. Katz
+
+             Secretary 
+  Footnotes  
+
+   1     See Accounting and Auditing Enforcement Release No. 662, dated April 12, 1995.  Franklin was permitted, pursuant to the order, to apply for reinstatement after three years upon making certain showings.  Rule 2(e) has been recodified in its entirety as Rule 102(e).  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).   
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diff --git a/raw/aaer/2001/AAER-1388.txt b/raw/aaer/2001/AAER-1388.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4cf3f798e56ff99ef4d395f91677920f3378ffb3
--- /dev/null
+++ b/raw/aaer/2001/AAER-1388.txt
@@ -0,0 +1,1543 @@
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+              Pat A. Rossetti and Jeffrey M. Yonkers
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+              UNITED STATES OF AMERICA  Before the  SECURITIES AND EXCHANGE 
+
+      COMMISSION 
+
+      
+
+
+
+ SECURITIES EXCHANGE ACT OF 1934
+
+ Release No.  44247 / May 2, 2001 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT
+
+ Release No.  1388 / May 2, 2001 
+
+ ADMINISTRATIVE PROCEEDING
+
+ File No. 3-10354 
+
+          
+    
+        
+        In the Matter of 
+         Pat A. Rossetti, CPA
+     
+         
+     
+       : : : : : :   
+    
+      ORDER MAKING FINDINGS, IMPOSING CEASE-AND-DESIST ORDER, AND IMPOSING SANCTIONS PURSUANT TO  RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE      I. 
+
+   On October 31, 2000, the Securities and Exchange Commission ("Commission") instituted public administrative and cease-and-desist proceedings pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 102(e)(1)(ii) and (iii) of the Commission's Rules of Practice against Pat A. Rossetti ("Rossetti").  1   
+
+   Following the institution of those proceedings, Rossetti submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, Rossetti consents to the entry of this Order Making Findings, Imposing Cease-and-Desist Order, and Imposing Sanctions Pursuant to Rule 102(e) of the Commission's Rules of Practice ("Order") without admitting or denying the findings set forth herein, except as to the jurisdiction of the Commission over him and over the subject matter of these proceedings, which are admitted.   
+
+   The Commission has determined that it is appropriate to accept Rossetti's Offer and accordingly is issuing this Order. 
+
+ II. 
+
+   On the basis of this Order and the Offer, the Commission finds  2   the following: 
+
+   A. Respondent Pat A. Rossetti is a resident of North Massapequa, New York.  Rossetti became licensed as a certified public accountant in 1983 and is a member of the AICPA and the New York Association of CPAs.  In 1995 Rossetti joined Marcum & Kliegman, LLP ("M&K"), a certified public accounting firm based in Woodbury, New York, and became a contract (non-equity) partner with that firm in 1998. 
+
+ B. Detour Magazine, Inc. ("Detour") is a Colorado corporation headquartered in Los Angeles, California.  Its common stock has been registered with the Commission pursuant to Section 12(g) of the Exchange Act since 1995 and is quoted on the OTC Bulletin Board.  The company has filed periodic reports with the Commission since January 1994. 
+
+ C. In 1996 Detour hired M&K as its independent audit firm.  M&K audited and issued reports on the financial statements of Detour for the calendar years ended 1995 through 1998.  Rossetti acted as the manager on the 1997 audit and as the concurring reviewer on the 1998 audit. 
+
+ D. In the summer of 1997, Barry H. Peterson-Ross ("Ross") joined Detour as a consultant and was subsequently hired as the company's Chief Financial Officer.  One of his first tasks was the preparation of Detour's Form 10-QSB filing for the quarter ended July 31, 1997.  Detour's books and records were structured so that the company could not easily break down income and expenses by the quarter in which they were accrued, making preparation of quarterly financial statements difficult. 
+
+ E. Rather than correcting Detour's books so that actual quarterly results of the company's operations could be reported, Ross used fractions ("fractionalized financial statements") of the line item entries appearing in financial statements for the seven months ended July 31, 1997, which had been prepared for Detour's internal use.  Using this methodology, Ross prepared the financial statements included in Detour's Form 10-QSB for the quarter ended July 31, 1997 by taking 3/7ths of each line item number contained in Detour's income statement for the seven months ended July 31, 1997. 
+
+ F. Ross continued preparing fractionalized financial statements throughout 1997 following their change to a calendar year end, and these financial statements were included in Detour's quarterly reports on Form 10-QSB.  These fractionalized financial statements also appeared, for comparative purposes, in subsequent Forms 10-QSB, through and including Detour's quarter ended September 30, 1998.  In all, six of Detour's Forms 10-QSB contained fractionalized financial statements.  In addition, in or about November 1997, Detour effected a private placement of its common stock, and fractionalized financial statements were included in the private offering memorandum the company sent to potential investors in connection with that offering. 
+
+ G. Rossetti knew that Ross had included fractionalized financial statements in Detour's Form 10-QSB for the quarter ended July 31, 1997, and knew or should have known that Detour was continuing to use fractionalized financial statements in Detour's Forms 10-QSB.  In the course of conducting the audit, Rossetti failed to notify Detour's management or board of directors (other than Ross) of the illegal acts of filing fractionalized financial statements in Detour's Form 10-QSB for the quarter ended July 31, 1997, and subsequent quarters. 
+
+ H. The audited financial statements for the year ended December 31, 1997 contained in Detour's Form 10-KSB omitted to include an expense related to a 1997 transaction in which the company issued stock options to consultants. 
+
+ I. In June 1997, Detour hired an Internet public relations firm called StockPlayer.com, Inc. ("StockPlayer").  StockPlayer arranged for Detour to hire seven consultants to perform services for Detour; most of these consultants were offshore entities.  Detour paid the consultants by issuing them options to purchase a total of 2.2 million shares of Detour stock (the "consultant options").  These arrangements were memorialized by consulting agreements dated June 9, 1997, which provided, among other things, that the exercise price of the options would be $.01 a share.  The consultants exercised their options as to all the shares in 1998.  At the time the consulting agreements were signed, Detour's stock was not yet trading publicly. 
+
+ J. Within three days of granting the consultant options at an exercise price of $.01 a share, Detour granted an option for 2 million shares to another entity, Anchor Capital Management Ltd. ("Anchor"), at an exercise price of $1.50 a share. 
+
+ K. In or about November 1996 Detour effected a private placement of its common stock.  In this offering the company sold its shares for net proceeds of approximately $.70 a share. 
+
+ L. In or about November 1997 Detour effected a second private placement of its common stock at a price of $1.50 a share. 
+
+ M. On December 9, 1997, Detour's common stock began trading on the OTC Bulletin Board at $1.00 bid $1.50 ask. 
+
+ N. In its financial statements, Detour accounted for the consultant options by recording the exercise price of the consultant options, $.01 a share, but failed to record as an expense the difference between the fair value of the stock and the exercise price, as measured on the date the options were granted, as required by Generally Accepted Accounting Principles ("GAAP"). 
+
+ O. If Detour had properly recorded the consultant options transaction in conformity with GAAP, it would have recognized an expense on its statement of operations.  The amount of this expense would have been the difference between the $.01 a share exercise price and the fair value of the stock underlying the options on the date the options were issued. 
+
+ P. This expense should have been reflected in the financial statements, which were audited by Rossetti and others at M&K, and were contained in Detour's 1997 Form 10-KSB.  The expense would also have increased Detour's accumulated deficit for the year ended December 31, 1997, and subsequent years. 
+
+ Q. Rossetti knew or had reason to know that the price of the consultant options was below the fair value of the stock.  He also knew, through personal knowledge, or should have known through Detour's filings with the Commission, of the private offerings of Detour stock in 1996 at $.70 a share and 1997 at $1.50 a share.  In addition, both the Anchor option and the consulting options were disclosed in the company's 1997 Form 10-KSB and in its Form 8-K dated June 29, 1997.  The Form 8-K discusses the Anchor transaction, including the exercise price, which was characterized as having been established at $1.50 a share through arms length negotiations. 
+
+ R. In the course of the audit of Detour's December 31, 1997 financial statements, M&K obtained a copy of a consent of the board of directors, which described and approved both the consultant option and Anchor option transactions. 
+
+   S. Detour's financial statements, as audited by Rossetti and others at M&K, failed to record an expense associated with the issuance of the stock options.  Consequently, those financial statements, as contained in Detour's filings with the Commission during 1997 and 1998, materially misrepresented the company's financial condition and results of operations. 
+
+   T. Based on the conduct set forth above, the Commission finds that Respondent Rossetti has willfully violated Section 10A  3   of the 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, and has engaged in improper professional conduct. 
+
+   U. Rossetti recklessly engaged in improper professional conduct and willfully violated, or willfully aided and abetted the violation of, provisions of the Federal securities laws and rules, for purposes of Rule 102(e)(1)(ii) and (iii) respectively, of the Commission's Rules of Practice.  
+
+   V. Rossetti has submitted a sworn financial statement and other evidence and has asserted his financial inability to pay a civil penalty.   
+
+ III. 
+
+   In view of the foregoing, it is appropriate to impose the sanction agreed to in the Offer. 
+
+   Accordingly, it is hereby ordered, effective immediately, that:    
+
+   A. Rossetti cease and desist from committing or causing any violations and any future violations of Section 10A of the Exchange Act.  
+
+ B. Rossetti is denied the privilege of appearing or practicing before the Commission as an accountant.  
+
+   C. After three years from the date of this Order, Rossetti 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 application must satisfy the Commission that Rossetti's work in his practice before the Commission will be reviewed either by the independent audit committee of the 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 application must satisfy the Commission that: 
+
+       a. Rossetti, or the firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section") that includes peer review, concurring partner review, continuing professional education and other membership requirements that provide appropriate quality controls over an accounting and auditing practice, as long as he practices before the Commission as an independent accountant; 
+
+       b. Rossetti, or the firm, has received an unqualified report relating to his or the firm's most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and  
+
+       c. as long as Rossetti appears or practices before the Commission as an independent accountant he will remain either a member of or associated with a member firm of the SEC Practice Section and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education. 
+
+   D. The Commission's review of any request or application by Rossetti to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Rossetti's character, integrity, professional conduct, or qualifications to appear or practice before the Commission;  
+
+   E. That Rossetti comply with his undertaking to, on reasonable notice and without service of a subpoena, provide discovery and testify truthfully at any deposition and at any judicial or administrative proceeding arising from or relating to the matters described in this Order; and 
+
+   F. That the Division of Enforcement ("Division") may, at any time following the entry of this Order, petition the Commission to: (1) reopen this matter to consider whether Rossetti provided accurate and complete financial information at the time such representations were made; (2) determine the amount of the civil penalty to be imposed; and (3) seek any additional remedies that the Commission would be authorized to impose in this proceeding if Rossetti's Offer of Settlement had not been accepted.  No other issues shall be considered in connection with this petition other than whether the financial information provided by Rossetti was fraudulent, misleading, inaccurate or incomplete in any material respect, the amount of civil penalty to be imposed and whether any additional remedies should be imposed.  Rossetti may not, by way of defense to any such petition, contest the findings in this Order or the Commission's authority to impose any additional remedies that were available in the original proceeding.  
+
+   By the Commission.
+
+                      Jonathan G. Katz
+
+                     Secretary 
+  Footnotes  
+
+  1   Paragraph 1 of Rule 102(e) provides, in relevant part, that:  The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice and opportunity for hearing in the matter:  . . . (ii) [t]o be lacking in character or integrity or to have engaged in unethical or improper professional conduct; or (iii) [t]o have willfully violated, or willfully aided and abetted the violation of any provision of the Federal securities laws or the rules and regulations thereunder. 
+
+  2    The findings herein are made pursuant to the Offer of Settlement of Rossetti and are not binding on any other person or entity named as a respondent in this or any other proceeding. 
+
+  3   Section 10A requires auditors to take action if in the course of an audit they become aware that an illegal act may have occurred.  The statute requires them to notify the appropriate level of management of the illegal act.  In some cases, the auditor must go further and inform the board of directors, and, in certain circumstances is required to report the matter directly to the Commission.   
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diff --git a/raw/aaer/2001/AAER-1389.txt b/raw/aaer/2001/AAER-1389.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2f779f3e3c63f5f79ccf11cb467ead763ad5bde8
--- /dev/null
+++ b/raw/aaer/2001/AAER-1389.txt
@@ -0,0 +1,1533 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
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+ 
+ 
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+     
+     
+     SEC.gov | Barry C. Scutilo, CPA, Mark F. Jensen, CPA, and R. Gordon Jones, CPA 
+     
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+              Barry C. Scutilo, CPA, Mark F. Jensen, CPA, and R. Gordon Jones, CPA
+           
+     
+ 
+
+   
+
+     
+
+      
+      
+             
+        Barry C. Scutilo, CPA, Mark F. Jensen, CPA, and R. Gordon Jones, CPA
+       
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+                        
+              UNITED STATES OF AMERICA  Before the  SECURITIES AND EXCHANGE 
+
+      COMMISSION 
+
+      
+
+
+
+ SECURITIES EXCHANGE ACT OF 1934
+
+ Release No. 34-44264 / May 4, 2001 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT
+
+ Release No.  1389 / May 4, 2001 
+
+ ADMINISTRATIVE PROCEEDING
+
+ Files No. 3-9863  and 3-10210 
+ 
+     
+        
+        In the Matter of 
+         Barry C. Scutilo, CPA Mark F. Jensen, CPA, and   R. Gordon Jones, CPA Mark F. Jensen, CPA
+        Respondents.
+     
+         
+     
+       : : : : : : : : : : : :   
+    
+      OPINION AND ORDER  AGAINST MARK F. JENSEN PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE      I.  
+
+ This Opinion and Order Against Mark F. Jensen Pursuant to Rule 102(e) of the Commission's Rules of Practice is being issued with respect to two separate proceedings now pending against Mark F. Jensen ("Jensen") under Rule 102(e) of the Commission's Rules of Practice.  1    In connection with two public administrative proceedings instituted against him on April 1, 1999 and May 25, 2000, Mark F. Jensen ("Jensen") has submitted an Offer of Settlement that the Commission has determined to accept.  Solely for the purpose of these two proceedings, and without admitting or denying the allegations, facts, findings, or conclusions herein, except the jurisdiction of the Commission over him and over the matters set forth herein, which he admits, Jensen has consented to the entry of this Opinion and Order Against Mark F. Jensen Pursuant to Rule 102(e) of the Commission's Rules of Practice. 
+
+ II. 
+
+ On the basis of this Order and the Offer submitted by Jensen, the Commission finds that:  2   
+
+   In the Matter of Barry C. Scutillo, CPA, and Mark F. Jensen, CPA   
+
+  Background 
+
+  Sky Scientific, Inc. ("Sky") was at all relevant times a California corporation headquartered in Boca Raton, Florida.  Sky's common stock has been registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 since August 1990.  At all relevant times, Sky purported to be in the businesses of mining and processing precious metals and financial services. 
+
+  Mark F. Jensen is a CPA licensed in Utah.  He was a partner with the Salt Lake City, Utah, firm of Jones, Jensen & Company.  Jensen was engaged to assist in and act as concurring partner for the fiscal 1994 audit of Sky. 
+
+  Facts 
+
+  Jensen's concurring partner review in the audit of Sky's 1994 financial statements was not conducted in accordance with Generally Accepted Auditing Standards ("GAAS") and the financial statements did not comply with Generally Accepted Accounting Principles ("GAAP").  The audit was deficient with respect to: (1) the valuation of certain purported Russian certificates of deposit ("CDs") which comprised Sky's major asset; (2) the valuation of Sky's mineral properties; and (3) evaluating Sky's accounting for its issuances of restricted stock and Form S-8 stock to purported consultants.
+
+  Jensen engaged in improper professional conduct in that he recklessly violated applicable professional standards, including the exercise of due professional care.
+
+  The improper professional conduct included failure to comply with GAAS in that Jensen: failed to determine that the engagement partner had planned or performed appropriate audit procedures; maintained control over the confirmation request and response process with respect to the CDs obtained sufficient competent evidential matter concerning the validity and valuation of the CDs, the valuation of Sky's mineral properties, and the value of issuances of Sky's restricted stock and Form S-8 stock; obtained sufficient competent evidential matter concerning Sky's stockholders' equity and exercised due professional care in the performance of the audit.
+
+  The Russian CDs were listed on the balance sheet as an asset worth $40 million of Sky's total assets of $69.7 million.  Among other things, the audit relied on a facsimile confirmation purporting to be from the Russian bank which was sent to the auditors by the agent who had sold the CDs to Sky, and not the Russian bank.  Further, the auditors took insufficient steps to determine if the bank had the ability to honor the CDs, whether it complied with Russian banking regulations, and whether the selling agent had the authority to act on behalf of the bank.
+
+  Sky claimed that three of its mineral properties were assets worth $29 million.  The three properties had been acquired by Sky in exchange for preferred stock (and in one instance preferred stock and promissory notes).  Sky valued the properties at the price stated in its contracts to acquire the properties, i.e., the arbitrary value of the preferred stock and notes exchanged for the properties.  Sky, although it purported to be in the mining business had virtually no revenues.  It had no cash.  Sky instead should have recorded the properties at a reliably determinable fair value.  GAAP explains that, when the fair value of an asset received for stock may not be reliably determinable, the asset should be stated at "cost" -  i.e. , "either by the fair value of the consideration given or by the fair value of the property acquired, whichever is the more clearly evident."  However, if neither of these fair values can be determined reliably, the assigned value of the asset should be a nominal amount.  The audit failed to properly determine the fair value of the properties or the stock and notes exchanged for them. 
+
+  Finally, Sky had issued approximately 14 million shares of its common stock, both restricted and unrestricted, to compensate consultants and officers.  Under GAAP Sky should have recognized an expense equaling the difference between the price paid for the stock and the market price of the stock of between $7.8 and $10.5 million.  Sky did not do so and the auditors failed to insist that it do so.  
+
+   In the Matter of R. Gordon Jones, CPA, and Mark F. Jensen, CPA   
+
+  Background 
+
+  Dynamic American Corporation ("Dynamic") was at all relevant times a Utah corporation headquartered in Salt Lake City, Utah.  Dynamic's common stock became registered with the Commission pursuant to Section 12(g) of the Exchange Act in March 1972.  The Exchange Act registration of Dynamic's shares was revoked on November 1, 1999.
+
+  Jensen performed the concurring partner review for the audit of financials of Dynamic's financial statements for the year ending September 30, 1995.   
+
+  Facts 
+
+  Jensen engaged in improper professional conduct in that he recklessly violated applicable professional standards in performing the concurring partner review in the audit of Dynamic's financial statements for the fiscal year ended September 30, 1995.  The audit was not conducted in accordance with GAAS and the financial statements were not prepared in conformity with GAAP, contrary to the unqualified opinion issued by the principal auditor and concurrence by Jensen.
+
+  Dynamic's financial statements for the year ended September 30, 1995, were not prepared in conformity with GAAP in that Dynamic's balance sheet improperly listed as an asset certain Bolivian mining properties which were materially overvalued at $36,600,000, or 91% of Dynamic's total consolidated assets reported.  
+
+  In fiscal 1995 Dynamic entered into a contract to acquire these properties in exchange for its Class A preferred stock.  By the terms of the contract, this preferred stock was to have been converted to restricted common stock and transferred to the owner of the properties, Fernando Pero.  However, the Class A preferred stock was not converted until after the 1995 fiscal year-end, and the restricted common stock was never issued to Pero.  Thus, Dynamic should not have recorded the properties as an asset in fiscal 1995 or any other period because the conditions of the contract were never satisfied. 
+
+  Because the common stock referenced above was restricted, its value was significantly less than the value Dynamic wished to record for the Bolivian properties on its balance sheet.  Accordingly, after the fiscal 1995 year-end, Dynamic's board of directors authorized issuance of Class B preferred stock as supposed additional payment for its purchase of the properties.  Dynamic then used the arbitrary redemption value of this Class B preferred stock to assign a significant value to the properties on its 1995 financial statements, which was an improper accounting treatment under GAAP.
+
+  In performing the concurring partner review in the audit of Dynamic's 1995 financial statements, Jensen also did not act in accordance with GAAS in that prior to concurring in the issuance of an unqualified audit report by the principal auditor, he:
+
+  1) Failed to determine whether  the audit was adequately planned in that the principal auditor had not: (i) obtained an appropriate level of knowledge of Dynamic's business, and (ii) developed appropriate audit programs.
+
+  2) Failed to determine whether the principal auditor had obtained sufficient competent evidential matter concerning: (i) the valuation of the Bolivian mineral properties, and (ii) the professional reputation and independence of other auditors that performed audits of the Bolivian properties' financial statements before the properties were acquired by Dynamic.
+
+  3) Failed to maintain an attitude of professional skepticism in not noting that the principal auditor had (i) not responded to information suggesting that Dynamic's valuation of the Bolivian properties was inflated and that the acquisition of the properties was improperly recorded as a fiscal 1995 transaction, (ii) failed to question or adequately verify certain representations made by Dynamic's management; and (iii) failed to obtain a letter of representation from the other auditors of the Bolivian properties' financial statements.
+
+  4) Failed to note that the principal auditor had not exercised due professional care in the performance of the audit. 
+
+  5) Failed to note that an improperly worded audit report was issued by the engagement partner with respect to the work performed by other auditors.
+
+  6) Failed to determine whether the principal auditor had obtained sufficient competent evidential matter to determine that a proper test had been done of the present value of certain "ore concentrates" valued at approximately $4.3 million. 
+
+ III. 
+
+ Based on the foregoing, the Commission finds it appropriate and in the public interest to accept the Offer of Jensen and impose the sanctions consented to therein.  Accordingly, IT IS HEREBY ORDERED that, effective immediately,  
+
+ 1. Jensen is denied the privilege of appearing or practicing before the Commission as an accountant. 
+
+  2. After 3 years from the effective date of this order, Jensen 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) 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 Jensen'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:  (i) Jensen, or the firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section"); (ii) Jensen, or the firm, has received an unqualified report relating to his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and (iii) As long as Jensen appears or practices before the Commission as an independent accountant he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.
+
+  3. The Commission's review of an application by Jensen to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Jensen's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.   
+
+ By the Commission.
+
+            Jonathan G. Katz
+
+           Secretary 
+  Footnotes  
+
+   1     Paragraph 1 of Rule 102(e) provides, in relevant part, that:  The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice and opportunity for hearing in the matter:  . . . (ii) [t]o be lacking in character or integrity or to have engaged in unethical or improper professional conduct; or (iii) [t]o have willfully violated, or willfully aided and abetted the violation of any provision of the Federal securities laws or the rules and regulations thereunder. 
+
+   2     The findings herein are made pursuant to Jensen's offer of settlement and are not binding on any other person or entity named as a respondent in this or any other proceedings.   
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diff --git a/raw/aaer/2001/AAER-1392.txt b/raw/aaer/2001/AAER-1392.txt
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@@ -0,0 +1,1376 @@
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+       
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+              SECURITIES AND EXCHANGE COMMISSION 
+
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+
+ Litigation Release No. 16988 /May 7, 2001 
+
+ Accounting and Auditing Enforcement
+
+ Release No.  1392 / May 7, 2001 
+
+  SEC v. JERRY M. WALKER AND CRAIG R. CLARK , U.S. District Court for the District of Arizona, No. CIV-99-1737-PHX-ROS (September 27, 1999) 
+
+  SEC SETTLES CASE AGAINST FORMER
+
+CHIEF FINANCIAL OFFICER OF UNISON HEALTHCARE CORPORATION
+
+IN EARNINGS MANAGEMENT ACCOUNTING FRAUD  
+
+ The Securities and Exchange Commission today announced that on April 11, 2001, the United States District Court for the District of Arizona permanently enjoined Craig R. Clark, the former Chief Financial Officer of Unison HealthCare Corporation (later known as Raintree HealthCare Corporation), from committing securities fraud and imposed a civil penalty of $15,000.   
+
+ In its complaint, filed September 27, 1999, the Commission alleged that Clark and Jerry Walker, Unison's former Chief Executive Officer, instructed the company's former controller to make materially false adjustments to revenue and expenses by creating unsupported journal entries that, among other things, materially increased Medicare receivables and materially decreased expenses for the third quarter of 1996.  The complaint alleged that these adjustments to Unison's third quarter financial statements artificially inflated revenue by material amounts and enabled Unison to meet its own previously announced estimate of earnings for that quarter.  According to the complaint, the adjustments to revenues and to expenses enabled Unison to report positive net income of $1.2 million, or $.30 per share, rather than a loss of almost $4 million.   
+
+ The complaint alleged that Unison issued press releases announcing the falsely inflated earnings figures and included the materially false figures in its Form 10-Q filed for the third quarter of 1996.  According to the complaint, Clark knew or was reckless in not knowing that the Form 10-Q contained materially false and misleading information because Unison's financial statements included unsupported accounts receivable, revenues, and expenses.   
+
+ Clark consented, without admitting or denying the allegations in the Commission's complaint, to the entry of a final judgment permanently enjoining him from committing violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1, and enjoining him from aiding and abetting violations of Section 13(a) and Rule 13a-13.  The judgment also orders Clark to pay a $15,000 civil penalty.   
+
+ Clark, a certified public accountant, also consented to the entry of an administrative order pursuant to Rule 102(e) of the Commission's Rules of Practice, that will deny him the privilege of appearing or practicing before the Commission as an accountant, with the right to apply for readmission after three years. 
+
+ With the entry of this judgment, all the defendants in this action will have settled with the Commission.   See  Litigation Release No. 16300 (September 28, 1999).  
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diff --git a/raw/aaer/2001/AAER-1395.txt b/raw/aaer/2001/AAER-1395.txt
new file mode 100644
index 0000000000000000000000000000000000000000..56d09df869fcf4797b5b8252501faa672697aea2
--- /dev/null
+++ b/raw/aaer/2001/AAER-1395.txt
@@ -0,0 +1,1382 @@
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+              Albert J. Dunlap, Russell A. Kersh, Robert J. Gluck, Donald R. Uzzi, Lee B. Griffith, and Phillip E. Harlow
+           
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+        Albert J. Dunlap, Russell A. Kersh, Robert J. Gluck, Donald R. Uzzi, Lee B. Griffith, and Phillip E. Harlow
+       
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+              SECURITIES AND EXCHANGE COMMISSION 
+
+
+
+ Litigation Release No. 17001 / May 15, 2001
+
+ Accounting and Auditing Enforcement Release No. 1395 / May 15, 2001 
+
+  Securities and Exchange Commission v. Albert J. Dunlap, Russell A. Kersh, Robert J. Gluck, Donald R. Uzzi, Lee B. Griffith, and Phillip E. Harlow , 01-8437-CIV-DIMITROULEAS (S.D. Fla., May 15, 2001).  
+
+  In the Matter of Sunbeam Corporation ,  Securities Act Release No. 7976; Accounting and Auditing Enforcement Release No. 1393 (May 15, 2001) 
+
+  In the Matter of David C. Fannin , Securities Act Release No. 7977; Accounting and Auditing Enforcement Release No. 1394 (May 15, 2001) 
+
+  SEC Sues Former Top Officers of Sunbeam Corporation and Arthur Andersen Auditor in Connection with Massive Financial Fraud  
+
+ The Securities and Exchange Commission today filed a civil injunctive action in U.S. District Court in Miami ,  Florida ,  against five former officers of Sunbeam Corporation and the former engagement partner on the Arthur Andersen LLP audits of Sunbeam's financial statements.  The Commission alleges that the Defendants engaged in a scheme to fraudulently misrepresent the Company's results of operations in connection with a purported "turnaround" of the Company.  When Sunbeam's "turnaround" was exposed as a sham, the stock price plummeted, causing investors billions of dollars in losses.  The defendants are: Sunbeam's former CEO and chairman Albert J. Dunlap; former principal financial officer Russell A. Kersh; former controller Robert J. Gluck, former vice-presidents Donald R. Uzzi, and Lee B. Griffith, and Arthur Andersen LLP partner Phillip Harlow. 
+
+ According to the Commission's Complaint: 
+     Dunlap, a turnaround specialist, was hired by Sunbeam's Board in July 1996 to restructure the financially ailing Company.  Dunlap placed Kersh in charge of Sunbeam's finance organization.  Soon after their arrival, Dunlap and Kersh promised a rapid turnaround to enable Sunbeam to substantially improve its financial performance.  Together with Sunbeam senior executives Gluck, Uzzi, and Griffith, they then employed improper accounting techniques and undisclosed non-recurring transactions to meet promised sales and earnings figures.  As a result, Sunbeam's financial statements and press releases reporting 1996 year-end results, quarterly and year-end 1997 results, and first-quarter 1998 results were materially false and misleading.    These actions inflated the price of Sunbeam shares to a high of $52 per share in March 1998.  If the Company had been sold at an inflated share price, Dunlap and Kersh could have reaped tens of millions of dollars from the sale of their Sunbeam securities.  
+
+       The illegal conduct began at year-end 1996 with the creation by Kersh and Gluck of inappropriate accounting reserves, which increased Sunbeam's reported loss for 1996.  These  "cookie-jar" reserves were then used to inflate income in 1997, thus contributing to the false picture of a rapid turnaround.  In addition, to further boost income in 1997, and to create the impression that Sunbeam was experiencing significant revenue growth, Dunlap, Kersh, Gluck, Uzzi, and Griffith ("the Sunbeam officers") caused the Company to recognize revenue for sales that did not meet applicable accounting rules.  As a result, for fiscal 1997, at least $60 million of Sunbeam's reported (record-setting) $189 million in earnings from continuing operations before income taxes ("income") came from accounting fraud.
+
+       Also in 1997, the Sunbeam officers failed to disclose that Sunbeam's 1997 revenue growth was, in part, achieved at the expense of future results.  The Company had offered discounts and other inducements to customers to sell merchandise immediately that otherwise would have been sold in later periods, a practice also known as "channel stuffing."  The resulting revenue shift threatened to suppress Sunbeam's future results of operations.  
+
+       Phillip E. Harlow, a partner at Arthur Andersen, Sunbeam's outside auditing firm, authorized unqualified audit opinions on Sunbeam's 1996 and 1997 financial statements although he was aware of many of the Company's accounting improprieties and disclosure failures.  These opinions were false and misleading in that, among other things, they incorrectly stated that Andersen had conducted an audit in accordance with generally accepted auditing standards, and that the Company's financial statements fairly represented Sunbeam's results and were prepared in accordance with generally accepted accounting principles.
+
+       The above-described earnings management did not lead to a sale of the Company by year-end 1997.  At the same time, Sunbeam's improper accounting and channel stuffing in 1997 created the prospect of diminished results in 1998.  In early 1998, the Sunbeam officers named as defendants took increasingly desperate measures to conceal the Company's mounting financial problems, meanwhile attempting to finance the acquisition of three other companies, in part through a bond offering.  The Sunbeam officers again engaged in, and recognized revenue for, sales that did not meet the applicable accounting rules; again caused Sunbeam to engage in acceleration of sales revenue from later periods; deleted certain corporate records to conceal pending returns of merchandise; and misrepresented the Company's performance and future prospects in its filing on Form 10-Q for the first quarter of 1998, its offering materials in connection with the bond offering, its press releases, and its communications with analysts.
+
+       In June 1998, negative statements in the press about the quality of the Company's earnings prompted Sunbeam's Board of Directors to begin an internal investigation.  This resulted in the termination of Dunlap, Kersh and other members of Company management and, eventually, to an extensive restatement of Sunbeam's financial statements from the fourth quarter of 1996 through the first quarter of 1998.  Sunbeam is presently in a reorganization proceeding under Chapter 11 of the U. S. Bankruptcy Code.
+   According to the Commission's Complaint, through this conduct, Dunlap and Kersh, personally and as controlling persons within the meaning of Section 20(a) of the Securities Exchange Act of 1934 ("Exchange Act"), and Gluck and Griffith violated or aided and abetted violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and (with the exception of Dunlap) 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2 thereunder; and Uzzi   and Harlow violated or aided and abetted violations of all of the above provisions except Exchange Act Rule 13b2-2.  The Commission seeks, as to all defendants, permanent injunctions against future violations of the above provisions of the securities laws and civil penalties and, in the case of Dunlap, Kersh, Gluck, and Uzzi, permanent bars from acting as an officer or director of any public company;  
+
+   In a related matter, the Commission filed an administrative proceeding against Sunbeam Corporation, based in part on allegations that Sunbeam's filings with the Commission were materially false and misleading from the fourth quarter of 1996 through the first quarter of 1998.  Without admitting or denying the allegations in the Order Instituting Proceedings, Sunbeam consented to the entry of a cease-and-desist order prohibiting future violations of Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder.   
+
+   In another related matter, the Commission filed a settled administrative action against David C. Fannin, former Executive Vice President, General Counsel and Secretary of Sunbeam, based on allegations that Fannin participated in the drafting of certain Sunbeam press releases in early 1998 that presented a misleading picture of the Company's results of operations.  Without admitting or denying the Commission's allegations, Fannin consented to the entry of a cease- and-desist order prohibiting future violations of Section 17(a)(3) of the Securities Act.  
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diff --git a/raw/aaer/2001/AAER-1396.txt b/raw/aaer/2001/AAER-1396.txt
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+              SECURITIES AND EXCHANGE COMMISSION 
+  Litigation Release No.   17002 / May 15, 2001  
+  Accounting and Auditing Enforcement Release No. 1396 / May 15, 2001  
+  SEC CHARGES FINANCIAL REPORTING FRAUD AGAINST FORMER CHAIRMAN AND PRESIDENT OF MANHATTAN BAGEL SUBSIDIARY  
+ AND THREE OTHER INDIVIDUALS WHO AIDED FRAUDULENT SCHEME  
+  SEC V. ALLAN BOREN, ET AL., C.D. CALIF. Cv01-04377DDP(EX)  
+     The Commission announced today that it has brought securities fraud charges against two former senior officers of I&J Bagel, Inc. ("I&J"), a wholly owned subsidiary of Manhattan Bagel, Inc. ("Manhattan Bagel" or the "Company"), which during the relevant period, manufactured and distributed bagel dough and cream cheese products to a network of 220 franchised, licensed and Company-owned bagel bakery stores operating in 15 states and Canada.  The Complaint charges three other individuals, employees of purported customers of I&J, with aiding and abetting the fraudulent scheme. 
+     The Complaint alleges that: 
+   In 1995 and 1996, I&J's Chairman of the Board, Allan Boren ("Boren"), and its president, Eric Cano ("Cano"), orchestrated a scheme to inflate the Company's net income by recording fictitious sales, overstating franchise fee and other revenues and understating certain expenses on I&J's books.  The overall effect was to overstate Manhattan Bagel's consolidated net income before taxes by 15 percent in the year ended December 31, 1995 and 23 percent in the first quarter of 1996.  Boren's brother, Phillip Borini ("Borini"), implemented the fraud by (i) procuring false confirmations for the Company's auditors with respect to the fictitious sales, and (ii) making payments against the fictitious bagel sales using money provided by Boren.  Corrine Davies ("Davies") and Timothy Tuttle ("Tuttle"), employees of purported customers of I&J, aided and abetted the fraudulent scheme by, among other things, falsely confirming to the Company's auditors that their employers had purchased tens of thousands of bagels and related products in 1995 that they had, in fact, never purchased. 
+   After the close of business on June 20, 1996, Manhattan Bagel announced that it had uncovered certain accounting irregularities and that, as a result, it planned to restate net income for the first quarter of 1996 (the "June 20 Announcement").   On June 21, 1996, the price of Manhattan Bagel common stock fell approximately 35%, decreasing from $21.25 to $13.75 on record volume.  Prior to the June 20 Announcement, Boren and Cano sold their Manhattan Bagel common stock at a price inflated by the fraudulent scheme.  As a result, Boren and Cano directly benefited from the scheme, with Boren deriving ill-gotten gains of approximately $10 million, and Cano deriving ill-gotten gains of about $2.8 million.   
+   The specific violations alleged against the five defendants are as follows:   
+ (a) Boren:  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 and 13b2-1, and aiding and abetting liability, pursuant to Section 20(f) of the Exchange Act, for Manhattan Bagel's violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13. 
+ (b) Cano:  Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1, and aiding and abetting liability, pursuant to Section 20(f) of the Exchange Act, for Manhattan Bagel's violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13. 
+ (c) Borini:  Sections 10(b) of the Exchange Act and Rule 10b-5, and aiding and abetting liability, pursuant to Section 20(f) of the Exchange Act, for (i) Boren's and Cano's violations of Sections 10(b) and 13(b)(5) and Rules 10b-5 and 13b2-1, and (ii) Manhattan Bagel's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13. 
+ (d) Davies and Tuttle:  Aiding and abetting liability, pursuant to Section 20(f) of the Exchange Act, for (i) Boren's and Cano's violations of Sections 10(b) and 13(b)(5) and Rules 10b-5 and 13b2-1, and (ii) Manhattan Bagel's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13. 
+   The Complaint seeks civil penalties and injunctive relief against all defendants, disgorgement of ill-gotten gains plus prejudgment interest from Boren and Cano and officer and director bars against Boren and Cano.   The litigation is pending in the United States District Court for the Central District of California. 
+   The Commission acknowledges the United States Attorney's Office for the Central District of California for its assistance in this investigation. 
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diff --git a/raw/aaer/2001/AAER-1397.txt b/raw/aaer/2001/AAER-1397.txt
new file mode 100644
index 0000000000000000000000000000000000000000..08145b8fd23885fa8a26d439e81b0728aa96c0de
--- /dev/null
+++ b/raw/aaer/2001/AAER-1397.txt
@@ -0,0 +1,1553 @@
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+              Microtest, Inc.
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+        Microtest, Inc.
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+              UNITED STATES OF AMERICA  Before the  SECURITIES AND EXCHANGE 
+
+      COMMISSION 
+
+      
+
+
+
+ SECURITIES EXCHANGE ACT OF 1934
+
+ Release No.  44308 / May 16, 2001            
+
+ ACCOUNTING AND AUDITING ENFORCEMENT
+
+ Release No.  1397 / May 16, 2001         
+
+ ADMINISTRATIVE PROCEEDING
+
+ File No.  3-10483
+  
+     
+        
+        In the Matter of 
+         MICROTEST, INC., 
+        Respondent.
+     
+         
+     
+       : : : : : : : :   
+    
+      ORDER INSTITUTING PUBLIC  PROCEEDINGS PURSUANT TO  SECTION 21C OF THE SECURITIES  EXCHANGE ACT OF1934, MAKING  FINDINGS AND IMPOSING A  CEASE-AND-DESIST ORDER       I.  
+
+     The Securities and Exchange Commission ("Commission") deems it appropriate that public proceedings be instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") to determine whether Microtest, Inc. ("Microtest" or "Respondent") violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder. 
+
+  II.  
+
+     In anticipation of the institution of these proceedings, Microtest has submitted an Offer of Settlement ("Offer") that the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, Microtest, by its Offer, without admitting or denying the Commission's findings contained in this Order Instituting Public Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order (the "Order"), except that it admits to the Commission's jurisdiction over it and over the subject matter of this proceeding, consents to the entry of this Order. 
+
+  III.  
+
+     The Commission's Order finds that: 
+
+      Respondent  
+
+     Microtest is a Delaware corporation with its principal place of business in Phoenix, Arizona.  Microtest develops, engineers and markets a variety of hardware and software tools for troubleshooting, managing and enhancing computer network performance.  Microtest reported revenues of $52.5 million in its 1995 fiscal year and $50.4 million in its 1996 fiscal year.  1    Microtest's stock is quoted on the NASDAQ and is registered with the Commission pursuant to Section 12(g) of the Exchange Act. 
+
+  IV.  
+
+  FACTS  
+
+      A. Summary  
+
+     In order to meet revenue goals at the end of the third fiscal quarter of 1995, Microtest entered into sales agreements with five of its distributors that included liberal payment and return privileges that were different from the terms that Microtest previously had included in sales agreements with its distributors.  Microtest violated generally accepted accounting principles ("GAAP") by improperly recognizing the revenue from these sales in its third quarter and year-end 1995 financial results because it could not reasonably estimate and provide a reserve for future returns of product.  As a result of the improper recognition of revenue from these transactions, Microtest reported materially inaccurate financial results in periodic reports filed with the Commission for the third quarter of 1995 and for the 1995 fiscal year.   
+
+ In 1996, Microtest instituted a direct sales program in which the buyers entered into the transactions with Microtest "at absolutely no risk with a 30 day money back guarantee."  Microtest also represented to the buyer that it could "send no money now but agree to pay this amount in 30 days from the above date if [it] decided to keep the product."  On these transactions, Microtest improperly recognized revenue at the time of shipment rather than at the end of the 30-day period.  This improper accounting was discovered during the audit of Microtest's 1996 financial statements, and Microtest restated its net income for the second and third quarters of 1996 by 25% and 31%, respectively. 
+
+ Finally, Microtest's reported net income and revenue for the first three quarters of 1998 were overstated by $926,000 and $380,000, respectively, due to inaccurate books and records and a failure of internal accounting controls.  Microtest restated its financial statements for those three accounting periods.
+
+   
+
+    B. 1995 Channel Sales to Distributors  
+
+ The market for Microtest's products is characterized by rapidly changing technology, short product life cycles and evolving industry standards.  Through the last several months of 1994 and into early 1995, the demand for certain Microtest products exceeded the supply and Microtest had no problem selling its available inventory.  By mid-1995, however, additional competition and increased market saturation made it more difficult for Microtest to attain its targeted revenues.  As a result, in order to attain the goals set by Microtest's operating plan, which were not materially different than the market estimates, Microtest made sales to certain customers during the third quarter of 1995 under abnormal terms.  For example, Microtest was only able to obtain sales from two of its largest distributors, Anixter Bros., Inc. ("Anixter") and Graybar Electric Company, Inc. ("Graybar"), by granting extended payment periods and rights of return, which were characterized by Microtest as "stock rotation" rights.  2   
+
+ The end-of-quarter sales to Anixter and Graybar totaled $3,129,000, or 20.6 percent of third quarter revenue.  The invoices for these sales included liberal payment terms and rights of return that were different from any terms that Microtest previously had in its agreements with these customers.  For example, Microtest gave Anixter 150-day payment terms, in contrast to Anixter's standard 45-day payment terms.  Microtest also granted to Anixter stock rotation rights up to $200,000 for the first quarter of 1996 and 10% of the remaining balance for the next three quarters of 1996; these rights were in addition to Anixter's normal 10% stock rotation rights.  Anixter also was given the right to return less marketable or obsolete products, due to new or improved Microtest products, within 12 months of the date of purchase.  Microtest granted Graybar extended payment terms of 120 days, plus an additional 90 days for inventory unsold at the end of the 120-day period, and Microtest agreed to accept the return of additional products that Graybar had purchased from Microtest in a previous accounting period.  All of these terms were departures from Microtest's previous agreements with Anixter and Graybar. 
+
+ Microtest also signed distributor agreements with three new parties late in the third quarter of 1995. The initial sales to these three customers, Globelle, MicroAge, and GBC Technologies, Inc. ("GBC"), totaled $885,000 or 5.8 percent of third quarter revenue.  The terms of these agreements also were unusually liberal, and allowed for payment terms of 90 to 210 days and the right to return up to 100% of the initial orders in exchange for other products within either 180 days or for an unlimited period of time depending upon the customer.  Microtest's chief financial officer approved all of the terms of sale to Anixter, Graybar, and the three new distributors that included these extensive return privileges and other non-standard sales incentives.  Both the company's chief financial officer and its controller approved the recognition of revenue from these sales for the third quarter of 1995 despite these terms, and despite the company's inability to reasonably estimate and create a reserve for future returns of product.      
+
+ At the time of these sales, both Anixter and Graybar already had sufficient inventory of Microtest products to cover their needs for a significant period of time.  Anixter and Graybar's incentive to take the Microtest product in the third quarter of 1995 was simple: Microtest granted them liberal rights of return and unusual payment terms.  As a result of taking the additional inventory at the end of the third quarter, both Anixter and Graybar had sufficient inventory for many months and did not place another order for Microtest products until the second quarter of 1996.   
+
+ Microtest's sales to these five customers at the end of the third quarter in 1995 totaled $4,014,000, or 26.5 percent of $15,174,000 third quarter revenues.  For all five distributors, Microtest lacked the ability to estimate and reserve for returns.  As to Anixter and Graybar, it could not estimate returns because it had changed the terms upon which it did business with these two companies.  Due to Microtest's lack of experience with the new terms granted to these two distributors, it was unable to estimate and reserve for potential returns both at the end of the third quarter of 1995 and at year-end.  Similarly, Microtest could not estimate the amount of returns on sales to the three new distributors because it lacked any historical sales experience with those customers and the sales to them included extended payment terms and rights of return.  Because of the inability to estimate and reserve for potential returns, Microtest improperly recognized revenue on the sales that the company made pursuant to those terms in the third quarter of 1995 and at Microtest's 1995 fiscal year-end.   
+
+    C.  1996 Direct Sales  
+
+ In 1996, Microtest created a direct sales program, which used a telephone sales force to market certain products.  The terms listed on the sales order form indicated that these sales were made "at absolutely no risk with a 30 day money back guarantee."  Microtest also represented to the buyer that it could "send no money now but agree to pay this amount in 30 days from the above date when [it decides] to keep the product."  Despite these terms, during the second and third quarters of 1996 Microtest improperly recognized revenue when the product was shipped rather than at the end of the 30-day period.  Microtest's controller approved the recognition of revenue at the date of shipment.  This improper accounting was discovered during the audit of Microtest's 1996 financial statements.  As a result, Microtest restated its net income for the second quarter of 1996 from $1.316 million to $982,000, a difference of 25 percent, and its net income for the third quarter of 1996 from $1.435 million to $991,000, a 31 percent reduction.  Microtest restated its revenue for the second quarter of 1996 from $13.32 million to $12.666 million, a difference of 5 percent, and its revenue for the third quarter of 1996 from $13.007 million to $12.136 million, a 7 percent reduction. 
+
+    D.        1998 Accounting Errors   
+
+     During Microtest's 1998 fiscal year end audit, Deloitte & Touche LLP, the company's independent accounting firm, identified a variety of books and records and internal control problems at the company.  These problems included erroneous journal entry postings, lack of timely reconciliations of certain account balances, and accounting system interface problems.  In order to correct these errors, Microtest restated its earnings for the first three quarters of 1998.  Among other   items, the restatement adjustments resulted in an increase in the sales return reserve and also an increase in research and development expenses to correct for costs which had been erroneously capitalized.  The restatement reduced reported revenue for the first three quarters by $380,000 and reduced net income by $926,000, or 84 percent. 
+
+  V.  
+
+  LEGAL DISCUSSION  
+
+      A. Violations of Section 13(a) and Rules 12b-20, 13a-1, and 13a-13   
+
+     Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require issuers of registered securities to file with the Commission factually accurate annual and quarterly reports.   SEC v. Savoy Indus. , 587 F.2d 1149, 1165 (D.C. Cir. 1978).  Rule 12b-20 requires that periodic reports filed with the Commission contain all such further material information as is necessary to make the required statements not misleading.  Financial statements incorporated in Commission filings must comply with Regulation S-X, which in turn requires conformity with GAAP.  The filing of a periodic report containing inaccurate information constitutes a violation of these regulations.   See   Savoy Indus. , 587 F.2d at 1165. 
+
+ Microtest filed materially inaccurate reports for the third quarter and fiscal year 1995.  In the third quarter report, it overstated revenue by $4,014,000, or 26.5 percent of the quarter's total stated revenue.  It was improper to recognize this revenue at that time and at year-end 1995 because the amount of future returns on certain sales transactions could not be reasonably estimated due to the extended return privileges and other non-standard sales incentives Microtest granted to its vendors.  The revenue recognition for these transactions was not in accordance with the GAAP requirements set out in the Statement of Financial Accounting Standards ("SFAS") No. 48, "Revenue Recognition When the Right of Return Exists."  
+
+ When rights of return become part of a sales transaction, certain criteria must be met for a company to properly recognize revenue pursuant to GAAP.  SFAS No. 48 requires that in order to recognize revenue at the point of sale when the buyer has a return privilege, the amount of future returns must be reasonably estimable by the seller company.  A company's ability to estimate the amount of future returns depends on many factors.  As stated in SFAS 48, paragraph 8: 
+
+        [t]he following factors may impair [a company's] ability to make a reasonable estimate: (a) The susceptibility of the product to significant external factors, such as technological obsolescence or changes in demand; (b) Relatively long periods in which a particular product may be returned; and (c) Absence of historical experience with similar types of sales of similar products, or inability to apply such experience because of changing circumstances, for example, changes in the selling enterprise's marketing policies or relationships with its customers . . .   
+
+  Microtest's products were facing increasing competition and were subject to technological obsolescence.  Microtest also granted these distributors payment terms of 90 to 210 days, well in excess of Microtest's standard 30-day or 45-day payment terms.  Moreover, for sales to the three new distributors, Microtest did not have any historical experience or sales experience relating to product returns.  These circumstances were factors that rendered Microtest unable to reasonably estimate and reserve for returns and, therefore, Microtest improperly recognized revenue from these transactions in the third quarter of 1995.  As for Graybar and Anixter, given the abnormal payment terms and extensive return rights that Microtest granted to these existing distributors, Microtest could not apply its historical sales experience with these distributors to reasonably estimate for likely returns and to provide an appropriate reserve.   
+
+ Moreover, and specifically with respect to the sales made to Graybar, SFAS 48 also provides that revenue should not be recognized until the buyer is obligated to pay the seller, and the obligation must not be contingent on resale of the product.  Although Graybar was ultimately obligated to pay for the products, payment was deferred to allow Graybar time to resell the product.  Considering the circumstances surrounding the sale, including the timing of the sale, negotiations between Microtest and Graybar, and Graybar's high level of Microtest inventory at the time of the transaction, this transaction was, in effect, a quasi-consignment sale, and, on this basis as well, Microtest should not have recognized revenue from these sales in the third quarter of 1995.  
+
+ Finally, the "stock rotation" rights that Microtest granted to all five distributors in 1995 constituted rights of return.  Therefore, Microtest had to meet all the requirements of SFAS 48 in order to recognize revenue on these sales.  Only "exchanges by  ultimate customers  of one item for another of the  same kind, quality and price " do not constitute a return within the meaning of SFAS 48 [emphasis added].  Microtest's arrangements with its distributors in 1995 did not qualify as that type of exchange because the distributors in this case were not the ultimate customers and there were no restrictions on the kind, quality, or price of the products that the distributors had to purchase in any offsetting order.   
+
+ By recognizing the revenue from sales to these five distributors in its 1995 Form 10-Q, Microtest violated Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.  Microtest was still not in a position to reasonably estimate future returns or recognize the revenue for these same five customers when it filed with the Commission its annual report on Form 10-K for fiscal year 1995.  By recognizing this revenue in its annual report, Microtest filed a materially inaccurate annual report and violated Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. 
+
+     In addition, Microtest improperly recognized revenue during 1996 from its direct sales program.  Under this program, until 30 days had expired from the date of shipment, the customer had the right to return the product, bore no risk of loss, was not obligated to pay for the product, and Microtest received no payment from the transaction.  In such circumstances, the recognition of revenue on the date of shipment violated GAAP.  Thus, by recognizing such revenue based on the shipping 
+date in its 1996 second and third quarter reports, Microtest violated Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder. 
+
+     Finally, Microtest violated Section 13(a) of the Exchange Act and Rules 12b-20 and   13a-13 thereunder in connection with its first, second, and third quarter 1998 earnings.  At    year-end 1998, it restated its earnings for the first three quarters of 1998 to correct for errors identified during the 1998 year-end audit process.  These material errors arose largely as a result of improper entries made to Microtest's general ledger.    The restatement reduced reported revenue for the first three quarters by $380,000 and reduced net income by $926,000, or 84 percent. 
+
+      B. Violations of Section 13(b)(2)(A) and (B)  
+
+     Section 13(b)(2)(A) of the Exchange Act requires issuers that are registered with the Commission to make and keep books, records and accounts that accurately reflect the transactions and disposition of their assets.  Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurance that, among other things, transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability of assets.  Microtest failed to make and keep books and records that accurately reflected its transactions and failed to maintain a system of internal accounting controls sufficient to provide assurances that transactions, such as purchase orders, were recorded as necessary to permit the proper preparation of financial statements in conformity with GAAP.  Specifically, Microtest: (1) improperly recorded as revenue over four million dollars in sales transactions in the third quarter of 1995 and at year-end 1995; (2) improperly recorded revenue for sales made through its direct sales department in the second and third quarters of 1996; and (3) materially misstated its financial statements in the first three quarters of 1998.  Therefore, Microtest committed violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. 
+
+  VI.  
+
+  FINDINGS  
+
+     Based on the foregoing, the Commission finds that Microtest violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder. 
+
+  VII.  
+
+  ORDER  
+
+     Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that: 
+
+     Microtest CEASE AND DESIST from committing or causing any violation and any future violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder. 
+
+ By the Commission.
+
+                  __________________________
+
+                 Jonathan G. Katz
+
+                 Secretary 
+  Footnotes  
+  1    Microtest's fiscal year ends on December 31. 
+
+   2     Microtest's revenue recognition policy defines stock rotation as "the contractual obligation by Microtest to accept a contractual percentage of the prior quarter's product in return for the equivalent dollar amount of new    orders placed."  In other words, customers could return product to Microtest in exchange for another order of the same dollar amount.   
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diff --git a/raw/aaer/2001/AAER-1398.txt b/raw/aaer/2001/AAER-1398.txt
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--- /dev/null
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@@ -0,0 +1,1372 @@
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+ LITIGATION RELEASE NO. 17016 \ May 23, 2001
+
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ RELEASE NO. 1398 \ May 23, 2001    
+
+   Securities and Exchange Commission v. Walter K¶nigseder , Civil Action No. C-00-3668 (MJJ) (N.D. Cal. May 17, 2001)
+
+  COURT ENTERS DEFAULT JUDGMENT AND PERMANENTLY ENJOINS FORMER INFORMIX CORPORATION SENIOR MANAGER FROM VIOLATING ANTIFRAUD AND OTHER PROVISIONS
+
+  The United States District Court for the Northern District of California, on May 17, 2001, entered a default judgment and a final permanent injunction enjoining Walter K¶nigseder ("K¶nigseder"), formerly a Vice President of Informix Corporation ("Informix" or "Company") from violating or aiding and abetting violations of antifraud, reporting, record-keeping, and internal control provisions of the Securities Exchange Act of 1934 ("Exchange Act").  The Court granted the Securities and Exchange Commission ("Commission") all of the relief that the Commission sought in its October 5, 2000 Complaint against K¶nigseder.
+
+  According to the Complaint, K¶nigseder approved and ratified secret side letter agreements in connection with software license sales contracts that made revenue recognition on those contracts improper, and he approved and signed a purported contract that mischaracterized the underlying transaction so that revenue could be recognized prematurely.  To inflate revenues and earnings further, K¶nigseder directed the Company to enter into a phony software license sales contract.  According to the Complaint, K¶nigseder's misconduct caused the Company improperly to recognize approximately $25.5 million of revenue on six transactions and thus aided and abetted the Company's material overstatement of revenues and earnings for 1996 and the final three quarters of that year.  K¶nigseder subsequently signed a statement in which he lied about his knowledge of, and involvement in, the transactions for which revenue was recognized improperly.
+
+  K¶nigseder is a citizen and resident of Germany.  The Commission served him in Germany pursuant to the Hague Convention.  When K¶nigseder thereafter failed to respond to the Commission's Complaint, the Court entered the default judgment and the final permanent injunction enjoining K¶nigseder from violating, or aiding and abetting violations of, sections 10(b), 13(a), 13(b)(2), and 13(b)(5) of the Exchange Act and Exchange Act rules 10b-5, 12b-20, 13a-1, 13a-13, and 13b2-1.
+
+  Previously, the Commission instituted and simultaneously settled an administrative proceeding against Informix.  Informix Corp., Admin. Proc. No. 3-10130; SA Rel. No. 33-7788; SEA Rel. No. 34-42326; AAE Rel. No. 1215 (Jan. 11, 2000).
+
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diff --git a/raw/aaer/2001/AAER-1402.txt b/raw/aaer/2001/AAER-1402.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5d930855bae8f2605d4080ca0f41ddbffcbc57fe
--- /dev/null
+++ b/raw/aaer/2001/AAER-1402.txt
@@ -0,0 +1,1545 @@
+
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+     
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+ 
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+     SEC.gov | James M. Cassidy and TPG Capital Corporation 
+     
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+     
+     
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+           
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+        James M. Cassidy and TPG Capital Corporation
+       
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+                        
+              UNITED STATES OF AMERICA  Before the  SECURITIES AND EXCHANGE 
+
+      COMMISSION 
+
+      
+
+
+
+ SECURITIES EXCHANGE ACT OF 1934
+
+ Release No.  44388 / June 4, 2001 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+
+ Release No. 1402 / June 4, 2001 
+
+ ADMINISTRATIVE PROCEEDING 
+
+ File No. 3-10502  
+ 
+     
+        
+        In the Matter of 
+         JAMES M. CASSIDY and
+       TPG CAPITAL CORPORATION,           
+        Respondents.
+     
+         
+     
+       : : : : : : : : :   
+    
+      ORDER INSTITUTING 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 public administrative proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") to determine whether James M. Cassidy ("Cassidy") and TPG Capital Corporation ("TPG Capital") (together, Cassidy and TPG Capital are hereinafter referred to as the "Respondents") violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and caused violations of Section 13(a) of the Exchange Act and Rules 13a-13 and 12b-20 thereunder. 
+
+ II. 
+
+   In anticipation of the institution of these administrative proceedings, Cassidy and TPG Capital have submitted Offers of Settlement that the Commission has determined to accept.  Solely for the purposes of this proceeding and any other proceeding brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the findings contained herein, except that Respondents admit the jurisdiction of the Commission over them and over the subject matter of this proceeding, Cassidy and TPG Capital consent to the entry of this Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order ("Order").  The Commission has determined that it is appropriate to accept the Offer and accordingly is issuing this Order.  
+
+   
+
+ III. 
+
+   Based on the foregoing, the Commission finds that: 
+
+   A.  Respondents  
+
+    James M. Cassidy , age 65, is the sole officer and controlling shareholder of TPG Capital Corporation.  He is a resident of Washington, DC. 
+
+  TPG Capital Corporation  is a private company headquartered in Washington, D.C.  Cassidy is TPG Capital's sole officer and its controlling shareholder.  From 1999 through 2000, TPG Capital assisted companies to become reporting companies by arranging for the companies to acquire public blank check corporations that TPG Capital controlled. 
+
+   B.  Background  
+
+ In January 1999, the National Association of Securities Dealers ("NASD") issued an "eligibility rule" requiring all companies that displayed their stock quotations on the NASD's over the counter bulletin board ("bulletin board") to file periodic reports, including financial statements, with the Commission by June 2000.  1     The rule provided that companies that did not meet the deadline would be removed from the bulletin board.  One means for bulletin board companies to meet the requirements before the deadline was by acquiring registered "blank check"  2   companies and inheriting their status as reporting companies.  These newly formed companies were not required to file financial statements until 75 days after they consummated mergers.  However, if an acquisition had occurred or was probable when the blank check company filed its registration statement, then the blank check company was required to file the target company's financial statements at the time of registration.  
+
+ From around August 1999 until at least February 2000, the Respondents arranged reverse mergers between reporting companies that they controlled and issuers that might not otherwise satisfy the eligibility rule.  The Respondents then arranged reverse mergers with issuers that faced possible delisting.  The target companies paid TPG Capital a substantial fee for each transaction, and in some cases provided the Respondents with warrants to purchase shares of their stock.  In the course of providing these services, the Respondents repeatedly made false or misleading disclosures in documents filed with the Commission.  Between May 26, 1999 and November 18, 1999, the Respondents filed amended registration statements for five blank check companies ("the blank check companies") that falsely stated that the companies had not engaged in negotiations with specific entities regarding a possible business combination.  Three of these companies also filed periodic reports falsely stating that they had not engaged in merger negotiations.  The Respondents thereby violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and caused the blank check companies to violate Section 13(a) of the Exchange Act and Rules 13a-13 and 12b-20 thereunder. 
+
+   C.  Respondents Made False and Misleading Statements in Registration Statements  
+
+     1.  Aterian Corporation  
+
+ On June 17, 1999, Aterian Corporation ("Aterian") filed a registration statement on Form 10-SB with the Commission.  Cassidy drafted the Form 10-SB and signed it as Aterian's President and Director.  Aterian's Form 10-SB registration was effective on August 16, 1999.  On October 25, 1999, the Respondents provided Gourmet's Choice Coffee Company, Inc. ("Gourmet's Choice"), a company whose securities were listed on the bulletin board, with a document entitled "Agreement to Provide a Reporting Company" and a draft of a plan of merger between Aterian and Gourmet's Choice.  On November 2, 1999, the Respondents sent Gourmet's Choice a draft of a stock-for-stock exchange agreement.  On November 3, 1999, Gourmet's Choice paid a substantial fee to TPG Capital.  On November 4, 1999, Aterian filed an Amended Form 10-SB.  Cassidy drafted the Amended Form 10-SB and signed it as Aterian's President and Director.  In the Amended Form 10-SB, Aterian falsely stated that Aterian "has not engaged in any negotiations with any specific entity regarding the possibility of a business combination," and that Aterian "has no current arrangement, agreement or understanding with respect to engaging in a business combination with a specific entity."  On November 22, 1999, Aterian and Gourmet's Choice executed a reorganization agreement.  On November 29, 1999, Aterian and Gourmet's Choice closed the reverse merger. 
+
+     2.  Forestay Corporation  
+
+ On June 17, 1999, Forestay Corporation (" Forestay") filed a registration statement on Form 10-SB with the Commission.  Cassidy drafted the Form 10-SB and signed it as Forestay's President and Director.  Forestay's Form 10-SB registration was effective on August 16, 1999.  On November 5, 1999, the Respondents provided Milinx Business Group, Inc., ("Milinx") with a sample agreement that identified Forestay as the blank check company that would merge with Milinx.  At that time, Milinx had no securities listed on the bulletin board or elsewhere.  On November 15, 1999, the Respondents sent Milinx amendments to a Certificate of Merger, which again identified Forestay as the blank check company that would merge with Milinx.  On November 17, 1999, the Respondents sent the finalized merger documents to Milinx for execution.  On November 18, 1999, Forestay filed an Amended Form 10-SB.  The Amended Form 10-SB falsely stated that the Forestay "has not engaged in any negotiations with any specific entity regarding the possibility of a business combination," and that Forestay "has no current arrangement, agreement or understanding with respect to engaging in a business combination with a specific entity."  Cassidy drafted the Amended Form 10-SB and signed it as Forestay's President and Director.  On December 7, 1999, Forestay and Milinx executed a reorganization agreement.  On December 10, 1999, Forestay and Milinx closed the reverse merger transaction.   
+
+     3. Epilogue Corporation 
+
+ On June 17, 1999, Epilogue Corporation ("Epilogue") filed a registration statement on Form 10-SB with the Commission.  Cassidy drafted the Form 10-SB and signed it as Epilogue's President and Director.  Epilogue's Form 10-SB registration was effective on August 16, 1999.  On October 26, 1999, the Respondents communicated with Nextpath Technologies, Inc. ("Nextpath"), a company whose securities traded on the bulletin board, regarding a reverse merger with a blank check company.  On October 28, 1999, the Respondents and Nextpath agreed upon the Respondents' compensation.  At approximately 10:00 a.m. on November 3, 1999, Nextpath wired a substantial cash payment into an escrow account for TPG Capital.  Later that day, Epilogue filed an Amended Form 10-SB that falsely stated that Epilogue "has not engaged in any negotiations with any specific entity regarding the possibility of a business combination," and that Epilogue "has no current arrangement, agreement or understanding with respect to engaging in a business combination with a specific entity."  Cassidy drafted the Amended Form 10-SB and signed it as Epilogue's President and Director.  On November 11, 1999, Epilogue and Nextpath executed a reorganization agreement and closed the reverse merger transaction.   
+
+     4. Abbacy Corporation 
+
+ On June 17, 1999, Abbacy Corporation ("Abbacy") filed a registration statement on Form 10-SB with the Commission.  Cassidy drafted the Form 10-SB and signed it as Abbacy's President and Director.  Abbacy's Form 10-SB registration was effective on August 16, 1999.  On September 24, 1999, Abbacy and CBCOM executed a reorganization agreement.  On October 18, 1999, Abbacy consummated a reverse merger with CBCOM, Inc. ("CBCOM"), a company whose securities were not listed on the bulletin board or elsewhere.  On October 15, 1999, Abbacy filed an Amended Form 10-SB that failed to disclose the transaction with CBCOM, and falsely stated that Abbacy "has not engaged in any negotiations with any specific entity regarding the possibility of a business combination," and that Abbacy "has no current arrangement, agreement or understanding with respect to engaging in a business combination with a specific entity."  Cassidy drafted the Amended Form 10-SB and signed it as Abbacy's President and Director.   
+
+    5.  Torbay Acquisition Corporation  
+
+  On February 19, 1999, Torbay Acquisition Corporation ("Torbay Acquisition") filed a registration statement on Form 10-SB with the Commission.  Cassidy drafted the Form 10-SB and signed it as Torbay Acquisition's President and Director.  Torbay Acquisition' Form 10-SB registration was effective on April 18, 1999.  On March 24, 1999, Cassidy formed Acropolis Acquisition Corporation, and later changed the name of Acropolis Acquisition Corporation to Torbay Holdings, Inc. ("Torbay Holdings").  Cassidy owned and controlled Torbay Holdings.  Torbay Holdings' securities were not listed on the bulletin board or elsewhere.  On May 28, 1999, Cassidy drafted an Amended Form 10-SB for Torbay Acquisition and signed it as Torbay Acquisition's President and Director.  Torbay Acquisition and Torbay Holdings executed a reorganization agreement on July 19, 1999.  On October 26, 1999, Cassidy merged Torbay Holdings with Torbay Acquisition.  In the May 28, 1999 Amended Form 10-SB, Torbay Acquisition falsely stated that it "has not engaged in any negotiations with any specific entity regarding the possibility of a business combination," and that it "has no current arrangement, agreement or understanding with respect to engaging in a business combination with a specific entity."   
+
+   D.  Respondents Made Materially False and Misleading Statements in Periodic Reports  
+
+    1.  Aterian Corporation  
+
+  On November 15, 1999, Aterian filed a quarterly report with the Commission on Form 10Q-SB for the fiscal period ended September 30, 1999.  Cassidy drafted the Form 10Q-SB and signed it as Aterian's President and Director.  As discussed above, on October 25, 1999, the Respondents provided Gourmet's Choice with documents concerning a proposed merger between Aterian and Gourmet's Choice.  On November 2, 1999, the Respondents sent additional merger documentation to Gourmet's Choice and, the following day, paid a substantial sum to TPG Capital's escrow agent.  In the Form 10Q-SB, Aterian falsely stated that it "has not made any final decision concerning or entered into any agreements for a business combination."   
+
+     2.  Forestay Corporation  
+
+ On November 15, 1999, Forestay filed a quarterly report with the Commission on Form 10Q-SB for the fiscal period ended September 30, 1999.  Cassidy drafted the Form 10Q-SB and signed it as Forestay's President and Director.  As discussed above, on November 5, 1999, the Respondents provided Milinx with a sample agreement that identified Forestay as the blank check company that would merge with Milinx.  On November 15, 1999, the Respondents sent Milinx additional documentation that identified Forestay as the blank check company that would merge with Milinx.  In the Form 10Q-SB, Forestay falsely stated that it "has not made any final decision concerning or entered into any agreements for a business combination."   
+
+    3.  Torbay Acquisition Corporation  
+
+  On July 13, 1999, Torbay Acquisition filed a quarterly report with the Commission on Form 10Q-SB for the fiscal period ended June 30, 1999.  As discussed above, Cassidy created Torbay Acquisition to merge it with Torbay Holdings, Inc., which was another entity that he owned.  Cassidy drafted the Form 10Q-SB and signed it as Torbay Acquisition's President and Director.  In the Form 10Q-SB, Torbay Acquisition falsely stated that it "has not made any final decision concerning or entered into any agreements for a business combination."   
+
+ IV. 
+
+  LEGAL DISCUSSION  
+
+   A.  Violations of Section 10(b) and Rule 10b-5   
+
+   Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit, among other things, (i) false and misleading statements of material facts and (ii) omissions to state material facts necessary to make the statements that were made, in light of the circumstances under which they were made, not misleading, in connection with the purchase or sale of a security.  Information is material if there is "a substantial likelihood that a reasonable investor would consider it important" in making investment decisions or a reasonable investor would view the information as having significantly altered the total mix of information available.   TSC Industries, Inc. v. Northway, Inc. , 426 U.S. 438, 449 (1976);   Basic, Inc. v. Levinson , 485 U.S. 224, 232 (1988). 
+
+ By making the materially false and misleading statements discussed above with respect to Aterian and Epilogue, the Respondents violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.  Cassidy was the sole officer and director of the blank check companies, and TPG Capital was the controlling shareholder.  Cassidy drafted the registration statements and periodic reports for the blank check companies, and signed them as the sole officer and director of the companies.  In addition, Cassidy drafted the merger agreements and negotiated the transactions.  The Respondents knew, or were reckless in not knowing, that the statements in the registration statements and periodic reports were materially false or misleading.  
+
+   B.  Violations of Section 13(a) of the Exchange Act and Rules 13a-13 and 12b-20 Thereunder  
+
+ Section 13(a) of the Exchange Act and Rule 13a-13 require issuers of securities registered pursuant to Section 12 of the Exchange Act to file periodic reports with the Commission.  Implicit in these filing requirements is that such filings be accurate.   SEC v. Kalvex , 425 F. Supp. 310, 316 (S.D.N.Y.  1975).  In addition to the information expressly required, Exchange Act Rule 12b-20 requires a registrant to include additional material information that is necessary to make the required statements, in light of the circumstances under which they are made, not misleading.  
+
+ As discussed above, the Respondents made materially false or misleading statements in registration statements and periodic reports filed with the Commission for the blank check companies, thereby causing the blank check companies they controlled to violate Section 13(a) of the Exchange Act and Rules 13a-13 and 12b-20 thereunder. 
+
+ IV. 
+
+ FINDINGS 
+
+   Based on the above, the Commission finds that Cassidy and TPG Capital violated Sections 10(b) of the Exchange Act and Rule 10b-5 thereunder and caused violations of Section 13(a) of the Exchange Act and Rules 13a-13 and 12b-20 thereunder. 
+
+ V. 
+
+   Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that Cassidy and TPG Capital cease and desist from committing or causing any violation and any future violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and from causing any violation and any future violation of Section 13(a) of the Exchange Act and Rules 13a-13 and 12b-20 thereunder. 
+
+   By the Commission.
+
+                Jonathan G. Katz  
+
+               Secretary 
+  Footnotes  
+  1   Order Granting Approval of Proposed Rule Change, Exchange Act Rel. No. 4087 
+
+  2   As defined by the Securities Act of 1933, the term "blank check" company means any development stage company that is issuing a penny stock and that 1) has no specific plan of purpose; or 2) has indicated that its business plan is to merge with an unidentified company or companies.  15 U.S.C. § 77g(b)(3).   
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diff --git a/raw/aaer/2001/AAER-1404.txt b/raw/aaer/2001/AAER-1404.txt
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+++ b/raw/aaer/2001/AAER-1404.txt
@@ -0,0 +1,1445 @@
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+              James Thomas McCurdy, CPA Carol Fox Foelak, Administrative Law Judge
+           
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+        James Thomas McCurdy, CPA Carol Fox Foelak, Administrative Law Judge
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+                        
+              UNITED STATES OF AMERICA  Before the  SECURITIES AND EXCHANGE 
+
+      COMMISSION 
+
+      
+
+ 
+
+ Securities Exchange Act of 1934
+
+ Release No. 44425 / June 14, 2001   
+
+ Accounting and Auditing Enforcement
+
+ Release No  1404 / June 14, 2001 
+
+ Administrative Proceeding File No. 3-10509
+
+
+  IN THE MATTER OF JAMES THOMAS MCCURDY, CPA 
+
+ The securities and Exchange Commission announced today that it has instituted a public administrative proceeding pursuant to Rule 102(e) of the Commission's Rules of Practice to determine whether James Thomas McCurdy, CPA, engaged in improper 
+
+conduct in the performance of his audit of the 1998 financial statements of JWB Aggressive Growth Fund, a now defunct investment company.
+
+  McCurdy, an Ohio CPA, is the principal shareholder of McCurdy & Associates CPAs, Inc., located in Westlake, Ohio.  The Division of Enforcement and the Office of the Chief Accountant allege that McCurdy failed to comply with professional auditing standards by failing to obtain sufficient competent evidence concerning the collectibility of a receivable from a related party that represented 25% of the Fund's assets.  As a result, the staff alleges that McCurdy did not comply with professional audit standards in that he failed to:  (1) maintain an attitude of professional skepticism; (2) render an accurate audit report; and (3) exercise due professional care.
+
+  A hearing will be held before an Administrative Law Judge to determine whether the staff's allegations in the Order Instituting Proceeding are true and, if so, what, if any, remedial action is necessary and appropriate.   
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diff --git a/raw/aaer/2001/AAER-1406.txt b/raw/aaer/2001/AAER-1406.txt
new file mode 100644
index 0000000000000000000000000000000000000000..971faed8f198a4b8fb88f8d73a4f2ef03ad6a423
--- /dev/null
+++ b/raw/aaer/2001/AAER-1406.txt
@@ -0,0 +1,1503 @@
+
+
+ 
+ 
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+     SEC.gov | Robert E. Allgyer, CPA 
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+              Robert E. Allgyer, CPA
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+        Robert E. Allgyer, CPA
+       
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+ SECURITIES ACT OF 1933
+ Release No.   7986 / June 19, 2001
+
+  SECURITIES EXCHANGE ACT OF 1934
+ Release No.  44445 / June 19, 2001
+
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.   1406 / June 19, 2001
+
+  ADMINISTRATIVE PROCEEDING 
+ File No.  3-10515         
+  
+      In the Matter of 
+  ROBERT E. ALLGYER, CPA,
+   Respondent. 
+    
+  :
+ :
+ :
+ :
+ :
+ :
+ :
+ :
+  
+ ORDER INSTITUTING PUBLIC  ADMINISTRATIVE PROCEEDINGS, MAKING  FINDINGS AND IMPOSING REMEDIAL  SANCTIONS PURSUANT TO RULE 102(e)  OF THE COMMISSION'S RULES OF PRACTICE 
+     I. 
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest to institute public administrative proceedings against Respondent Robert E. Allgyer ("Allgyer" or "Respondent") pursuant to paragraph (3) of Rule 102(e) of the Commission's Rules of Practice [17 C.F.R.§ 201.102(e)].  1     II. 
+
+    In anticipation of the institution of these proceedings, Allgyer has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the findings, except as to the Commission's jurisdiction over the subject matter of these proceedings and as to the entry of the injunction set forth in Section III, which are admitted, Allgyer consents to the entry of this the Order Instituting Public Proceedings, Making Findings and Imposing Remedial Sanctions Pursuant to Rule 102(e) of the Commission's Rules of Practice ("Order").  2     III. 
+
+    The Commission finds the following  3  :
+
+   
+
+  A. Allgyer, age 56, is a certified public accountant licensed in Illinois and was, during the relevant period covered by this Order, a partner at Arthur Andersen LLP.  Allgyer was the audit engagement partner for the audits of the financial statements of Waste Management, Inc. for the years 1992 through 1996.  Allgyer retired from Andersen in 2000.
+
+  B. Arthur Andersen LLP is a national public accounting firm and, during the relevant period covered by this Order, served as the independent public accountant for Waste Management, Inc.  
+
+  C.   Waste Management, Inc.   was, during the relevant period covered by this Order, a Delaware corporation with its principal place of business in Oak Brook, Illinois.  At all times pertinent to the period covered by this Order, the common stock of Waste Management 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.
+
+    D. On June 19, 2001, the Commission filed a complaint against Allgyer and others in the United States District Court for the District of Columbia.   SEC v. Arthur Andersen LLP, et al. , No. 1:01CV01348 (JR) (D.D.C.).  The Commission's complaint alleged, among other things, that (1) Allgyer, as engagement partner, knowingly or recklessly caused the issuance of materially false and misleading audit reports on Waste Management's financial statements for the period 1992 through 1996, (2) those false and misleading audit reports were incorporated into registration statements Waste Management filed with the Commission pursuant to the Securities Act of 1933 ("Securities Act"), and (3) as a result of his conduct, Allgyer violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Exchange Act Rule 10b-5.  
+
+  E. On June 19, 2001 the United States District Court for the District of Columbia entered a final judgment permanently enjoining Allgyer from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Exchange Act Rule 10b-5.  Allgyer consented to the entry of the final judgment without admitting or denying the allegations of the Commission's complaint.
+
+   IV. 
+
+    Based on the foregoing, the Commission deems it appropriate and in the public interest to accept Allgyer's Offer of Settlement and accordingly, 
+
+     IT IS HEREBY ORDERED , effective immediately, that Allgyer is denied the privilege of appearing or practicing before the Commission as an accountant, and 
+
+     IT IS FURTHER ORDERED  that, after five (5) years from the date of this Order, Allgyer 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 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 
+
+       an independent accountant.  Such an application must satisfy the Commission that:  (a) Allgyer, or the firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section"), (b) Allgyer, or the firm, has received an unqualified report relating to his firm's most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section, and (c) as long as Allgyer appears or practices before the Commission as an independent accountant, he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.
+    IT IS FURTHER ORDERED , that the Commission's review of an application by Allgyer to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Allgyer's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+
+       
+
+                By the Commission. 
+
+    
+
+              Jonathan G. Katz
+             Secretary                
+  
+
+ 
+ Footnotes 
+     1      Rule 102(e) provides, in pertinent part:
+
+   (3)(i) 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:
+
+  (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 (15 U.S.C. §§ 77a-80b-20) or of the rules and regulations thereunder . . .
+ 
+     (iv) . . . A person who has consented to the entry of a permanent injunction . . . without admitting the facts set forth in the complaint shall be presumed for all purposes under this paragraph (3) to have been enjoined by reason of the misconduct alleged in the complaint.
+  
+      2      This matter is related to  SEC v. Arthur Andersen LLP, et al. , No. 1:01CV01348 (JR) (D.D.C.) [Release No. LR-17039] (June 19, 2001),  In the Matter of Arthur Andersen LLP  [Release No. 34-44444] (June 19, 2001), and  In the Matter of Robert G. Kutsenda, CPA,  [Release No. 34-44448] (June 19, 2001).
+
+      3      The findings herein are made pursuant to the Respondent's Offer and are not binding on any other person or entity in this or any other proceeding.    
+
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diff --git a/raw/aaer/2001/AAER-1407.txt b/raw/aaer/2001/AAER-1407.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5803347493eb113549fa18324a9971f060a5e59f
--- /dev/null
+++ b/raw/aaer/2001/AAER-1407.txt
@@ -0,0 +1,1498 @@
+
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+              Edward G. Maier, CPA
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+        Edward G. Maier, CPA
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+ SECURITIES ACT OF 1933
+ Release No.   7987 / June 19, 2001
+
+  SECURITIES EXCHANGE ACT OF 1934
+ Release No. 44446 / June 19, 2001
+
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  1407 / June 19, 2001
+
+  ADMINISTRATIVE PROCEEDING 
+ File No.  3-10514        
+  
+      In the Matter of 
+  EDWARD G. MAIER, CPA,
+   Respondent.     
+  :
+ :
+ :
+ :
+ :
+ :
+ :
+ :  
+ ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS, MAKING  FINDINGS AND IMPOSING REMEDIAL  SANCTIONS PURSUANT TO RULE 102(e)  OF THE COMMISSION'S RULES OF PRACTICE      I. 
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest to institute public administrative proceedings against Respondent Edward G. Maier ("Maier" or "Respondent") pursuant to paragraph (3) of Rule 102(e) of the Commission's Rules of Practice [17 C.F.R.§ 201.102(e)].  1     II. 
+
+    In anticipation of the institution of these proceedings, Maier has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the findings, except as to the Commission's jurisdiction over the subject matter of these proceedings and as to the entry of the injunction set forth in Section III, which are admitted, Maier consents to the entry of this the Order Instituting Public Proceedings, Making Findings and Imposing Remedial Sanctions Pursuant to Rule 102(e) of the Commission's Rules of Practice ("Order").  2     III. 
+
+    The Commission finds the following  3  :
+
+  A. Maier, age 54, is a certified public accountant licensed in Texas, Florida, and Illinois and was, during the relevant period covered by this Order, a partner at Arthur Andersen LLP.  Maier was the concurring partner for the audits of the financial statements of Waste Management, Inc. for the years 1993 through 1996.
+
+  B. Arthur Andersen LLP is a national public accounting firm and, during the relevant period covered by this Order, served as the independent public accountant for Waste Management, Inc.  
+
+  C.   Waste Management, Inc.   was, during the relevant period covered by this Order, a Delaware corporation with its principal place of business in Oak Brook, Illinois.  At all times pertinent to the period covered by this Order, the common stock of Waste Management 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.
+
+    D. On June 19, 2001, the Commission filed a complaint against Maier and others in the United States District Court for the District of Columbia.   SEC v. Arthur Andersen LLP, et al. , No. 1:01CV01348 (JR) (D.D.C.).  The Commission's complaint alleged, among other things, that (1) Maier, as concurring partner, knowingly or recklessly caused the issuance of materially false and misleading audit reports on Waste Management's financial statements for the period 1993 through 1996, (2) those false and misleading audit reports were incorporated into registration statements Waste Management filed with the Commission pursuant to the Securities Act of 1933 ("Securities Act"), and (3) as a result of his conduct, Maier violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Exchange Act Rule 10b-5.  
+
+  E. On June 19, 2001, the United States District Court for the District of Columbia entered a final judgment permanently enjoining Maier from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Exchange Act Rule 10b-5.  Maier consented to the entry of the final judgment without admitting or denying the allegations of the Commission's complaint.
+
+   IV. 
+
+    Based on the foregoing, the Commission deems it appropriate and in the public interest to accept Maier's Offer of Settlement and accordingly, 
+
+     IT IS HEREBY ORDERED , effective immediately, that Maier is denied the privilege of appearing or practicing before the Commission as an accountant, and
+
+     IT IS FURTHER ORDERED  that, after three (3) years from the date of this Order, Maier 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 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 
+
+       an independent accountant.  Such an application must satisfy the Commission that:  (a) Maier, or the firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section"), (b) Maier, or the firm, has received an unqualified report relating to his firm's most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section, and (c) as long as Maier appears or practices before the Commission as an independent accountant, he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.
+    IT IS FURTHER ORDERED , that the Commission's review of an application by Maier to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Maier's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+
+       
+
+                By the Commission. 
+
+
+              Jonathan G. Katz
+             Secretary
+  
+
+ 
+ Footnotes 
+     1      Rule 102(e) provides, in pertinent part:
+
+   (3)(i) 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:
+
+    (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 (15 U.S.C. §§ 77a-80b-20) or of the rules and regulations thereunder . . .
+ 
+     (iv) . . . A person who has consented to the entry of a permanent injunction . . . without admitting the facts set forth in the complaint shall be presumed for all purposes under this paragraph (3) to have been enjoined by reason of the misconduct alleged in the complaint.  
+
+      2      This matter is related to  SEC v. Arthur Andersen LLP, et al. , No. 1:01CV01348 (JR) (D.D.C.) [Release No. LR-17039] (June 19, 2001),  In the Matter of Arthur Andersen LLP  [Release No. 34-44444] (June 19, 2001), and  In the Matter of Robert G. Kutsenda, CPA,  [Release No. 34-44448 ] (June 19, 2001).
+
+      3      The findings herein are made pursuant to the Respondent's Offer and are not binding on any other person or entity in this or any other proceeding.    
+
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diff --git a/raw/aaer/2001/AAER-1408.txt b/raw/aaer/2001/AAER-1408.txt
new file mode 100644
index 0000000000000000000000000000000000000000..76451e4b8952eee61e695c59bc6e74135c559335
--- /dev/null
+++ b/raw/aaer/2001/AAER-1408.txt
@@ -0,0 +1,1500 @@
+
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+              Walter Cercavschi, CPA
+           
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+        Walter Cercavschi, CPA
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+
+ SECURITIES ACT OF 1933
+ Release No.   7988 / June 19, 2001
+  SECURITIES EXCHANGE ACT OF 1934
+ Release No.  44447 / /June 19, 2001
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.    1408 / June 19, 2001
+  ADMINISTRATIVE PROCEEDING 
+ File No.  3-10516
+  
+      In the Matter of 
+  WALTER CERCAVSCHI, CPA,
+                         Respondent. 
+    
+  :
+ :
+ :
+ :
+ :
+ :
+ :
+ :
+  
+ ORDER INSTITUTING PUBLIC  ADMINISTRATIVE PROCEEDINGS, MAKING  FINDINGS AND IMPOSING REMEDIAL  SANCTIONS PURSUANT TO RULE 102(e) OF  THE COMMISSION'S RULES OF PRACTICE 
+     I. 
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest to institute public administrative proceedings against Respondent Walter Cercavschi ("Cercavschi" or "Respondent") pursuant to paragraph (3) of Rule 102(e) of the Commission's Rules of Practice [17 C.F.R.§ 201.102(e)].  1     II. 
+
+    In anticipation of the institution of these proceedings, Cercavschi has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the findings, except as to the Commission's jurisdiction over the subject matter of these proceedings and as to the entry of the injunction set forth in Section III, which are admitted, Cercavschi consents to the entry of this the Order Instituting Public Proceedings, Making Findings and Imposing Remedial Sanctions Pursuant to Rule 102(e) of the Commission's Rules of Practice ("Order").  2     III. 
+
+    The Commission finds the following  3  :
+
+  A. Cercavschi, age 45, is a certified public accountant licensed in Illinois and was, during the relevant period covered by this Order, a partner at Arthur Andersen LLP.  Cercavschi was a member of the engagement team for the audits of the financial statements of Waste Management, Inc. for the years 1994 through 1996.
+
+    B.   Arthur Andersen LLP is a national public accounting firm and, during the relevant period covered by this Order, served as the independent public accountant for Waste Management, Inc.  
+
+  C.   Waste Management, Inc.   was, during the relevant period covered by this Order, a Delaware corporation with its principal place of business in Oak Brook, Illinois.  At all times pertinent to the period covered by this Order, the common stock of Waste Management 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.
+
+    D. On June 19, 2001, the Commission filed a complaint against Cercavschi and others in the United States District Court for the District of Columbia.   SEC v. Arthur Andersen LLP, et al. , No. 1:01CV01348 (JR) (D.D.C.).  The Commission's complaint alleged, among other things, that (1) Cercavschi, as a partner and member of the engagement team, knowingly or recklessly caused the issuance of materially false and misleading audit reports on Waste Management's financial statements for the period 1994 through 1996, (2) those false and misleading audit reports were incorporated into registration statements Waste Management filed with the Commission pursuant to the Securities Act of 1933 ("Securities Act"), and (3) as a result of his conduct, Cercavschi violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Exchange Act Rule 10b-5.  
+
+  E. On June 19, 2001 the United States District Court for the District of Columbia entered a final judgment permanently enjoining Cercavschi from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Exchange Act Rule 10b-5.  Cercavschi consented to the entry of the final judgment without admitting or denying the allegations of the Commission's complaint.
+
+   IV. 
+
+    Based on the foregoing, the Commission deems it appropriate and in the public interest to accept Cercavschi's Offer of Settlement and accordingly, 
+
+     IT IS HEREBY ORDERED , effective immediately, that Cercavschi is denied the privilege of appearing or practicing before the Commission as an accountant, and
+
+     IT IS FURTHER ORDERED  that, after three (3) years from the date of this Order, Cercavschi 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 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 
+
+       an independent accountant.  Such an application must satisfy the Commission that:  (a) Cercavschi, or the firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section"), (b) Cercavschi, or the firm, has received an unqualified report relating to his firm's most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section, and (c) as long as Cercavschi appears or practices before the Commission as an independent accountant, he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.
+    IT IS FURTHER ORDERED , that the Commission's review of an application by Cercavschi to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Cercavschi's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+
+       
+
+                By the Commission. 
+
+    
+
+              Jonathan G. Katz
+             Secretary                
+  
+
+
+ 
+ Footnotes 
+     1      Rule 102(e) provides, in pertinent part:
+
+   (3)(i) 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:
+
+ (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 (15 U.S.C. §§ 77a-80b-20) or of the rules and regulations thereunder . . .
+ 
+     (iv) . . . A person who has consented to the entry of a permanent injunction . . . without admitting the facts set forth in the complaint shall be presumed for all purposes under this paragraph (3) to have been enjoined by reason of the misconduct alleged in the complaint.
+  
+      2      This matter is related to  SEC v. Arthur Andersen LLP, et al. , No. 1:01CV01348 (JR) (D.D.C.) [Release No. LR-17039] (June 19, 2001),  In the Matter of Arthur Andersen LLP  [Release No.34-44444] (June 19, 2001), and  In the Matter of Robert G. Kutsenda, CPA,  [Release No.34-44448] (June 19, 2001).
+
+      3      The findings herein are made pursuant to the Respondent's Offer and are not binding on any other person or entity in this or any other proceeding.    
+
+ 
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diff --git a/raw/aaer/2001/AAER-1409.txt b/raw/aaer/2001/AAER-1409.txt
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+     SEC.gov | Robert G. Kutsenda, CPA 
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+              Robert G. Kutsenda, CPA
+           
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+
+   
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+      
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+             
+        Robert G. Kutsenda, CPA
+       
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+
+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  44448 / June 19, 2001
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No. 1409 / June 19, 2001
+  ADMINISTRATIVE PROCEEDING 
+ File No.  3-10517        
+  
+      In the Matter of 
+  ROBERT G. KUTSENDA, CPA,
+                         Respondent. 
+    
+  :
+ :
+ :
+ :
+ :
+ :
+ :
+ :  
+  ORDER INSTITUTING PUBLIC  ADMINISTRATIVE PROCEEDINGS,  MAKING FINDINGS AND IMPOSING  REMEDIAL SANCTIONS PURSUANT TO  RULE 102(e) OF THE COMMISSION'S  RULES OF PRACTICE  
+     I. 
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Robert G. Kutsenda ("Kutsenda" or "Respondent") pursuant to Rule 102(e) of the Commission's Rules of Practice [17 C.F.R. § 201.102(e)(1)] ("Rule 102(e)").  1     II. 
+
+  In anticipation of the institution of these administrative 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 proceeding brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the Commission's findings contained herein, except for the jurisdiction of the Commission over him and over the subject matter of these proceedings, which Respondent admits, Respondent consents to the entry of the findings and the imposition of the remedial sanctions set forth in this Order Instituting Public Administrative Proceedings, Making Findings, and Imposing Remedial Sanctions Pursuant to Rule 102(e) of the Commission's Rules of Practice ("Order").
+
+               III. 
+
+  On the basis of this Order and the Respondent's Offer, the Commission makes the following findings:  2     A.  Respondent  
+
+    Robert G. Kutsenda  , 58, is a certified public accountant licensed in Illinois.  Kutsenda joined Arthur Andersen LLP ("Andersen" or the "Firm") in 1964 and has been a partner since 1975.  Between 1992 and 1995, he was the Central Region Audit Practice Director responsible for Andersen's Chicago, Kansas City, Indianapolis and Omaha offices.   As a practice director at Andersen, Kutsenda   was responsible for, among other things, oversight of "quality and risk management processes," and consulting on "significant auditing, accounting, financial statement presentation and reporting problems encountered during an audit."  He remains a partner in the Firm today.
+
+
+
+      B. Issuer  
+
+    Waste Management, Inc.  , ("Waste Management" or the "Company"), was a Delaware corporation with its principal place of business in Oak Brook, Illinois.  3    Through its subsidiaries, Waste Management provided comprehensive solid and hazardous waste services, energy recovery services, and environmental technologies, engineering and consulting services.  At all times pertinent to the period covered by this Order, the common stock of Waste Management was registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act of 1934 and traded on the New York Stock Exchange.
+
+      C. Facts  
+
+       1.  Summary  
+
+      This action arises out of Kutsenda's determination, in the context of a consultation on a particular accounting matter, that Andersen could issue   an unqualified audit report on Waste Management's 1995 financial statements.  4    The engagement team consulted   with Kutsenda in his capacity as Practice Director.    Kutsenda's conduct resulted in a violation of applicable professional standards because he did not require Andersen to withhold or qualify its audit report on the company's 1995 financial statements in light of   Waste Management's    "netting"-   i.e. offsetting  --  of misstatements against an unrelated one-time gain in violation of generally accepted accounting principles ("GAAP").  The undisclosed netting or offsetting distorted the Company's financial picture and caused   the Company's 1995 income statement to be materially misstated.  Kutsenda's conduct was highly unreasonable because he knew, or should have known, that the Company's netting violated GAAP, that prior-period misstatements of which he was aware   would not be disclosed to investors, that the   impact of the netting   on the Company's 1995 financial statements was material and that an unqualified audit report was not warranted.
+
+     2.  Background to Kutsenda's 1995 Audit Decision  
+
+  During Andersen's audit of Waste Management's 1993 and 1994 financial statements, Kutsenda became aware of non-GAAP accounting practices resulting in current and prior period misstatements in the Company's financial statements.  5     These misstatements were the subject of Proposed Adjusting Journal Entries (PAJEs)  6   prepared by Andersen's audit team that the Company declined   to correct   in its books and records. In both years, Kutsenda and other Andersen partners decided that the Firm would issue unqualified audit reports based on the conclusion that they were not material. 
+
+       3.  The 1995 Audit  
+
+  On December 31, 1995, Waste Management exchanged its interest in a privately held subsidiary of ServiceMaster Master Limited Partnership ("ServiceMaster") known as Consumer Services for an interest in ServiceMaster itself, a publicly traded entity.  This transaction resulted in a $160 million gain to Waste Management.  In its 1995 financial statements, the Company used the gain to offset $160 million of, among other things,   unrelated operating expenses and misstatements that, in most instances, had been the subject of PAJEs in 1994 and earlier.  The Company offset the misstatements against the gain in its income statement in Sundry Income, Net.  The misstatements that were netted were 10% of   1995 pre-tax income.    The Company made no disclosure of the netting in the notes to its financial statements or in management's discussion and analysis ("MD&A").
+
+  Waste Management consulted Robert E. Allgyer ("Allgyer"), the Andersen engagement partner for the Waste Management account, and Walter Cercavschi ("Cercavschi"), an Andersen partner working on the audit team, with respect to the accounting treatment for the ServiceMaster transaction, and informed them of its intent to net the misstatements against the one-time gain without disclosure in the financial statements.  Allgyer and Cercavschi recognized that the Company's proposed treatment did not conform with GAAP and that "theoretically, the gain and the provisions [i.e. the current and prior period misstatements] should be reported separately in the consolidated income statement with discussion in the MD&A and footnotes."  Nevertheless, they reached a preliminary determination that the matter was not material but recognized the need to consult with Kutsenda.
+
+  GAAP did not and does not allow prior-period misstatements to be offset against unrelated one-time gains.  7   With respect to the correction of prior period misstatements, GAAP required that these misstatements, if material to the current period, be corrected in their proper expense category in the appropriate period with disclosure.
+
+  Allgyer and Cercavschi consulted Kutsenda about the netting and whether Andersen would be required to qualify or withhold its audit report if the Company netted the ServiceMaster gain and did not disclose the netting.  Kutsenda concluded that, although the netting did not conform with GAAP   and the netted items would not be disclosed, Andersen did not need to qualify or withhold its audit report.  He reasoned that the netting and the non-disclosure of the misstatements and the unrelated gain did not prevent the issuance of the unqualified audit report because he concluded, for various reasons, that they   were not material to the Company's 1995   financial statements taken as a whole.  In fact, these items were material.  For example, the misstatements represented 10% of   pre-tax income .   Kutsenda did insist that, with respect to the gain and the charges, the Company "book [them] broad" on its general ledger, that is, record the gain and expenses to their respective categories for internal record keeping purposes, and that offsetting should occur only in the reported financial statements.  Kutsenda agreed that Andersen could issue an unqualified audit report on Waste Management's 1995 financial statements.  
+
+     D.  Kutsenda Engaged in Improper Professional Conduct Within the Meaning of Rule 102(e)  
+
+  When Kutsenda was consulted concerning the Company's use of netting in 1995, he knew that if netting were allowed, the prior period misstatements that were netted   would not be disclosed to investors and that those misstatements represented 10% of the Company's 1995 pre-tax income.  He further knew or should have known that the netting did not conform to GAAP.  Indeed, he advised the Andersen engagement team that the Company should record the gain and expenses properly in its books and records and that the netting should occur only in the reported financial statements.
+
+    Generally Accepted Auditing Standards (GAAS) make clear that all auditors, not just those on the engagement team, must perform their work with due care:  "Due care imposes responsibility upon each person within an independent auditor's organization to observe the standards of field work and reporting." AICPA, Codification on Statements of Auditing Standards, AU § 230.02.  Although not part of the engagement team, when he was consulted by Allgyer and Cercavschi, Kutsenda was required under GAAS to exercise due professional care so   that an unqualified audit report was not issued on financial statements that were materially misstated.  
+
+  Here, when Kutsenda was informed of the non-GAAP netting of a $160 million one-time gain against unrelated prior-period misstatements and that the amount represented 10% of the Company's 1995 pre-tax income, he knew or should have known that the Company's use of netting warranted heightened scrutiny.  Under these circumstances, GAAS required him to consider that "there should be stronger grounds to sustain the independent auditor's opinion with respect to those items which are relatively more important and with respect to those in which the possibilities of material misstatement are greater than with respect to those of lesser importance or those in which the possibility of material misstatement is remote."  AICPA, AU § 150.04.  In this case, although Kutsenda recognized that netting did not conform to GAAP, knew   that prior period misstatements of which he was aware would not be disclosed to investors, knew or should have known that the impact of the netting was material to the Company's 1995 financial statements, he nevertheless wrongly concluded that Andersen was not required to withhold or qualify   its audit report.  In reaching this result, Kutsenda engaged in highly unreasonable conduct that resulted in a violation of applicable professional standards. 
+
+   IV. 
+
+  On the basis of this Order and Respondent's Offer, the Commission finds that   Kutsenda engaged in improper professional conduct within the meaning of Rule 102(e)(1)(ii) of the Commission's Rules of Practice.
+
+   V. 
+
+  Based on the foregoing, the Commission deems it appropriate and in the public interest to accept the Respondent's Offer and accordingly, 
+
+   IT IS HEREBY ORDERED , effective immediately, that
+
+     A.  Kutsenda be, and hereby is, denied the privilege of appearing or practicing before the Commission as an accountant;
+
+     B.  After one (1) year from the date of this Order, Kutsenda 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 Kutsenda'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.  Kutsenda, or any firm with which he is or becomes associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section");
+
+     b.   Kutsenda, or the Firm, has received an unqualified report relating to his or the firm's most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and
+
+     c.   as long as Kutsenda appears or practices before the Commission as an independent accountant, he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.
+
+     C.  The Commission's review of any request or application by Kutsenda to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Kutsenda's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.
+
+            By the Commission
+
+              Jonathan G. Katz  
+Secretary
+  
+
+ 
+ Footnotes 
+     1      Under Rule 102(e) of the Commission's Rules of Practice, 17 C.F.R. 201.102(e), "[t]he Commission may censure a person or deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice and opportunity for hearing in the matter . . . to have engaged in . . . improper professional conduct."   With respect to licensed accountants,  "improper professional conduct" under  § 201.102(e)(1)(ii) means, among other things, "[a] single instance of highly unreasonable conduct that results in a violation of applicable professional standards in circumstances in which an accountant knows, or should know, that heightened scrutiny is warranted . . . ."
+
+      2     The findings herein are made pursuant to the Offer that Respondent submitted and are not binding on any other person or entity in this or any other proceeding.
+
+      3     On July 16, 1998, Waste Management merged with USA Waste Services, Inc.  The newly formed company retained the Waste Management name.  
+
+      4     Other conduct by Andersen and Andersen partners relating to the audits of Waste Management's financial statements for the years 1992 through 1996 is described in the Commission's Order Instituting Public Administrative Proceedings, Making Findings and Imposing Remedial Sanctions Pursuant to Rule 102(e) of the Commission's Rules of Practice in  In The Matter of Arthur Andersen LLP   [Release No. 34-44444] (June 19, 2001) and the Commission's complaint in the matter entitled  SEC v. Arthur Andersen LLP et al. , Civil Action No. 1:01CV01348 (JR) (D.D.C.   ) [Release No. LR-17039] (June 19, 2001). 
+
+      5     Kutsenda was among the partners with whom audit engagement partners in Andersen's Central Region offices were required to consult when PAJEs exceeded 8% of net income from continuing operations.
+
+      6     A proposed adjusting journal entry is an adjustment proposed by the auditor to the company during the audit which, if accepted by the company, would correct a misstatement in an account balance or class of transactions contained in the company's books and records.
+
+      7     Kutsenda understood that only prior period misstatements would be netted against the ServiceMaster gain   and provided his consultation on the basis of such information.  In fact, some current period expenses and misstatements were netted. GAAP required the Company to record its current period expenses and misstatements in their proper operating expense categories and not net them against an unrelated gain in "other income and expense."    
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diff --git a/raw/aaer/2001/AAER-1410.txt b/raw/aaer/2001/AAER-1410.txt
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index 0000000000000000000000000000000000000000..5a69ac74835c89cdcdfa17eaba9690e5ac8f157a
--- /dev/null
+++ b/raw/aaer/2001/AAER-1410.txt
@@ -0,0 +1,1468 @@
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+ LITIGATION RELEASE NO. 17039 / June19, 2001
+
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ RELEASE NO. 1410 / June19, 2001
+
+   ARTHUR ANDERSEN LLP AND THREE PARTNERS SETTLE CIVIL INJUNCTIVE ACTION CHARGING VIOLATIONS OF ANTIFRAUD PROVISIONS, AND SETTLE RELATED ADMINISTRATIVE PROCEEDINGS, ARISING OUT OF ANDERSEN'S AUDITS OF WASTE MANAGEMENT, INC.'S  FINANCIAL STATEMENTS  
+
+   ANDERSEN PRACTICE DIRECTOR SETTLES ADMINISTRATIVE PROCEEDINGS FOR IMPROPER PROFESSIONAL CONDUCT ARISING OUT OF FIRM'S AUDIT OF WASTE MANAGEMENT, INC.'S 1995  
+
+    FINANCIAL STATEMENTS  
+
+    Securities and Exchange Commission v. Arthur Andersen LLP, Robert E. Allgyer, Walter Cercavschi, and Edward G. Maier ,  Civil Action No. 1:01CV01348 (J.R.) (D.D.C.  June 19, 2001)
+
+    In the Matter of Arthur Andersen LLP ,  Administrative Proceeding File No. 3-10513
+
+    In the Matter of Robert E. Allgyer, CPA ,  Administrative Proceeding File No. 3-10515
+
+    In the Matter of Edward G. Maier, CPA ,  Administrative Proceeding File No. 3-10514
+
+    In the Matter of Walter Cercavschi, CPA ,  Administrative Proceeding File No. 3-10516
+
+    In the Matter of Robert G. Kutsenda, CPA ,  Administrative Proceeding File No. 3-10517
+
+    The Securities and Exchange Commission ("Commission") announced today that Arthur Andersen LLP and three of its current and former partners settled a civil injunctive action, charging violations of antifraud provisions of the federal securities laws, as well as related administrative proceedings brought pursuant to rule 102(e) of the Commission's Rules of Practice ("rule 102(e)").  In a related action, a fourth Andersen partner, a regional practice director, settled administrative proceedings brought pursuant to rule 102(e) in which the Commission found that he engaged in improper professional conduct.  These proceedings arise out of one or more of Andersen's audits of Waste Management, Inc.'s ("Waste Management" or the "Company") financial statements during the period 1992 through 1996.  
+
+  Andersen and the individual defendants and respondents, without admitting or denying the allegations or findings in the Commission's Complaint and orders, consented to the following sanctions:
+
+        Arthur Andersen LLP  ("Andersen" or "Firm") , a national accounting firm, consented (1) to the entry of a permanent injunction enjoining it from violating section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and rule 10b-5 thereunder; (2) to pay a civil money penalty in the amount of $7 million; and (3) in related administrative proceedings, to the entry of an order pursuant to rule 102(e) censuring it based upon the Commission's finding that it engaged in improper professional conduct and the issuance of the permanent injunction;
+
+           Robert E. Allgyer  ("Allgyer") , the partner responsible for the Waste Management engagement, consented (1) to the entry of a permanent injunction enjoining him from violating section 10(b) of the Exchange Act and rule 10b-5 thereunder and section 17(a) of the Securities Act of 1933 ("Securities Act"); (2) to pay a civil money penalty in the amount $50,000; and (3) in related administrative proceedings pursuant to rule 102(e), to the entry of an order denying him the privilege of appearing or practicing before the Commission as an accountant, with the right to request his reinstatement after five (5) years;
+
+           Edward G. Maier    ("Maier") , currently a partner and then the risk management partner for Andersen's Chicago office and the concurring partner on the Waste Management engagement, consented (1) to the entry of a permanent injunction enjoining him from violating section 10(b) of the Exchange Act and rule 10b-5 thereunder and section 17(a) of the Securities Act; (2) to pay a civil money penalty in the amount $40,000; and (3) in related administrative proceedings pursuant to rule 102(e), to the entry of an order denying him the privilege of appearing or practicing before the Commission as an accountant, with the right to request his reinstatement after three (3) years;
+
+           Walter Cercavschi    ("Cercavschi"),  currently a partner and then a partner on the Waste Management engagement, consented (1) to the entry of a permanent injunction enjoining him from violating section 10(b) of the Exchange Act and rule 10b-5 thereunder and section 17(a) of the Securities Act; (2) to pay a civil money penalty in the amount $30,000; and (3) in related administrative proceedings pursuant to rule 102(e), to the entry of an order denying him the privilege of appearing or practicing before the Commission as an accountant, with the right to request his reinstatement after three (3) years;
+
+           Robert G. Kutsenda  ("Kutsenda") , currently a partner and then the Central Region Audit Practice Director responsible for Andersen's Chicago, Kansas City, Indianapolis, and Omaha offices ("Practice Director"), consented in administrative proceedings pursuant to rule 102(e), to the entry of an order, based on the Commission's finding that he engaged in improper professional conduct, denying him the privilege of appearing or practicing before the Commission as an accountant, with the right to request reinstatement after one (1) year.
+   The Commission alleged in its Complaint, or found in its Orders, as follows:
+
+    Andersen  
+      Andersen knowingly or recklessly issued false and misleading unqualified audit reports on Waste Management's annual financial statements for the years 1993 through 1996.  The audit reports stated that the Company's financial statements were presented fairly, in all material respects, in conformity with generally accepted accounting principles ("GAAP") and that Andersen's audits were conducted in accordance with generally accepted auditing standards ("GAAS").  These representations were materially false and misleading.
+
+       In February 1998, Waste Management announced that it was restating its financial statements for the five-year period 1992 through 1996 and the first three quarters of 1997 (the "Restatement").  To date, the Restatement is the largest in the Commission's history.  In the Restatement, the Company admitted that through 1996 it had materially overstated its reported pre-tax earnings by $1.43 billion and that it had understated certain elements of its tax expense by $178 million. 
+
+       Andersen audited the Restatement and issued an unqualified audit report on it.  The Restatement addressed misstatements that resulted from accounting practices that improperly increased reported operating income primarily by understating operating expenses.  In most instances, the Company had improperly deferred recognition of current operating expenses to future periods in order to inflate its current period income.  The Company admitted that it had misstated its expenses relating to, among other things, vehicle, equipment and container depreciation, capitalized interest, asset impairments, purchase accounting related to environmental remediation reserves and other liabilities.  
+
+       In one or more audits during the period 1993 through 1996, Andersen, through Allgyer, Maier, and Cercavschi, identified and documented numerous accounting issues giving rise to the misstatements and likely misstatements that the Restatement ultimately addressed, and brought certain of the issues to the attention of Andersen's Practice Director, the firm's Managing Partner and the Audit Division Head for the firm's Chicago office ("Audit Division Head").  The engagement team also consulted with and relied upon Andersen's waste industry expert in its Accounting Principles Group (a unit within Andersen available for consultation on significant accounting issues) concerning certain of the Company's improper accounting practices discussed herein.  
+
+       With respect to many of the non-GAAP accounting practices, Andersen failed to quantify and estimate all known and likely misstatements resulting from the accounting issues that the engagement team identified.  During the years in question, Andersen quantified only certain of the misstatements.  For example, in its 1993 audit, the engagement team quantified current and prior period misstatements of $128 million, which, if recorded, would have reduced net income before special items by 12%.  The engagement team also identified, but did not quantify and estimate, accounting practices that gave rise to other known and likely misstatements.  Allgyer and Maier consulted with the Practice Director and the Audit Division Head and informed them of the quantified misstatements and "continuing audit issues," and Allgyer consulted with the Firm's Managing Partner and informed him of the quantified misstatements and "continuing audit issues."  The partners determined that the misstatements were not material and that Andersen could issue an unqualified audit report on the Company's 1993 financial statements.
+
+       In connection with the 1993 audit, following the consultations noted above, and prior to the Company's announcement of its 1993 earnings, Allgyer presented a "plan"  - known as the "Summary of Action Steps" ("Action Steps") - to the Company's Chief Executive Officer (later signed and initialed by the Company's Chief Financial Officer and Chief Accounting Officer) to reduce, going forward, the cumulative amount of the quantified misstatements and to change, among other things, the accounting practices that gave rise to the quantified misstatements and to the other known and likely misstatements.  According to an internal memorandum that Allgyer distributed, the Action Steps were the "minimum changes we have concluded are necessary for WMX to implement immediately" and concluded that the Company's compliance with the "must do" items [in the Action Steps] "brings the Company to a minimum acceptable level of accounting . . . ."  The Action Steps also evidenced the fact that Andersen had identified the non-GAAP accounting practices that gave rise to numerous misstatements in the Company's 1993 through 1996 financial statements.
+
+       In 1994, the Company continued to engage in the accounting practices that gave rise to the quantified misstatements and the other known and likely misstatements.  As in 1993, the Practice Director, the Firm's Managing Partner and the Audit Division Head were consulted, and they again concurred in the issuance of an unqualified audit report on the Company's 1994 financial statements.
+
+       In 1995, in many instances, the Company did not implement the Action Steps and continued to utilize accounting practices that did not conform with GAAP.  Andersen monitored the Company's compliance or lack of compliance with the Action Steps.  In its 1995 financial statements, the Company used a $160 million gain that it realized on the exchange of its interest in an entity known as ServiceMaster to offset $160 million in unrelated operating expenses and misstatements that, in most instances, had been identified as misstatements in 1994 and earlier.  The Company offset the misstatements and expenses against the gain in Sundry Income, Net.  The amount netted represented 10% of 1995 pre-tax income before special charges.  The Company made no disclosure of the netting.
+
+       After reaching a preliminary determination that the amounts being netted were not material to the financial statements taken as a whole, two of the partners on the engagement consulted with the Practice Director for Andersen's Central Region about the netting and whether Andersen would be required to qualify or withhold its audit report if the Company netted the ServiceMaster gain and did not disclose the netting.  The Practice Director understood that only prior period adjustments would be netted.  He concluded that, although the netting did not conform with GAAP   and the netted items would not be disclosed, Andersen did not need to qualify or withhold its audit report.  He reasoned that the netting and the non-disclosure of the misstatements and the unrelated gain did not prevent the issuance of the unqualified audit report because he concluded, for various reasons, that they   were not material to the Company's 1995   financial statements taken as a whole.  In fact, these items were material.  Andersen's 1995 unqualified audit report was materially false and misleading.
+
+       Several months after the completion of the 1995 audit and the Company's filing of its 1995 Form 10-K with the Commission, Andersen prepared a memorandum articulating its disagreement with the Company's use of netting and the lack of disclosure.  The memorandum discussed the ServiceMaster transaction of 1995 and gains from other transactions in 1996 that were netted without disclosure.  According to the memorandum, Andersen recognized that 
+
+     [t]he Company has been sensitive to not use special charges [to eliminate balance sheet errors and misstatements that had accumulated in prior years] and instead has used  `other gains'  to bury charges for balance sheet clean ups.  [Emphasis in original]
+
+     . . . .
+
+      We disagree with management's netting of the gains and charges and the lack of disclosures.  We have communicated strongly to WMX management that this is an area of SEC exposure.  We will continue to monitor this trend, and assess in all cases the impact of non-disclosure in terms of materiality to the overall financial statement presentation and effect on current year earnings.
+  
+       Despite its concerns about the Company's use of netting, Andersen did not withdraw its 1995 audit report or take steps to prevent the Company from continuing to use netting in 1996 to eliminate current period expenses and prior period misstatements from its financial statements.
+
+
+
+       During the 1996 audit, Andersen quantified misstatements in the Company's financial statements, which equaled 7.2% of pre-tax income from continuing operations before special charges.  The Company also netted and misclassified gains and profits of approximately $85.1 million on the sales of two subsidiaries, which Andersen also identified as improper, and which, if corrected in 1996, would have further reduced pre-tax income from continuing operations before special charges by 5.9%.  
+
+       As noted in its Order as to Andersen, this conduct took place against the following background:
+     Andersen has served as Waste Management's auditors since before Waste Management became a public company in 1971.  
+
+         Andersen regarded Waste Management as a "crown jewel" client.  
+
+         Until 1997, every chief financial officer ("CFO") and chief accounting officer ("CAO") in Waste Management's history as a public company had previously worked as an auditor at Andersen. 
+
+         During the 1990s, approximately 14 former Andersen employees worked for Waste Management, most often in key financial and accounting positions.
+
+         Andersen regarded Allgyer as one of its top "client service" partners.  Andersen selected Allgyer to become the Waste Management engagement partner because, among other things, Allgyer had "extensive experience in Europe" and demonstrated a "devotion to client service" and had a "personal style that  . . . fit well with the Waste Management officers."  During this time (and continuing throughout his tenure as engagement partner for Waste Management), Allgyer held the title of "Partner in Charge of Client Service" for Andersen's Chicago office and served as "marketing director."  In this position, Allgyer coordinated the marketing efforts of Andersen's entire Chicago office including, among other things, cross-selling non-attest services to audit clients.
+
+         Shortly after Allgyer's appointment as engagement partner, Waste Management capped Andersen's corporate audit fees at the prior year's level but allowed the Firm to earn additional fees for "special work."  
+
+         As reported to the audit committee, between 1991 and 1997, Andersen billed Waste Management corporate headquarters approximately $7.5 million in audit fees.  Over this seven-year period, while Andersen's corporate audit fees remained capped, Andersen also billed Waste Management corporate headquarters $11.8 million in other fees, much of which related to tax, attest work unrelated to financial statement audits or reviews, regulatory issues, and consulting services. 
+
+         A related entity, Andersen Consulting, also billed Waste Management corporate headquarters approximately $6 million in additional non-audit fees.  Of the $6 million in Andersen Consulting fees, $3.7 million related to a Strategic Review that analyzed the overall business structure of the Company and ultimately made recommendations on implementing a new operating model designed to "increase shareholder value."  Allgyer was a member of the Steering Committee that oversaw the Strategic Review, and Andersen Consulting billed his time for these services to the Company.  In setting Allgyer's compensation, Andersen took into account, among other things, the Firm's billings to the Company for audit and non-audit services.
+       As the Commission stated in its Order as to Andersen,
+
+     [u]nless the auditor stands up to management as soon as it knows that management is unwilling to correct material misstatements, the auditor ultimately will find itself in an untenable position: it either must continue issuing unqualified audit reports on materially misstated financial statements and hope that its conduct will not be discovered or it must force a restatement or qualify its report and thereby subject itself to the liability that likely will result from the exposure of its role in the prior issuance of the materially misstated financial statements.   
+
+       The Commission in this case found that
+
+     Andersen failed to stand up to management to prevent the issuance of materially misstated financial statements.  Instead, Andersen allowed the Company to establish - and then continue for many years - a series of improper accounting practices.  As a result, Andersen found itself in 1998 in the position of auditing the Restatement and issuing an unqualified audit report in which it acknowledged that the prior financial statements on which it had issued unqualified audit reports were materially misstated.  
+ 
+       The Commission ultimately found in its Order as to Andersen that
+
+     the circumstances of this case, including the positions within the Firm of the partners who were consulted by the engagement team, the gravity and duration of the misconduct, and the nature and magnitude of the misstatements mandate that the Firm be held responsible for the acts of its partners in causing the Firm to issue false and misleading audit reports in the Firm's name.  
+ 
+       The Commission's Complaint alleges and the Commission's Order found that Andersen knew or was reckless in not knowing that the unqualified audit reports that it issued for the years 1993 through 1996 were materially false and misleading because the audits were not conducted in accordance with GAAS and the financial statements did not conform to GAAP.  The Complaint further alleges that Andersen violated section 10(b) of the Exchange Act and rule 10b-5 thereunder.  The Commission's Order as to Andersen finds that Andersen engaged in improper professional conduct within the meaning of rule 102(e)(1)(ii) of the Commission's Rules of Practice. 
+     Allgyer  
+      Allgyer is the only Defendant charged in connection with Andersen's audit of Waste Management's 1992 financial statements.  The Complaint alleges that Allgyer knew or was reckless in not knowing that the Andersen's audit report on the Company's 1992 financial statements was materially false and misleading because in addition to quantified misstatements totaling $93.5 million that, if corrected, would have reduced pre-tax income before accounting changes by 7.4%, he knew or was reckless in not knowing of additional known and likely misstatements that had not been quantified and estimated that related to, among other things, land carrying values in excess of net realizable value, improper charges of operating expenses to the environmental remediation reserves (liabilities) and purchase accounting related to remediation reserves (liabilities).  Allgyer further knew that the Company had netted, without disclosure, $111 million of current period expenses and prior period misstatements against a portion of a one-time gain from an unrelated initial public offering of securities, which had the effect of understating Waste Management's 1992 operating expenses and overstating the Company's income from operations.  
+
+       The Commission's Complaint further alleges that Allgyer engaged in similar conduct in connection with the 1993 through 1996 audits.  Allgyer thus knew or was reckless in not knowing that Andersen's unqualified audit report for each of the years 1993 through 1996 was materially false and misleading.  
+
+       The Complaint further alleges that Allgyer knew that during the years 1992 through 1996 every unqualified audit report would be incorporated into one or more registration statements filed with the Commission.  As a result of his conduct, Allgyer violated section 10(b) of the Exchange Act, rule 10b-5 thereunder and section 17(a) of the Securities Act.
+     Maier  
+         The Commission's Complaint alleges that, for each of the years 1993 through 1996, Maier knew of the quantified misstatements and of accounting practices that gave rise to additional known and likely misstatements that were not quantified and estimated and approved the issuance of an unqualified audit report.  He knew or was reckless in not knowing that Andersen's unqualified audit report for each of the years 1993 through 1996 was materially false and misleading.  He further knew that, during this period, every unqualified audit report would be incorporated into one or more registration statements filed with the Commission.  As a result of his conduct, Maier violated section 10(b) of the Exchange Act, rule 10b-5 thereunder, and section 17(a) of the Securities Act.
+     Cercavschi  
+         The Commission's Complaint alleges that, for each of the years 1994 through 1996, Cercavschi knew of the quantified misstatements and of accounting practices that gave rise to additional known and likely misstatements that were not quantified and estimated and approved the issuance of an unqualified audit report.  He knew or was reckless in not knowing that Andersen's unqualified audit report for each of the years 1994 through 1996 was materially false and misleading.  He further knew that, during this period, every unqualified audit report would be incorporated into one or more registration statements filed with the Commission.  As a result of his conduct, Cercavschi violated section 10(b) of the Exchange Act, rule 10b-5 thereunder, and section 17(a) of the Securities Act.
+     Kutsenda  
+      The Commission's Order as to Kutsenda finds that, during the 1995 audit, when Kutsenda was informed of the non-GAAP netting of the $160 million one-time gain against unrelated prior-period misstatements and that the amount represented 10% of the Company's 1995 pre-tax income, he knew or should have known that the Company's use of netting warranted heightened scrutiny.  The Commission found that although not part of the engagement team, when he was consulted by two of the engagement partners, Kutsenda was required under GAAS to exercise due professional care so   that an unqualified audit report was not issued on financial statements that were materially misstated.  The Order further finds that Kutsenda wrongly concluded that Andersen was not required to withhold or qualify   its audit report and that in reaching this result, he engaged in highly unreasonable conduct that resulted in a violation of applicable professional standards.  Based on these findings, the Commission found that Kutsenda engaged in improper professional conduct within the meaning of rule 102(e)(1)(ii).
+   *     *     *
+
+  The Commission's investigation is continuing as to others.
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+              Ron Messenger, James T. Rush, Scott K. Barton and Gary Hubschman
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+        Ron Messenger, James T. Rush, Scott K. Barton and Gary Hubschman
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+              SECURITIES AND EXCHANGE COMMISSION 
+
+
+ LITIGATION RELEASE NO.   17042 \ June 20, 2001 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT
+
+ RELEASE NO. 1411 \ June 20, 2001 
+
+  SECURITIES AND EXCHANGE COMMISSION V. RON  MESSENGER, JAMES T. RUSH, SCOTT K. BARTON AND GARY HUBSCHMAN ,   Civil Action No. H-01-2022   
+
+ Fraudulent earnings management scheme subject of Commission civil action.  On June 18, 2001, the Commission announced the filing of its action in the United States District Court for the Southern District of Texas (Houston Division), seeking an injunction and civil penalties against Ron  Messenger ("Messenger"), James T. Rush ("Rush"), Scott  K. Barton ("Barton") and Gary Hubschman ("Hubschman") (collectively, the "Defendants"), all former officers of Paracelsus Healthcare Corporation, a former NYSE-listed company ("Paracelsus").   
+
+ According to the Commission's complaint, the Defendants engaged in various earnings management schemes and caused Paracelsus to materially overstate its annual and quarterly earnings in periodic reports and registration statements filed with the Commission.  Under Messenger's direction, the Defendants ignored Generally Accepted Accounting Principles ("GAAP") to accumulate $16 million in "cookie jar" reserves, and then draw upon them to conceal a decline in Paracelsus' earnings.  Messenger, Rush and Hubschman also ignored GAAP in connection with their failure to properly write off $15 million in uncollectible accounts receivable.  Furthermore, to conceal their conduct, Defendants supplied Paracelsus' auditors with false and misleading information concerning the reserves and receivables.  As a result, between 1993 and 1996 Paracelsus overstated income from 9 percent to 303 percent.  
+
+ In settling this matter, the Defendants have agreed to accept permanent injunctions barring future violations of the anti-fraud, record-keeping, and reporting provisions of the federal securities laws.  Additionally, Messenger, the former chief executive officer of Paracelsus, has consented to a $100,000 penalty, Hubschman, a former vice president of operations finance, has consented to a $75,000 penalty, Rush, the former chief financial officer, has consented to a $50,000 penalty and Barton, the former controller, has consented to a $25,000 penalty.  Separately, Rush and Barton have also agreed to Commission orders under Rule 102(e) barring them from practicing before the Commission as accountants for three years 
+
+ The Commission's complaint charges that the Defendants violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), and Sections 10(b), 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1, 13b2-2 thereunder, and aided and abetted violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.  
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diff --git a/raw/aaer/2001/AAER-1413.txt b/raw/aaer/2001/AAER-1413.txt
new file mode 100644
index 0000000000000000000000000000000000000000..170d0103b317ee6755bd76682ba4856e6718e9ae
--- /dev/null
+++ b/raw/aaer/2001/AAER-1413.txt
@@ -0,0 +1,1543 @@
+
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+              J. Allen Seymour, CPA
+           
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+        J. Allen Seymour, CPA
+       
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+                        
+              UNITED STATES OF AMERICA  Before the  SECURITIES AND EXCHANGE 
+
+      COMMISSION 
+
+      
+
+  
+ SECURITIES EXCHANGE ACT OF 1934
+
+ Release No. 44461 / June 21, 2001 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT
+
+ Release No. 1413 / June 21, 2001 
+
+ ADMINISTRATIVE PROCEEDING
+
+ File No. 3-10521 
+    
+        
+        In the Matter of 
+         J. ALLEN SEYMOUR, CPA,
+        Respondent
+             
+      
+     
+         
+     
+       : : : : : : : :   
+    
+      ORDER INSTITUTING PUBLIC  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 public administrative proceedings pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") be, and they hereby are, instituted against J. Allen Seymour ("Seymour").  Accordingly, IT IS HEREBY ORDERED that said proceedings be, and hereby are, instituted.  
+
+ II. 
+
+   In anticipation of the institution of these administrative proceedings, Respondent Seymour 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 in which the Commission is a party, and without admitting or denying the findings herein, except that he admits the jurisdiction of the Commission over him and over the subject matter of these proceedings, Seymour consents to the issuance by the Commission of this Order Instituting Public Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing A Cease-and-Desist Order (`Order"). 
+
+   
+
+ III. 
+
+   On the basis of this Order and of the Offer of Seymour, the Commission makes the following findings  1  :   
+
+   A.   RESPONDENT  
+
+ Seymour, of Athens, Georgia, is a certified public accountant ("CPA") licensed by the State of Georgia.  Seymour conducted the 1994 audit of Vista's annual financial statements.  These financial statements were included in Vista 2000, Inc.'s ("Vista") September 30, 1994 annual report filed with the Commission on Form 10-KSB ("1994 Form 10-KSB").  During his 1994 audit of Vista, Seymour practiced under the name of Roemmich and Seymour P.A. ("R&S") and conducted the Vista audit in a joint venture with another CPA (the "venture partner").   
+
+ B.   ISSUER INVOLVED  
+
+ Vista, formerly located in Roswell, Georgia, designed, developed, manufactured and marketed consumer products including trigger guards for firearms and carbon monoxide detectors for homes.  Vista's initial public offering occurred on October 25, 1994.  Vista's common stock, which was registered pursuant to Section 12(g) of the Exchange Act, was traded on the NASDAQ SmallCap Market system until it became listed on the NASDAQ National Market system ("NASDAQ") on February 13, 1996.  On May 31, 1996, Vista's stock was delisted from the NASDAQ. 
+
+ C.   IMPROPER AUDITING PRACTICES IN CONNECTION WITH THE 1994 AUDIT  
+
+   1.   Lack of independence during the 1994 audit  
+
+ At the venture partner's suggestion, he and Seymour jointly bid on the 1994 Vista audit engagement.  Seymour and his firm, along with the joint venture partner, were engaged as Vista's auditors on January 9, 1995.  At the time of their bid and during the course of their engagement, the venture partner owned 23,333 shares of Vista common stock.   
+
+ At all times during the 1994 audit of Vista's financial statements, the venture partner lacked independence because he owned Vista common stock.  ( See  AU §220,  Independence ;  see   also  Article 2 of Regulation S-X,  Qualifications and Reports of Accountants ).  The independence of Seymour and R&S was similarly impaired by virtue of the venture partner's lack of independence.  Despite his impairment of independence, Seymour issued an unqualified opinion on Vista's 1994 financial statements which was included in Vista's 1994 Form 10-KSB.  By issuing an unqualified opinion, Seymour violated generally accepted auditing standards ("GAAS") because the audit opinion failed to state that Seymour's firm lacked independence.  ( See  AU §§504.08-.10,  Association with Financial Statements, Disclaimer of Opinion When Not Independent  and Rule 2-01 of Regulation S-X,  Qualifications of Accountants , 17 C.F.R. 210.2-01). 
+
+ Seymour knew or was reckless in not knowing that his venture partner owned Vista stock which caused the independence of Seymour and his firm to be impaired.  In part as the result of Seymour's conduct, Vista filed its 1994 Form 10-KSB with the Commission which included financial statements certified by public accountants who were not independent. 
+
+   2.   Failure to make predecessor-successor communications  
+
+ On or about December 6, 1994, Vista terminated a multinational accounting firm ("predecessor accountants") as its independent accountants.  On or about January 9, 1995, Seymour visited the offices of the predecessor accountants to review certain workpapers.  However, Seymour never made any inquiries of the predecessor accountants required under GAAS (AU 315,  Communications Between Predecessor and Successor Auditors ).  For example, Seymour failed to ask about facts that might bear on the integrity of Vista's management; disagreements with management as to accounting principles, auditing procedures, or other similar significant matters; and on the predecessor accountant's understanding as to the reasons for the change of auditors.  Had Seymour made the required inquiries, he would have become aware of the accounting issues related to Vista's past attempts to improperly recognize income from the Promotional Marketing Inc. transaction discussed below.   
+
+   3.   Vista's 1994 annual report on Form 10-KSB  
+
+ On February 1, 1995, Vista filed its 1994 Form 10-KSB.  Vista's 1994 Form 10-KSB reported revenues of $1,971,678, a net loss of $329,000, net loss per share of $.15, and total assets of $2,584,709.  Vista misstated these amounts by 985%, 84%, 85%, and 81%, respectively; actual revenues were $181,678, net loss was $2,119,500, net loss per share was $.99, and total assets were $1,429,709.  The misstatements were due to the fictitious recording of a $1.2 million sale of marketing rights and $635,000 of product sales.   
+
+       a)   Promotional Marketing Inc. transaction  
+
+ Vista disclosed in its 1994 Form 10-KSB that on September 15, 1994, it sold marketing rights to its trigger guard products for firearms to Promotional Marketing Inc. ("PMI") for a $1.2 million note from PMI.  This transaction, however, lacked economic substance.  PMI was a telemarketing company principally for the resort and cruise industries with no experience in selling firearm or other products.  At the time of this purported sale, the products had not been manufactured and had no proven market demand or acceptance.  Further, the collectibility of the note was dependent upon the resale of the products by PMI and no portion of the note was reserved as an allowance for doubtful accounts.   
+
+ As a result, Vista improperly reported $1.2 million as other income on its income statement and $1,155,000 as a receivable from PMI for this transaction.  The $1.2 million of income represented 61% of Vista's total revenues of $1,971,678 for the year ended September 30, 1994 and the receivable represented 45% of Vista's total reported assets of $2,584,709.    
+
+ Prior to the engagement of R&S as its auditors, Vista had unsuccessfully attempted to persuade two other accounting firms, including the predecessor accountants, to allow it to recognize this transaction as a sale. 
+
+ On November 23, 1994, PMI, with Vista's consent, purportedly transferred the above marketing rights to Dixie Sales Consultants ("Dixie Sales").  However, this transaction itself lacked substance.  There is no evidence that Dixie Sales ever existed, or that the agreement to transfer the marketing rights or $1.2 million promissory note was ever executed.  Seymour, without any basis, determined that the transfer to Dixie Sales validated the recognition of the sale of the marketing rights by Vista.   
+
+ Vista's "sale" of marketing rights was not recorded in conformity with generally accepted accounting principles ("GAAP") because it lacked any economic substance and because neither PMI nor Dixie Sales had the ability or intent to pay for the note.  As noted above, there is no evidence that Dixie Sales or that an executed note receivable ever existed.  Further, no payments were ever received by Vista on the note receivable.   
+
+ Seymour should have refused to permit the recognition of income from this purported "sale" of marketing rights.  Instead, he agreed to permit Vista to recognize income from this transaction in a departure from GAAP. 
+
+       b)  Fictitious product sales  
+
+ For the year ended September 1994, Vista reported $771,678 of net sales, of which $635,000 or 82% were fictitious.  The fictitious sales consisted of transactions with entities that either did not exist or denied ever purchasing or paying for the goods purportedly shipped.   
+
+ Seymour failed to conduct any meaningful audit procedures to verify whether the sales were legitimate.  Seymour failed to review purchase/sales orders, invoices, shipping documents, and cash receipts related to these purported sales.  Had Seymour done so, he would have discovered that these were fictitious transactions.  For example, no written purchase orders existed for some of the "sales."  For other "sales," invoices listed neither a billing nor shipping address.   
+
+ Seymour violated the due professional care standards of GAAS in the performance of his audit and the preparation of his audit opinion, and when he failed to exercise professional skepticism during his audit.  ( See  AU §316,  Consideration of Fraud in a Financial Statement Audit  and AU §230,  Due Professional Care in the Performance of Work ). Seymour knew or was reckless in not knowing that the PMI transaction and product sales were fictitious and had not been recorded in conformity with GAAP.  Seymour was reckless and in violation of GAAS because he issued his audit opinion when he lacked sufficient competent evidential matter to verify the existence and validity of the fictitious transactions.  ( See  AU §326,  Evidential Matter ). Seymour violated the reporting standards of GAAS when he issued an unqualified audit opinion which falsely stated that his firm had conducted its audit in accordance with GAAS and that Vista's financial statements had been prepared in conformity with GAAP ( see  AU §410,  Adherence to Generally Accepted Accounting Principles , AU §411,  The Meaning of "Present Fairly in Conformity With GAAP" , and Rule 2-02(b) of Regulation S-X,  Accountants' Reports , 17 C.F.R. 210.2-02(b)).   
+
+ By deficiently conducting his audit, Seymour caused his firm's representations in Vista's 1994 Form 10-KSB that the audit was conducted by independent auditors in accordance with GAAS and that Vista's financial statements had been prepared in conformity with GAAP to be false. 
+
+   D.   VIOLATIONS OF THE FEDERAL SECURITIES LAWS  
+
+ Section 13(a) of the Exchange Act and Rule 13a-1 thereunder require certain issuers to file with the Commission annual reports containing financial statements prepared in conformity with the requirements of the Commission's rules and regulations.  In addition, Section 13(a)(2) of the Exchange Act requires that such reports be certified if required by the rules and regulations of the Commission by independent public accountants.  The requirement that an issuer file reports under Section 13(a) embodies the requirement that such reports be true and correct.   SEC v. IMC International, Inc. , 384 F. Supp. 889, 893 (N.D. Texas),  aff'd , 505 F.2d 733 (5th Cir. 1974),  cert. denied sub nom. ,  Evans v. SEC , 420 U.S. 930 (1975).  Because there is no scienter element involved in these provisions,  see generally ,  SEC v. Wills , 472 F.Supp. 1250, 1268 (D.D.C. 1978), a violation occurs when a materially false statement is filed.   SEC v. Kalvex, Inc. , 425 F. Supp. 310, 316 (S.D.N.Y. 1975).   
+
+ Seymour caused Vista to violate Section 13(a) of the Exchange Act and Rule 13a-1 thereunder by certifying Vista's 1994 annual financial statements when he, through his firm, was not independent and when he knew or was reckless in not knowing that Vista's financial statements did not comply with GAAP.  Seymour failed to conduct his audit of Vista's 1994 annual financial statements in accordance with GAAS when he violated the independence, reporting, due professional care, evidential matter, and predecessor auditor communication standards as discussed above.  
+
+ The Commission may enter an order of disgorgement including reasonable interest in cease and desist proceedings brought under Section 21C of the Exchange Act.   See   In the Matter of Sky Scientific Inc. , Initial Decision Rel. No. 137 (Mar. 5, 1999), 69 SEC Docket 991;   In the Matter of John Thorn , Securities Act Rel. No. 7633 (Mar. 31, 1999), 69 SEC Docket 1266.  Here, the audit report issued by Seymour and his firm was false in that it represented that the audit was conducted in accordance with GAAS by independent auditors and that Vista's financial statements were prepared in conformity with GAAP.  Seymour should disgorge his audit fees because the work he performed did not qualify as an audit under GAAS and provided no usable service to Vista. 
+
+ IV. 
+
+   Based on the foregoing, the Commission finds that Seymour was a cause of Vista's violations of Section 13(a) of the Exchange Act and Rule 13a-1 thereunder.  
+
+ V. 
+
+   In view of the foregoing, the Commission deems it appropriate to accept Seymour's Offer. 
+
+   IT IS ORDERED, pursuant to Section 21C of the Exchange Act that Seymour cease and desist from causing any violation and any future violation of Section 13(a) of the Exchange Act and Rule 13a-1 thereunder.  
+
+   IT IS FURTHERED ORDERED, pursuant to Section 21C(e) of the Exchange Act that Seymour shall pay disgorgement and prejudgment interest in the total amount of $16,141.49, plus postjudgment interest thereon pursuant to Rule 600(b) of the Commission's Rules of Practice, to the United States Treasury.  Such amount shall be paid as follows: $5,380.50 within thirty (30) days from the date of the entry of this order, $5,380.50 plus postjudgment interest thereon within one hundred twenty (120) days from the date of the entry of this order, and $5,380.49 plus postjudgment interest thereon within one hundred eighty (180) days from the date of the entry of this order.  Each 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 U.S. Securities and Exchange Commission; (C) hand-delivered or mailed to the Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and  
+
+ (D) submitted under cover letter that identifies Seymour 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 Richard P. Murphy, Securities and Exchange Commission, 3475 Lenox Road, Suite 1000, Atlanta, Georgia 30326-1232. 
+
+   
+
+   By the Commission.
+
+                  Jonathan G. Katz
+
+                 Secretary  
+  Footnotes  
+   1    The findings herein are made pursuant to Seymour's Offer and are not binding on any other person or entity named in this or any other proceeding.   
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diff --git a/raw/aaer/2001/AAER-1417.txt b/raw/aaer/2001/AAER-1417.txt
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@@ -0,0 +1,1487 @@
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+        Scott K. Barton, CPA
+       
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  44500 / July 2, 2001
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No. 1417 / July 2, 2001
+  ADMINISTRATIVE PROCEEDING
+ File No. 3-10528
+
+         In the Matter of 
+   Scott K. Barton, CPA
+  Respondent. 
+    
+    : : : : : : :   
+ ORDER INSTITUTING 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 to institute public administrative proceedings pursuant to Rule 102(e)  1     of the Commission's Rules of Practice against Scott K. Barton, CPA ("Respondent" or "Barton").
+
+   II. 
+
+  In anticipation of the institution of these administrative 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 proceeding brought by or on behalf of the Commission, or in which the Commission is a party, and without admitting or denying the findings set forth below, except that he admits the Commission's finding that a Final Judgment of Permanent Injunction and Other Relief has been entered against him as set forth in Paragraph III.C below and admits the Commission's jurisdiction over him and over the subject matter of these proceedings, Respondent consents to the entry of this Order Instituting Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order").
+
+   III. 
+
+   FINDINGS 
+
+  The Commission makes the following findings:  2     A.  Barton, 47, of Spring, Texas, became the controller of Paracelsus Healthcare Corporation ("Paraclesus") in 1981, a position he held through August 1996.  Barton has been a licensed Certified Public Accountant with the State of California since 1981.  
+
+   B.  Paracelsus is a California corporation which registered a bond offering and began filing periodic reports with the Commission pursuant to Section 15(d) of the Securities Exchange Act of 1934 ("Exchange Act") in 1993.  In August 1996, Paracelsus registered offerings of common stock and notes and an exchange offer for the outstanding common stock of Champion Healthcare Corporation ("Champion").  Paracelsus raised $365 million in the offerings, merged with Champion, and became a publicly held, Section 12(b) reporting company, listed on the New York Stock Exchange.
+
+   C.  On June 18, 2001, the Commission filed a complaint against Barton and others in the United States District Court for the Southern District of Texas, Houston Division,  SEC v. Ron Messenger, et al , CIV. NO. H-01-2022 (S.D. TX, Houston Div.).  Solely for the purpose of settling these proceedings, Barton consented to the entry of a Final Judgment of Permanent Injunction and Other Relief ("Final Judgment") against him, without admitting or denying the allegations of the complaint, except as to subject matter jurisdiction, which he admitted.   On June 20, 2001, the United States District Court for the Southern District of Texas, Houston Division, entered the Final Judgment, which (1) permanently enjoins Barton from (i) violating 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 from aiding and abetting violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13; and (ii) orders Barton to pay a civil penalty of $25,000.
+
+   D.  The Commission's complaint alleges that while Barton was Paracelsus' controller, he participated in misconduct by which Paracelsus inflated its quarterly and annual earnings in filings with the Commission from at least 1993 through August 1996.  Specifically, the complaint alleges that Barton and others created and used "cookie jar" reserves which were inappropriate under Generally Accepted Accounting Principles, because no probable and reasonably estimable exposures justified their creation, and because their later decrease artificially boosted Paracelsus' earnings and concealed a decline in earnings.  Additionally, the complaint alleges that Barton and others failed to disclose all material facts regarding the misconduct to Paracelsus' auditors.
+
+   IV. 
+
+  In view of the foregoing, the Commission deems it appropriate to accept Barton's Offer and to impose the sanctions agreed to therein.
+
+  Accordingly,  IT IS HEREBY ORDERED , effective immediately, that:
+
+   A.  Barton is denied the privilege of appearing or practicing before the Commission as an accountant.
+
+   B.  After three years from the date of this Order, Barton 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 Barton'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) Barton, or the firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section"); (b) Barton, or the firm, has received an unqualified report relating to his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and (c) as long as Barton appears or practices before the Commission as an independent accountant he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.
+
+   C.  The Commission's review of an application by Barton to resume appearing
+
+  or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Barton's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.
+
+  By the Commission.
+
+  Jonathan G. Katz  
+Secretary
+  
+
+ 
+ 	Footnotes 
+     1      Rule 102(e)(3)(i), in relevant part, provides that the Commission may suspend from appearing or practicing before it any accountant who by name has been permanently enjoined, by a court of competent jurisdiction in an action brought by the Commission, from violating any provision of the federal securities laws or the rules and regulations thereunder [17 C.F.R. 201.102(e)(3)(i)].
+
+      2      The findings herein are made pursuant to Barton's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.    
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diff --git a/raw/aaer/2001/AAER-1419.txt b/raw/aaer/2001/AAER-1419.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0b7998a57aee310bcd748bc241346ef5d767efc9
--- /dev/null
+++ b/raw/aaer/2001/AAER-1419.txt
@@ -0,0 +1,1372 @@
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+              Mar-Jeanne Tendler, Arthur Tendler and Billie M. Jolson
+           
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+        Mar-Jeanne Tendler, Arthur Tendler and Billie M. Jolson
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+ LITIGATION RELEASE NO. 17058 / July 3, 2001
+
+  ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO.1419/ July 3, 2001
+
+  SEC v. Mar-Jeanne Tendler, Arthur Tendler and Billie M. Jolson, Case No. C 99-1200 DOC, USDC, CDCal. 
+
+  JUDGMENT ENTERED AGAINST FORMER WIZ TECHNOLOGY OFFICERS FOR ACCOUNTING FRAUD
+
+  A United States District Court has entered judgment against Mar-Jeanne Tendler and Arthur Tendler, both of Dana Point, California.  The Tendlers were former officers and directors of a consumer software manufacturer, WIZ Technology, Inc.  The judgment prohibits them from engaging in securities fraud in the future.  The judgment also prohibits the couple from acting as directors or officers of any public company and requires that they pay $25,000 in disgorgement.
+
+
+
+  The Commission alleged in its complaint that Mar-Jeanne and Arthur Tendler used accounting gimmicks, sham sales, and backdated agreements artificially to inflate WIZ's publicly reported sales, income, and assets in quarterly reports and press releases issued during 1995, 1996, and 1997.  The company filed bankruptcy in 1997.
+
+  The Tendlers consented to the entry of the judgment without admitting or denying the allegations made by the Commission.
+
+  A third defendant, Billie M. Jolson, passed away while the action was pending and the Commission voluntarily dismissed the case against her.
+
+  The action was brought and the injunction entered under 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) and 16(a) of the Securities and Exchange Act of 1934, and Rules 10b-5, 12b-20, 13a-13, 13b2-1 and 16a-3.  
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diff --git a/raw/aaer/2001/AAER-1421.txt b/raw/aaer/2001/AAER-1421.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4e222661c387c24b2e9b1859ac859d77e3c4cb9e
--- /dev/null
+++ b/raw/aaer/2001/AAER-1421.txt
@@ -0,0 +1,1554 @@
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+              YourBankOnline.com, Pakie Plastino and William L. Butcher
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No. 44511 / July 3, 2001
+  AUDITING AND ACCOUNTING ENFORCEMENT
+ Release No.  1421 / July 3, 2001
+  ADMINISTRATIVE PROCEEDING
+ File No. 3-10313
+
+        In the Matter of  
+  SECURE SIGN, INC. (FORMERLY
+ YOURBANKONLINE.COM),
+ PAKIE V. PLASTINO,   
+   and
+ WILLIAM L. BUTCHER, C.P.A., 
+  Respondents. 
+    
+  : : : : : :   
+    ORDER MAKING FINDINGS AND    
+IMPOSING SANCTIONS PURSUANT   
+TO RULE 102(e) OF THE  
+COMMISSION'S RULES OF PRACTICE   
+AGAINST WILLIAM L. BUTCHER, C.P.A.
+     I.
+
+    On September 27, 2000 the Securities and Exchange Commission (the "Commission") instituted administrative proceedings against respondent William L. Butcher, C.P.A. ("Butcher") pursuant to Rule 102(e) of the Commission's Rules of Practice.  1    In response to the institution of these proceedings, Butcher has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purpose of this proceeding and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained herein, except that he admits the jurisdiction of the Commission over him and over the subject matter of this proceeding, Butcher consents to the issuance of this Order Making Findings And Imposing Sanctions Pursuant To Rule 102(e) Of The Commission's Rules Of Practice ("Order").  
+
+  II.
+
+              On the basis of this Order and the Offer, the Commission makes the following findings:
+
+  A.  Nature of Proceeding 
+
+  1. This matter involves fraud by Consolidated Data, Inc. ("Consolidated" or "the Company"), an Internet-related software company based near Seattle, Washington.  2    The action is based on the Company's substantial inflation of the value of its primary asset, an Internet banking software program called YourBankOnline (the "software"), in a press release and registration statement.  The case also involves improper professional conduct by the Company's independent auditor, William L. Butcher.
+
+  2. In March 1999, Consolidated - a small software company with minimal operations at the time - acquired the software in exchange for restricted shares of Consolidated stock.  Shortly thereafter, Consolidated issued a press release claiming that it had just acquired a new software program for $10,000,000 in cash and stock.  In fact, the stock Consolidated exchanged for the software had a substantially lower value at the time of the acquisition; moreover, the company which sold the software to Consolidated had acquired the software for $410,000 just six months earlier.  In the two weeks following the issuance of this press release, Consolidated's stock price climbed from under $1 to a high of $32 per share.
+
+  3. In August 1999, Consolidated filed with the Commission a registration statement on Form 10-SB incorporating financial statements audited by Butcher.  These financial statements reported a substantially inflated asset value for the software.  The software represented nearly 99% of the Company's assets.
+
+  4. Consolidated had no legitimate basis for the valuation given to the software in the March press release and the August registration statement.  Moreover, Butcher engaged in improper professional conduct in his audit of the Company's financial statements.
+
+  B.  Respondent 
+
+  5. William L. Butcher, C.P.A., 51, is a resident of Everett, Washington.  He became a licensed Certified Public Accountant in 1991, and was licensed in the State of Washington during the relevant period. 
+
+  C.  Background 
+
+       The Formation Of The Company 
+
+  6. Contractors Directory, a company involved in developing an Internet database of building contractors and subcontractors, was formed in 1997.  Contractors Directory generated $17,515 in revenue for the fiscal year ended September 30, 1998 and $13,970 in revenue for the six months ended March 31, 1999. 
+
+  7. Contractors Directory changed its name to Consolidated Data in November 1998, and began trading on the OTC Bulletin Board under the ticker symbol CSDD.  Between November 1998 and March 1999, Consolidated's stock traded at approximately $0.25 per share on minimal volume. 
+
+     Development Of The YourBankOnline Software  
+
+  8. The YourBankOnline software program was developed in 1998 by a California bank (the "bank").  The software allows small financial institutions to provide Internet-based banking services to their customers.  The bank originally planned to sell the rights to the program to a larger institution (the "licensee") for licensing to end users.  In September 1998, as the result of delays in the negotiations between the bank and the licensee, the bank instead sold the software to a third party (the "owner") for $410,000.  The owner intended to license the software to the licensee for a profit, while retaining the right to license the YourBankOnline software to other financial institutions as well.
+
+  9. In early 1999, the owner licensed the non-exclusive rights to the software to the licensee in exchange for 50% of any revenues generated by the licensee's licensing of the software to end-users, up to a maximum of $1.3 million in revenues (i.e. $650,000 maximum payable to the owner).  No cash changed hands in this transaction.  
+
+     Consolidated's Acquisition Of The YourBankOnline Software 
+
+  10.   In February 1999, the owner contacted Consolidated and offered to sell the software for $10,000,000.  According to the Company's August 1999 Form 10-SB, as of March 31, 1999, Consolidated had a total of $138 in cash (as well as property and equipment valued at $7,004).
+
+  11. Consolidated agreed to a deal which on paper appeared to represent a sale of the software for $10,000,000.  According to the contract, executed on March 10, 1999, Consolidated purchased the YourBankOnline software from the owner under the following terms.  First, Consolidated would immediately issue the owner two million shares of restricted stock at an assigned value of $2 per share.  Second, Consolidated would pay the owner $6,000,000 in cash or 1.2 million shares of restricted stock assigned a value of $5 per share.  The latter payment would be made at a rate of $10,000 per software license issued by Consolidated, with the remainder payable in stock at the end of twelve months.
+
+  12. Pursuant to the agreement, the Company issued two million shares of restricted stock to the owner in March 1999; the remaining 1.2 million shares were issued, at the owner's request, in April 1999.
+
+  D. Consolidated Issued a Press Release On March 30, 1999, Which Materially  Overstated The Value Of The YourBankOnline Software.      
+
+  13. On March 30, 1999, Consolidated issued a press release announcing that it "has finalized an agreement with [the owner] to purchase its proprietary software YourBankOnline.com.  The ten million ($10,000,000) purchase price is to be paid in a combination of cash and stock."  This press release was disseminated over the Internet and discussed on Internet stock discussion boards.  
+
+  14. The following day, the Company's stock price closed at $3 3/8 (a 100% increase over the prior day's close, and nearly ten times the price which had prevailed through most of March) on record volume.  
+
+  15. Consolidated followed this press release with additional releases - nearly a dozen in April alone - each describing a different technical aspect of the YourBankOnline software.  Consolidated's stock price went as high as $32 in intraday trading on April 12, and then steadily declined to $3 by August 1999.  
+
+  16. The Company did not, in fact, pay $10,000,000 in cash and stock for the software. The $10,000,000 price was based on the $2 and $5 assigned valuations used in the agreement between Consolidated and the owner.  However, Consolidated was, at the time of the agreement, a thinly traded OTC Bulletin Board stock trading in the range of $0.20 to $0.50 per share.  The stock that Consolidated exchanged for the software had a market value far below $10,000,000 at the time of the purchase (particularly since the stock issued to the owner was restricted and could not be freely traded). 
+
+  17. Just one week before signing the contract, Consolidated had hired an outside consulting firm to help draft a registration statement and business plan for the Company.  Under the contract between Consolidated and the firm, the Company issued the firm 300,000 shares of common stock in exchange for services valued at $60,000 - the equivalent of $0.20 per share.  This stock, unlike the stock issued to the owner, was unrestricted.
+
+  18. Despite the press release's claim that Consolidated had purchased the software for $10,000,000 in "cash and stock," the Company had no financial ability to make cash payments at the time of the contract.  The press release gave the false impression that Consolidated had the financial strength to acquire a valuable new software program for $10,000,000, when in fact the Company had a total of $138 in the bank, the consideration it exchanged for the software was worth far less than $10,000,000, and the same asset had been purchased by the owner from the bank that designed the program for $410,000 just six months earlier.
+
+  E. Consolidated Filed A Registration Statement Which Incorporated Financial  Statements Reflecting The Inflated Software Valuation.    
+
+  19. On August 9, 1999, Consolidated filed a registration statement on Form 10-SB, signed by Plastino.  The registration statement incorporated audited financial statements for the fiscal year ended March 31, 1999.  The financial statements had been audited by respondent Butcher.  Consolidated reported total assets of $4.1 million, of which $4 million consisted of the YourBankOnline software.  (Because the financial statements covered the period ended March 31, and the final 1.2 million shares of Consolidated stock were not delivered to the owner until April, Consolidated chose to include only the 2 million shares paid to the owner in March in calculating the software's asset value.)
+
+  20. There was an inadequate basis for the $4 million asset valuation.  The stock issued in exchange for the software was worth far less than $2 per share at the time of the software purchase, and the same software had recently been purchased for only $410,000 by the owner.
+
+  21. The Company's use of the $2 per share assigned value in calculating the asset value was not in conformity with generally accepted accounting principles ("GAAP").  Under GAAP, assets received by a corporation in return for stock must be recorded at fair value; the fair value may be determined by reference either to the value of the assets received or the stock issued, whichever is more clearly evident.  Here, on the date of the software purchase, Consolidated's stock was trading at $0.50, with minimal historical trading volume.  The restricted nature of the stock issued by Consolidated added further uncertainty to its fair value.
+
+  22. In the absence of a clear fair value for the restricted stock issued to the owner, Consolidated should have recorded the asset at the value of the software itself.  At the time of the transaction, Consolidated had no appraisal of the value of the software and no customers for the product, and the only prior sale of the software had been for $410,000.  By recording the asset at $4,000,000, Consolidated materially overstated its assets. 
+
+  F. Butcher Engaged In Improper Professional Conduct In His Audit Of Consolidated's  Financial Statements.  
+
+  23. In July 1999, Consolidated retained Butcher to audit its financial statements for the fiscal year ended March 31, 1999.  Consolidated was a new client for Butcher.  Butcher falsely represented, in an independent auditor's report containing an unqualified opinion, that Consolidated's financial statements were prepared in conformity with GAAP and that his audit was performed in accordance with generally accepted auditing standards ("GAAS").
+
+  24. Butcher's audit failed to comply with GAAS.  Under GAAS, an auditor must exercise due professional care in the performance of the audit and the preparation of the audit report.  Moreover, an auditor must obtain sufficient competent evidential matter to afford a reasonable basis for an opinion and must maintain an attitude of professional skepticism.
+
+  25. Butcher failed to take reasonable steps to evaluate whether the software - an asset which by his own calculation accounted for 99% of Consolidated's assets - was valued in conformity with GAAP.  As discussed above, when stock is issued in exchange for an asset, the asset must be recorded at its fair value (either the value of the stock or the value of the asset, whichever is more clearly evident).  Rather than obtain evidence supporting the valuation, Butcher relied both on the arbitrary stock price assigned to the stock in the contract between Consolidated and the owner and the price at which the stock traded after the transaction was announced in the March 30, 1999 press release.  Butcher performed minimal analysis of the fair value of the YourBankOnline software, despite his knowledge that the software was the Company's primary asset.
+
+  26. Butcher did not adequately review the history of the acquired software.  He never talked to the bank which designed the software, the licensee, or the owner; he did not request an appraisal of the software or compare the value of comparable programs; he did not obtain evidence of Consolidated's revenue forecasts for the software.  Because he failed to obtain sufficient competent evidence of the software's value, Butcher failed to comply with GAAS.  In rendering his audit report, Butcher falsely represented that Consolidated's financial statements were presented in conformity with GAAP.
+
+  27. Based on the foregoing, Butcher engaged in improper professional conduct under Rule 102(e)(1)(ii) of the Commission's Rules of Practice.
+
+  III.
+
+    Based on the foregoing, the Commission deems it appropriate to accept the Offer submitted by Butcher.  Accordingly, IT IS HEREBY ORDERED pursuant to Rule 102(e) of the Commission's Rules of Practice that:
+
+  A. Butcher is temporarily denied the privilege of appearing or practicing before the Commission as an accountant. 
+
+  B.  After one year from the date of this Order, Butcher 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 Butcher'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) Butcher or the firm with which he is associated is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section"); 
+
+  (b) Butcher or the firm has received an unqualified report relating to his or the firm's most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and 
+
+  (c) As long as Butcher appears or practices before the Commission as an independent accountant, he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education. 
+
+  C. The Commission's review of an application by Butcher to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Butcher's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.
+
+    By the Commission.
+
+                Jonathan G. Katz
+               Secretary
+  
+
+ 
+ Footnotes 
+     1      Rule 102(e)(1)(ii) [17 C.F.R. 201.102(e)(1)(ii)] provides in pertinent part that the Commission may deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice and opportunity for a hearing in the matter to have engaged in improper professional conduct.
+
+      2      During the relevant period, the Company operated under the name Consolidated Data, Inc.  In February 2000, the Company changed its name to YourBankOnline.com, the name under which this proceeding was initiated.  The Company changed its name to Secure Sign, Inc. in November 2000.  For purposes of clarity, the Company is referred to as "Consolidated" or "the Company" in the Offer and the Order.    
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diff --git a/raw/aaer/2001/AAER-1422.txt b/raw/aaer/2001/AAER-1422.txt
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@@ -0,0 +1,1869 @@
+
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+              American Bank Note Holographics, Inc.
+           
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+
+   
+
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+        American Bank Note Holographics, Inc.
+       
+
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+
+   SECURITIES ACT OF 1933    
+   Release No.  7994 / July 18, 2001            
+    SECURITIES EXCHANGE ACT OF 1934
+   Release No. 44563 / July 18, 2001        
+    ACCOUNTING AND AUDITING ENFORCEMENT
+   Release No.  1422 / July 18, 2001      
+    ADMINISTRATIVE PROCEEDING
+   File No. 3-10532
+
+          In the Matter of     
+       American Bank Note Holographics, Inc      
+    Respondent.   
+      
+    : : : : : : :   
+ ORDER INSTITUTING PUBLIC 
+   ADMINISTRATIVE 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 to institute public administrative proceedings 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 American Bank Note Holographics, Inc. ("Respondent" or "ABNH").
+
+    II.
+
+     In anticipation of the institution of these administrative 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 in which the Commission is a party, and without admitting or denying the   findings, except as to the Commission's jurisdiction over it and over the subject matter of the proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Public Administrative 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").
+
+    III.
+
+    On the basis of this Order and Respondent's Offer, the Commission makes the findings set forth below.  1    A.  Respondent 
+
+    American Bank Note Holographics, Inc. is a Delaware corporation with its principal executive offices located in Elmsford, New York.  ABNH is engaged in the origination, production, and marketing of mass-produced secure holograms.  Until July 1998, ABNH was a wholly-owned subsidiary of American Banknote Corporation ("ABN").  ABN, at the time, was a publicly traded holding company that through its subsidiaries, among other things, supplied stored-value telephone cards and magnetic-strip transaction cards and printed business forms, checks, and counterfeit-resistant documents of value such as money orders, passports, foreign currency, and stock and bond certificates.  2    On or about July 15, 1998, ABNH became a public company through an initial public offering ("IPO") that raised approximately $107 million (pricing shares at $8 ½ per share), the proceeds of which went entirely to ABN.  3    ABNH's stock was registered pursuant to Section 12(b) of the Exchange Act and traded on the New York Stock Exchange ("NYSE") until August 1999, when ABNH's stock was suspended from trading.  ABNH's common stock currently trades on the OTC Bulletin Board.  During the relevant period, ABNH's fiscal year ended on December 31.
+
+        B.  Summary 
+
+    Prior to July 1998, ABNH was a wholly-owned subsidiary of ABN.  In July 1998, ABNH went public in an IPO in which its parent, ABN, sold its entire interest in ABNH to the public.  The ABNH offering raised approximately $107 million, which ABN used to reduce its debt.
+
+    The ABNH public offering took place pursuant to a Registration Statement filed on 
+
+    Form S-1 with the Commission.  That document contained financial statements for ABNH for its fiscal years ended December 31, 1996 and December 31, 1997.  Also included were quarterly financial results for fiscal year 1997 and for the first quarter of fiscal year 1998.  After the IPO, ABNH went on to file quarterly financial statements for its second and third quarters in fiscal year 1998.  
+
+    Every one of the financial statements set forth above was fraudulent.  Each one reflected a fraudulent course of conduct.  Initially, the purpose of the fraud was to make it appear that ABN was meeting earnings forecasts.  Thereafter, the fraud continued in order to condition the market for ABN to sell, or to commence an IPO for, ABNH, so that ABN could pay down its debts and then, solely as to ABNH, to exaggerate its success and profitability .   
+
+    ABN and ABNH, through the actions of their former senior managers and others, engaged in a variety of improper practices that materially increased annual and quarterly  revenue and net income in departure from generally accepted accounting principles ("GAAP").  In addition, the two companies sought to cover-up their wrongdoing by falsifying documents and by lying to ABN's independent auditors.  In summary, ABNH engaged in the following improper practices:
+
+     recognizing revenue upon the shipment of holograms when ABNH knew the customer would only pay for the product based upon usage ( i.e. , improper recording of consignment sales);
+
+    recognizing revenue on "bill and hold" sales of holograms that did not meet the criteria for                    valid "bill and hold" sales;
+
+          recognizing revenue on shipments of work in process;
+
+          recognizing revenue with respect to holograms that were never shipped; 
+
+          recognizing revenue for holograms shipped to customers, which the customers had not purchased;
+
+          recognizing revenue for holograms shipped to third-party warehouses which the customers had not purchased;
+
+          recognizing revenue on an alleged sale of holograms that was conditioned upon the customer obtaining a renewal of a government contract, which the customer failed to obtain; 
+
+          recognizing revenue in connection with a government contract before completing work under the contract; 
+
+          holding open quarters in order to record additional hologram related revenue; 
+
+          recognizing revenue in connection with hologram related work at a time when the customer's obligation to pay was subject to a contingency that had not been satisfied;
+
+          falsifying documents to mislead its outside auditors as to the validity of a "bill and hold" sale;
+
+          maintaining, and not sharing with the auditors, a separate set of records to track customers' payment obligations for consignment sales; 
+
+          inducing customers to provide false audit confirmations; and
+
+          signing a false and misleading management representation letter to its outside auditors.
+   As a result of the foregoing improper acts, ABNH filed with the Commission a Registration Statement on Form S-1 in July 1998 that contained materially false and misleading financial statements and other information pertaining to ABNH for fiscal years 1996, 1997, and the first quarter of fiscal year 1998, as well as the unaudited quarterly operating results for fiscal year 1997 and the first quarter of fiscal year 1998.  ABNH also filed with the Commission materially false and misleading financial statements on Form 10-Q for the second and third quarters of fiscal year 1998.  Moreover, as a result of this conduct, ABNH's books, records, and accounts were falsified and consequently ABNH failed to make and keep books, records, and accounts that accurately and fairly reflected ABNH's transactions and dispositions of assets.  Furthermore, ABNH failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions were recorded as necessary to permit preparation of financial statements in conformity with GAAP.  
+
+    On Tuesday, January 19, 1999, ABNH announced that it would restate results for the second and third quarters of 1998 and that it expected that revenues and net income for the fourth quarter of 1998 would be significantly lower than that of the fourth quarter of 1997.  ABNH's stock fell from its January 19, 1999 close of $15.125 to a January 20, 1999 close of $4.625, losing 69.4% of its value in a single day's trading.  ABN's stock fell from its January 19, 1999 close of $1 5/16 to a January 20, 1999 close of $1 1/8, losing 14.3% of its value during that trading day.  On Monday, January 25, 1999, ABNH announced that it would restate its results for each of the first three quarters of 1998 and that its financial statements as of December 31, 1997, and December 31, 1996, and the related Report of Independent Auditors, should no longer be relied upon.  Following a day of suspension from trading on January 25, ABNH closed at $1 13/16, more than 50% lower than the previous trading day's close.  ABN's stock, also suspended for a day, then closed at $15/16, approximately 12% lower than the previous trading day's close.  
+
+    After initiating an internal investigation in January 1999, ABNH made its findings available to the Commission staff, continued to cooperate with the Commission staff's investigation of this matter, and replaced its former senior management with a new management team each member of which arrived after the wrongdoing described below.  In December 1999, following its internal investigation, ABNH restated its annual financial statements for fiscal years 1996 and 1997, its quarterly financial statements for fiscal year 1997, and its quarterly financial statements for the first three quarters of fiscal year 1998. 
+
+  The restatements had a material effect on ABNH's previously reported annual revenue and net income: 
+  
+
+    
+     
+ Net  Revenue (thousands) 
+     
+ Originally Reported 
+ As Restated 
+ % Overstated    1997 
+ $30,915 
+ $23,085 
+ +34%    1996 
+ $28,649 
+ $27,516 
+ +4%     
+
+  Net Income (thousands) 
+  Originally Reported 
+ As Restated 
+ % Overstated    $7,539 
+ $2,820 
+ +167%    $4,820 
+ $4,338 
+ +11%       
+    
+ Net  Revenue (thousands) 
+   
+ Net Income (thousands)  
+
+    
+ Originally Reported 
+ As Restated 
+ % Overstated 
+   
+ Originally Reported 
+ As Restated 
+ % Overstated  
+
+  1997 
+ $30,915 
+ $23,085 
+ +34% 
+   
+ $7,539 
+ $2,820 
+ +167%  
+
+  1996 
+ $28,649 
+ $27,516 
+ +4% 
+   
+ $4,820 
+ $4,338 
+ +11%   
+--> The restatements also materially affected ABNH's previously reported quarterly revenue and net income for fiscal year 1997 and the first three quarters of fiscal year 1998: 
+ 
+    
+
+     
+ Net  Revenue (thousands) 
+
+
+     
+ Originally Reported 
+ As Restated 
+ % Misstated    Q1'97 
+ $5,241 
+ $6,198 
+ -15%    Q2'97 
+ $6,296 
+ $5,969 
+ +5%    Q3'97 
+ $8,104 
+ $7,786 
+ +4%    Q4'97 
+ $11,274 
+ $3,132 
+ +260%    Q1'98 
+ $7,035 
+ $10,176 
+ -31%    Q2'98 
+ $9,581 
+ $4, 636 
+ +107%    Q3'98 
+ $10,524 
+ $5,091 
+ +107% 
+    
+
+  Net Income (thousands) 
+
+
+
+ Originally Reported 
+ As Restated 
+ % Misstated 
+
+
+ $657 
+ $633 
+  +3.8% 
+
+
+
+ $1,422 
+ $909 
+ +56% 
+
+
+ $2,275 
+ $2,245 
+ +1.34% 
+
+
+ $3,185 
+ $ (967) 
+ +429% 
+
+
+ $1,793 
+ $2,510 
+ -29% 
+
+
+ $2,279 
+ $387 
+ +489% 
+
+
+ $2,771 
+ $294 
+ +843%   
+   
+    
+ Net  Revenue (thousands) 
+   
+ Net Income (thousands)  
+
+    
+ Originally Reported 
+ As Restated 
+ % Misstated 
+   
+ Originally Reported 
+ As Restated 
+ % Misstated  
+
+  Q1'97 
+ $5,241 
+ $6,198 
+ -15% 
+   
+ $657 
+ $633 
+  +3.8%  
+  Q2'97 
+ $6,296 
+ $5,969 
+ +5% 
+   
+ $1,422 
+ $909 
+ +56%  
+  Q3'97 
+ $8,104 
+ $7,786 
+ +4% 
+   
+ $2,275 
+ $2,245 
+ +1.34%  
+  Q4'97 
+ $11,274 
+ $3,132 
+ +260% 
+   
+ $3,185 
+ $ (967) 
+ +429%  
+  Q1'98 
+ $7,035 
+ $10,176 
+ -31% 
+   
+ $1,793 
+ $2,510 
+ -29%  
+  Q2'98 
+ $9,581 
+ $4, 636 
+ +107% 
+   
+ $2,279 
+ $387 
+ +489%  
+  Q3'98 
+ $10,524 
+ $5,091 
+ +107% 
+   
+ $2,771 
+ $294 
+ +843%   
+-->               In addition to the financial statement fraud described above, ABNH also violated the anti-bribery provisions of the Foreign Corrupt Practices Act, Section 30A of the Exchange Act, when it wired $239,000 to a foreign bank account for the benefit of one or more foreign government officials.
+
+        A.  Facts 
+
+           1. ABNH Improperly Recognized Revenue on Consignment and "Bill and Hold" Sales, and for Research and Development Work in 1996 
+
+              a) Improper Recognition of Revenue on Consignment Sales 
+
+    At the end of the third quarter of fiscal year 1996, ABNH improperly recognized revenue of $407,000 on a consignment sale to one of its customers.  In the fourth quarter of fiscal year 1996, ABNH improperly recognized revenue of approximately $238,000 on another consignment sale to a different customer.  In each instance, ABNH shipped a large number of holograms to the customer and agreed to bill them on a monthly basis based upon the number of holograms the customer used during the month.  Despite the fact that the customers had only agreed to purchase the holograms they actually used, ABNH recognized revenue on the entire shipment of holograms to each customer.  Because the risks and rewards of ownership for the unused holograms had not yet passed to the customers, recognizing revenue for all the holograms upon shipment did not conform to GAAP and had the effect of improperly inflating  revenue and net income. 
+
+              b) Improper Recognition of Revenue for "Bill and Hold" Sales
+
+    During the time that ABNH was a wholly-owned subsidiary of ABN, ABNH's operations contributed materially to ABN's net income.  To monitor ABNH's financial performance, ABN assisted ABNH in creating annual budgets that projected ABNH's revenue and earnings for a particular fiscal year.  Thereafter, ABN reviewed financial forecasts ABNH prepared on a semi-monthly basis to determine whether ABNH would meet its projected revenue and net income for that quarter.
+
+    In mid to late January 1997, it became apparent to ABN and ABNH that ABNH had failed to meet its fourth quarter budget and forecasts for revenue.  This shortfall would have materially impacted ABN's fiscal year 1996 net income and negatively impacted ABN's efforts to meet earnings forecasts.  Consequently, on or about January 30, 1997, well after ABNH had closed its books for fiscal year 1996, ABNH improperly accrued revenue for two "bill and hold" sales.  4    Accruing the revenue in fiscal year 1996 for the two "bill and hold" transactions, one in the amount of  $231,000 and the other in the amount of $404,250, was improper.  ABNH and the customers had not entered into these sales on or before December 31, 1996 and the two transactions did not meet the criteria for recognizing revenue for "bill and hold" sales under AAER Number 108.  5    Also, the $404,250 transaction, which was with the same customer with whom ABNH had entered into the third quarter improperly recorded consignment sale, did not occur.  No purchase order, invoice, or shipping documents were ever generated and ABNH subsequently reversed the sale in the first quarter of fiscal year 1997.
+
+              c) Improper Recognition of Revenue for Research and Development Work   
+
+    In addition to accruing revenue for two improper "bill and hold" sales, ABNH further inflated its fourth quarter revenue and net income by accruing revenue of $800,000 for research and development work it had performed for a foreign customer.  
+
+    On or about January 30, 1997, ABNH accrued revenue of $800,000 for fiscal year 1996, which purportedly reflected research and development work ABNH had done for that customer.  However, as of December 31, 1996, ABNH had neither billed its customer for this amount nor received payment of this amount.  More importantly, however, ABNH's accrual of revenue to offset these costs was improper because ABNH's customer, to the extent it had any obligation to pay this sum, did not have an unconditional obligation to pay ABNH $800,000 as of December 31, 1996.  Payment of the $800,000 obligation was contingent, at a minimum, upon certain approvals being obtained from government officials.  This had not occurred as of December 31, 1996 and, in fact, the government officials never gave the required approvals.
+
+              d) ABNH Provided ABN's Auditors with False Confirmations of the "Bill and Hold" and Research and Development Transactions 
+
+    In the course of auditing ABN, ABN's auditors generally deployed a separate team of auditors to ABNH to audit its books.  Certain members of the ABNH audit team would then participate in the ABN corporate audit.  To convince ABN's outside auditors that its two December 29, 1996 "bill and hold" sales were proper, ABNH obtained from the two customers signed audit confirmations that falsely attested that the transactions had been entered into as of December 29, 1996, and that the transactions met certain of the criteria set forth in AAER 108.  ABNH also was able to secure an audit confirmation letter from the customer for whom it had performed research and development work.  In that confirmation, the customer acknowledged that it owed ABNH   $800,000 for research and development   work as of December 29, 1996.  The customer, however, did not disclose that its obligation to pay the $800,000 was subject to contingencies that had not yet been satisfied.
+
+           2.  ABNH Improperly Increased 1997 Revenue and Net Income In Anticipation of a Sale of ABNH 
+
+              a) Improper Recognition of Revenue on Consignment Sales During the First Three Quarters of 1997 
+
+  ABNH continued to improperly increase its reported revenue and net income in fiscal year 1997 by, among other things, again improperly recognizing revenue on consignment sales.  During the first three quarters of 1997, ABNH improperly recognized revenue of over $900,000 for consignment sales.
+
+    To keep track of its customers' payment obligations under consignment sales, ABNH used a separate set of records that it did not share with ABN's auditors.  Upon receiving usage reports from its customers, ABNH issued invoices to bill them for that usage.  Unlike the invoices issued at the time of the initial "sale" of the holograms, which were not sent to the customers, these invoices reflected actual obligations of the customers.  ABNH tracked the "usage" invoices in ledgers that were kept by hand.  
+
+  b) ABNH Improperly Recognized Over $4 Million in Net Income in the Fourth Quarter of 1997 to Position Itself for a Sale or an IPO 
+
+    As fiscal year-end 1997 approached, ABN, which was highly leveraged at the time, considered various approaches to reduce the company's debt, including a possible sale of ABNH.  In order to condition the market for this possible sale, as well as to meet earnings forecasts, ABNH massively inflated its fourth quarter revenue by approximately $8,000,000 or 260%, and its fourth quarter net income by approximately $4,000,000 or 429%.  In order to accomplish this, ABNH improperly recognized revenue on a number of transactions in the fourth quarter, including additional consignment sales, shipments of unusable work in process, and an improper "bill and hold" sale.
+
+                (1) ABNH Shipped Work in Process and Improperly Recognized Revenue on Additional Consignment Sales
+
+    In the fourth quarter of fiscal year 1997, ABNH shipped unusable work in process to a customer on New Year's Eve.  ABNH boxed up the work in process and then hired a truck to deliver the boxes to the customer.  ABNH recorded revenue of approximately $1.3 million on this shipment notwithstanding the fact that, as ABNH knew, the goods would be returned shortly after being shipped.  Also, in the fourth quarter of fiscal year 1997, ABNH recognized revenue of $949,000 on improperly recorded consignment sales. These improperly recorded consignment sales involved the same three customers who entered into improperly recorded consignment sales with ABNH in the first three quarters of fiscal year 1997, as well as one additional customer.
+
+                (2) Improper Recognition of Approximately $6 Million in Revenue on an $8 Million "Bill and Hold" Order
+
+    ABNH recognized revenue of approximately $6.9 million in fiscal year 1997 on a "bill and hold" sale to one of its largest customers, approximately $6 million of which was improper   because it should have been recognized in fiscal year 1998.  This was by far the largest improperly booked transaction by ABNH in fiscal year 1997.  Although ABNH had a valid "bill and hold" agreement in place with the customer, the transaction was improper because ABNH recognized revenue from the sale of holograms that had not actually been completed by December 31, 1997. 
+
+    Late in the fourth quarter, ABNH's customer placed a "bill and hold" order for approximately $8 million worth of holograms.  ABNH understood that to recognize revenue on the entire sale in fiscal year 1997, all of the holograms would have to be completed, meaning that ABNH had to have at its facility by fiscal year-end   1997 "reels"  6   of numbered holograms labeled as belonging to the customer.  7    ABNH, however, lacked the capacity to manufacture such a large quantity of holograms by year-end.  In an effort to manufacture and   complete as many of the holograms as soon as possible, ABNH subcontracted the manufacturing of approximately $6.9 million worth of holograms to another company (the "Subcontractor").
+
+    ABNH, however, knew that the Subcontractor could not manufacture and complete all the holograms by year-end.  The Subcontractor did not have the capacity to manufacture all the holograms by year-end.  Indeed, ABNH's agreement with the Subcontractor called for a production schedule that continued into mid-January 1998.  Further, before ABNH could treat the sale of these holograms as a valid "bill and hold" sale, the holograms had to be "completed."  This required the holograms, which are   initially produced in "rolls," ( e.g. , like a roll of paper towels), to be slit down to smaller "reels" (like a roll of paper towels cut into thirds, for example) and then numbered and separately labeled as belonging to the customer.  ABNH knew that the Subcontractor was engaged only to manufacture  rolls  because the Subcontractor's facility lacked the capacity to slit the rolls into reels and then number the holograms.  Consequently, ABNH knew that the holograms the Subcontractor produced would not be "complete" until they were delivered to ABNH's facility and ABNH then slit, numbered, and labeled them as belonging to the customer.
+
+    As expected, the Subcontractor did not finish producing unslit, unnumbered rolls of holograms until mid-January 1998.  Not only did ABNH know that production had continued into January, it also knew that most of the rolls the Subcontractor produced were delivered to ABNH's manufacturing facility in January 1998.  Moreover, ABNH also knew that virtually all of the rolls   the Subcontractor produced   were slit and numbered at ABNH's facility in early 1998.  Nevertheless, ABNH, in December 1997, recognized revenue for all of the holograms the Subcontractor manufactured.
+
+              c) ABNH Misled ABN's Auditors To Hide Fiscal Year 1997 Fraudulent Sales 
+
+    ABN's auditors identified the $8 million "bill and hold" transaction as a major issue for its audit of ABNH's results for fiscal year 1997.   As a result, ABNH undertook to mislead ABN's auditors into believing that the holograms the Subcontractor produced were completed and had been delivered to ABNH's facility by fiscal year-end 1997.  On numerous occasions, ABNH told ABN's auditors that all of the Subcontractor's holograms had been completed and received at ABNH's facility by fiscal year-end 1997.  In addition, ABNH backdated, and changed quantities on, ABNH receiving documents, which were provided to the auditors to convince them that ABNH had received all of the Subcontractor's holograms by December 31, 1997.  ABNH then changed copies of the Subcontractor's delivery receipts, altering dates and quantities to make them consistent with the inaccurate receiving documents, and fabricated "vault receipts," which purported to show that the hologram "rolls" ABNH had received had been slit into numbered reels.  ABNH provided these documents to ABN's auditors as well.  
+
+    Also, ABNH obtained a false written confirmation from the security firm hired to provide security at the Subcontractor's facility to the effect that personnel from the security firm had witnessed ABNH pick up "reels" of holograms from the Subcontractor and that all the pickups were completed by December 31, 1997.  At ABNH's request, the security firm sent this confirmation to ABNH's auditors . 
+
+    Finally, ABNH obtained from the Subcontractor a false confirmation to ABN's auditors that falsely confirmed that the Subcontractor had manufactured "reels" of numbered holograms and that all of the holograms required under the terms of the purchase order had been manufactured, and picked up by ABNH, by December 31, 1997.
+
+    In addition to the false and misleading oral and written statements made in connection with confirming the 1997 fiscal year-end "bill and hold" transaction, ABNH also obtained two additional false audit confirmations that it provided to ABN's auditors in an effort to conceal other improperly booked fiscal year 1997 sales.  In one instance, ABNH induced the customer to which it had shipped the unusable work in process discussed above, to confirm an accounts receivable balance as of fiscal year-end 1997 that included the alleged sale of the unusable work in process the customer had returned to ABNH in early January 1998.  Also, in at least one instance involving improperly recognized revenue on a consignment sale, ABNH was able to persuade one of its customers to provide a confirmation to its auditors that misleadingly confirmed an incorrect balance receivable as of December 31, 1997.  In fact, a substantial portion of the confirmed balance receivable constituted the sales value of a large quantity of holograms that had been provided to that customer under a consignment arrangement pursuant to which the customer was only obligated to pay for those holograms it used.  ABNH also did not disclose to the auditors the "usage" invoices it sent to customers that had taken holograms on consignment, nor did it disclose the ledgers in which these invoices were recorded. 
+
+    Finally, former ABNH senior management also signed a false and misleading management representation letter in connection with the auditors' review of ABNH's fiscal year 1997 financial statements.  Among other things, the letter falsely stated that:  (1) "[t]here has been no fraud involving management or employees who have significant roles in internal controls;" (2) "[t]here are no transactions that have been improperly recorded in the accounting records underlying the financial statements;" (3) "[w]e have fully disclosed to you all sales terms including all rights of return . . .;"  and (4) "receivables at December 31, 1997 . . . do not include any amounts for goods shipped on consignment or approval."  The management representation letter also falsely confirmed that "bill and hold" sales which occurred during fiscal year-end 1996, as well as the large "bill and hold" sale which occurred in the fourth quarter of 1997, accorded with certain criteria outlined under AAER 108.
+
+           3  ABNH's Improper Recognition of Revenue on Fiscal Year 1998 Transactions 
+
+    The need to report strong  revenue and net income was never more critical than in fiscal year 1998 given ABN's decision to sell ABNH through an IPO.  Reporting sustained  revenue and earnings growth during the first quarter of fiscal 1998, the reporting period leading up to the IPO, would enhance ABNH's spin-off value and, ultimately, redound to the benefit of ABN, which intended to use the proceeds from the transaction to pay down its significant debt.  Also, reporting strong  revenue and earnings during the second and third quarters of fiscal year 1998, would solidify investor confidence in ABNH as a public company.  
+
+              a) First Quarter of Fiscal Year 1998:  Improper Revenue Recognition on Consignment Sales, Recognizing Revenue on Product that was Never Shipped, and Recognizing Revenue on Product that was Returned 
+
+    ABNH continued to recognize revenue on improperly recorded consignment sales with various customers in the first quarter of fiscal year 1998, improperly recognizing a total of approximately $1.9 million in revenue.  In addition to improperly recorded revenue on consignment sales, ABNH further inflated its revenue and net income in the months leading up to its IPO by recognizing revenue on alleged sales to customers who never received any goods and, at times, recognizing revenue on shipments  ABNH knew would be returned.  This conduct further increased ABNH's revenue by approximately $1.6 million during the first quarter of fiscal year 1998.
+
+              b) The Second and Third Quarters of Fiscal Year 1998:  Improper Revenue Recognition on Consignment Sales and on Shipments to Warehouses, Recognizing Revenue on Product that was Never Shipped, and Recognizing Revenue on Product that was Returned         
+
+    ABNH went public during its third quarter of fiscal year 1998, on or about July 15, 1998.  Its first filings as a public company were made on Form 10-Q for the second and third quarters of 1998.  During this period, ABNH improperly recognized approximately $1,397,000 in revenue for improperly recorded consignment sales.  
+
+    In addition, in June 1998, weeks before ABNH's IPO, ABNH entered into a warehousing arrangement with a third-party.  ABNH then began to ship large quantities of holograms to this third-party warehouse, as well as occasional shipments to other third-party warehouses.  ABNH recognized revenue on all these shipments, some of which involved consignment sales.  A great number of the shipments to this warehouse were made without a customer purchase order and without the customer's knowledge, authorization or approval.  ABNH, however, recognized revenue after shipping holograms to the warehouse where they sat for months.  This practice involved approximately eleven customers and amounted to improperly recognized revenue of over $5.8 million during the second and third quarters of fiscal year 1998.
+
+    During this time, separate and apart from the products placed in the third party warehouse, ABNH continued to recognize revenue in instances where the customer never issued purchase orders.  In these cases, ABNH either never shipped the holograms to these customers or shipped holograms that were returned shortly after being shipped.  In total, these practices involved seven customers and amounted to improperly recognized revenue of approximately $5 million during the second and third quarters of fiscal year 1998.  8    c) Fourth Quarter 1998
+
+    As ABNH approached its fiscal year-end, it was obvious to former senior management that the company was going to fall short of its revenue and earnings budget.  To make up for this shortfall, ABNH improperly recognized over $11.3 million in revenue on its books and records for the fourth quarter of fiscal year 1998.  9    This amount included, among other things, improperly recorded consignment sales, improperly recorded revenue on shipments to third-party warehouses, recognizing revenue on product that was never shipped, recognizing revenue on product that was returned, and recognizing revenue on the shipment of defective goods.  In one instance, ABNH shipped scrap material and empty boxes to a customer, without receiving a purchase order, and recognized revenue of almost $4 million on the alleged sale to that customer.  In another instance, ABNH shipped test material to a customer, without receiving a purchase order, and recognized revenue of nearly $2 million on the alleged sale to that customer.
+
+            4        ABNH Violated the Foreign Corrupt Practices Act 
+
+    In late 1998, ABNH also violated the anti-bribery provisions of the Foreign Corrupt Practices Act ("FCPA").  ABNH employed agents who were responsible for seeking out new business in various regions of the world.  These agents were generally compensated on a commission basis for any business they generated for the company.  In late 1998, one of ABNH's agents informed an ABNH employee of an opportunity to bid on a contract to produce holograms for a foreign government.  In an effort to win the contract, former ABNH officers authorized and directed an ABNH employee to wire $239,000 to a bank account for the benefit of one or more officials of that foreign government.  The employee wired the money as instructed and ABNH accounted for this payment as a consulting fee.  This $239,000 payment comprised nearly 40% of the contract's value and constituted an additional payment ABNH made for the purpose of influencing or affecting the acts or decisions of one or more of the foreign officials, or of the foreign government, in order to assist ABNH in obtaining or retaining business with the foreign government.
+
+           5       The Discovery of the Fraud and ABNH's Response  
+
+    In November 1998, ABNH's auditors, in the course of performing their pre-audit procedures, circulated requests for information to certain of ABNH's customers.  When the auditors received the customer responses, they discovered that some customers had invoices showing dollar amounts different from the amounts reflected on ABNH's versions of the same invoices.  This led to an inquiry by ABNH and its auditors that resulted in ABNH's Audit Committee retaining counsel to conduct an internal investigation.  
+
+    Upon learning of the improper conduct at ABNH, the company promptly reported the discovery of that conduct and its attendant accounting irregularities to the Commission staff.  The company conducted a thorough internal investigation and apprised the Commission staff of its findings and cooperated with the staff in its investigation of this matter.  All of ABNH's former senior management, including its Chairman and Chief Executive Officer, President, Vice President of Finance and Controller have resigned or have been terminated and the Company has put in place a new management team.  Former management failed to put in place proper policies and procedures and did not have a written policy prohibiting the violations of law that occurred.  The new management has instituted new policies and procedures including a written Code of Business   Conduct.  This Order and the complaint filed contemporaneously herewith relate to events that occurred in 1996,1997, and 1998, and not the current practices of ABNH.  As noted,  infra , in Section IV, the Commission considered ABNH's prompt remedial acts and cooperation in    imposing the relief set forth in this Order.
+
+    On December 22, 1999, ABNH, following the completion of its internal investigation, filed its Form 10-K for fiscal year 1998 and restated its financial statements for fiscal years 1996 and 1997, each quarter in 1997 and the first three quarters of 1998.  The effect of the restatements on ABNH's previously filed financial statements is summarized supra at Part III (B).
+
+        B) Violations
+
+           1  ABNH Violated the Antifraud, Reporting, Recordkeeping and Internal Controls Provisions of the Exchange Act  
+
+    Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, prohibit material misstatements or omissions, made with scienter, in connection with the purchase or sale of securities.   SEC v. Texas Gulf Sulphur Co. , 401 F.2d 833, 860-62 (2d Cir. 1968),  cert.   denied , 394 U.S. 976 (1969).  Scienter is the "mental state embracing the intent to deceive, manipulate or defraud."   Ernst & Ernst v. Hochfelder , 425 U.S. 185, 193 n.12 (1976).
+
+    Section 17(a)(1) of the Securities Act prohibits a person, in the offer or sale of any securities, from making untrue statements of material fact or from omitting to state material facts.   See ,  e.g. ,  U.S. v. Naftalin , 441 U.S. 768, 771-72 (1979).  In addition, Section 17(a)(2) of the Securities Act prohibits a person, in the offer or sale of any securities, from obtaining money by means of untrue statements of material fact or omissions of material fact.  Section 17(a)(3) prohibits a person, in the offer or sale of any securities, from engaging in any transaction, practice or course of business that operates or would operate as a fraud upon a purchaser.  Scienter is required to violate Section 17(a)(1) but not Sections 17(a)(2) and (a)(3).   Aaron v. SEC , 446 U.S. 680, 694 (1980).
+
+    A fact is material if there is a substantial likelihood that a reasonable investor would consider the information to be important.   Basic, Inc. v. Levinson , 485 U.S. 224, 231-32 (1988).  Misrepresentation of a company's earnings,  SEC v. Texas Gulf   Sulphur Co. , 401 F.2d 833, 849 (2d Cir. 1968),  cert.   denied , 394 U.S. 976 (1969), and the improper recognition of revenue in departure from GAAP,  see   Fine v. American Solar King Corp. , 919 F.2d 290, 297, 300-01 (5th Cir. 1990), may be material.
+
+    Section 13(a) of the Exchange Act, and Rule 13a-13 thereunder, require issuers whose securities are registered with the Commission pursuant to the Exchange Act to file quarterly reports.  Such reports must be true and correct.   See   SEC v. Savoy Industries , 587 F.2d 1149, 1165 (D.C. Cir. 1978).  Rule 12b-20 requires that such reports include all material information necessary to make the required statements, in the light of the circumstances under which they are made, not misleading.  Pursuant to the instructions applicable to Form 10-Q, financial statements contained therein must conform to Regulation S-X, which, in turn, requires conformity with GAAP.  17 C.F.R. § 210.4-01(a)(1).
+
+    Statement of Financial Accounting Concepts No. 5,  Recognition and Measurement in Financial Statements,  paragraphs 83 and 84, provides that revenue should not be recognized until it is (1) realized or realizable and (2) earned.  Revenue is realized or realizable when products are exchanged for cash or for assets that are readily convertible to cash or claims to cash.   Id .  Revenue is earned when the entity has substantially accomplished what it must do (generally including delivery to the customer) to be entitled to the benefits represented by the revenue.   Id .  ABNH recognized revenue on numerous transactions before the revenue was realized or realizable and earned. 
+
+    ABNH violated Section 17(a) of the Securities Act, Sections 10(b) and 13(a) of the Exchange Act, and Rules 10b-5, 12b-20, and 13a-13 thereunder, by filing with Commission in July 1998 a Registration Statement on Form S-1 that contained materially false and misleading financial statements for the fiscal years ended December 31, 1996 and 1997, and the quarter ended March 31, 1998, as well as unaudited operating results for fiscal year 1997 and the first quarter of fiscal year 1998, and by filing with the Commission Forms 10-Q in 1998 that contained materially false and misleading financial statements for the quarters ended June 30 and September 30, 1998.  In fiscal year 1996, ABNH improperly recognized approximately $1.9 million of revenue, resulting in approximately a $962,000, or 22% overstatement of net income.  In fiscal year 1997, ABNH improperly recognized approximately $7.8 million of revenue, resulting in approximately a $4.7 million, or 167%, overstatement of net income.  In the second quarter of fiscal year 1998, ABNH improperly recognized approximately $5.0 million of revenue, resulting in approximately a $1.9 million, or 489%, overstatement of net income, and in the third quarter of fiscal year 1998, ABNH improperly recognized approximately $5.4 million of revenue, resulting in approximately a $2.5 million, or 843% overstatement of net income.
+
+  Section 13(b)(2)(A) of the Exchange Act requires that every issuer of securities registered pursuant to Section 12 of the Exchange Act make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect its transactions and disposition of assets.  ABNH violated Section 13(b)(2)(A) of the Exchange Act by maintaining false and misleading books and records in fiscal years 1996, 1997, and 1998, which, among other things, materially overstated the company's revenue and net income in fiscal years 1996, 1997 and 1998.  Among other things, ABNH failed to properly account for consignment sales, "bill and hold" sales, and a payment for the benefit of a foreign government official, which it misleadingly characterized as a consulting fee.  Moreover, ABNH's books, records, and accounts documented a number of transactions that did not take place.
+
+  Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP.  ABNH violated Section 13(b)(2)(B) of the Exchange Act by failing to devise and maintain a system of internal accounting controls sufficient to prevent, among other things, the recording of improper consignment sales, improper "bill and hold" transactions, and outright fictitious sales.  ABNH also devised an off-line system of accounting controls to keep track of consignment sales the company made which were not recorded in conformity with GAAP.
+
+     2  The Anti-bribery Provisions of the FCPA 
+
+  Section 30A (a) of the Exchange Act, the anti-bribery provision of the FCPA, prohibits, in part, any issuer which has a class of securities registered pursuant to Section 12 of the Exchange Act or any officer, director, employee, or agent of such issuer, from making use of the mails or any means or instrumentalities of interstate commerce corruptly in furtherance of an offer, payment, promise to pay or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to (1) any foreign official for purposes of (A)(i) influencing any act or decision of such foreign official in his official capacity, or (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, (B) inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in order to assist such issuer in obtaining or retaining business for or with, or directing business to, any person.
+
+    ABNH violated Section 30A of the Exchange Act when it wired $239,000 to a foreign bank account for the purpose of influencing or affecting the acts or decisions of one or more foreign officials, or of the foreign government, in order to assist ABNH in obtaining or retaining business with the foreign government. 
+
+  Based on the foregoing, the Commission finds that ABNH violated Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(A) and (B), and 30A of the Exchange Act, and Exchange Act Rules 10b-5, 12b-20, and 13a-13.
+
+                            IV. 
+
+    In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by Respondent and cooperation afforded the Commission staff.
+
+     V.      
+
+    Based on the foregoing, the Commission deems it appropriate to accept the Respondent's Offer and to impose the relief specified therein. 
+
+    ACCORDINGLY, IT IS HEREBY ORDERED that, pursuant to Section 8A of Securities Act and Section 21C of the Exchange Act, American Bank Note Holographics, Inc. cease and desist from committing or causing any violation, and any future violation, of Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(A) and (B), and 30A of the Exchange Act, and Exchange Act Rules 10b-5, 12b-20, and 13a-13.
+
+    By the Commission 
+
+                      Jonathan G. Katz 
+
+                                 Secretary
+
+
+
+
+  
+
+ 
+ Footnotes 
+     1      The findings herein are made pursuant to the Respondent's Offer and are not binding on any other person or entity in this or any other proceeding.
+
+      2      ABN filed for Chapter 11 bankruptcy on December 8, 1999. 
+
+      3      Respondent filed a Registration Statement on Form S-1 with the Commission, in order to effect its IPO, which included audited financial statements for its fiscal years 1996 and 1997 as well as the interim 1997 quarters and the first quarter of fiscal year 1998.
+
+      4      In a departure from the general rule of revenue recognition, which holds that revenue is recognized when, among other things, delivery has occurred, a "bill and hold" transaction is generally a practice "whereby a customer agrees to purchase the goods but the seller retains physical possession until the customer requests shipment to designated locations."  In the Matter of Arthur Andersen & Co., SEC Exchange Act Release No. 17878 (June 22, 1981).  The Commission's Accounting and Auditing Enforcement Release ("AAER") Number 108 states that revenue may be recognized on  "bill and hold" sales only if certain conditions are met.  
+
+      5       For example, instead of the customers requesting that the sales occur on a "bill and hold" basis,             ABNH made the request.  Second, the holograms ABNH sold to the customers had not been                    segregated from its general inventory and identified as belonging to the customers as of December               31, 1996.    
+
+      6      The meaning of the term "reels" is discussed below.  
+
+      7      See FASB Statement of Financial Accounting Concepts No. 5, providing, in part, that "revenues are considered to have been earned when the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues."
+
+      8      One of these customers had a "bill and hold" arrangement with ABNH which ABNH abused by recognizing revenue on alleged sales to that customer without first receiving purchase orders.  
+
+      9      ABNH did not file a Form-10K for fiscal year 1998 until December 1999, after it had completed its restatement.  As a result, this improperly recognized revenue was never reported to the public.    
+
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diff --git a/raw/aaer/2001/AAER-1424.txt b/raw/aaer/2001/AAER-1424.txt
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index 0000000000000000000000000000000000000000..020025ebe36a3fd433d1186d947ae8a7ce839f98
--- /dev/null
+++ b/raw/aaer/2001/AAER-1424.txt
@@ -0,0 +1,1518 @@
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+              Mark Goldberg, C.P.A.
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+        Mark Goldberg, C.P.A.
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.   44565 / July 18, 2001     
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.   1424 / July 18, 2001     
+  ADMINISTRATIVE PROCEEDING
+ File No.3-10534
+
+          In the Matter of     
+    MARK GOLDBERG, C.P.A. 
+    Respondent.   
+      
+    : : : : : : :   
+ ORDER INSTITUTING PROCEEDINGS 
+PURSUANT TO SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 
+1934 AND RULE 102(e) OF THE 
+COMMISSION'S RULES OF PRACTICE,  
+MAKING FINDINGS, IMPOSING 
+REMEDIAL SANCTIONS, AND IMPOSING  
+A  CEASE-AND-DESIST ORDER     I.
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted against Mark Goldberg ("Respondent" or "Goldberg") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 102(e) of the Commission's Rules of Practice.  1     II.
+
+  In anticipation of the institution of these public administrative proceedings, Goldberg 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 in which the Commission is a party, and without admitting or denying the findings, except as to the Commission's jurisdiction over him and over the subject matter of the proceedings, which are admitted, Goldberg consents to the entry of this Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice, Making Findings, Imposing Sanctions, and Imposing a Cease-and-Desist Order ("Order").
+
+    III.
+
+  On the basis of this Order and Goldberg's Offer, the Commission makes the findings set forth below:  2     A.    American Bank Note Holographics, Inc. ("ABNH"), a Delaware corporation with its principal executive offices located in Elmsford, New York, during all relevant times, was engaged in the origination, production, and marketing of mass-produced secure holograms.  Until July 1998, ABNH was a wholly-owned subsidiary of American Banknote Corporation ("ABN").  
+
+  B.    ABN, during all relevant times, was a publicly traded holding company whose stock was registered pursuant to Section 12(b) of the Exchange Act and traded on the New York Stock Exchange. Through its subsidiaries, ABN, among other things, supplied stored-value telephone cards and magnetic-strip transaction cards and printed business forms, checks, and counterfeit-resistant documents of value such as money orders, passports, foreign currency, and stock and bond certificates.  3     C. On Tuesday, January 19, 1999, ABNH announced that it would restate results for the second and third quarters of 1998 and that it expected that revenues and net income for the fourth quarter of 1998 would be significantly lower than that of the fourth quarter of 1997.  ABNH's stock fell from its January 19, 1999 close of $15.125, to a January 20, 1999 close of $4.625, losing 69.4% of its value in a single day's trading.  ABN's stock fell from its January 19, 1999 close of $1 5/16, to a January 20, 1999 close of $1 1/8, losing 14.3% of its value during that trading day.  On Monday, January 25, 1999, ABNH announced that it would restate its results for each of the first three quarters of 1998 and that its financial statements as of December 31, 1997, and December 31, 1996, and the related Report of Independent Auditors, should no longer be relied upon.  Following a day of suspension from trading on January 25, ABNH closed at $1 13/16, more than 50% lower than the previous trading day's close.  ABN's stock,also suspended for a day, then closed at $15/16, approximately 12% lower than the previous trading day's close.
+
+  D. Mark Goldberg, age 36, served as Controller for ABNH from 1993 until he resigned from the company in June 1997.  Goldberg is, and at all relevant times was, a Certified Public Accountant, licensed in Massachusetts. 
+
+  E.    On January 30, 1997, Goldberg, at the behest of his superiors, accrued $1,435,250 in revenue for fiscal year 1996.  Two "bill and hold" sales, one for $231,000 and the other for $404,250, accounted for $635,250 in revenue, while research and development work ABNH had performed in 1996 for a foreign customer accounted for the remaining $800,000 in revenue.  Goldberg recorded these transactions, which he knew, or was reckless in not knowing, were fraudulent, through a journal entry he made after he had already closed ABNH's books for fiscal year 1996 and provided work papers to ABN's auditors.
+
+  F.    In a departure from the general rule of revenue recognition, which holds that revenue is recognized when, among other things, delivery has occurred, a "bill and hold' transaction is generally a practice whereby a customer agrees to purchase the goods but the seller retains physical possession until the customer requests shipment to designated locations.  The Commission's Accounting and Auditing Enforcement Release Number 108 ("AAER No. 108") states that revenue may be recognized on "bill and hold" sales only if certain conditions are met.  
+
+  G.    Accruing $635,250 in revenue in fiscal year 1996 for the two "bill and hold" transactions was improper because as Goldberg knew, or was reckless in not knowing, ABNH and the customers had not entered into these sales on or before fiscal year-end and the two transactions did not meet the criteria for recognizing revenue for "bill and hold" sales under the Commission's AAER No. 108.  First, instead of the customer requesting that the sales occur on a "bill and hold" basis, ABNH made the request.  Second, the holograms ABNH sold to these customers had not been segregated from ABNH's  inventory and identified as belonging to the customers as of fiscal year-end 1996.  Also, as for the $404,250 sale, Goldberg knew, or was reckless in not knowing, that this transaction was completely fabricated.  No purchase order, invoice, or shipping documents were ever generated and ABNH subsequently reversed the sale in the first quarter of 1997.  
+
+  H.    Accruing $800,000 in revenue for fiscal year 1996 for research and development work ABNH had performed for a foreign customer was improper because, as Goldberg knew, or was reckless in not knowing, as of fiscal year-end 1996, ABNH had neither billed its customer for this amount nor received payment of this amount.  More importantly, however, Goldberg's recognition of revenue for this work was improper because, as Goldberg knew, or was reckless in not knowing, ABNH's customer, to the extent it had any obligation to pay this sum, did not have an unconditional obligation to pay ABNH $800,000 as of fiscal year-end 1996.  Payment of the $800,000 obligation was contingent, at a minimum, upon certain approvals being obtained from government officials.  This had not occurred as of December 31, 1996 and, in fact, the government officials never gave the required approvals.
+
+  I.    In the course of auditing ABN, ABN's auditors generally deployed a separate team of auditors to ABNH to audit its books.  Certain members of the ABNH audit team would then participate in the ABN corporate audit.  In connection with the audit, Goldberg, at the direction of his superiors, sent out audit confirmations, under his signature, to the customers involved in the transactions referred to above.  Goldberg asked the customers to confirm these transactions even though he knew, or was reckless in not knowing, that the transactions were fraudulent.  In particular, the confirmations for the two "bill and hold" transactions required the customers to confirm, as of year-end 1996, that the transactions met certain of the criteria set forth in AAER 108, which Goldberg knew, or was reckless in not knowing, was false.  
+
+  J.    As a consequence of the conduct described above, ABN filed with the Commission, on March 27, 1997, an annual report on Form 10-K for fiscal year 1996, which Goldberg knew, or was reckless in not knowing, contained materially false and misleading financial statements.  As a result, ABN's fiscal year 1996 financial statements overstated its net income by 31% and ABN violated Sections 10(b), 13(a), and 13(b)(2)(A) and (B) of the Exchange Act, and Rules 10b-5, 12b-20, and 13a-1 thereunder.  Also, certain ABN officers violated Rule 13b2-2 of the Exchange Act by making materially false and misleading statements to ABN's independent auditor in connection with its audit of ABN's financial statements for fiscal year 1996.
+
+  K.    By overstating ABNH's revenues and sending out false audit confirmations, Goldberg willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, in that he directly or indirectly, in connection with the purchase or sale of the securities of ABN, (1) employed devices, schemes or artifices to defraud, (2) made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, or (3) engaged in acts, practices or courses of business which would or did operate as a fraud or deceit upon purchasers of the securities of ABN. 
+
+
+
+  L.    Goldberg willfully violated Section 13(b)(5) of the Exchange Act, and Rule 13b2-1 thereunder, by knowingly circumventing a system of internal accounting controls and knowingly falsifying books, records or accounts described in Section 13(b)(2) of the Exchange Act.  Specifically, Goldberg made false entries in ABN's accounting system when he accrued revenue for "bill and hold" sales and research and development expenses through a manual journal entry on January 30, 1997 and also sent out false audit confirmations with respect to those transactions.
+
+  M.    Goldberg caused ABN's violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder because he knew that by misstating ABNH's revenue for fiscal year 1996 by over $1.4 million, ABN would misstate its revenue and earnings in its annual report on Form 10-K for fiscal year 1996.  
+
+  N.    Goldberg caused ABN's violations of Sections 13(b)(2)(A) and (B) of the Exchange Act by failing to keep books, records and accounts, which, in reasonable detail, accurately and fairly reflected the transactions and dispositions of its assets, and by failing to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions were recorded asnecessary to permit preparation of financial statements in conformity with generally accepted accounting principles.  Specifically, Goldberg made false entries in ABN's accounting system when he accrued revenue for "bill and hold" sales and research and development expenses through a manual journal entry he made on January 30, 1997 and also sent out false audit confirmations with respect to those transactions.  
+
+  O.    Goldberg caused violations of Rule 13b2-2 of the Exchange Act by certain ABN officers by overstating ABNH's revenues, sending out false audit confirmations, and making materially false and misleading statements to ABN's independent auditor in connection with its audit of ABN's financial statements for fiscal year 1996.  
+
+  P.    Based on the foregoing, Goldberg willfully violated, and willfully aided and abetted the violation of, provisions of the Federal securities laws and the rules thereunder within the meaning of Rule 102(e)(1)(iii) of the Commission's Rules of Practice.  
+
+  IV.
+
+      Goldberg has submitted an Offer of Settlement in which, without admitting or denying the findings herein, he consents to the Commission's entry of this Order, which: (1) makes findings, as set forth above; (2) orders Goldberg to cease and desist from committing or causing any violation, or any future violation, of certain provisions of the federal securities laws, as set forth below; and (3) denies Goldberg the privilege of appearing or practicing before the Commission as an accountant.  As set forth in Goldberg's Offer of Settlement, Goldberg undertakes to cooperate with Commission staff 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. 
+
+  V.
+
+   In view of the foregoing, the Commission deems it appropriate to accept the Offer submitted by Goldberg and impose the relief specified therein.  Accordingly, IT IS HEREBY ORDERED that Goldberg cease and desist from committing or causing any violation, or any future violation, of  Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and that Goldberg cease and desist from causing any violation, or any future violation, of Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act, and Rules 12b-20 and 13a-1 thereunder.  
+
+  IT IS HEREBY FURTHER ORDERED that Goldberg shall comply with his undertaking described in Section IV. above.
+
+  IT IS HEREBY FURTHER ORDERED, effective immediately, that:  
+
+  A.     Goldberg is denied the privilege of appearing or practicing before the Commission as an accountant.
+
+  B.     After three (3) years from the date of this order, Goldberg 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 Goldberg'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) Goldberg, or any firm with which he is or becomes associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section"); (b) Goldberg, or the firm, has received an unqualified report relating to his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and (c) as long as Goldberg appears or practices before the Commission as an independent accountant, he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education. 
+
+  C.     The Commission's review of any application by Goldberg to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Goldberg's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.  
+
+  By the Commission 
+
+                Jonathan G. Katz 
+               Secretary
+  
+
+ 
+ Footnotes 
+     1       Paragraph 1 of Rule 102(e) provides, in relevant part, that: 
+
+   The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice and opportunity for hearing in the matter:  . . . (iii) [t]o have willfully violated, or willfully aided and abetted the violation of any provision of the Federal securities laws or the rules and regulations thereunder.   
+
+      2       The findings herein are made pursuant to Goldberg's Offer and are not binding on any other person or entity in this or any other proceeding.
+
+      3       ABN filed for Chapter 11 bankruptcy on December 8, 1999.     
+
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diff --git a/raw/aaer/2001/AAER-1425.txt b/raw/aaer/2001/AAER-1425.txt
new file mode 100644
index 0000000000000000000000000000000000000000..80d531bd20a6d2c4127276df048064a2af123dc2
--- /dev/null
+++ b/raw/aaer/2001/AAER-1425.txt
@@ -0,0 +1,1423 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | American Bank Note Holographics, 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}(); 
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+              American Bank Note Holographics, Inc.
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+ LITIGATION RELEASE NO. 17068  \ July 18, 2001                 
+
+  ACCOUNTING AUDITING ENFORCEMENT RELEASE NO. 1425
+
+  SEC v. MORRIS WEISSMAN, JOSHUA CANTOR, JOHN GORMAN, and PATRICK GENTILE, Civil Action No. 01 CV 6449 (JSR)(S.D.N.Y. July 18, 2001)
+
+  SEC v. AMERICAN BANKNOTE CORPORATION, Civil Action No. 01 CV 6450 (JSR) (S.D.N.Y. July 18, 2001)
+
+  SEC v. AMERICAN BANK NOTE HOLOGRAPHICS, INC., Civil Action No. 01 CV 6453 (JSR) (S.D.N.Y. July 18, 2001)
+
+  SEC v. RICHARD MACCHIARULO, Civil Action No. 01 CV 6454 (JSR) (S.D.N.Y. July 18, 2001)
+
+  SEC v. ANTONIO ACCORNERO and RUSSELL MCGRANE, Civil Action No. 01 CV 6452 (JSR) (S.D.N.Y. July 18, 2001)
+
+  In the Matter of AMERICAN BANK NOTE HOLOGRAPHICS, INC., Administrative Proceeding File No. 3-10532
+
+  In the Matter of MARK GOLDBERG, CPA, Administrative Proceeding No.  3-10534
+
+  In the Matter of JOHN LERLO, Administrative Proceeding No.  3-10533
+
+  SEC FILES FINANCIAL FRAUD ACTION AGAINST CURRENT AND FORMER SENIOR OFFICERS AND DIRECTORS OF AMERICAN BANKNOTE CORPORATION, AND FORMER SENIOR OFFICERS AND DIRECTORS OF AMERICAN BANK NOTE HOLOGRAPHICS, INC. - FRAUD SUITS INSTITUTED AND SETTLED AGAINST AMERICAN BANKNOTE CORPORATION, AMERICAN BANK NOTE HOLOGRAPHICS, INC., AND OTHERS  
+
+  The Securities and Exchange Commission today filed suit in the United States District Court for the Southern District of New York against current and former senior officers and directors of American Banknote Corporation ("ABN") and/or American Bank Note Holographics, Inc. ("ABNH") for violations of the antifraud, periodic reporting, record keeping, internal controls and lying to auditors provisions of the federal securities laws.  The Complaint alleges that beginning with fiscal year 1996, and continuing through fiscal year 1998, the four defendants engaged in a systematic, fraudulent scheme to inflate the revenues and net income of ABNH and its publicly-held parent, ABN, in order to meet earnings forecasts and to condition the market for an initial public offering of stock by ABNH. 
+
+  Named as defendants in the Complaint are Morris Weissman, the former chairman of the board and chief executive officer of ABNH and the former chairman, chief executive officer, and director of ABN, Joshua Cantor, the former executive vice president and general manager of ABNH and, later, its president and a director, John Gorman, the former executive vice president and chief financial officer of ABN, and Patrick Gentile, currently a vice president and the chief accounting officer of ABN and, formerly, ABN's corporate controller.
+
+  ABN is a holding company, incorporated in Delaware with its principal offices located in New York, New York, which, through its subsidiaries, provides, among other things, stored-value telephone cards, magnetic-strip transaction cards, printed business forms, and checks.  ABNH, a Delaware Corporation with its principal executive offices located in Elmsford, New York, is engaged in the origination, production, and marketing of mass-produced secure holograms.  ABNH remained a wholly owned subsidiary of ABN until its initial public offering in July 1998.
+
+  In related actions, the Commission also filed settled antifraud injunctive actions against ABN, Richard Macchiarulo, the former vice president, finance, of ABNH, and Antonio Accornero and Russell McGrane, officers of Colorado Plasticard, Inc., an ABNH customer.  The Commission also instituted and simultaneously settled administrative proceedings against ABNH, Mark Goldberg, ABNH's former controller, and John Lerlo, an ABNH plant manager. 
+
+  The U.S. Attorney's Office for the Southern District of New York, on the same day, announced the handing up of an indictment against Weissman.  Also, Cantor is expected to plead guilty to a four count information charging that he conspired to commit securities fraud, falsified corporate books and records, provided false statements to auditors, and violated the Foreign Corrupt Practices Act.  Macchiarulo is expected to plead guilty to a three count information charging that he conspired to commit securities fraud, falsified corporate books and records, and provided false statements to auditors.
+
+  The Complaint against Weissman, Cantor, Gorman, and Gentile alleges that: 
+   - During the third and fourth quarters of fiscal year 1996, Cantor, with the knowledge of Weissman, caused ABNH improperly to recognize revenue totaling approximately $645,000 on consignment sales to Colorado Plasticard and Gemplus Corp., USA.  In addition, on or about January 30, 1997, in order to make it appear that ABN had met its earnings per share goals for fiscal year 1996, Cantor, Gorman, and Gentile, with the knowledge of Weissman, caused ABNH to accrue approximately $635,250 in revenue for fiscal year 1996 on two fraudulent "bill and hold" sales, one to Colorado Plasticard and the other to Gemplus.  In addition, the defendants caused ABNH to accrue $800,000 in fraudulent revenue for research and development ("R&D") work it had performed for Kokusai Medicom Corporation ("KMC"), a Japanese customer.  
+
+  - To convince ABN's auditors that the 1996 fiscal year end "bill and hold" and KMC transactions were proper, Cantor secured audit confirmations from Colorado Plasticard, Gemplus, and KMC that the defendants knew, or were reckless in not knowing, were false.  In addition, Weissman, Gorman, and Gentile signed a management representation letter, given to ABN's auditors during ABN's fiscal year 1996 audit, that they knew, or were reckless in not knowing, was materially false and misleading. 
+
+  - In fiscal year 1997, Cantor, with Weissman's knowledge, caused ABNH improperly to recognize revenue of over $1.8 million on consignment sales and to recognize improperly revenue of approximately $1.3 million on a December 31, 1997 shipment of unusable work in process to Colorado Plasticard that Cantor and Weissman knew, or were reckless in not knowing, would be returned to ABNH in fiscal year 1998.   
+
+  - In addition, in December 1997, Weissman and Cantor caused ABNH to fraudulently recognize approximately $6 million in revenue on a "bill and hold" sale to MasterCard when they knew, or were reckless in not knowing, that the holograms sold had not actually been completed by the subcontractor, Crown Roll Leaf, by December 31, 1997.  Thereafter, in connection with ABN's fiscal year 1997 audit, Weissman and Cantor misled ABN's auditors into believing that the holograms Crown Roll produced were completed, and delivered to ABNH's facility, by December 31, 1997.  
+
+  - In addition to the false and misleading statements made to confirm the MasterCard transaction, Cantor obtained false audit confirmations from Colorado Plasticard (which Weissman knew about) and Gemplus, which were given to ABN's auditors to conceal fraudulent fiscal year 1997 sales.  Also, during the audit, Weissman, Cantor, Gorman, and Gentile provided to ABN's auditors a management representation letter that they knew, or were reckless in not knowing, was false and misleading.
+
+  - In fiscal year 1998, Cantor, with Weissman's knowledge, caused ABNH fraudulently to recognize approximately $26 million in revenue through consignment sales, shipments to warehouses, and sales of product that was never shipped, that was returned, and that was test material.  In addition, in late 1998,Weissman and Cantor violated the anti-bribery provisions of the federal securities laws by causing ABNH to pay $239,000 to a Swiss bank account for the purpose of influencing or affecting the acts or decisions of one or more Saudi Arabian officials, or the Saudi Arabian government, to assist ABNH in obtaining or retaining business with that government.  
+   In its Complaint, the Commission requests that the Court issue a final judgment of permanent injunction and other relief restraining and enjoining Weissman, Cantor, Gorman, and Gentile from violating and/or aiding and abetting violations of the antifraud, periodic reporting, record keeping, internal controls and lying to auditors provisions of the federal securities laws and, as to Weissman and Cantor, violating the anti-bribery provisions of the federal securities laws.  The Commission also is seeking an order that Weissman and Cantor be prohibited from acting as an officer or director of a public company, that the defendants disgorge certain compensation and trading profits, and that the defendants pay civil penalties.
+
+  SEC SETTLES FRAUD CHARGES WITH ABN AND ABNH
+
+  In a related action, the Commission filed a settled injunctive action against ABN pursuant to which ABN, without admitting or denying the allegations of the Complaint, consented to an order permanently restraining and enjoining it from violating the antifraud, periodic reporting, record keeping, and internal controls provisions of the federal securities laws.  The Commission also instituted and simultaneously settled an administrative cease-and-desist proceeding against ABNH pursuant to which ABNH, without admitting or denying the Commission's findings, consented to an order requiring it to cease and desist from committing or causing any violation, and any future violation, of the antifraud, periodic reporting, record keeping, internal controls, and anti-bribery provisions of the federal securities laws.  In connection with this settlement the Commission filed a civil penalty proceeding and ABNH, without admitting or denying the allegations of the Commission's Complaint, has consented to pay a $75,000 civil penalty for its violation of the anti-bribery provisions of the federal securities laws. 
+
+    SEC SETTLES WITH MACCHIARULO, GOLDBERG, AND LERLO WITH RESPECT TO VIOLATIONS ARISING FROM THEIR CONDUCT AT ABNH
+
+  Richard Macchiarulo, without admitting or denying the Commission's allegations, has consented to the entry of a Final Judgment settling the Commission's Complaint against him.  The Complaint alleges that with regard to fiscal year 1997, Macchiarulo caused ABNH to recognize improperly $1.3 million in revenue on the shipment of unusable work in process to Colorado Plasticard and approximately $6 million in revenue on the MasterCard transaction.  The Complaint also alleges that Macchiarulo misled ABN's auditors in connection with their efforts to confirm the MasterCard transaction and that Macchiarulo was aware Colorado Plasticard signed a false audit confirmation with respect to the shipment of unusable work in process at fiscal year-end 1997.  The Complaint further alleges that Macchiarulo signed the management representation letter in connection with the fiscal 1997 audit knowing that the letter was false and misleading.
+
+  The Complaint also alleges that with regard to fiscal year 1998, Macchiarulo caused ABNH to recognize improperly over $5.8 million in revenue on consignment sales and shipments to warehouses during the second and third quarters and that during the fourth quarter, Macchiarulo caused ABNH to record improperly over $11.3 million in revenue on its books and records for, among other things, consignment sales, shipments to warehouses, product that was never shipped, product that was returned, and test material.  Finally, the Complaint alleges that Macchiarulo told a friend in December 1998, that it would be a good time for the friend to sell his ABNH stock.  According to the Complaint, Macchiarulo's friend then sold his stock and avoided losses of $16,218.
+
+  Macchiarulo consented to an order permanently restraining and enjoining him from violating and/or aiding and abetting violations of the antifraud, periodic reporting, record keeping, internal controls and lying to auditors provisions of the federal securities laws.  Macchiarulo also consented to be prohibited, for a period of ten years, from acting as an officer or director of a public company, agreed to pay disgorgement, including prejudgment interest, in the amount of  $19,412.82, representing the losses his tippee avoided, and agreed to pay a $8,109 civil penalty pursuant to the Insider Trading Sanctions Act of 1984.  Following the entry of an injunction, Macchiarulo also has consented to the entry of a Commission Order pursuant to Rule 102(e) of the Commission's Rules of Practice, permanently suspending him from appearing or practicing before the Commission as an accountant.
+
+  The Commission also instituted and simultaneously settled an administrative cease-and-desist and Rule 102(e) proceeding against Mark Goldberg, ABNH's controller from 1993 through June 1997.  The Commission found that Goldberg was directly involved in recognizing revenue for, and then confirming to ABN's auditors, the Colorado Plasticard, Gemplus, and KMC transactions which he knew, or was reckless in not knowing, were fraudulent.  Without admitting or denying the Commission's findings, Goldberg consented to an order requiring him to cease and desist from committing and/or causing any violation, or any future violation, of the antifraud, periodic reporting, record keeping, internal controls and lying to auditors provisions of the federal securities laws.  Goldberg also agreed to be denied the privilege of appearing or practicing before the Commission as an accountant, with a right to apply for reinstatement in three years.  
+
+  The Commission also instituted and simultaneously settled an administrative cease and desist proceeding against John Lerlo, an ABNH plant manager, for his role in altering documents and creating false memoranda related to the MasterCard transaction.  Without admitting or denying the Commission's findings, Lerlo consented to an order requiring him to cease and desist from committing and/or causing any violation, and any future violation, of the antifraud, periodic reporting, record keeping, internal controls and lying to auditors provisions of the federal securities laws.
+
+  SEC SETTLES WITH ANTONIO ACCORNERO AND RUSSELL MCGRANE, OFFICERS OF COLORADO PLASITCARD, FOR AIDING AND ABETTING FRAUD 
+
+  The Commission also filed a settled injunctive action against Antonio Accornero, president of Colorado Plasticard, and Russell McGrane, CFO of Colorado Plasticard.  In its Complaint, the Commission alleged that Accornero and McGrane aided and abetted ABN's violations by assisting ABNH in recognizing, and then confirming to ABN's auditors, the fraudulent "bill and hold" sale for fiscal year 1996 and the $1.3 million sale of unusable work in process for fiscal year 1997.  Without admitting or denying the allegations of the Complaint, Accornero and McGrane consented to being permanently restrained and enjoining from violating, or aiding and abetting violations of, the antifraud, periodic reporting, and lying to auditors provisions of the federal securities laws, and each agreed to pay a $20,000 civil penalty.
+
+  ***
+
+  The Commission's investigation that led to these actions was conducted in cooperation with the United States Attorney's Office for the Southern District of New York.
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diff --git a/raw/aaer/2001/AAER-1427.txt b/raw/aaer/2001/AAER-1427.txt
new file mode 100644
index 0000000000000000000000000000000000000000..88a83f22a8bc7f614b27cf4072a8611dba6592b4
--- /dev/null
+++ b/raw/aaer/2001/AAER-1427.txt
@@ -0,0 +1,1373 @@
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+        Edward J. Kiley and Richard N. Orzechowski
+       
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+
+ LITIGATION RELEASE NO. 17074 / July 23, 2001
+
+  ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1427 /JULY 23, 2001
+
+   SECURITIES AND EXCHANGE COMMISSION v. EDWARD J. KILEY and RICHARD N. ORZECHOWSKI , Case No. S-01-CV-2146  (U.S.D.C., District of Maryland) 
+
+  SEC FILES ACCOUNTING FRAUD CHARGES AGAINST 
+ TWO FORMER OFFICERS OF ALCORE, INC. 
+
+      On July 23, 2001, the Commission filed a civil injunctive action in the United States District Court for the District of Maryland, charging Edward J. Kiley and Richard N. Orzechowski with securities fraud and related charges.  Kiley is the former chief executive officer, and Orzechowski the former chief financial officer, of Alcore, Inc., a Maryland-based subsidiary of Advanced Technical Products, Inc. ("ATP"), a publicly-traded aerospace equipment manufacturer headquartered in Roswell, Georgia.  The Commission's complaint alleges that Kiley and Orzechowski directed and actively participated in a financial fraud at Alcore throughout Alcore's 1998 and 1999 fiscal years.  The fraud they directed at Alcore, according to the complaint, involved the systematic understatement of expenses and overstatement of assets and revenues, and was achieved primarily by improperly capitalizing expenses, improperly and prematurely recognizing revenue, overvaluing inventory, and understating cost of goods sold.  The complaint further charges that Kiley and Orzechowski artificially altered Alcore's financial statements to achieve pre-determined results, and misled ATP's auditors to conceal their fraud.  It also alleges that, while the fraud was ongoing, Kiley sold a total of 3,000 shares of ATP stock at prices artificially inflated by Alcore's fraudulent financial results, which were consolidated into the financial statements ATP included in its public filings with the Commission and its quarterly earnings releases.   
+
+    In May 2000, as a direct result of the fraud at Alcore, ATP restated its financial statements for the 1998 fiscal year (including each fiscal quarter of the year) and for the first three quarters of its 1999 fiscal year.  The cumulative impact of the restatement was to reduce ATP's net income for its 1998 fiscal year from $5,687,000 (as originally reported) to $3,999,000 (as restated), and its net income for the first three quarters of its 1999 fiscal year from $4,906,000 (as originally reported) to a net  loss  of $229,000 (as restated).  Thus, because of the fraud at Alcore, approximately 30% of ATP's reported earnings for fiscal year 1998 were overstated, and approximately 105% of its reported earnings for fiscal year 1999 were overstated.  After ATP gradually disclosed the accounting problems at Alcore in early 2000, and ultimately quantified the necessary restatements in May 2000, ATP's stock price steadily plummeted from $14 per share in early January to less than $2 per share in August 2000.
+
+
+
+    The Commission charged both Kiley and Orzechowski with securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder.  Kiley and Orzechowski were also charged with knowingly falsifying the books, records, and accounts of Alcore and ATP in violation of Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1, and with misleading ATP's auditors in violation of Exchange Act Rule 13b2-2.  The Commission also charged Kiley with fraud in violation of Section 17(a) of the Securities Act based on his sales of ATP stock before the fraud at Alcore was publicly disclosed.  The Commission is seeking injunctions, civil penalties, and officer-and-director bars against both Kiley and Orzechowski, and is also seeking disgorgement, with interest, of Kiley's profits from his unlawful sales of ATP stock.
+
+    In related proceedings, the United States Attorney's Office for the District of Maryland simultaneously announced the filing of criminal charges against Kiley and Orzechowski.  Kiley was charged with securities fraud, conspiracy to file a false report with the Commission, and causing false quarterly financial statements to be filed with the Commission; while Orzechowski was charged with conspiracy to file false financial statements with the Commission.
+
+    The Commission's investigation of this matter is continuing.
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diff --git a/raw/aaer/2001/AAER-1428.txt b/raw/aaer/2001/AAER-1428.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f7ce7b2d46983dc492d0c7149df2c6988683bb7b
--- /dev/null
+++ b/raw/aaer/2001/AAER-1428.txt
@@ -0,0 +1,1568 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
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+     
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+     SEC.gov | Pat A. Rossetti and Jeffrey M. Yonkers 
+     
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+     
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+                                                                                                                                                                                                                                                                                                                                                 
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+           
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+              Pat A. Rossetti and Jeffrey M. Yonkers
+           
+     
+ 
+
+   
+
+     
+
+      
+      
+             
+        Pat A. Rossetti and Jeffrey M. Yonkers
+       
+
+             
+   
+
+
+        
+                   
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+    
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+
+   
+
+             
+                        
+              SECURITIES EXCHANGE ACT OF 1934 
+Release No. 44606 / July 27, 2001 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1428 / July 27, 2001 
+
+ ADMINISTRATIVE PROCEEDING 
+File No. 3-10354 
+
+  
+
+ 
+	 
+		 
+			 
+			 
+			 In the Matter of 
+
+			 JEFFREY M. YONKERS, CPA, 
+
+			 Respondent. 
+
+			  
+
+			  
+			 
+			 : 
+			: 
+			: 
+			: 
+			: 
+			: 
+			 
+			 ORDER MAKING FINDINGS AND IMPOSING 
+			REMEDIAL SANCTIONS AND CEASE-AND- 
+			DESIST ORDER, AND IMPOSING 
+			SANCTIONS PURSUANT TO 
+			RULE 102(e) OF THE COMMISSION'S 
+			RULES OF PRACTICE 
+		 
+	 
+ 
+
+ I. 
+
+ On October 31, 2000, the Securities and Exchange Commission ("Commission") instituted public administrative and cease-and-desist proceedings pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 102(e)(1)(ii) and (iii) of the Commission's Rules of Practice against Jeffrey M. Yonkers ("Yonkers").  1   
+
+ Following the institution of those proceedings, Yonkers submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, Yonkers consents to the entry of this Order Making Findings and Imposing Remedial Sanctions and Cease-and-Desist Order, and Imposing Sanctions Pursuant to Rule 102(e) of the Commission's Rules of Practice ("Order") without admitting or denying the findings set forth herein, except as to the jurisdiction of the Commission over him and over the subject matter of these proceedings, which are admitted. 
+
+ The Commission has determined that it is appropriate to accept Yonkers' Offer and accordingly is issuing this Order. 
+
+ II. 
+
+ On the basis of this Order and the Offer, the Commission finds  2   the following: 
+
+ A. Respondent Jeffrey M. Yonkers, 30, is a resident of Sayville, New York. Yonkers became licensed as a CPA in 1994. He is a member of the AICPA and of the New York Association of CPAs. Yonkers became employed by Marcum & Kliegman ("M&K") in June 1996. He left M&K in May 1999 to take a position as controller with a closely-held company that is a current client of M&K. 
+
+ B. Detour Magazine, Inc. ("Detour") is a Colorado corporation headquartered in Los Angeles, California. Its common stock has been registered with the Commission pursuant to Section 12(g) of the Exchange Act since 1995 and is quoted on the OTC Bulletin Board. The company has filed periodic reports with the Commission since January 1994. 
+
+ C. In 1996 Detour hired M&K as its independent audit firm. M&K audited and issued reports on the financial statements of Detour for the calendar years ended 1995 through 1998. Yonkers acted as a senior auditor on the 1997 audit and as a supervisor on the 1998 audit. 
+
+ D. In the summer of 1997, Barry H. Peterson-Ross ("Ross") joined Detour as a consultant and was subsequently hired as the company's Chief Financial Officer. One of his first tasks was the preparation of Detour's Form 10-QSB filing for the quarter ended July 31, 1997. Detour's books and records were structured so that the company could not easily break down income and expenses by the quarter in which they were accrued, making preparation of quarterly financial statements difficult. 
+
+ E. Rather than correcting Detour's books so that actual quarterly results of the company's operations could be reported, Ross used fractions ("fractionalized financial statements") of the line item entries appearing in financial statements for the seven months ended July 31, 1997, which had been prepared for Detour's internal use. Using this methodology, Ross prepared the financial statements included in Detour's Form 10-QSB for the quarter ended July 31, 1997 by taking 3/7ths of each line item number contained in Detour's income statement for the seven months ended July 31, 1997. 
+
+ F. Ross continued preparing fractionalized financial statements throughout 1997 following their change to a calendar year end, and these financial statements were included in Detour's quarterly reports on Form 10-QSB. These fractionalized financial statements also appeared, for comparative purposes, in subsequent Forms 10-QSB, through and including Detour's quarter ended September 30, 1998. In all, six of Detour's Forms 10-QSB contained fractionalized financial statements. In addition, in or about November 1997, Detour effected a private placement of its common stock, and fractionalized financial statements were included in the private offering memorandum the company sent to potential investors in connection with that offering. 
+
+ G. Yonkers knew that Ross had included fractionalized financial statements in Detour's Form 10-QSB for the quarter ended July 31, 1997, and knew or should have known that Detour was continuing to use fractionalized financial statements in Detour's Forms 10-QSB. In the course of conducting the audit, Yonkers failed to notify Detour's management or board of directors (other than Ross) of the illegal acts of filing fractionalized financial statements in Detour's Form 10-QSB for the quarter ended July 31, 1997, and subsequent quarters. 
+
+ H. The audited financial statements for the year ended December 31, 1997 contained in Detour's Form 10-KSB omitted to include an expense related to a 1997 transaction in which the company issued stock options to consultants. 
+
+ I. In June 1997, Detour hired an Internet public relations firm called StockPlayer.com, Inc. ("StockPlayer"). StockPlayer arranged for Detour to hire seven consultants to perform services for Detour; most of these consultants were offshore entities. Detour paid the consultants by issuing them options to purchase a total of 2.2 million shares of Detour stock (the "consultant options"). These arrangements were memorialized by consulting agreements dated June 9, 1997, which provided, among other things, that the exercise price of the options would be $.01 a share. The consultants exercised their options as to all the shares in 1998. At the time the consulting agreements were signed, Detour's stock was not yet trading publicly. 
+
+ J. Within three days of granting the consultant options at an exercise price of $.01 a share, Detour granted an option for 2 million shares to another entity, Anchor Capital Management Ltd. ("Anchor"), at an exercise price of $1.50 a share. 
+
+ K. In or about November 1996 Detour effected a private placement of its common stock. In this offering the company sold its shares for net proceeds of approximately $.70 a share. 
+
+ L. In or about November 1997 Detour effected a second private placement of its common stock at a price of $1.50 a share. 
+
+ M. On December 9, 1997, Detour's common stock began trading on the OTC Bulletin Board at $1.00 bid $1.50 ask. 
+
+ N. In its financial statements, Detour accounted for the consultant options by recording the exercise price of the consultant options, at $.01 a share, but failed to record as an expense the difference between the fair value of the stock and the exercise price, as measured on the date the options were granted, as required by Generally Accepted Accounting Principles ("GAAP"). 
+
+ O. If Detour had properly recorded the consultant options transaction in conformity with GAAP, it would have recognized an expense on its statement of operations. The amount of this expense would have been the difference between the $.01 a share exercise price and the fair value of the stock underlying the options on the date the options were issued. 
+
+ P. This expense should have been reflected in the financial statements, which were audited by Yonkers and others at M&K, and were contained in Detour's 1997 Form 10-KSB. The expense would also have increased Detour's accumulated deficit for the year ended December 31, 1997, and subsequent years. 
+
+ Q. Yonkers knew or had reason to know that the price of the consultant options was below the fair value of the stock. Yonkers knew, through personal knowledge, or through Detour's filings with the Commission, of the private offerings of Detour stock in 1996 at $.70 a share and 1997 at $1.50 a share. In addition, both the Anchor option and the consulting options were disclosed in the company's 1997 Form 10-KSB and in its Form 8-K dated June 29, 1997. The Form 8-K discusses the Anchor transaction, including the exercise price, which was characterized as having been established at $1.50 a share through arms length negotiations. Yonkers discussed the valuation of the options with Pat A. Rossetti, the manager on the 1997 audit. 
+
+ R. In the course of the audit of Detour's December 31, 1997 financial statements, Yonkers obtained a copy of a consent of the board of directors, which described and approved both the consultant option and Anchor option transactions. 
+
+ S. Detour's financial statements, as audited by Yonkers and others at M&K, failed to record an expense associated with the issuance of the stock options. Consequently, those financial statements, as contained in Detour's filings with the Commission during 1997 and 1998, materially misrepresented the company's financial condition and results of operations. 
+
+ T. Based on the conduct set forth above, the Commission finds that Respondent Yonkers has willfully violated Section 10A  3   of the 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, and has engaged in improper professional conduct. 
+
+ U. Yonkers recklessly engaged in improper professional conduct and willfully violated, or willfully aided and abetted the violation of, provisions of the Federal securities laws and rules, for purposes of Rule 102(e)(1)(ii) and (iii) respectively, of the Commission's Rules of Practice. 
+
+ III. 
+
+ In view of the foregoing, it is in the public interest to impose the sanction agreed to in the Offer. 
+
+ Accordingly, it is hereby ordered, effective immediately, that: 
+
+ A. Yonkers cease and desist from committing or causing any violation and any future violation of Section 10A of the Exchange Act. 
+
+ B. Yonkers is denied the privilege of appearing or practicing before the Commission as an accountant. 
+
+ C. After one year from the date of this Order, Yonkers 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 application must satisfy the Commission that Yonkers' work in his practice before the Commission will be reviewed either by the independent audit committee of the 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 application must satisfy the Commission that: 
+
+ 
+	 
+	 a. Yonkers, or the firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section"); 
+
+	 b. Yonkers, or the firm, has received an unqualified report relating to his or the firm's most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and 
+
+	 c. as long as Yonkers appears or practices before the Commission as an independent accountant he will remain either a member of or associated with a member firm of the SEC Practice Section and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education. 
+	 
+ 
+
+ D. The Commission's review of any request or application by Yonkers to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Yonkers' character, integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+
+ E. Yonkers comply with his undertaking to, on reasonable notice and without service of a subpoena, provide discovery and testify truthfully at any deposition and at any judicial or administrative proceeding arising from or relating to the matters described in this Order. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ Footnotes 
+
+ 
+	 
+		 
+			   1   
+			 Paragraph 1 of Rule 102(e) provides, in relevant part, that: The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice and opportunity for hearing in the matter: . . . (ii) [t]o be lacking in character or integrity or to have engaged in unethical or improper professional conduct; or (iii) [t]o have willfully violated, or willfully aided and abetted the violation of any provision of the Federal securities laws or the rules and regulations thereunder. 
+		 
+		 
+			   2   
+			 The findings herein are made pursuant to the Offer of Settlement of Yonkers and are not binding on any other person or entity named as a respondent in this or any other proceeding. 
+		 
+		 
+			   3   
+			 Section 10A requires auditors to take action if in the course of an audit they become aware that an illegal act may have occurred. The statute requires them to notify the appropriate level of management of the illegal act. In some cases, the auditor must go further and inform the board of directors, and, in certain circumstances is required to report the matter directly to the Commission. 
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diff --git a/raw/aaer/2001/AAER-1429.txt b/raw/aaer/2001/AAER-1429.txt
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+              BankAmerica Corp. (now known as Bank of America Corp.)
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+ Securities Exchange Act of 1934
+ Release No.   44613 / July 30, 2001             
+  Accounting and Auditing Enforcement 
+ Release No.  1429 / July 30, 2001
+  Administrative Proceeding
+ File No.  3-10541
+
+        In the Matter of    
+  BANKAMERICA CORP.   
+ (now known as Bank of America Corp.) 
+             Respondent   
+	    
+	  : : : : : : :   
+	  ORDER INSTITUTING
+        PUBLIC ADMINISTRATIVE 
+              PROCEEDINGS
+  PURSUANT TO SECTION
+  21C OF THE 
+              SECURITIES EXCHANGE 
+              ACT OF 1934, MAKING
+              FINDINGS AND IMPOSING
+  CEASE-AND-DESIST ORDER    I.
+
+    The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against respondent BankAmerica Corporation (now known as Bank of America Corporation).  In anticipation of this proceeding, the respondent has submitted an Offer of Settlement which the Commission has determined to accept.  Solely for the purposes of this proceeding, and for any other proceeding brought by or on behalf of the Commission or to which the Commission is a party, and prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R.  §  201.100  et   seq. , the respondent, by its Offer of Settlement, without admitting or denying the Commission's findings except those contained in Section III. A. below, which are admitted, consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Cease-and-Desist Order (the "Order").
+
+  II.
+
+    Accordingly, IT IS HEREBY ORDERED that proceedings pursuant to Section 21C of the Exchange Act be, and they hereby are, instituted.
+
+  III.
+
+   FINDINGS 
+
+    On the basis of this Order and the Offer of Settlement submitted by the respondent, the Commission finds that:
+
+     A. RESPONDENT 
+
+    On September 30, 1998, BankAmerica Corp. ("BAC"), a former Delaware corporation with its principal place of business in San Francisco, California, merged with NationsBank Corp. ("NationsBank"), a former North Carolina corporation headquartered in Charlotte, North Carolina, to form Bank of America Corp.  Both NationsBank and BAC had common stock registered with the Commission pursuant to Section 12(b) of the Exchange Act and were listed, among other places, on the New York Stock Exchange ("NYSE").  Bank of America Corporation ("Bank of America") is a Delaware corporation with its principal place of business in Charlotte, North Carolina, and is a bank holding company and a financial holding company.  Bank of America's common stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act and is listed, among other places, on the NYSE. 
+
+     B. OTHER RELEVANT ENTITIES 
+
+    D.E. Shaw & Co., L.P. ("Shaw & Co.") is a Delaware limited partnership which, at all relevant times, acted as the general partner and management company for D.E. Shaw Securities Group, L.P. ("Shaw Securities"), a Delaware limited partnership. Among other activities, Shaw & Co. also acted as the general partner or principal shareholder of, or effectively controlled (through Shaw Securities): D.E. Shaw Securities 
+
+  Trading, L.P. (a Delaware limited partnership); D.E. Shaw Securities, L.P. (a Delaware limited partnership and U.S. broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act); Farsight Financial Services, L.P. (a Delaware limited partnership and U.S. broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act); D.E. Shaw Securities International (a United Kingdom broker-dealer); D.E. Shaw Securities International, Inc. (a Delaware corporation); and D.E. Shaw Securities Trading International, Inc. (a British Virgin Islands business company) (together, "Shaw Securities' subsidiaries").  David E. Shaw is Shaw & Co.'s founder and was, at all relevant times, its principal limited partner and the sole owner of its general partner, D.E. Shaw & Co., Inc.  Shaw & Co., Shaw Securities and their subsidiaries are hereinafter referred to as the "Shaw Entities."
+
+     C.  SUMMARY 
+
+    In March 1997, BAC entered into a business alliance with the Shaw Entities (the "Alliance").  The Alliance was established to allow BAC to receive certain of the profits from securities and derivatives trading in which the Alliance engaged, and to allow BAC to offer equity derivatives products to its customers.  The activities of the Alliance were financed by BAC, and subjected BAC to market risks carrying the potential for substantial losses.  The market risks and consequent potential for losses arising from the Alliance's activities were magnified by the significant amount of leverage it employed. By no later than mid-September 1998, that potential came true, in that the Alliance was suffering substantial losses in various of its securities and derivatives positions as a result of worldwide turmoil in a number of fixed income, equity and other financial markets caused by bond defaults and a currency devaluation by the Russian Federation in mid-August 1998.  The Alliance's losses in turn created significant potential that BAC would have to recognize substantial losses itself as a result of its relationship with the Alliance.
+
+    For the purposes of financial reporting and accounting treatment in filings made with the Commission, BAC treated its financing of the Alliance as a loan.  However,  the profit participation aspects of the Alliance gave it substantially the risk characteristics of an equity investment rather than of a loan.  BAC's accounting treatment of this relationship as a loan did not conform to Generally Accepted Accounting Principles ("GAAP").  It should have accounted for its relationship with the Alliance using the equity method of accounting.  
+
+    BAC also made statements in filings with the Commission on Forms 10-K and 10-Q which described business advantages of the Alliance.  BAC's filings on these forms, however, were materially misleading in that they did not disclose the market risks to which the Alliance exposed BAC and the potential for substantial losses arising out of those risks.  
+
+    In a press release filed with the Commission on Form 8-K on September 15, 1998, BAC discussed certain of the effects on its operations of the worldwide financial turmoil caused by the fiscal and monetary crisis of the Russian Federation.  This release, however, was materially misleading, in that it did not disclose the potential for substantial losses to BAC from the Alliance and that the Alliance had already incurred substantial losses that presented increasing potential for substantial losses to BAC at the close of its third quarter on September 30, 1998.  Eventually, on October 14, 1998, Bank of America disclosed that it had taken a $372 million "writedown" (which reduced net income for the three month and nine month periods ended September 30, 1998) as a result of the activities of the Alliance.  Net income reported by Bank of America for the quarter ended September 30, 1998 was $374 million.
+
+    In sum, BAC's incorrect accounting treatment of and inadequate disclosures concerning the Alliance, and its market risks, created an understated picture of its risk profile in a time of worldwide market turmoil. 
+
+     D.  FACTS 
+
+       1.  BAC's Alliance with the Shaw Entities 
+
+    BAC financed the Alliance through two agreements.  On March 13, 1997, BAC, through Bank of America National Trust & Savings Association, one of its subsidiaries, entered into a Credit Facility Agreement ("Credit Facility Agreement"), under which BAC agreed to provide Shaw Securities and its subsidiaries with what were termed "Revolving Loans" for up to $1.6 billion.  BAC was to receive base interest at the federal funds rate plus 0.375% on the amounts advanced under the Credit Facility Agreement. BAC was also entitled to a "Facility Fee" equal to 50% of Shaw Securities' consolidated net income before income taxes, accruing quarterly but not payable until it reached a balance of $200 million; and Shaw & Co. was to receive the other 50% of Shaw Securities' pre-tax profits in the form of a Management Fee.  The Credit Facility Agreement provided that losses incurred by the Alliance would first be used to reduce the accrued Facility Fee to as little as zero, and that losses not used to offset the accrued facility fee would be carried forward to offset future facility fees.  In addition, losses by the Alliance, if large enough, could impair the ability of Shaw Securities to repay the amounts advanced and the base interest thereon.  
+
+    BAC also agreed to advance $100 million to Shaw & Co. pursuant to a Subordinated Loan Agreement ("Subordinated Loan Agreement").  In exchange, BAC received a warrant for a 4.99% interest in Shaw & Co., exercisable by either party ten years after its issuance at a price of $100 million.  The Subordinated Loan Agreement also provided that Shaw & Co. would make an annual "interest" payment to BAC on the subordinated loan equal to 4.99% of Shaw & Co.'s profits, which would be derived, in substantial part, from Shaw & Co.'s 50% share of Shaw Securities' net profits. 1  
+
+       2. BAC's Exposure to Market Risk From the Alliance 
+
+    By April 1998, BAC had advanced to Shaw Securities a total of $1.3 billion under the Credit Facility Agreement.  In addition, BAC had advanced $100 million to Shaw & Co. under the Subordinated Loan Agreement, and Shaw & Co. had transferred approximately $75 million of those funds to Shaw Securities.  BAC accounted for these advances as loans.
+
+    Shaw Securities used the $1.375 billion it received directly or indirectly from BAC to make capital infusions in its subsidiaries and to replace prior substantial funding that it had received from others.  Shaw Securities' subsidiaries then used these funds to finance the Alliance's trading of equity and fixed income securities and derivatives using over a dozen strategies. 2   These trading strategies involved taking securities and derivatives positions that were sensitive to fluctuations in the market value of the various portfolios held by the Alliance, changes in rates of exchange between currencies, and interest rate changes.  This exposure to market risk, coupledwith the significant leverage used in connection with certain strategies, in particular, a sizeable position in fixed income securities that Shaw called the Fixed Income Portfolio, had the potential to cause substantial losses to BAC.
+
+    BAC was aware on an ongoing basis of both the performance of, and the degree of market risk associated with, the Alliance's trading.  During the second quarter of 1998, while the Alliance was profitable, losses in the Fixed Income Portfolio negatively impacted the Alliance's profitability.  In mid-August 1998, Russia devalued the ruble and defaulted on certain of its loan obligations, precipitating a crisis in global financial markets.  By the last week of August, this crisis had caused growing losses in the Alliance's Fixed Income Portfolio and other of its securities and derivatives positions.    In September and October 1998, the Alliance's losses increased nearly every day, and eventually became hundreds of millions of dollars.  
+
+    On September 23, 1998, BAC and the Shaw Entities agreed to a restructuring of the Alliance, which provided, among other things, that Shaw & Co. would no longer receive any portion of Shaw Securities' consolidated net income before income taxes, but be compensated through asset-based management and performance fees, and that the base interest would be reduced and eventually eliminated.  Thereafter, BAC decided that it would treat the Alliance as an equity investment for accounting purposes. Although the terms of the restructuring did not forgive any of the obligations of the Shaw Entities to repay advances under the Credit Facility Agreement, the realistic ability of BAC to obtain full repayment had been significantly impaired by this time as a consequence of the Alliance's losses.  
+
+    In late September and early October, 1998, continued deterioration of the financial markets led certain financial firms that had extended collateralized credit to the Shaw Entities to demand increased collateral protection.  In order to avoid forced liquidation of Alliance holdings, Bank of America agreed to acquire the Fixed Income Portfolio as of October 7, 1998.  On or about October 5, 1998, Bank of America's Policy Committee decided to take a writedown as a result of the losses incurred by the Alliance.  On October 14, 1998, Bank of America publicly announced that it had written off $372 million as of September 30, 1998 because of the losses incurred by the Alliance.
+
+       3.   BAC's Accounting For and Disclosures About the Alliance 
+
+         a.  Accounting Treatment of the Alliance 
+
+    In its reports on Forms 10-Q and Form 10-K for 1997 and its reports on Forms 10-Q for the first two quarters of 1998 filed with the Commission, BAC classified its financing of the Alliance as a loan.  In the financial statements contained in each of these reports, BAC accounted for the relationship by including it within the balance sheet entries for "Loans."  BAC included income from the Alliance within the income statement entry for  "Interest Income" from "Loans."
+
+         b.  Incomplete Disclosures 
+
+    BAC made statements about the potential benefits of the Alliance in certain of its reports on Forms 10-Q and 10-K filed with the Commission between March 1997 and September 1998, but did not disclose the extent to which the Alliance exposed it to market risk.  In the "Management's Discussion and Analysis" ("MD&A") section of its Form 10-Q for the first quarter of 1997, BAC stated only that it had "[e]stablished a relationship with D.E. Shaw & Co., Inc. [sic], a private investment banking company, which significantly enhances [BAC's] ability to offer equity-related products to its customers[.]" 3   In its Form 10-K for 1997, BAC twice referred to the Alliance, but these disclosures did not add materially to BAC's prior disclosure about the Alliance in its Form 10-Q for the first quarter of 1997. 4   
+
+    In its Form 10-K for 1997, BAC also made certain "Qualitative and Quantitative Disclosures About Market Risk" ("Market Risk Disclosures"). 5   More specifically, BAC discussed the "potential of loss arising from adverse changes in market rates and prices," including, but not limited to, the market risk arising out of BAC's private equity investment activities. 6   BAC noted that its private equity investments were "subject to fluctuations in their market prices or values.  Since these market prices or values may fall below BAC's investment costs and thereby expose BAC to the possibility of loss if the investments were sold, BAC is subject to equity risk, when conducting these activities." 7   BAC did not mention the Alliance in this regard, however, and did not say anything about the market risks arising out of the activities of the Alliance in the 1997 Form 10-K.
+
+         c.  Report on Form 8-K 
+
+    On September 15, 1998, BAC filed a press release in Form 8-K entitled "BankAmerica Issues Update on Effects of Market Conditions."  In this release, BAC estimated that its after-tax profit for the current quarter would be in excess of $500 million.  In the same release, BAC discussed the "negative impacts" of "turbulent conditions in global markets" on its non-interest trading income and its non-interest income from equity investment activities.  BAC also disclosed a reversal of $12 million of interest income from purchasing and carrying securities accrued in July and August 1998, compared to $53 million of interest income recognized in the second quarter of 1998.  The press release stated that this negative swing in interest income was "primarily attributable to one borrower where BAC's relationship included a yield enhancement entitling BAC to a 50 percent share of net profits."  BAC did not disclose that the "borrower" to which it referred was Shaw Securities, that the Alliance already had substantial losses as a result of the global market turmoil, and that there was increasing potential that this market volatility would cause substantial losses to BAC as a consequence of the continued deterioration in the Alliance's financial performance.
+
+    On October 14, 1998, Bank of America filed with the Commission on Form 8-K a press release that announced, among other things, that Bank of America had written off $372 million as of September 30, 1998, because of losses incurred by the Alliance.  In the same Form 8-K, Bank of America announced net income for the third quarter of 1998 of $374 million.  
+
+     E. DISCUSSION AND ANALYSIS 
+
+       1.  Incorrect Accounting Treatment 
+
+  BAC's Forms 10-Q and 10-K for 1997 and its Forms 10-Q for the first two quarters of 1998 were deficient in that they incorrectly classified BAC's financial relationship with the Alliance as "Loans" in its balance sheet and included income from the Alliance as "Interest Income" from loans in its income statement.  These classifications failed to conform with GAAP because while the relationship was documented in the form of two loans, the profit participation aspects of the Alliance gave it the risk characteristics of an equity investment rather than of a loan. 8   First, the Alliance obtained its capital solely from funding it received, directly and indirectly, from BAC.  Second, the Alliance's securities and derivatives portfolios exposed BAC to market risk which was magnified by the Alliance's use of leverage.  Finally, BAC's Facility Fee of 50% of Shaw Securities' consolidated net income before income taxes, pursuant to the Credit Facility Agreement, when coupled with its entitlement to annual interest of 4.99% of Shaw & Co.'s net profits pursuant to the Subordinated Loan Agreement, entitled the Bank to potentially receive more than fifty percent of the Alliance's net profits.  Accordingly, BAC should have applied the equity method of accounting for this investment and reported its investment in the Alliance under the classification of  "Other assets" in its balance sheet and reported any earnings or losses from this investment under the "Non-Interest Income" category of its income statement.   9   
+
+    Although BAC decided after the September 23, 1998 restructuring of the Alliance that it would henceforth account for its relationship with the Alliance as an equity investment, that decision was untimely.  BAC should have accounted for its relationship with the Alliance as an equity investment from the outset, and its failure to do so violated Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder.
+
+       2.   Inadequate Disclosures 
+
+    BAC made inadequate disclosures concerning the market risks associated with the investment.  The Alliance's trading strategies resulted in positions that were sensitive to fluctuations in the market value of the various portfolios held by the Alliance, changes in rates of exchange between currencies and interest rate changes. This exposure to market risk, coupled with the leverage used in connection with certain strategies, in particular, the Fixed Income Portfolio, had the potential to cause substantial losses to BAC.  Although BAC made disclosures concerning the potential benefits of the Alliance and concerning BAC's market risks in Forms 10-K, 10-Q and 8-K, these disclosures did not appropriately disclose the market risks presented by the Alliance and accordingly were in violation of Section 13(a) of the Exchange Act and Rules 13a-1, 13a-11, 13a-13 and 12b-20 promulgated thereunder.  
+
+         a.   Deficient Forms 10-K and 10-Q 
+
+    Rule 12b-20 promulgated under the Exchange Act provides that: "[i]n addition to the information expressly required to be included in a statement or report, there shall be added such further material information, if any, as may be necessary to make the required statements, in the light of the circumstances under which they are made not misleading."
+
+    As noted above, the Management's Discussion and Analysis section of BAC's report on Form 10-Q for the first quarter of 1997 discussed the perceived business advantages of the Alliance, describing it as "a relationship with D.E. Shaw & Co., Inc. [sic], a private investment banking company, which significantly enhances [BAC's] ability to offer equity-related products to its customers[.]"  BAC's report on Form 10-K for 1997, filed March 31, 1998, also noted that BAC had "established a relationship with D.E. Shaw & Co., Inc.[sic], a private investment banking company, which significantly enhances [BAC's] ability to offer equity-related products to its customers," and depicted the Alliance positively by describing Shaw & Co. as "one of the most technologically sophisticated firms on Wall Street."  BAC made no mention of the market risks to which BAC was subjected by virtue of its investment in the Alliance.  Thus, BAC's description of the Alliance in its Management's Discussion and Analysis omitted material information and thereby failed to comply with Rule 12b-20.
+
+    Furthermore, separately from its Management's Discussion and Analysis, BAC made disclosures in its Form 10-K for 1997 concerning the market risks from its private equity investments, but only stated that these investments are "subject to fluctuations in their market prices or values.  Since these market prices or values may fall below BAC's investment costs and thereby expose BAC to the possibility of loss if the investments were sold, BAC is subject to equity risk, when conducting these activities."  BAC made no mention of its investment in the Alliance in connection with these disclosures.  It also did not describe the market risks and leverage of the Alliance's activities, or the extent to which BAC was thereby subjected to the potential for substantial losses.  As a result, BAC failed to comply with Rule 12b-20.
+
+         b.   Inadequate Filing on Form 8-K 
+
+    Furthermore, BAC's press release filed with the Commission on Form 8-K on September 15, 1998 was inadequate.  By early September 1998, the financial turmoil in a number of fixed income, equity and other financial markets resulting from the Russian ruble devaluation and bond defaults had greatly increased BAC's exposure to the undisclosed market risks of the Alliance discussed above.  By September 15, 1998, the Alliance was suffering substantial losses that were increasing almost every day, and the turmoil in the financial markets continued unabated.  The September 15, 1998 Form 8-K disclosed a negative swing in interest income consisting of a reversal of $12 million of interest income primarily from the Alliance's activities which was accrued in July and August 1998, compared to $53 million in interest income the previous quarter. However, the Form 8-K omitted to disclose that the Alliance had incurred substantial losses in its portfolio and that substantial losses to BAC could result from the continued deterioration in the Alliance's financial performance.  BAC was sufficiently aware of the losses already incurred by the Alliance, as well as the undisclosed risks and potential for loss to BAC from the Alliance, that it could have made more complete disclosure on September 15, 1998.  That it made a decision on or about October 5, 1998 to write down $372 million as a result of the losses from its relationship with the Alliance did not obviate its earlier disclosure obligations.  BAC's omissions in the Form 8-K filed on September 15, 1998 violated Section 13(a) of the Exchange Act and Rules 13a-11 and 12b-20 thereunder.
+
+    BAC's above-described deficiencies in accounting treatment and disclosure should be of particular concern to public companies undertaking transactions that involve significant potential for losses from fluctuations in market values of assets.
+
+     F.  CONCLUSION 
+
+    Based upon the foregoing, the Commission finds that Bank of America violated Section 13(a) of the Exchange Act, and Rules 13a-1, 13a-11, 13a-13 and Rule 12b-20 promulgated thereunder.
+
+  IV.
+
+    In view of the foregoing, it is appropriate to impose the sanction specified in Bank of America's Offer of Settlement.
+
+    ACCORDINGLY, IT IS HEREBY ORDERED THAT Bank of America shall cease and desist from committing or causing any violation, and committing or causing any future violation, of  Section 13(a) of the Exchange Act, and Rules 13a-1, 13a-11, 13a-13 and Rule 12b-20 promulgated thereunder.
+
+  By the Commission.
+
+                Jonathan G. Katz
+               Secretary
+  
+
+ 
+ Footnotes 
+     1      Shaw Securities also agreed to assist BAC to develop an equities derivatives business to serve the needs of BAC customers, and customers that Shaw Securities referred to BAC.
+
+     Prior to entering into the Alliance, BAC discussed the Alliance and the application of the federal banking laws to the Alliance with the Office of the Comptroller of the Currency ("OCC").  The OCC orally informed BAC that it did not object to BAC undertaking to participate in the Alliance. However, the OCC did not address the federal securities laws issues applicable to the Alliance.
+
+       2      These strategies included trading activities involving currencies, fixed income securities, futures contracts, convertible securities, and equity securities.
+
+      3      Form 10-Q, Quarterly Report for the Period Ended March 31, 1997, at 15.
+
+      4      In the "Business and Properties" section, BAC again stated it had "established a relationship with D.E. Shaw & Co., Inc. [sic], a private investment banking company." Form 10-K, Annual Report for the Period Ended December 31, 1997, at 2.  In the MD&A section, BAC repeated verbatim what it had disclosed about its relationship with D.E. Shaw in its Form 10-Q for the first quarter of 1997.   Id.  at 18 (incorporating by reference BAC's 1997 Annual Report to Shareholders, at 22).
+
+      5       Id.  at 19 (incorporating by reference BAC's 1997 Annual Report to Shareholders, at 45-49).
+
+      6        Id. 
+
+      7       Id. 
+
+      8       See AICPA Notice to Practitioners, "ADC Arrangements", dated February 10, 1986 for characteristics of acquisition, development and construction (ADC) arrangements implying investments in real estate or joint ventures.
+
+      9       See APB Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock", paragraphs 11, 19 and 20.     
+
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diff --git a/raw/aaer/2001/AAER-1430.txt b/raw/aaer/2001/AAER-1430.txt
new file mode 100644
index 0000000000000000000000000000000000000000..73b1f01797284c32185b05233505ccb18b892b2f
--- /dev/null
+++ b/raw/aaer/2001/AAER-1430.txt
@@ -0,0 +1,1526 @@
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+              ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  1430 / August 1, 2001
+  ADMINISTRATIVE PROCEEDING
+ File No.  3-10543
+
+         In the Matter of    
+   MAX Internet Communications, Inc., 
+  Respondent.  
+    
+    : : : : : : :   
+  ORDER INSTITUTING  
+PROCEEDINGS, MAKING FINDINGS, 
+AND IMPOSING A CEASE-AND-  
+DESIST ORDER      I. 
+
+     The Securities and Exchange Commission deems it appropriate that public cease-and-desist proceedings against Respondent MAX Internet Communications, Inc. ("MAX") be initiated pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").
+
+    In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement 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 in which the Commission is a party, and without admitting or denying the findings contained herein, except that Respondent admits the Commission's jurisdiction over it and over the subject matter of these proceedings, Respondent has consented to the entry of this Order Instituting Proceedings, Making Findings and Imposing a Cease-and-Desist Order and to the entry of the cease-and-desist order set forth below.
+
+     II. 
+
+    On the basis of this Order and the Offer submitted by Respondent, the Commission finds that:
+
+   A. Summary 
+
+    In this financial fraud case, MAX overstated sales for the first two quarters of fiscal year 2000 by 98%.  1    These inflated sales figures prompted a 600% spike in MAX's stock price in only three months (from $4.44 to more than $28), and allowed MAX to jump from the National Association of Securities Dealers OTC Bulletin Board to the NASDAQ.  MAX's former chief executive officer, president and chief financial officer each knew these sales were illegitimate under generally accepted accounting principles ("GAAP"), but nevertheless recorded them to protect MAX's stock price and to avoid "condemnation" from and loss of "credibility" in the investment community.  They compounded this by misleading MAX's auditors during quarterly reviews, and by issuing a false press release responding to a March 2000 Wall Street Journal article questioning MAX's rapid sales growth.  
+
+    Eventually, MAX's outside directors - who were misled by senior management - grew suspicious of the lack of cash flow despite the apparent sales growth and, following an investigation, MAX restated the fraudulent quarterly financial statements, which ultimately led to its delisting from the NASDAQ, the collapse of its stock price and a dozen private securities fraud class actions.
+
+   B. MAX's Background 
+
+  MAX is a Nevada corporation based in Dallas, Texas whose  stock  is registered with the Commission under Section 12(g) of the Exchange Act.  During the relevant period, MAX common stock traded first on the OTC Bulletin Board and then on the NASDAQ.   NASDAQ subsequently delisted MAX common stock.  
+
+  MAX originally was named Voxcom, a holding company that, through its subsidiaries, conducted seminars marketing business packages supposedly permitting people to sell calendars, customized trading cards and other paper products from home.  Voxcom discontinued its home-based business companies in mid-1998, after resolving litigation with the Federal Trade Commission.  Voxcom then concentrated on a new computer card providing seamless audio and video conferencing over the Internet.  Voxcom then changed its name to MAX, to highlight its change in business focus.  On June 30, 1999, however, MAX was still a developmental stage company, with very little in sales (approximately $300,000 for the entire FY 1999).  
+
+  On September 14, 1999, MAX formed and funded a Brazilian subsidiary, MAX Internet Communications do Brasil Ltda. ("MAX Brazil"), supposedly to handle South American sales opportunities.  At no point did MAX Brazil become self-sufficient. 
+
+   C. MAX Overstates First Quarter Sales 
+
+    MAX began inflating its sales during the first quarter of fiscal year 2000 (the three months ending September 30, 1999).  MAX's 10-Q for this quarter (filed November 12, 1999) reported total sales of approximately $2.6 million.  On November 15, 1999, MAX issued a press release touting the "successful launch" of MAX's product, a 1,300% increase in comparable period sales, "very strong revenues" and the company's "belief that [it] will be profitable on strong sales growth in the second quarter." This alleged success, however, was entirely illusory since none of the three transactions making up nearly all of MAX's first quarter revenue was recognizable as a sale in that quarter.
+
+     1. Improper Recognition of a Large South American Sale 
+
+    The largest of the three first quarter transactions was a purported $1.5 million sale through MAX Brazil to a Brazilian reseller.  This order came in after MAX Brazil was formed and shipped just before quarter end, on September 29, 1999.  However, the product only shipped to MAX Brazil, not to the ultimate customer.  GAAP generally precludes recognizing revenue from a sale of goods until, among other things, delivery to the ultimate customer has occurred.   See, e.g. , SFAC No. 5, ¶ 84(a); SOP 97-2; SAB 101.  MAX Brazil did not ship any product to the ultimate customer until October 28, 1999, as announced in an email to MAX's senior executives.  Therefore, when MAX filed its first quarter 10-Q and issued the accompanying press release, it knew that no part of this sale had shipped to the ultimate customer during the first quarter and, thus, that its representations about MAX's first quarter sales were false.  
+
+  On November 17, 1999, only two days after the glowing press release about MAX's first quarter results, the Brazilian customer cancelled the entire transaction and returned what units it had.  MAX did not disclose this fact to the public until May 2000, when it restated the first quarter financial statements.
+
+   2. Improper Recognition of "Sales" to Domestic Distributors 
+
+  The other improper first quarter sales were two $500,000 transactions with United States computer products distributors, which shipped in August 1999.  To secure these distributors, however, MAX had to grant substantial rights of return, with no obligation to pay MAX until the goods were sold through to ultimate customers.  Moreover, MAX guaranteed one distributor customers for up to 50% of its inventory.  
+
+  MAX's recognition of these transactions as sales in its first quarter 10-Q was improper under GAAP.  Under SFAS No. 48, "Revenue Recognition When Right of Return Exists," a sale with a right of return cannot be recognized if, among other things, (i) the buyer has not paid the seller and has no obligation to pay until the product is resold, or (ii) the seller has "significant obligations for future performance to directly bring about resale of the product by the buyer."  SFAS No. 48, ¶ 6(b, e).  The distributors never paid MAX for the sales and had no obligation to do so until they either chose to keep the products or sold them.  Moreover, MAX guaranteed to one of the distributors purchasers for up to 50% of the order.  These terms precluded recognizing this transaction as a sale under GAAP.
+
+  Ultimately, the distributors could not sell MAX's product and returned their entire allotments of product in December 1999 and January 2000, respectively.  
+
+     3. Despite the Return of Nearly All First Quarter Sales, MAX 
+      Intentionally Perpetuates the Illusion of Strong Sales Growth 
+
+  Despite the fact that nearly all first quarter sales had been returned by the end of January 2000, MAX actively sought to sustain the illusion of robust sales growth by providing inaccurate information for and authorizing public dissemination of misleading analyst reports.  MAX authorized two separate analysts to disseminate misleading reports asserting that first quarter sales totaled over $2.6 million - even though MAX knew at the time that 95% of those alleged sales had already been returned.
+
+   D. MAX Overstates Second Quarter Sales 
+
+    For the quarter ended December 31, 1999, MAX reported total sales of approximately $8.1 million, nearly all through MAX Brazil.  These purported sales consisted primarily of an alleged sale to the Brazilian government (approximately 60% of reported sales) and a supposed sale to a Chilean entity (approximately 40% of reported sales).  By recognizing these sales, MAX reported a profit for the first time in its history.  
+
+  MAX filed its 10-Q reporting these alleged financial results on February 22, 2000.  The same day, MAX issued a press release touting its "strong revenue growth" and alleged profitability, which it characterized as a "clear indication" that the company's product was "rapidly gaining acceptance."  According to the press release, MAX felt that "[t]o be profitable at this stage of our growth is a promising indicator of the company's future."  This alleged sales growth was wholly illusory, however, since neither the Brazilian government sale nor the Chilean sale was recognizable under GAAP.    
+
+     1. The Brazilian Government Transaction 
+
+    On October 26, 1999, MAX received a supposed order from the Brazilian government, to be delivered in five lots.  The first two lots shipped to MAX Brazil on December 1, 1999 and December 20, 1999, respectively.  However, MAX Brazil did not deliver, nor have authority from the Brazilian government to deliver, either of these lots before December 31, 1999.  Instead, both lots were still in customs in early January 2000.  Under GAAP, the lack of delivery to the ultimate customer precluded recognizing this transaction as a sale.   See, e.g. , SFAC No. 5, ¶ 84(a); SOP 97-2; SAB 101.  Even so, MAX's second quarter 10-Q misrepresented that the Brazilian government sale was complete. 
+
+     2. The False Chilean Transaction 
+
+    On December 28, 1999, MAX received a supposed order from a Chilean company.  The goods for this order never left Dallas.  On December 29, 1999, a shipment to fill the order was prepared and picked up by MAX's Dallas-based shipping agent.  However, MAX directed the shipping agent to hold the goods until payment was received.  MAX never received payment and the goods remained at the shipping agent's Dallas warehouse until many months later, when MAX finally retook possession. 
+
+  As noted, GAAP generally precludes recognizing revenue from a sale of goods until delivery to the ultimate customer has occurred.  Delivery of this order had not occurred by December 31, 1999; indeed, MAX always retained title to and constructive possession of the goods.  Nevertheless, MAX's second quarter 10-Q and accompanying press release misrepresented that the Chilean sale was complete.
+
+   E. The Critical Wall Street Journal Article and MAX's Misleading Response  
+
+    On March 22, 2000, an article in the Wall Street Journal's "Texas Journal" questioned MAX's sales growth.  The article noted that MAX's accounts receivable had grown by the same magnitude as its sales for the first two quarters of fiscal year 2000, which indicated that all of MAX's sales were on credit.  The article suggested that MAX was simply stuffing the channels to create the illusion of sales growth, specifically highlighting the South American sales and the apparent lack of payment for those sales.  
+
+  The next day, MAX issued a press release defending the legitimacy of its sales, particularly in Brazil.  MAX's chief executive officer stated that he had just returned from investigating the situation in Brazil, and then attributed the "slow" receivables to "delays as may be expected in the normal course of business" and expressed "confidence" in MAX Brazil's management and the soundness of the alleged sales and related receivables.  These statements were either misleading or outright falsehoods, since, in fact, the CEO had learned from his trip to Brazil that, for example, MAX Brazil's management had forged certain sales-related documents, had resigned and likely had stolen substantial sums from the company.  None of this was mentioned in the press release, and certainly could not be considered "delays as may be expected in normal course of business."  Moreover, since no goods had ever been delivered to an ultimate customer, there was no basis to believe in the soundness of MAX Brazil's sales or receivables.
+
+   F. MAX Restates its First and Second Quarter Financials  
+
+    Following an investigation by outside counsel, MAX restated its first and second quarter financial statements.  The restatement wiped out nearly all reported first and second quarter sales. Upon restatement, MAX's first quarter sales went from $2.637 million to $137,000, a 95% decrease.  Second quarter sales fell 99%, from $8.133 million to $119,000.  Overall, of the $13.27 million in gross sales MAX recognized in the first and second quarters, all but $256,000 - or more than 98% - was eliminated upon restatement.
+
+   G. Conclusion 
+
+  As a result of the foregoing, MAX violated Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-13 and 13b2-1 thereunder.
+
+   III. 
+
+    In view of the foregoing the Commission deems it appropriate to impose the sanctions agreed to in the Offer.
+
+    Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that Respondent, MAX, cease and desist from committing or causing any violation and any future violation of Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-13 and 13b2-1 thereunder.
+
+   By the Commission
+
+                Jonathan G. Katz
+               Secretary 
+
+  
+
+ 
+ Footnotes 
+     1       MAX has a June 30 fiscal year end.      
+
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diff --git a/raw/aaer/2001/AAER-1431.txt b/raw/aaer/2001/AAER-1431.txt
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+              William F. Buettner, Mark D. Kirstein and Amy S. Frazier
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+        William F. Buettner, Mark D. Kirstein and Amy S. Frazier
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+ Litigation Release No. 17083 \ August 1, 2001
+
+  Accounting and Auditing Enforcement Release No. 1431 \ August 1, 2001 
+
+   SECURITIES AND EXCHANGE COMMISSION v. WILLIAM F. BUETTNER, MARK D. KIRSTEIN AND AMY S. FRAZIER  (US District Court for the Eastern District of Pennsylvania, 01-CV-3898)
+
+    The Securities and Exchange Commission announced today that it filed a complaint in the United States District Court for the Eastern District of Pennsylvania charging three senior Coopers & Lybrand, LLP ("Coopers," now PricewaterhouseCoopers, LLP) certified public accountants with securities fraud  in connection with their audit of the consolidated financial statements of Allegheny Health, Education and Research Foundation ("AHERF") for the year ending June 30, 1997.  Named as defendants are William F. Buettner, the engagement partner on the audit; Mark D. Kirstein, the senior manager on the audit; and Amy S. Frazier, the manager on the audit in charge of, among other things, auditing accounts receivable and bad debt reserves.  
+
+  The Commission's complaint alleges that defendants Buettner, Kirstein and Frazier actively participated in a fraudulent scheme by AHERF, at its height the largest nonprofit healthcare organization in Pennsylvania, to mask its deteriorating financial condition.  In so doing, the defendants participated in the creation and issuance of, and failed to correct unqualified audit opinions on AHERF's 1997 consolidated financial statements and AHERF's 1997 supplementary consolidating and combining financial information.  For its fiscal year 1997, AHERF reported net income when, in reality, it was operating with a substantial net loss.   
+
+  The scheme involved the fraudulent transfer of $99.6 million of reserves from the books of a recently-acquired entity to the books of a group of AHERF-related entities collectively known as the Delaware Valley Obligated Group ("Delaware Valley").  The transferred reserves were used by Delaware Valley to either increase its own reserves or to reduce expenses related to the write-off of uncollectible accounts receivable.  The defendants played an active role in the fraud by, among other things, helping AHERF plan fraudulent transfers of reserves and then conducting the 1997 audit in a manner intended to hide both the fraud and their involvement in it.   Furthermore, they failed to expand their audit to address the improper transfers, or to investigate evidence of other non-GAAP transfers, as required by GAAS.
+
+  Ultimately, the defendants knowingly or recklessly caused Coopers to issue false and misleading unqualified audit opinions and related documents for 1997 that enhanced the credibility of AHERF's reported financial statements.  The audited financial statements with attached consolidating schedules were made available to, among others, investors in AHERF-related bonds.  The audit opinions falsely state, among other things, that the audit was conducted in accordance with Generally Accepted Auditing Standards ("GAAS") and that the financial statements were in accordance with Generally Accepted Accounting Principles ("GAAP") and fairly presented AHERF's financial condition.  The financial statements, issued by AHERF in February 1997, materially misrepresented that AHERF and Delaware Valley had net income of $21.9 million and $23.7 million, respectively, for fiscal year 1997.  Absent the fraud, AHERF and Delaware Valley would have posted substantial net losses of approximately $37.7 million and $35.9 million respectively.
+
+
+  On July 21, 1998, AHERF filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code on behalf of itself and four of its subsidiaries in the U.S. District Court for the Western District of Pennsylvania.  By the time of the bankruptcy filing, one or more of the obligated groups were responsible for repaying a total of more than $900 million of outstanding AHERF Bonds.  Subsequently, on September 2, 1998, AHERF issued a press release in which it acknowledged that its audits consolidated financial statement for 1997 were inaccurate.  In the release, AHERF stated that "[n]o further reliance should be placed on the financial statements or the [Coopers] report thereon."
+
+   The complaint charges defendant Buettner with violating, and defendants Kirstein and Frazier with violating or aiding and abetting Buettner's violations of, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  The complaint seeks permanent injunctive relief and an order requiring the defendants to pay civil penalties.
+
+  See  SEC v. David W. McConnell and Charles P. Morrison ,  SEC Litigation Rel. No. 16534 , Accounting and Auditing Enforcement Rel No. 1254 (May 2, 2000) and  SEC Lit. Rel. No. 16885 , Accounting and Auditing Enforcement Rel. No. 1365 (Jan. 1, 2001);  In the Matter of Albert Adamczak, CPA ,  Exchange Act Rel. No. 42743  (May 2, 2000);  In the Matter of Stephen H. Spargo, CPA ,  Exchange Act Rel. No. 42742  (May 2, 2000);  In the Matter of Allegheny Health, Education and Research Foundation ,  Exchange Act Rel. No. 42992  (June 30, 2000);  In the Matter of Charles P. Morrison, CPA ,  SEC Litigation Rel. No. 16885 , Accounting and Auditing Enforcement Rel. No. 1365 (Jan. 1, 2001).
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diff --git a/raw/aaer/2001/AAER-1432.txt b/raw/aaer/2001/AAER-1432.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a0bca3336d74c07fa0c5066ef4a3fc8dbed1c792
--- /dev/null
+++ b/raw/aaer/2001/AAER-1432.txt
@@ -0,0 +1,1372 @@
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+              Larry Biggs, Jr., Donald McLellan and Leslie D. Crone
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+        Larry Biggs, Jr., Donald McLellan and Leslie D. Crone
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+ LITIGATION RELEASE NO.  17084 \ August 1, 2001
+
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ RELEASE NO. 1432 \ August 1, 2001
+
+   SECURITIES AND EXCHANGE COMMISSION v. LARRY BIGGS, JR., DONALD McLELLAN and LESLIE D. CRONE ,   Civil Action No. 3-01CV1474-D
+
+   FINANCIAL FRAUD ACTION INVOLVING FORMER NASDAQ COMPANY 
+
+    On August 1, 2001, the Commission announced the filing of an action in the United States District Court for the Northern District of Texas (Dallas Division), seeking an injunction and civil penalties against Larry Biggs, Jr., Donald McLellan and Leslie D. Crone, all former officers of MAX Internet Communications, Inc., a former Nasdaq-listed company headquartered in Dallas. 
+
+  According to the Commission, the Defendants overstated MAX's sales for the quarters ended September 30, 1999 and December 31, 1999 by 98%.  These inflated sales prompted a 600% spike in MAX's stock price in only three months (from $4.44 to more than $28), and allowed MAX to jump from the OTC Bulletin Board to the Nasdaq.  The Commission alleges that Biggs (former chief executive officer), McLellan (former president) and Crone (former chief financial officer) each knew that the revenue from these sales could not be recognized under generally accepted accounting principles, but nevertheless recorded them to protect MAX's stock price and to avoid loss of credibility in the investment community.  The complaint also alleges that the Defendants misled MAX's auditors during quarterly reviews, and issued a false press release responding to a March 2000 Wall Street Journal article questioning MAX's rapid sales growth.  According to the complaint, the Defendants even fabricated the sale of MAX's Brazilian subsidiary in an attempt to justify recording inventory parked at the subsidiary as a "sale" to a "third party." 
+
+
+  In settling this matter, the Defendants have agreed to accept permanent injunctions barring future violations of the anti-fraud, record-keeping and reporting provisions of the federal securities laws.  Additionally, Biggs and McLellan have consented to pay a $40,000 penalty each, and Crone has consented to pay a $20,000 penalty.  Separately, Crone also has agreed to a Commission order barring him from practicing before the Commission as an accountant for three years.
+
+  The Commission's civil complaint charges that the Defendants violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1, 13b2-2 thereunder, and aided and abetted violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.  The Commission order against Crone, to be issued upon the Court's entry of a permanent injunction against him, will bar Crone from practicing before it for three years, pursuant to Rule 102(e) of the Commission's Rules of Practice.
+
+  On August 1, 2001, the Commission also instituted cease-and-desist proceedings against MAX and simultaneously accepted MAX's offer of settlement in which it agreed, without admitting or denying the findings in the Commission's order, to cease and desist from future violations of Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-13 and 13b2-1 thereunder, federal securities laws. 
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diff --git a/raw/aaer/2001/AAER-1434.txt b/raw/aaer/2001/AAER-1434.txt
new file mode 100644
index 0000000000000000000000000000000000000000..feee743ce0b0f82a54be72d6f2c06c3daa005bc8
--- /dev/null
+++ b/raw/aaer/2001/AAER-1434.txt
@@ -0,0 +1,1500 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
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+     SEC.gov | Leslie D. Crone, CPA 
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+         !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}(); 
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+              Leslie D. Crone, CPA
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  44711 / August 16, 2001
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.   1434 / August 16, 2001
+  ADMINISTRATIVE PROCEEDING
+ File No.  3-10559
+
+         In the Matter of  
+   Leslie D. Crone, CPA  
+  Respondent  
+    
+  : : : : : :   
+  ORDER INSTITUTING PROCEEDINGS,
+ MAKING FINDINGS, AND IMPOSING
+ REMEDIAL SANCTIONS PURSUANT TO
+ RULE 102(e) OF THE COMMISSION'S
+ RULES OF PRACTICE      I. 
+
+  The Securities and Exchange Commission deems it appropriate to institute public administrative proceedings pursuant to Rule 102(e)  1     of the Commission's Rules of Practice against Respondent Leslie D. Crone, CPA ("Crone").
+
+   II. 
+
+  In anticipation of the institution of these administrative proceedings, Respondent has submitted an Offer of Settlement, which the Commission has determined to accept.  Solely for the purpose of these proceedings, and any other proceeding brought by or on behalf of the Commission, or in which the Commission is a party, and without admitting or denying the findings set forth below, except that he admits the Commission's finding that a Final Judgment of Permanent Injunction and Other Equitable Relief has been entered against him as set forth in Paragraph III.C below and admits the Commission's jurisdiction over him and over the subject matter of these proceedings, Respondent consents to the entry of this Order Instituting Proceedings, Making Findings, and Imposing Remedial Sanctions Pursuant to Rule 102(e) of the Commission's Rules of Practice ("Order").
+
+   III.  FINDINGS 
+
+  The Commission makes the following findings:
+
+   A.  Crone, 48, of Carrollton, Texas, became the chief financial officer ("CFO") of MAX Internet Communications, Inc. ("MAX") in May 1998, a position he held through January 2001.  Crone has been a licensed CPA since 1975, and currently is licensed as a CPA in Texas.  
+
+   B.  MAX is a Nevada corporation based in Dallas, Texas whose  stock  is registered with the Commission under Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act").  During the relevant period, MAX common stock traded first on the National Association of Securities Dealers OTC Bulletin Board and then on the Nasdaq.   Nasdaq subsequently delisted MAX common stock.  
+
+   C.  On August 1, 2001, the Commission filed a complaint against Crone and others in the United States District Court for the Northern District of Texas, Dallas Division ("District Court"),  SEC v. Larry Biggs, Jr., et al , Civ. No. 3-01CV1474D, (N.D. Tex.).  Solely for the purpose of settling these proceedings, Crone consented to the entry of a Final Judgment of Permanent Injunction and Other Equitable Relief ("Final Judgment") against him, without admitting or denying the allegations of the complaint, except as to subject matter jurisdiction, which he admitted.  On August 2, 2001, the District Court entered the Final Judgment, which permanently enjoins Crone from violating or aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13b2-1 and 13b2-2 thereunder; and orders Crone to pay a civil penalty of $20,000.
+
+   D.  The Commission's complaint alleges that while Crone was MAX's CFO, he participated in misconduct by which MAX grossly overstated revenues reported in financial statements filed with the Commission for the quarters ended September 30, 1999 ("September Quarter") and December 31, 1999 ("December Quarter").  2    Specifically, the complaint alleges that Crone and others inflated MAX's sales for those quarters by 98% by recording sales not recognizable under Generally Accepted Accounting Principles ("GAAP").  For example, MAX recognized $2.6 million in total sales for the September Quarter.  Of that amount, $1.5 million related to an alleged sale to a Brazilian company, through MAX's Brazilian subsidiary ("MAX Brazil").  The complaint alleges that Crone knew that no portion of that sale was delivered to the ultimate customer until late October 1999 - well after the September Quarter had ended - but nevertheless caused MAX to record the sale in its September Quarter financial statements. 
+
+
+
+   E.  The complaint further alleges that an additional $1 million of reported September Quarter sales, purportedly to two United States computer product distributors, were not recognizable because the distributors had complete rights of return and had no obligation to pay for the goods until they were sold to third parties.  Furthermore, MAX guaranteed one of these distributors that it would provide customers for up to half of its inventory of MAX's product.  Under GAAP, a sale with a right of return cannot be recognized if, among other things, (i) the buyer has not paid the seller and has no obligation to pay until the product is resold, or (ii) the seller has "significant obligations for future performance to directly bring about resale of the product by the buyer."  SFAS No. 48, ¶ 6(b, e).  MAX's purported sales to the United States distributors plainly failed these criteria, facts the Commission's complaint alleges Crone knew by September 30, 1999.  Yet Crone caused MAX to record these transactions as sales in its September Quarter financial statements.
+
+   F.  Additionally, the complaint alleges that, during the December Quarter, Crone caused MAX to overstate reported sales by 99%.  MAX reported sales in this quarter of $10.77 million, comprised almost entirely of two alleged South American sales.  The larger of these, purportedly to the Brazilian government, made up approximately 60% of reported December Quarter sales.  However, MAX never delivered the goods for these sales to the Brazilian government.  Instead, they merely were parked at MAX Brazil (or stuck in Brazilian customs), which Crone knew in January 2000.  
+
+   G.  Almost all of the remainder of MAX's reported December Quarter sales was comprised of a purported sale to a Chilean company.  MAX's Dallas-based shipping agent picked up the goods for this transaction from MAX's Dallas warehouse on December 29, 1999.  But MAX's president directed the shipping agent to hold the goods until the customer paid for them.  Thus, on December 31, 1999, the goods were still sitting in the shipping agent's Dallas warehouse.  In fact, they never left the warehouse, since the Chilean company never paid for them.  The complaint alleges that Crone knew these facts as early as January 4, 2000, but nevertheless caused MAX to record this transaction as a sale in the December Quarter.
+
+   H.  The complaint alleges that these misstatements, which Crone intentionally caused MAX to make, prompted an increase in MAX's stock price from approximately $4 in November 1999 to more than $20 in February 2000, and also allowed MAX to obtain a listing on the Nasdaq.  
+
+   I.  Crone signed MAX's Form 10-Q for the September Quarter, filed November 12, 1999, which contains the misstated September Quarter financial statements.  He also signed the December Quarter 10-Q, filed February 22, 2000, which contains the misstated December Quarter financial statements.  He also reviewed or approved press releases MAX issued in connection with these filings.
+
+   J.  The complaint further alleges that Crone misled and failed to disclose all material facts regarding these transactions to MAX's auditors, and caused MAX to keep inaccurate books and records and an inadequate system of internal controls.
+
+   IV. 
+
+  In view of the foregoing, the Commission deems it appropriate to accept Crone's Offer and to impose the sanctions agreed to therein.
+
+  Accordingly,  IT IS HEREBY ORDERED , effective immediately, that:
+
+   A.  Crone is suspended from appearing or practicing before the Commission as an accountant.
+
+   B.  After three years from the date of this Order, Crone 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 Crone'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) Crone, or the firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section"); (b) Crone, or the firm, has received an unqualified report relating to his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and (c) as long as Crone appears or practices before the Commission as an independent accountant he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.
+
+   C.  The Commission's review of an application by Crone to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Crone character, integrity, professional conduct, or qualifications to appear or practice before the Commission.
+
+  By the Commission.
+
+            Jonathan G. Katz  
+Secretary
+
+  
+
+ 
+ Footnotes 
+     1      Rule 102(e)(3)(i), in relevant part, provides that the Commission may suspend from appearing or practicing before it any accountant who by name has been permanently enjoined, by a court of competent jurisdiction in an action brought by the Commission, from violating any provision of the federal securities laws or the rules and regulations thereunder [17 C.F.R. 201.102(e)(3)(i)].
+
+      2     MAX's fiscal year ends on June 30.    
+
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diff --git a/raw/aaer/2001/AAER-1435.txt b/raw/aaer/2001/AAER-1435.txt
new file mode 100644
index 0000000000000000000000000000000000000000..97f3daa946d1af0d3330fc5116630bb6f972b537
--- /dev/null
+++ b/raw/aaer/2001/AAER-1435.txt
@@ -0,0 +1,1483 @@
+
+
+ 
+ 
+   
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+     SEC.gov | Salvatore T. Marino, CPA 
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+              Salvatore T. Marino, CPA
+           
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+        Salvatore T. Marino, CPA
+       
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+
+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  44761 / September 4, 2001
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  1435 / September 4, 2001
+  ADMINISTRATIVE PROCEEDING
+ File No.  3-10562
+
+        In the Matter of    
+  SALVATORE T. MARINO, CPA  
+      Respondent   
+    
+  : : : : : : : : :   
+   ORDER INSTITUTING PUBLIC 
+PROCEEDINGS AND OPINION 
+AND ORDER PURSUANT TO RULE 
+102(e) OF THE COMMISSION'S  
+RULES OF PRACTICE     I.
+
+    The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted against Salvatore T. Marino ("Marino"), a certified public accountant, pursuant to Rule 102(e)(3) of the Commission's Rules of Practice.  1    II.
+
+    In anticipation of the institution of these public administrative proceedings, Marino has submitted an Offer of Settlement which the Commission has determined to accept.  Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the findings, except that he admits to the Commission's finding that a Final Judgment of Permanent Injunction and Other Relief ("Final Judgment") has been entered against him as set forth in Section III.C. below, and also admits the jurisdiction of the Commission over himself and over the subject matter of this proceeding, Marino consents to the entry of this Order Instituting Public Proceedings and Opinion and Order Pursuant to Rule 102(e) of the Commission's Rules of Practice ("Order").
+
+  III.
+
+    On the basis of this Order and Marino's Offer of Settlement, the Commission makes the following findings:
+
+    A. Marino, age 48, is and has been a certified public accountant licensed to practice in the State of New York since 1977.  He previously served as the Chief Financial Officer of Spectrum Information Technologies, Inc. ("Spectrum").  Marino has practiced before the Commission within the meaning of Rule 102(f) of the Commission's Rules of Practice in connection with the preparation of Spectrum's financial statements and other documents.
+
+    B. Spectrum was a publicly held company headquartered in Manhasset, New York.  Spectrum'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 system. During 1992 and 1993 Spectrum held patents that it maintained covered technology that made it possible to transmit data over cellular telephone networks. Spectrum was also engaged, through its subsidiaries, in various aspects of the computer industry during 1992 and 1993.
+
+    C. On December 3, 1997, the Commission filed a complaint against Marino in  Securities and Exchange Commission v. Peter T. Caserta, Salvatore T. Marino and Dana C. Verrill  (" SEC v. Caserta" ) in United States District Court for the Eastern District of New York, under case number 97 Civ. 7091(FB)(ARL). On May 24, 2001, Marino consented to the entry of the Final Judgment in  SEC v. Caserta , without admitting or denying the allegations in the complaint, except as to jurisdiction, which he admitted.  On August 21, 2001 the United States District Court for the Eastern District of New York entered the Final Judgment, which:
+
+      (1) permanently restrains and enjoins Marino from violating Sections 17(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. § 77q(a)], Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rules 10b-5 and 13b2-1 thereunder [17 C.F.R. §§ 240.10b-5, 240.13b2-1]; and
+
+      (2) permanently restrains and enjoins Marino from aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act [15 U.S.C. §§ 78m(a) and 78m(b)(2)(A)] and Rules13a-13 and 12b-20 thereunder [17 C.F.R. §§ 240.13a-13 and 240.12b-20].
+
+  D. The Commission's complaint filed in  SEC v. Caserta  alleges, among other things, as follows:  Marino participated with others in a scheme to inflate Spectrum's financial results and the price of its common stock.  Between May 1993 and November 1993, Marino and others fraudulently overstated the worth of three license agreements that Spectrum had negotiated. The complaint alleges that in order to convince the public and other potential licensees of the value of Spectrum's patented technology, Marino and Spectrum's President and Chief Executive Officer set out to obtain "seven figure" licensing fees from Megahertz Corporation, Apex Data Corporation and U.S. Robotics, Inc.  However, when each prospective licensee refused to pay seven figures to license Spectrum's technology, Marino and others at Spectrum conceived and implemented a cash in/cash out scheme whereby the vast majority of the "seven figure" fees to be paid by the licensees would be offset by equal payments from Spectrum to the licensees under companion advertising agreements.  After the agreements were signed, Marino participated in the issuance of false and materially misleading press releases that touted the licensing fees without disclosing to the investing public that theses fees would be offset by Spectrum's financial obligations under the companion advertising agreements.  
+
+  The complaint further alleges that, under Marino's direction, Spectrum improperly accounted for the "seven-figure" licensing fees as revenue and profits, and incorporated this improper accounting treatment in Spectrum's filings with the Commission on its Forms 10Q for the quarters ended June 30, 1993 and September 30, 1993.  Because of the improper accounting treatment, Spectrum was able to report a profit of $410,244 rather than a net loss of more than $2 million for the quarter ended June 30, 1993.  With respect to the quarter ended September 30, 1993, the improper accounting treatment allowed Spectrum to materially overstate its income by a least $1,250,000 and thereby report a profit of $646,374.  After each of the above noted Forms 10Q were filed, Marino participated in the issuance of press releases that falsely stated that Spectrum had experienced profitable quarters.
+
+  The Complaint further alleges that Marino and others caused Spectrum to file on December 1, 1993, a registration statement on Form S-8 which incorporated by reference the false and misleading Forms 10-Q.
+
+    As outlined in the Complaint, Marino benefited from the scheme by exercising options and selling Spectrum stock while in possession of the material nonpublic information that Spectrum's technology was not worth what Spectrum's filings and press releases claimed it to be, and that Spectrum continued to experience significant losses during the two quarters for which Spectrum had improperly reported a profit.  Marino avoided significant financial loss by trading while in possession of this material, nonpublic information.  
+
+  IV.
+
+    Based on the foregoing, the Commission deems it appropriate to accept the Offer of Settlement submitted by Marino and accordingly,
+
+    IT IS HEREBY ORDERED, effective immediately, that Marino is suspended from appearing or practicing before the Commission as an accountant.
+
+    By the Commission.
+
+                Jonathan G. Katz
+               Secretary
+  
+
+ 
+ Footnote 
+       1      Paragraph (3) of Rule 102(e) provides, in relevant part, that:
+
+ ...(i) The Commission, with due regard to the public interest...may...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.     
+
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diff --git a/raw/aaer/2001/AAER-1436.txt b/raw/aaer/2001/AAER-1436.txt
new file mode 100644
index 0000000000000000000000000000000000000000..afcb4d5ed7b44c4935070a9a6ccdcb593fe5be9d
--- /dev/null
+++ b/raw/aaer/2001/AAER-1436.txt
@@ -0,0 +1,1364 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Peter T. Caserta, Salvatore Marino and Dana C. Verrill 
+     
+     
+     
+     
+     
+     
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+              Peter T. Caserta, Salvatore Marino and Dana C. Verrill
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+        Peter T. Caserta, Salvatore Marino and Dana C. Verrill
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+ Litigation Release No. 17115 / September 5, 2001        
+
+  Accounting and Auditing Enforcement Release No. 1436 \ September 5, 2001
+
+  SEC SETTLES CIVIL INJUNCTIVE ACTION AGAINST THREE FORMER OFFICIALS OF SPECTRUM INFORMATION TECHNOLOGIES, INC.
+
+   SEC v. Peter T. Caserta, Salvatore Marino and Dana C. Verrill , U.S. District Court for the Eastern District of New York, Civil Action No. 97-CV-7091.
+
+    The Securities and Exchange Commission announced today that it has accepted offers of settlement from three former officials of Spectrum Information Technologies, Inc., Peter T. Caserta (former president and chief executive officer), Salvatore Marino (former chief financial officer) and Dana C. Verrill (former chairman of the board of directors), to resolve a previously-filed civil injunctive action.  The Commission's complaint, filed in the U.S. District Court for the Eastern District of New York on December 3, 1997, alleges that Caserta and Marino engaged in a fraudulent scheme to inflate Spectrum's financial results and stock price.  According to the complaint, at the direction of Caserta and Marino, Spectrum made false statements to the press, and improperly accounted for certain licensing agreements in its filings with the Commission, thereby misleading investors into thinking that Spectrum had earned millions of dollars in licensing fees and as a result, had experienced its first two consecutive profitable quarters.  In addition, the complaint alleges that Caserta falsely stated to the press that an agreement with AT&T was worth "hundreds of millions of dollars."  The complaint further alleges that Caserta and Marino profited from the scheme by selling large amounts of Spectrum stock at inflated prices while in possession of this material non-public information.  The complaint also alleges that Caserta and Verrill devised a scheme that enabled Spectrum to improperly funnel large blocks of unregistered Spectrum stock to the public through the company's employee stock option plan.  The Commission's litigation release announcing the filing of the complaint can be found at www.sec.gov/litigation/litreleases  release no. 15578 .
+
+    Without admitting or denying the allegations in the complaint, Caserta, Marino and Verrill each consented to the entry of final judgments permanently enjoining them from violating and/or aiding and abetting violations of the federal securities laws, and ordering them to pay disgorgement, interest and/or civil penalties.  Caserta was enjoined from violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1 thereunder and from aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 13a-13 and 12b-20 thereunder.  In addition, Caserta was ordered to pay disgorgement, interest and penalties totaling $772,638, and was permanently barred from serving as an officer or director of a publicly traded company.  Marino was enjoined from violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder and from aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 13a-13 and 12b-20 thereunder.  In addition, Marino was ordered to pay disgorgement, interest and penalties totaling $301,792, and he was barred from serving as an officer or director of a publicly traded company for a period of five years.  Marino also agreed to the entry of an administrative order pursuant to Commission Rule 102(e) that suspends him from appearing or practicing before the Commission as an accountant.  Under the terms of the settlement, Caserta and Marino will receive credit for previous payments made to Spectrum shareholders in private litigation.  Verrill was enjoined from violating Sections 5(a) and 5(c) of the Securities Act, and he consented to pay a civil penalty of $25,000.
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diff --git a/raw/aaer/2001/AAER-1440.txt b/raw/aaer/2001/AAER-1440.txt
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+              M & A West, Inc.; Scott L. Kelly; Salvatore Censoprano; Zahra R. Gilak; Frank Thomas Eck, III; and Stanley R. Medley
+           
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+        M & A West, Inc.; Scott L. Kelly; Salvatore Censoprano; Zahra R. Gilak; Frank Thomas Eck, III; and Stanley R. Medley
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+ Litigation Release No. 17118 / September 6, 2001
+
+  Accounting and Auditing Enforcement Release No. 1440 / September 6, 2001
+
+  SECURITIES AND EXCHANGE COMMISSION v. M & A WEST, INC.; SCOTT L. KELLY; SALVATORE CENSOPRANO; ZAHRA R. GILAK; FRANK THOMAS ECK, III; and STANLEY R. MEDLEY, United States District Court for the Northern District of California, Civil Action No. C-01-3376 (CRB)
+
+   S.E.C. CHARGES BAY AREA "INTERNET INCUBATOR" WITH FRAUD AND REGISTRATION VIOLATIONS 
+
+  The United States Securities and Exchange Commission ("Commission") announced today that it has sued M & A West, Inc. ("MAWI" or the "Company"), a self-proclaimed "Internet incubator" engaged in developing Internet-related technology companies.  According to the Commission, since 1999 MAWI and various persons affiliated with the Company have reaped more than $20 million in illegal profits by selling unregistered securities to investors, in violation of the registration provisions of the federal securities laws.  These persons funneled millions of dollars through various secret accounts back to MAWI, which fraudulently reported the funds as revenue from operations which did not in fact exist.  MAWI was based in San Bruno, California throughout the course of the scheme, and has recently relocated to Liberty, Texas.
+
+  Also named in the Commission's complaint, filed in the Northern District of California, are:
+      Scott L. Kelly of Chandler, Arizona (until recently of Hillsborough, California), MAWI's former President and Chief Executive Officer;
+
+         Zahra R. Gilak and Frank Thomas Eck III of Napa, California, who served as MAWI's corporate secretary and outside counsel, respectively;
+
+         Salvatore Censoprano of Foster City, California, MAWI's former Chief Financial Officer; and
+
+         Stanley R. Medley of Los Angeles, California, an Eck associate who assisted in the transactions.
+   According to the complaint, during 1999 and 2000 Kelly, Gilak, Eck and Medley arranged a series of so-called reverse mergers between various MAWI operating divisions or related companies and publicly-traded shell companies with no operations.  The mergers resulted in the formation of four publicly-traded companies - MAWI, VirtualLender.com (later renamed VLDC Technologies), Workfire.com, and Digital Bridge - in which these four defendants held significant interests.  Under federal law, Kelly, Gilak, Eck and Medley were prohibited from selling their shares to the public unless the newly-formed companies complied with the registration provisions of the securities laws, which generally require that potential investors be provided with a prospectus that discloses certain material information about a company.  No registration statement was ever filed for any of the defendants' shares and no exemptions from registration applied.
+
+  Despite this, following each merger MAWI hyped the newly-formed public companies with a barrage of press releases, paid coverage in Internet investment newsletters, and postings to Internet stock discussion boards.  Kelly, Gilak, Eck and Medley then sold their unregistered stock into the market, reaping more than $20 million in illegal profits.
+
+  The complaint also alleges that Medley, who was responsible for locating the public shell companies and documenting the terms of the mergers, violated the securities laws by acting as an unregistered broker.
+
+    The complaint further alleges that Kelly and Censoprano fabricated contracts and other documents that MAWI used to falsely characterize millions of dollars in proceeds from the sale of unregistered securities as revenue from operations.  For example, MAWI's financial statements for its fiscal year 2000, ended May 31, 2000, reported $1.7 million in revenue from the sale of various website-related subsidiaries.  In actuality, the sales were complete shams.  MAWI's fiscal 2000 financials described another $1 million in proceeds from unregistered stock sales as "consulting revenue" when, in fact, no consulting services were provided.
+
+  In addition, the complaint charges that Kelly and Censoprano fraudulently inflated the value of the securities holdings that constituted the Company's primary assets.  For fiscal 2000, MAWI falsely reported a $12.1 million "unrealized gain on marketable securities available for sale."  In fact, according to the complaint, on the last day of MAWI's fiscal year Kelly and Gilak illegally manipulated the stock of VLDC Technologies, MAWI's major holding, causing the price of that stock to triple.  As a result, the value of MAWI's securities holdings was materially inflated.
+
+    The Commission's complaint charges that:
+
+         MAWI, Kelly, Gilak, Eck and Medley violated the registration provisions of the federal securities laws, Sections 5(a) and 5(c) of the Securities Act of 1933 ("Securities Act");
+
+         MAWI, Kelly and Censoprano violated, and Gilak and Eck aided and abetted violations of, the antifraud provisions, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder;
+
+         MAWI violated, and Kelly, Censoprano, Gilak and Eck aided and abetted violations of, 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 Rules 12b-20, 13a-1, 13a-11 and 13a-13, thereunder;
+
+         Kelly, Censoprano, Gilak and Eck violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1, concerning falsification of accounting records, and Kelly, Censoprano and Eck also violated Exchange Act Rule 13b2-2, concerning false representations to auditors; 
+
+         MAWI violated the Investment Company registration requirements of Section 7(a) of the Investment Company Act of 1940; and
+
+         Medley violated the broker registration requirements of Section 15(a) of the Exchange Act.
+
+ The complaint seeks permanent injunctive relief, civil penalties, and other remedies against all defendants, and an accounting and disgorgement of ill-gotten gains from MAWI, Kelly, Gilak, Eck and Medley.
+
+  In a separate matter, the Office of the United States Attorney for the Northern District of California has announced the filing of criminal charges against certain persons relating to much of the same conduct that is the subject of the Commission's complaint.
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diff --git a/raw/aaer/2001/AAER-1443.txt b/raw/aaer/2001/AAER-1443.txt
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index 0000000000000000000000000000000000000000..5ed9df4175dc114a2814e876bf0891f1e8c4538a
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+ Litigation Release No. 17123 / September 10, 2001
+  AAER Release No. 1443
+
+   SECURITIES AND EXCHANGE COMMISSION v. PATRICK SWISHER AND SWISHER INTERNATIONAL , United States District Court for the Western District of North Carolina, Civil Action  No. 3: 01 CV 521-MU, filed September 10, 2001.
+
+  SEC CHARGES SWISHER INTERNATIONAL, INC. AND CEO WITH ACCOUNTING FRAUD; THREE OTHERS NAMED IN ADMINISTRATIVE PROCEEDINGS
+
+  The U.S. Securities and Exchange Commission today filed a settled civil enforcement action in U.S. District Court in Charlotte, North Carolina, against Swisher International, Inc. (SII), a franchiser of commercial hygiene services, and its founder and CEO, Patrick Lee Swisher, alleging that SII overstated its earnings in its Form 10-Q for the quarter ended July 31, 1996, by prematurely recording a $450,000 franchise sale to an entity Patrick Swisher set up and controlled.  The Commission also named SII's director and VP Walter Thompson Reeder, and its former director and consultant George Kelly Moore in administrative cease-and-desist proceedings.  The Commission also brought settled administrative proceedings against Louis Philips Reames Sr. for violations of the anti-touting provisions of the Securities Act of 1933 (Securities Act).
+
+    The complaint alleges that in early September 1996, just days before SII filed its third quarter Form 10-Q, SII's accounting staff provided Swisher with preliminary financial statements that showed a significant loss for the quarter.  Thereafter, Swisher directed the accounting staff to recognize SII's sale of the Houston franchise to Lone Star Hygiene, LLC (Lone Star) in the third quarter, even though the transaction had not been completed.  Further, the complaint alleges that SII improperly described two-thirds of the revenue as "other income" instead of revenue from a nonrecurring item. This enabled SII to report quarterly net income of $163,886 instead of a loss of $120,131.
+
+  According to the complaint, Patrick Swisher, who owned 51% of Lone Star, had directed SII's sales department to omit his name from the sale documents, and failed to disclose his interest in Lone Star to the company's auditors during the company's 1996 audit.
+
+  The complaint also alleges that, on October 3,1996, Swisher transferred 480,000 shares of his personal restricted stock, then approximately one-fourth of the company's outstanding shares, to a Bahamian Corporation for which Swisher was the sole director.  According to the complaint, SII and Swisher failed to disclose in an October 30, 1996 registration statement registering those shares that Swisher beneficially owned Armand.  On December 2, 1996, Armand sold 200,000 shares at $5.475 per share resulting in $1,095,000 in proceeds.  
+
+  According to the Complaint, SII also failed to disclose the related party nature of the Houston franchise sale and another material transaction, and failed to discount notes receivable to reflect interest-free periods as required by generally accepted accounting principles.
+
+  Without admitting or denying the allegations in the complaint, Swisher consented to the entry of a Final Judgment permanently enjoining him from future violations of Sections 17(a)(2) and (3) of the Securities Act, and Sections 10(b)(5), 13(b)(5) and 16(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13b2-1, 13b2-2, 16a-2 and 16a-3; ordering him to pay $162,000 in disgorgement, prejudgment interest of $67,627, a $162,000 civil penalty, and imposing a five year officer and director bar.  Without admitting or denying the allegations in the complaint, SII consented to the entry of a Final Judgment permanently enjoining it from future violations of Securities Act Sections 17(a)(2) and (3) and Exchange Act Sections 10(b),13(a), 13(b)(2)(A), and 13(b)(2)(B), and Rules 10b-5, 12b-20, 13a-1, and 13a-13.
+
+    In settled administrative proceedings also instituted today, without admitting or denying the Commission's findings, Reeder consented to the entry of an order that he cease and desist from committing or causing any future violations of Section 17(a)(2) and (3) of the Securities Act, and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2.  Also, without admitting or denying the Commission's findings, Moore consented to the entry of an order that he cease and desist from committing or causing any future violation of Section 17(a)(2) and (3) of the Securities Act, and Rule 13b2-1 of the Exchange Act, and from causing 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.  Moore also consented to an order under Rule 102(e) of the Commission's Rules of Practice denying him the privilege of appearing or practicing before the Commission as an accountant with a right to apply for reinstatement after two years. 
+
+    A third settled Commission administrative order found that Reames, then a registered representative at the now-defunct Argent Securities, approved and authorized the issuance of two research reports on Swisher International without disclosing that SII paid Argent for the reports.  Without admitting or denying those findings, Reames has agreed to cease and desist from committing or causing any future violations of Section 17(b) of the Securities Act.  Based on his sworn statement of financial condition, the Commission did not impose a penalty on Reames.
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diff --git a/raw/aaer/2001/AAER-1445.txt b/raw/aaer/2001/AAER-1445.txt
new file mode 100644
index 0000000000000000000000000000000000000000..28b5095810e99aaa4a467d85618de22957f585fd
--- /dev/null
+++ b/raw/aaer/2001/AAER-1445.txt
@@ -0,0 +1,1373 @@
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+              Eric L. Mattson and James W. Harris
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+        Eric L. Mattson and James W. Harris
+       
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+
+ Litigation Release No.  17126 \ September 12, 2001
+
+  Accounting and Auditing Enforcement Release No. 1445 / September 12, 2001
+
+   SECURITIES AND EXCHANGE COMMISSION v. ERIC L. MATTSON AND JAMES W. HARRIS , Civil Action No. H-01-3106 (S.D. Tex.)(filed September 11, 2001)
+
+   SEC SUES BAKER HUGHES INCORPORATED'S FORMER 
+CHIEF FINANCIAL OFFICER AND CONTROLLER FOR 
+AUTHORIZING THE PAYMENT OF A BRIBE 
+
+    On September 11, 2001, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the Southern District of Texas, Houston Division, against Eric L. Mattson ("Mattson"), the former Chief Financial Officer of Baker Hughes Incorporated ("Baker Hughes"), and James W. Harris ("Harris"), Baker Hughes' former Controller.  The Commission's complaint alleges that Mattson and Harris authorized the payment of a bribe of $75,000, through KPMG-Siddharta Siddharta & Harsono ("KPMG-SSH"), Baker Hughes' agent and accountant in Indonesia, to a local government official in Indonesia.  Mattson and Harris directed that this payment be made while knowing that KPMG-SSH would pass all or part of the payment along to an Indonesian tax official for the purpose of influencing him to reduce a tax assessment from $3.2 million to $270,000 for PT Eastman Christensen ("PTEC"), an Indonesian company beneficially owned by Baker Hughes.  This improper payment was authorized in violation of the antibribery provisions of the Foreign Corrupt Practices Act ("FCPA")  
+
+  The complaint alleges that on March 9, 1999, Harris was told that an Indonesian tax official was demanding a $75,000 payment, in exchange for which he would reduce PTEC's tax assessment.  Harris learned that KPMG-SSH had offered to make the improper payment on PTEC's behalf using PTEC's funds, and then issue an inflated invoice that would conceal the payment.  The complaint further alleges that Baker Hughes' FCPA advisor advised Harris that any such payment to an Indonesian tax official would violate the FCPA.  On March 10, 1999, Harris told Baker Hughes' General Counsel and Mattson of the Indonesian tax official's demand for an improper payment.  During this meeting, the General Counsel stated that the Indonesian tax official's demands raised FCPA concerns and under no circumstances should Harris or Mattson enter into any transaction that could potentially violate the FCPA.  On the evening of March 10, 1999, disregarding the FCPA advisor's instructions, and acting contrary to the advice of the General Counsel, defendants Mattson and Harris authorized the payment of the bribe to the Indonesian tax official.  The complaint alleges that Mattson and Harris violated Sections 30A(a) and 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1 promulgated thereunder and aided and abetted Baker Hughes' violations of the books and records and internal controls provisions of the Exchange Act, Sections 13(b)(2)(A) and 13(b)(2)(B).  
+
+      Also on September 11, 2001, the Securities and Exchange Commission and the Department of Justice filed a joint civil injunctive action in the United States District Court for the Southern District of Texas, Houston Division, against KPMG-SSH and Sonny Harsono, a partner of KPMG-SSH, for their part in the payment of the bribe to the Indonesian tax official.  This is the first time that the Commission and the Department of Justice, both of which have jurisdiction over the antibribery provisions of the FCPA, have combined to file a joint civil action.  Without admitting or denying the allegations of the complaint, the defendants have consented to the entry of a Final Judgment that permanently enjoins both defendants from violating and aiding and abetting the violation of the antibribery provisions of the FCPA and the internal controls and books and records provisions of the Securities and Exchange Act of 1934 ("Exchange Act") (Sections 104A(a)(1), (2) and (3) of the FCPA and Sections 30A(a)(1), (2) and (3), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act).  See Litigation Release No. 17127 (September 12, 2001).  
+
+    Finally, in a related action, the Commission also instituted, on September 12, 2001, a settled administrative proceeding against Baker Hughes.  The Commission's Order finds that, in March 1999, Baker Hughes' CFO and its Controller authorized the above-described illegal payment, through KPMG-SSH, its agent in Indonesia, to a local government official in Indonesia.  The Order also finds that in 1998 and 1995, senior managers at Baker Hughes authorized payments to Baker Hughes' agents in India and Brazil, respectively, without making an adequate inquiry as to whether the agents might give all or part of the payments to foreign government officials in violation of the FCPA.  Without admitting or denying the Commission's findings, Baker Hughes consented to the entry of the Commission's Order.  The Order directs that Baker Hughes cease and desist from committing or causing any violation and any future violation of the internal controls and books and records provisions of the Exchange Act (Sections 13(b)(2)(A) and Section 13(b)(2)(B) of the Exchange Act).  See Securities Exchange Act Release No. 44784 (September 12, 2001); Accounting and Auditing Enforcement Release No. 1447.
+
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diff --git a/raw/aaer/2001/AAER-1447.txt b/raw/aaer/2001/AAER-1447.txt
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+++ b/raw/aaer/2001/AAER-1447.txt
@@ -0,0 +1,1439 @@
+
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+     SEC.gov | Robert M. Fuller Brenda P. Murray, Chief Administrative Law Judge 
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+              Robert M. Fuller Brenda P. Murray, Chief Administrative Law Judge
+           
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+        Robert M. Fuller Brenda P. Murray, Chief Administrative Law Judge
+       
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+ Securities Exchange Act of 1934
+ Release No.  44806 / September 17, 2001
+  Accounting and Auditing Enforcement
+ Release No.  1447 / September 17, 2001
+  Administrative Proceeding 
+ File No.  3-10576
+
+  CEASE-AND-DESIST PROCEEDINGS INSTITUTED AGAINST ROBERT M. FULLER 
+
+  The Commission announced that it instituted administrative cease-and-desist proceedings against Robert M. ("Skip") Fuller of Sautee, Georgia.  Fuller was a co-founder, chairman of the board and executive vice president-investor relations of Vista 2000, Inc., formerly located in Roswell, Georgia and traded on the NASDAQ National Market.  
+
+  In the Order, the Division of Enforcement alleges that approximately one week after Vista's initial public offering of units (consisting of common stock and warrants), Vista used 30% of the proceeds from its IPO to repurchase some IPO units.  Vista failed to amend its IPO to disclose this information.  Vista incurred a loss of $666,000 when it resold some of the units it had repurchased.  Fuller caused Vista to not disclose certain information relating to this activity in Vista's 1994 IPO and 1994 Form 10-KSB.  Further, Fuller caused Vista to file its 1994 financial statements that were certified by accountants who were not independent because he had previously given one of the auditors 60,000 shares of Vista common stock as a gift.  
+
+  As a result, the Order alleges that Fuller caused Vista to violate Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20 and 13a-1 thereunder. 
+
+  A hearing will be held before an administrative law judge to determine whether the allegations in the Order are true and, if so, what, if any, remedial sanctions against Fuller are appropriate.
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diff --git a/raw/aaer/2001/AAER-1449.txt b/raw/aaer/2001/AAER-1449.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8d41a2e3417871c2c2e234e7bbf8c28f8abb59b0
--- /dev/null
+++ b/raw/aaer/2001/AAER-1449.txt
@@ -0,0 +1,1437 @@
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+              Madera International, Inc.
+           
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+        Madera International, Inc.
+       
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+
+ Securities and Exchange Act of 1934
+ Release No.  44814 / September 19, 2001
+  Accounting and Auditing Enforcement
+ Release No.  1449 / September 19, 2001
+  Administrative Proceeding
+ File No.  3-10577
+
+  ADMINISTRATIVE PROCEEDING INSTITUTED TO DEREGISTER THE COMMON STOCK OF MADERA INTERNATIONAL, INC.
+
+  The SEC instituted an administrative proceeding pursuant to Section 12(j) of the Securities Exchange Act of 1934 to revoke the registration the common stock of Madera International, Inc. based on its failure to file required periodic reports with the Commission and its filing of false financial statements regarding phony sales.   
+
+  In the Order Instituting Public Proceedings, the Division of Enforcement alleges that Madera violated the periodic reporting requirements of the Exchange Act by including in its annual report on Form 10-K for the fiscal year ended March 31, 1998 and quarterly report on Form 10-Q for the quarter ended June 30, 1998 financial statements that materially misstated Madera's revenues and pre-tax profits by reporting fictitious sales to three companies.  The Division also alleges that Madera failed to comply with Section 13(a) of the Exchange Act by not filing annual reports on Form 10-K and quarterly reports on Form 10-Q for any fiscal period subsequent to its fiscal quarter ended December 31, 1999.
+
+  A hearing will be held before an administrative law judge for the purpose of taking evidence to determine whether the allegations in the Order are true.
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diff --git a/raw/aaer/2001/AAER-1452.txt b/raw/aaer/2001/AAER-1452.txt
new file mode 100644
index 0000000000000000000000000000000000000000..20f5af7d57f0e249c37fa0559a75012a78d1a1f4
--- /dev/null
+++ b/raw/aaer/2001/AAER-1452.txt
@@ -0,0 +1,1606 @@
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+               Enforcement and Litigation 
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+               Administrative Proceedings 
+           
+       
+              Harlan & Boettger, LLP; William C. Boettger, CPA and P. Robert Wilkinson, CPA
+           
+     
+ 
+
+   
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+     
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+      
+      
+             
+        Harlan & Boettger, LLP; William C. Boettger, CPA and P. Robert Wilkinson, CPA
+       
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+     SECURITIES EXCHANGE ACT OF 1934
+     Release No.  44817 / September 19, 2001
+      ACCOUNTING AND AUDITING ENFORCEMENT
+     Release No.   1452 / September 19, 2001
+      ADMINISTRATIVE PROCEEDING
+     File No.  3-10580
+
+            In the Matter of   
+      HARLAN & BOETTGER, LLP, 	
+     WILLIAM C. BOETTGER, CPA   	
+ AND
+  P. ROBERT WILKINSON, CPA
+  Respondents. 
+    
+	  : : : : : : :   
+   ORDER INSTITUTING PUBLIC
+ ADMINISTRATIVE PROCEEDINGS
+ PURSUANT TO RULE 102(e) OF THE
+ COMMISSION'S RULES OF PRACTICE,
+ MAKING FINDINGS AND IMPOSING
+ REMEDIAL SANCTIONS     I.
+
+        The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Harlan & Boettger, LLP, William C. Boettger ("Boettger) and P. Robert Wilkinson ("Wilkinson"), certified public accountants, pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice.  1    II.
+
+        In anticipation of the institution of the administrative proceedings, the respondents have submitted Offers of Settlement which the Commission has determined to accept.  Solely for the purposes of this proceeding and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the Commission's findings contained herein, except that they admit the jurisdiction of the Commission over them and over the subject matter of this proceeding, Harlan & Boettger, Boettger and Wilkinson consent to the entry of this Order and the findings and imposition of remedial sanctions set forth below.
+
+      III.
+
+        On the basis of this Order and the respondents' Offers of Settlement, the Commission makes the following findings:  2    A.   THE RESPONDENTS
+
+       Harlan & Boettger, LLP  is an accounting firm located in San Diego, California.  Harlan & Boettger was the independent accountant for Madera International, Inc. ("Madera") from February 1995 until March 1999 and for EMB Corporation ("EMB") from December 1995 until May 1998.  From the period of the events described in this Order to the present, Boettger and Wilkinson were the only Harlan & Boettger partners engaged in the audit of public companies. 
+
+             William C. Boettger  is a certified public accountant licensed in California and has been a partner with Harlan & Boettger since its inception in January 1987.  Boettger was responsible for conducting the fiscal 1996, 1997 and 1998 audits of Madera and the 1996 and 1997 audits of EMB. 
+
+             P. Robert Wilkinson  is a certified public accountant licensed in California, and has been a partner with Harlan & Boettger since February 1995.  Prior to merging with Harlan & Boettger in February 1995, Wilkinson was a sole practitioner. Wilkinson was primarily responsible for conducting the fiscal 1994 and 1995 audits of Madera and was the reviewing partner for the fiscal 1996, 1997 and 1998 Madera audits.  Wilkinson also was the reviewing partner for the 1996 and 1997 audits of EMB.
+   B.   THE ISSUERS 
+        Madera International, Inc.  was at all times relevant to this proceeding a Nevada corporation headquartered in Coral Gables, Florida, engaged in the timber business.  Its common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and traded on the Electronic Bulletin Board operated by the National Association of Securities Dealers ("NASD").
+
+             EMB Corporation  was at all times relevant to this proceeding a Hawaii corporation headquartered in Costa Mesa, California, engaged in the mortgage origination business.  Its common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and trades on the Electronic Bulletin Board operated by the NASD. 
+   C.   MADERA'S FALSE FINANCIAL STATEMENTS
+
+        1.   The Timber Properties 
+
+          a. The Nicaraguan Properties
+
+        On January 16, 1994, Madera entered into a "contract of sale" with Importaciones Y Exportaciones, Sociedad Anonima ("Imexsa"), a Nicaragua corporation, for the purchase of 988,400 acres of timberland in Nicaragua.  The consideration provided by Madera was a $5 million convertible note.  On January 20, 1994, the note was converted into 10,200,000 shares of Madera common stock.  
+
+        The transaction was initially recorded as an investment in timber producing property at the contract price of $5 million.  However, by means of a March 31, 1994 year-end journal entry, Madera management increased the value of the property to $12 million based upon "a study made of the property by an authority in Nicaragua" and "the trading value of the Company's stock which began May 12, 1994."  Generally Accepted Accounting Principles ("GAAP") require that a long-lived asset, such as property, be recorded and carried at its original cost unless there is an impairment in value, in which case the asset should be written down to a new carrying amount which is less than the remaining cost.  Statement of Financial Accounting Standards No. 121,  Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of  .  Under no circumstances does GAAP permit a long-lived asset to be written-up in value on a company's books.  Moreover, even if it were proper to increase the carrying value of the property above its cost, the trading value of Madera's stock almost three months after the transaction was irrelevant to such a revaluation.  3    The seller of the Nicaraguan property, Imexsa, did not possess title to the property but, rather, had obtained a permit for exploration and development of the property from the government of Nicaragua.  On July 29, 1994, the Nicaraguan government withdrew the extraction rights to the property, thereby rendering Madera's investment worthless.  Despite this, Madera continued to value the Nicaraguan property at $12 million in the financial statements included in its quarterly reports on Form 10-Q for the quarters ended September 30, 1994 and December 31, 1994.  4    It was not until February 1995 that Madera wrote-off its $12 million investment in the Nicaraguan property.  As discussed below, the $12 million write-off was offset at about the same time by another questionable property acquisition. 
+
+          b. The Inselinca Joint Venture
+
+        In February 1994, Madera entered into a transaction with Inselinca, a Venezuelan company, to purchase a 50% ownership interest in certain Venezuelan timber concessions purportedly owned by Inselinca.  The consideration paid by Madera was 1 million shares of Madera convertible preferred stock with a stated value of $3 per share.  The value placed on the shares was arbitrary and unsupported since there was no market for Madera securities at that time.  Moreover, Madera obtained no documentation establishing the ownership of the property by Inselinca or supporting the value placed on the timber concessions. 
+
+        Madera improperly included the $3 million joint venture investment in Madera's March 31, 1994 annual report on Form 10-K and its June 30, 1994 quarterly report on Form 10-Q.  The $3 million asset was written off at September 30, 1994 because, according to Madera,  "[t]he Inselinca group could not demonstrate the values previously warranted to the Registrant." 
+
+          c. The Brazilian Rain Forest Property
+
+        In July 1994, Madera entered into an agreement to acquire certain assets that Madera valued at $30,230,000, in exchange for 10 million shares of Madera non-trading convertible preferred stock.  The primary asset purportedly acquired consisted of 478,000 acres of timber producing property located in the Brazilian rain forest, which Madera valued at $27 million.  In addition, Madera acquired a sawmill it valued at $2.6 million and an inventory of cut timber it valued at $630,000.  Madera recorded the transaction at the $30,230,000 value based primarily on undocumented representations by the seller concerning the value and ownership of the assets.  Madera included the properties at this improper valuation in its periodic reports on Forms 10-K and 10-Q beginning with the quarter ended September 30, 1994, and continuing through its the fiscal quarter ended December 31, 1999.  5    The $27 million value attributed to the rain forest property is supported only by a "transfer agreement" executed by the seller.  The "transfer agreement," dated August 10, 1994, purports to transfer title to the properties from the seller to Madera and contains an "estimated value" for the property of $27 million.  Madera management failed to ascertain when the properties were originally acquired by the seller and what seller's the original cost was, or to take adequate steps to determine whether the seller had clear title to the property. 
+
+        Madera management learned soon after its acquisition of the timber properties that it was not economical to harvest timber from its rain forest properties because of logistical problems in harvesting the timber and transporting harvested timber out of the rain forest.  6    Despite this  knowledge, Madera management continued to value the property at $27 million in Madera's financial statements filed with the Commission.  Madera management took no steps to write down the value of the property even though it knew that no potential income would be derived from the property.  7    d. The Ralph Financial Transaction
+
+        On January 10, 1995, Madera entered into a transaction with Ralph Financial Corporation whereby Madera purportedly acquired 400,000 hectares (988,400 acres) of timber producing property in Brazil.  Madera management negotiated the transaction with the president of Ralph Financial at a time when he was in prison for securities fraud.  Madera issued 12 million shares of its non-trading convertible preferred stock with a stated value of $1.00 per share to Ralph Financial in exchange for the Brazilian property, which was recorded in Madera's books as a $12 million asset.  This valuation was based on the stated value of the preferred stock, an arbitrary and excessive figure.  8    Madera improperly valued the Brazilian property at $12 million in its March 31, 1995 annual report on Form 10-K and its quarterly reports on Form 10-Q for the quarters ended June 30, 1995 and September 30, 1995 even though Madera had no evidence that Ralph Financial ever owned the property or that, if it did, legal title to the property had been transferred from it to Madera.  The $12 million asset was written off at December 31, 1995 because, according to Madera management, the representations made by Ralph Financial were not accurate and they were "unable to demonstrate the actual ownership of the properties and could not transfer proper title to Madera."  
+
+        2.   The Related Party Transactions 
+
+        During the period in question, Madera entered into various "consulting agreements" with officers and directors of Madera and companies controlled by them.  Compensation for the purported services was typically in the form of Madera common stock and occasionally in cash.  None of those consulting agreements were disclosed as related party transactions in Madera's filings with the Commission.
+
+      D. THE DEFICIENT MADERA AUDITS 
+
+        1.   Inadequate Planning, Supervision and Review 
+
+        Throughout the period in question, Boettger and Wilkinson failed to properly plan and supervise the Madera audits as required by generally accepted auditing  standards ("GAAS").  Codification of Statements on Auditing Standards ("AU")  §  311.01.  9    For the fiscal 1994 and 1995 audits conducted by Wilkinson, there is a complete lack of documentation of any planning and no written audit programs.  For the fiscal 1996 to 1998 audits conducted by Boettger and reviewed by Wilkinson, audit planning documents and checklists were often incomplete, undated and unsigned.
+
+        Supervision of the audits was inadequate and included little partner involvement.  For the fiscal 1998 audit, a staff accountant conducted the audit at Madera's Miami headquarters while his supervisor, an audit manager, remained at Harlan & Boettger's San Diego office.  Boettger permitted the audit manager to supervise the audit "by telephone." 
+
+        Harlan & Boettger's audit manager assigned to supervise and review Madera's fiscal 1997 audit was assigned to another audit by Boettger prior to completing his review.   Another Harlan & Boettger audit manager was asked by Boettger to complete the review of the audit even though he had never worked on the Madera audit and had no knowledge of Madera's operations or audit issues.  
+
+        2.   Failure To Obtain Evidence of the Ownership and Valuation of the Timber Properties 
+
+        Throughout the period, Boettger and Wilkinson failed to exercise due care and obtain sufficient competent evidential matter concerning the ownership and value of the timber properties. Codification of Statements on Auditing Standards ("AU")  §  326.01.   10    They failed to perform any procedures or analysis to ensure that Madera had good title to the timber properties or that their valuations were proper.  Instead, they improperly relied on unsupported management representations.  There is no evidence in Harlan & Boettger's 1994 audit workpapers that any inquiry or request was made by Wilkinson for evidence of ownership of the Nicaraguan properties that were recorded by Madera.  In addition, Wilkinson improperly allowed Madera to write-up the value of the Nicaraguan property from $5 million to $12 million in violation of GAAP.   11    As with the Nicaraguan property, Wilkinson accepted the arbitrary $3 million value recorded by Madera in its 1994 financial statements for the Inselinca joint venture, without performing any audit procedures regarding the valuation or to ensure that Inselinca, in fact, owned the Venezuelan timber concessions.
+
+        The fact that the value of the Nicaraguan property and the Venezuelan joint venture, a total of $15 million in previously reported assets, was written off by Madera during Madera's fiscal year ended March 31, 1995 was a major red flag and should have caused Wilkinson to question management's representations and to approach the fiscal 1995 audit with heightened skepticism.  He did not.
+
+        During fiscal 1995, as previously discussed, Madera recorded assets of $39 million in its financial statements representing the acquisition of the Brazilian rain forest timber properties, ($27 million), and additional Brazilian timber properties from Ralph Financial ($12 million).  With respect to the rain forest properties, Wilkinson noted in an "items needed" list dated May 30, 1995, "I need copies of the agreements, etc. and an explanation of how the value was established for the books.  Provide all the documentation on this account."  Wilkinson noted that he needed the same information for the Ralph Financial acquisition.  In a follow-up "items needed" list dated June 2, 1995, Wilkinson noted that Madera  "was going to provide us with deeds to the property in Brazil.  I need to see these."  With respect to the Ralph Financial acquisition, Wilkinson again requested documentation to substantiate the value and "deeds to the property".  Despite the fact that Madera failed to furnish Wilkinson with the documentation he had requested concerning the ownership and value of the properties, Wilkinson issued an unqualified auditor's report on Madera's fiscal 1995 financial statements.  12    During the fiscal 1996 audit, conducted by Boettger and reviewed by Wilkinson, no procedures were performed with respect to the value and ownership of the rain forest properties.  The only reference to the properties contained in Harlan & Boettger's 1996 workpapers is a note which states "see 94 w/p [workpapers] for documentation".   13    For the fiscal 1997 audit, also conducted by Boettger and reviewed by Wilkinson, Harlan & Boettger noted, with respect to the rain forest properties, "consistent [with] prior year audit...waive further review...nothing has [changed] and no harvesting of any significance has occurred".  No other audit procedures were performed.  Harlan & Boettger did not raise any questions about the value of the property despite the knowledge that no harvesting had occurred.
+
+        During the fiscal 1998 audit, Madera furnished Harlan & Boettger for the first time with a so-called "appraisal" of the rain forest property dated August 22, 1997.  The method used for the "appraisal" was based on "the market value of stumpage [timber] and the capitalized net worth of projected annual income from stumpage and lumber."  In other words, the "appraisal" was based on the assumption that all the timber located on the property would be sold at current market prices.  The report concluded that the property was worth between $33 million to $40 million.  However, as Boettger knew, Madera had not harvested any timber nor earned any income from the rain forest property since Madera acquired the property in 1994.  14    This fact should have caused Boettger to question the appraisal. 
+
+        The appraisal report noted that one of the traditional appraisal "models" is based on "the market value of similar properties."  The report, however, states that market value of similar properties was not a good indicator of value in Madera's case because the property being appraised was "unique."  However, as Harlan & Boettger knew, Madera had purchased additional "prime" timberland close to its rain forest property in May 1997 for only $1.76 per acre compared to the $56.49 valuation of the rain forest property.  The Harlan & Boettger auditors did not consider this fact in connection with reviewing the appraisal nor did they question why it wasn't considered by the appraiser.
+
+        Moreover, Boettger and Wilkinson failed to consider the provisions of Statement of Financial Accounting Standards No. 121,  Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of  ("FAS 121").  FAS 121 requires that long-lived assets, in this case the timber properties, be reviewed for impairment "whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable."  FAS 121 cites as an example of events that indicate that the carrying amount of an asset should be assessed, "a current period operating cash flow loss combined with a history of operating or cash flow losses...."  Boettger and Wilkinson knew that Madera had a history of operating losses and that the property in question was not and had not been producing any revenues or cash flow for Madera.  Yet they failed to consider the requirements of FAS 121 and failed to assess whether the timber properties should be written down in value.
+
+        In October 1998, when the fiscal 1998 audit was substantially complete, Boettger, for the first time, asked Madera management to furnish him with documentation evidencing that Madera had good title to the rain forest property.  In a letter dated October 30, 1998 to Harlan & Boettger, Madera's president stated, "I hereby commit to you that the property...[is] owned by Madera free and clear of any encumbrances.  I further commit to you that I will cause to be supplied to your office, as soon as practicable, copies of the actual deeds... it is also my understanding that financial arrangements have been made with you so that you will be paid today as well."  In a separate letter dated October 30, 1998 to Boettger, Madera management wrote, "In accordance with my commitment to you, I enclose herewith our check in the amount of $22,400 in payment against the account of Madera.  It is my understanding that upon receipt of this check you will release the Madera audit of March 31, 1998 for distribution."
+
+        On November 2, 1998, Boettger received the $22,400 check from Madera.  15    Also, on November 2 nd , Boettger signed and sent the audit report to Madera management despite the fact that he had not received any documents evidencing that Madera had clear title to the rain forest property. 
+
+        3.   The Related Party Transactions 
+
+        As discussed previously, during the period in question, Madera failed to disclose in its filings with the Commission the existence and terms of consulting agreements it entered into with its officers and directors, as required by GAAP.   16    Boettger and Wilkinson were aware of the relevant consulting agreements and the fact that Madera had issued stock to the "consultants" pursuant to the terms of the agreements.   17    Despite this knowledge, Boettger and Wilkinson failed to ensure that the transactions were disclosed in Madera's financial statements during the period in question.  Specifically, during the fiscal 1998 audit, several of the consulting agreements with officers and directors of Madera were identified by Harlan & Boettger as related party transactions in an audit planning form.  In addition, Harlan & Boettgers' audit manager assigned to the fiscal 1998 audit, noted on a comment sheet based on his review of Madera's Form 10K, "disclose consulting fees as related party transactions."  Despite this knowledge, Harlan & Boettger failed to ensure that proper disclosure of the transactions was made in the notes to Madera's financial statements as required by GAAS.  18    E. THE DEFICIENT EMB AUDITS
+
+        Similar to their audits of Madera, Harlan & Boettger, Wilkinson and Boettger failed to exercise due professional care and obtain sufficient competent evidential matter in their 1996 and 1997 audits of EMB Corporation.  Harlan & Boettger's unqualified audit reports on EMB's financial statements were included in registration statements and annual reports filed with the Commission as well as private offering memorandums.
+
+        1.   The February 29, 1996 and September 30, 1996 Audits 
+
+        Boettger and Wilkinson were responsible for performing and reviewing the audit of EMB's financial statements for the five months ended February 29, 1996.  Those financial statements and Harlan & Boettger's unqualified audit report were included in a Form 10-SB Registration Statement filed with the Commission and a private offering memorandum for EMB's common stock.
+
+        EMB's February 29, 1996 balance sheet included an asset described as "land held for sale" valued at $3.9 million, which accounted for 94% of EMB's total assets and all of its stockholders' equity.  The land had been acquired by EMB's predecessor company, Sterling Alliance Group, Ltd. ("SAG") for 200,000 shares of SAG's common stock.  SAG was a private company at the time of the transaction with no quoted market value for its stock and a minimal net worth.  The land, 61 acres located in Monterey County, California, was undeveloped and purportedly contained water producing rights.
+
+        According to EMB, the $3.9 million value attributed to the land was based on an independent appraisal which was reviewed by Boettger and Wilkinson.  The appraiser concluded that the market value of the land was $415,000 or $6800 per acre using the market approach based on recent sales of similar properties in the area.  The appraiser also calculated a value using an income approach analysis which assumed that the property would be developed and produce revenue from the sale of its water reserves.  The appraiser projected the net income from the assumed sale of water from the property for a ten year period and arrived at a value of $3.9 million, or $64,000 per acre. 
+
+        Since EMB did not intend to develop the property but was simply holding the property for resale, the land should have been recorded at its appraised value of $415,000.  Instead, EMB, with Boettger's and Wilkinson's concurrence, improperly valued the land at $3.9 million in its financial statements. 
+
+        In connection with Boettger and Wilkinson's audit of EMB's financial statements for the fiscal year ended September 30, 1996, based on comments from the Commission's Division of Corporation Finance, the Monterey land was valued at $800,000.  The reason for the decrease in value from $3.9 million to $800,000 and the basis for the $800,000 valuation was not disclosed.  Those financial statements and Harlan & Boettger's unqualified audit report were included in an Annual Report on Form 10-KSB filed with the Commission.
+
+        2.   The September 30, 1997 Audit 
+
+        Boettger and Wilkinson were also responsible as the engagement and reviewing partners of EMB's financial statements for the year ended September 30, 1997.  Those financial statements and Harlan & Boettger's unqualified audit report were included in an Annual Report on Form 10-KSB filed with the Commission.
+
+        In those financial statements, EMB reported an asset of $1,137,500 described as "Investment in joint venture" which  accounted for 68% of EMB's reported stockholders' equity. The purported joint venture was to be formed between EMB and a domestic corporation.  The joint venture planned to establish and operate a Dutch company to further EMB's real estate mortgage business internationally.  EMB placed 1 million shares of its restricted common stock "in trust" with the principal of EMB's proposed joint venture partner.  EMB recorded the value of the joint venture investment at 65% of the market value of its common stock.
+
+        As of September 30, 1997 and continuing through January 12, 1998, the date that Boettger released Harlan & Boettger's audit report, the joint venture had not been formed, no written joint venture agreement had been drafted and the Dutch operating company had not been formed.  
+
+        On January 11, 1998, Boettger wrote to EMB management and questioned the propriety of reporting the joint venture investment as an asset since the joint venture was not finalized.  Boettger informed EMB that without the asset, EMB's equity would be reduced to approximately $500,000 and that "[t]his now brings the possible going concern issue back since the equity is so nominal".  
+
+        Despite his concerns, Boettger released his firm's audit report to EMB on January 12, 1998 and EMB filed its Form 10-K with the Commission on January 13, 1998, which included Harlan & Boettger's unqualified audit report on EMB's financial statements which improperly reported as an asset the $1,137,500 joint venture investment. 
+
+      F. CONCLUSION
+
+        Based upon the foregoing, the Commission finds that:
+
+          A. In connection with the audits of the financial statements of Madera International, Inc. and EMB Corporation, Harlan & Boettger, Boettger and Wilkinson each engaged in improper professional conduct for purposes of Rule 102(e) of the Commission's Rules of Practice; and
+
+          B. It is appropriate and in the public interest to impose the sanctions consented to in the Offers submitted by Harlan & Boettger, Boettger and Wilkinson.
+
+        IT IS HEREBY ORDERED, effective immediately, that:
+
+        Harlan & Boettger, Boettger and Wilkinson be, and hereby are, permanently denied the privilege of appearing or practicing before the Commission as accountants, pursuant to Rule 102(e) of the Commission's Rules of Practice.                                         
+
+  By the Commission.
+
+                    Jonathan G. Katz
+                   Secretary
+  
+
+ 
+ Footnotes 
+       1        Rule 102(e) (1) of the Commission's Rules of Practice provides, in pertinent part, that the Commission may deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission: "... (ii) to be lacking in character or integrity or to have engaged in unethical or improper professional conduct...." 
+
+      2      The findings herein are made pursuant to the respondents' Offers of Settlement and are not binding on any other person or entity in this or in any other proceeding.
+
+      3      In January 1994, when the contract was signed, there was no available market price for Madera's common stock since it was not being traded.
+
+      4      Madera's fiscal year ends March 31.
+
+      5      Madera has made no subsequent periodic filings with the Commission.
+
+      6      According to study performed of Madera's rain forest property, harvesting (cutting) of the logs could only be done during the rainy season because no roads exist in or near the property.  Extraction of the logs would be done manually and workers would have to "move the logs to the waterways using pulleys and other primitive methods."  
+
+      7      The fact that the $27 million value, or $56.49 per acre value, attributed to the 478,000 acres of rain forest property was arbitrary and vastly excessive is further supported by the fact that in May 1997, Madera purchased an additional 251,000 acres "of prime timberland close to its fee owned property in Brazil" for only $441,000 or $1.76 per acre.   
+
+      8     The preferred stock was convertible into 5 million shares of Madera common stock, whose bid and ask price at the time of the transaction was between 10 cents and 13 cents per share.  Assuming conversion at that time, the value of the transaction would have been between $500,00 and $650,000, rather than the $12 million booked by Madera. 
+
+      9      AU  §  311.01 states that the first standard of audit field work requires that "the work is to be adequately planned and assistants, if any, are to be properly supervised...the auditor should consider the nature, extent, and timing of work to be performed and should prepare a written audit program (or set of written audit programs) for every audit".  
+
+      10      AU § 326.01 states that the third standard of field work is that "sufficient competent evidential matter is to be obtained through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under audit."
+
+  
+
+      11     Wilkinson noted in the audit workpapers that Madera purchased the land for a $5 million note and "it appears the client increased value of the land to $12,000,000 from $5,000,000."  Wilkinson then attempted to justify the increase based on the value of Madera's stock "even though the value of the traded stock is as of 5-12-94", three months after the transaction.   
+
+      12      As discussed previously, Madera wrote off the $12 million property acquired from Ralph Financial during fiscal 1996.  The $27 million rain forest property continued to be reported in Madera's financial statements in all subsequent Commission filings.   
+
+      13      Harlan & Boettger's 1994 workpapers contained no documentation with reference to the rain forest properties since they were not booked until fiscal 1995.
+
+      14     Harlan & Boettger noted in its fiscal 1998 audit workpapers that Madera had purchased its timber from third party vendors during fiscal 1998.
+
+      15     In a November 2 nd  fax to Harlan & Boettger, Madera management wrote, "Federal Express should be walking in your door any moment now and carrying a letter and a check for you guys.  Upon receipt of these please forward the audit by E Mail...so that I can incorporate it into the 10KSB narrative and have a finished document to forward to the Edgar specialist that we use".   
+
+ 
+
+      16     Statement of Financial Accounting Standards No. 57, Related Party Disclosures, states in part, "Financial statements shall include disclosures of material related party transactions...[t]he disclosures shall include...the nature of the relationship(s) involved, a description of the transactions [and] the dollar amounts of transactions...".
+
+      17     Copies of the relevant consulting agreements were contained in Harlan & Boettgers audit files.  
+
+      18     Statement on Auditing Standards No. 45, Omnibus Statement on Auditing Standards,  states in part, "[t]he auditor should view related party transactions within the framework of existing pronouncements, placing primary emphasis on the adequacy of disclosure...he should then evaluate all the information available to him concerning the related party transaction...and satisfy himself on the basis of his professional judgment that it is adequately disclosed in the financial statements."    
+
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diff --git a/raw/aaer/2001/AAER-1456.txt b/raw/aaer/2001/AAER-1456.txt
new file mode 100644
index 0000000000000000000000000000000000000000..706e3ff8c5c3b3a679d2f2206ea5681c8a968b63
--- /dev/null
+++ b/raw/aaer/2001/AAER-1456.txt
@@ -0,0 +1,1553 @@
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+     SEC.gov | Charles K. Springer, CPA; Robert S. Haugen, CPA; Haugen, Springer & Co., PC 
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+           
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+        Charles K. Springer, CPA; Robert S. Haugen, CPA; Haugen, Springer & Co., PC
+       
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+
+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  44858 / September 27, 2001
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  1456 / September 27, 2001
+  ADMINISTRATIVE PROCEEDING
+  No. 3-10589
+
+        In the Matter of     
+  Charles K. Springer, CPA
+ Robert S. Haugen, CPA
+ Haugen, Springer & Co., PC
+  Respondents.     
+    
+    : : : : : : : :   
+ ORDER INSTITUTING PROCEEDINGS 
+PURSUANT TO SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE COMMISSION'S 
+RULES OF PRACTICE, MAKING FINDINGS,  
+AND IMPOSING REMEDIAL SANCTIONS 
+AND A CEASE-AND-DESIST ORDER      I.
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate to institute public cease-and-desist proceedings pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and proceedings pursuant to Rule 102(e)(1)(ii) and (iii)  1   of the Commission's Rules of Practice against Charles K. Springer ("Springer") and to institute proceedings pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice against Robert S. Haugen ("Haugen"), and Haugen, Springer & Co., PC (collectively, the "Respondents" or "Auditors").
+
+  II.
+
+  In anticipation of the institution of these administrative proceedings, Respondents have together submitted an Offer of Settlement ("Offer") to the Commission, 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 in which the Commission is a party, and without admitting or denying the findings herein, except that Respondents admit the jurisdiction of the Commission over them and over the matters set forth herein, Respondents have consented to the issuance of this Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice, Making Findings,  and Imposing Remedial Sanctions and a Cease-and-Desist Order ("Order").  Accordingly, it is ordered that proceedings pursuant to Exchange Act Section 21C and Rule 102(e) of the Commission's Rules of Practice be, and hereby are, instituted.
+
+  III.
+
+  On the basis of this Order and the Offer submitted by Respondents, the Commission finds that:
+
+    A. Haugen, Springer & Co., PC,   is a Colorado accounting firm located in Englewood, Colorado, with Haugen and Springer being the only shareholders of the company.  Haugen, Springer & Co., PC audited the financial statements of Vari-L Company, Inc. ("Vari-L") from approximately 1991 until the firm resigned in July 2000.
+
+    B. Charles K. Springer, CPA, age 42, a resident of Highlands Ranch, Colorado, is vice president and a shareholder of Haugen, Springer & Co., PC where he has been employed since approximately 1990.  Springer has been a licensed certified public accountant in Colorado since 1984.  Springer was the partner in charge of all Haugen, Springer & Co., PC's audits of Vari-L from 1996 through 1999 and conducted most of the audit work himself.
+
+    C. Robert S. Haugen, CPA, age 60, a resident of Englewood, Colorado, is president and a shareholder of Haugen, Springer & Co., PC where he has been employed since 1990.  Haugen has been a licensed Certified Public Accountant in Colorado since 1975.   Haugen was the reviewing partner of all Haugen, Springer & Co., PC's audits of Vari-L.
+
+    D. Vari-L,   a Colorado company located in Denver, Colorado, designs, manufactures and markets a wide range of radio frequency and microwave signal source processing components used in commercial and military/aerospace applications such as base stations, cellular phones, satellite communications systems, missile guidance, radar and navigational systems.  Vari-L's common stock is registered with the Commission under Section 12(g) of the Exchange Act and was quoted on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") until it was delisted on September 7, 2000.  The company filed reports on Forms 10-KSB and 10-QSB through its December 31, 1999 Form 10-KSB and currently reports on Forms 10-K and 10-Q.
+
+    E. Vari-L engaged in a financial reporting fraud to show consistently increasing revenue and earnings from at least 1996 through the first quarter of 2000.  As a result of the fraud, Vari-L filed periodic reports with the Commission that overstated revenue, earnings, and most assets.  Vari-L's fraudulent accounting practices included (i) improperly recognizing revenue before products were shipped to customers by either treating them as bill and hold sales or simply holding its books open at quarterly and year-end periods; (ii) recognizing false revenue; (iii) improperly capitalizing internal labor and related overhead costs as property, equipment and intangible assets; (iv) overstating inventory by disregarding physical inventory counts, estimating inventory amounts in lieu of a physical count, failing to value inventory based on actual manufacturing costs, and failing to provide adequate inventory reserves; and (v) improperly deferring period costs.  These accounting misstatements allowed Vari-L to report pretax income instead of a pretax loss each period from 1996 through the first quarter of 2000. 
+
+    F. In a September 12, 2000 press release Vari-L conceded that its accounting was improper leading to a required $30-$35 million write down of its reported December 31, 1999 balance sheet.  In February 2001, Vari-L filed with the Commission restated financial statements for the annual period ended December 31, 1999, and for quarterly periods ended March 31, 1999, June 30, 1999, September 30, 1999, and March 31, 2000. Vari-L's March 31, 2000 balance sheet was overstated by $39 million or 132% as a result of the company overstating reported pretax income for the quarter and in prior financial statements.  Vari-L's accounting misstatements resulted in Vari-L reporting cumulative pretax income of $17.1 million from 1996 through the quarter ended March 31, 2000 instead of a $14.4 million cumulative pretax loss for the same period.
+
+    G. Haugen, Springer & Co., PC issued unqualified audit reports on Vari-L's 1996 through 1999 financial statements dated February 5, 1997, February 24, 1998, January 29, 1999, and March 14, 2000.  Haugen, Springer & Co., PC's unqualified reports stated that, "We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion."
+
+    H. Contrary to their representations, the Auditors failed to conduct the 1996 through 1999 audits of Vari-L's financial statements in compliance with GAAS.  They failed to obtain sufficient competent evidential matter, act with due professional care, and exercise professional skepticism.
+
+    I. The Auditors failed to obtain sufficient competent evidential matter in the area of revenue recognition.  They relied on management's representation that customers requested the sales be made on a bill and hold basis.  They ignored information in the audit workpapers that suggested management's representations were false.  In addition, the Auditors failed to perform sufficient audit procedures to determine if the other criteria for bill and hold sales were met.
+
+    J. The Auditors did not obtain sufficient competent evidential matter to opine on Vari-L's capitalized costs.  The Auditors knew that Vari-L had no contemporaneous and detailed time records evidencing the labor that was capitalized, yet they did not confirm sufficiently the amount of time employees worked on specific projects or determine whether specific projects were capitalizable.  Moreover, the Auditors failed to test sufficiently the overhead burden rate used by Vari-L to calculate capitalized costs.
+
+    K. The Auditors failed to obtain sufficient competent evidential matter in the area of inventory.  The Auditors knew, or were reckless in not knowing, that Vari-L made unsubstantiated inventory adjustments and allowed Vari-L to estimate significant portions of inventory each year based on management's representation that there was not sufficient time to count and value inventory.  The Auditors did not sufficiently test Vari-L's overhead burden rates used in valuing work-in-process inventory.  Moreover, in 1997 and 1998 the audit test work of Vari-L's inventory reserves was insufficient and in 1999 the Auditors did not test inventory reserves.
+
+    L. Additionally, the Auditors did not perform sufficient audit procedures testing Vari-L's failure to expense over $2.5 million of period costs from 1996 through the quarter ended March 31, 2000.  
+
+    M. The Auditors demonstrated a lack of due professional care and professional skepticism in several areas.  In the revenue area, the audit workpapers contained two documents that suggested that Vari-L held its books open at the end of fiscal years 1998 and 1999.  In addition, the Auditors exercised insufficient professional skepticism when in fiscal years 1996 through 1998 they allowed Vari-L to recognize certain cancellation charges as revenue (without a reserve) based on management's assurances that the receivable would be collected and again in 1999 when they allowed a reserve less than what likely could be collected.
+
+    N. The Auditors failed to exercise due professional care and maintain professional skepticism in the long-term asset area.  They failed adequately to consider the risk that Vari-L's financial statements were misstated due to the significant amount of labor and related overhead Vari-L capitalized based on estimates.  Moreover, the Auditors ignored Vari-L's failure to depreciate more than $5 million of capitalized costs.
+
+    O. The Auditors also failed to exercise due professional care and maintain professional skepticism in the area of inventory.  The audit workpapers contained year-end inventory schedules documenting that Vari-L made unsubstantiated inventory adjustments and estimated material inventory quantities.  The audit workpapers also contained all the information necessary to conclude that Vari-L's finished goods inventory was significantly overstated. 
+
+    P. Finally, the Auditors violated the four standards of reporting during their 1996 through 1999 audits of Vari-L's financial statements.  First, the Auditors' reports on Vari-L's 1996 through 1999 financial statements stated that the financial statements were in conformity with GAAP when they were materially misstated.  Second, the Auditors' report on Vari-L's 1999 financial statements failed to discuss Vari-L's change in its revenue recognition policy from recognizing revenue on bill and hold sales from 1996 through 1998 to disallowing it in 1999.  Third, the Auditors' reports on Vari-L's 1996 through 1998 financial statements did not discuss Vari-L's failure to disclose its revenue recognition policy.  Finally, the Auditors' improperly issued unqualified audit reports on Vari-L's 1996 through 1999 financial statements.
+
+    Q.   Based on the foregoing, the Auditors engaged in improper professional conduct by recklessly violating applicable professional standards.
+
+    R. Springer knew in 1998 that Vari-L had or may have improperly recognized $1.3 million of revenue in 1997 and knew, or was reckless in not knowing, that the false revenue materially misstated Vari-L's financial statements.  Section 10A(b)(1) provides that if in the course of conducting an audit "the independent public accountant detects or otherwise becomes aware of information indicating that an illegal act (whether or not perceived to have a material effect on the financial statements of the issuer) has or may have occurred, the accountant shall, in accordance with [GAAS] . . . (A)(i) determine whether it is likely that an illegal act has occurred; and (ii) if so, determine and consider the possible effect of the illegal act on the financial statements of the issuer . . . ."  Moreover, Section 10A(b)(1)(B) requires the independent accountant to "as soon as practicable, inform the appropriate level of the management of the issuer and assure that the audit committee of the issuer,  . . . is adequately informed with respect to illegal acts that have been detected or have otherwise come to the attention of such accountant in the course of the audit."   Springer violated Section 10A(b)(1) when he failed to inform Vari-L's audit committee that he had detected information indicating that Vari-L had or may have reported $1.3 million in false revenue. 
+
+    S. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, prohibit persons from, directly or indirectly, in connection with the purchase or sale of securities by use of any means or instrumentality of interstate commerce or of the mails, employing any device, scheme or artifice to defraud; making any untrue statement of a material fact or omitting to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or engaging in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon any person.  Vari-L violated the antifraud provisions of the Exchange Act by filing Forms 10-KSB and quarterly reports during fiscal years 1996 through 1999 and through the quarter ended March 30, 2000 that contained false and misleading financial statements.  Springer caused and willfully aided and abetted Vari-L's violations of Section 10(b) and Rule 10b-5 by contributing to the violations by issuing unqualified audit reports for fiscal years 1996 through 1999.
+
+    T. Section 13(a) of the Exchange Act requires issuers with securities registered pursuant to Section 12 of the Exchange Act to file reports with the Commission.  Rule 13a-1 thereunder requires such reports to be filed annually in compliance with the Commission's Regulation S-X, that requires financial statements to be presented in conformity with GAAP.  Rule 12b-20 further requires the inclusion of any material information necessary to make the required statements, in light of the circumstances under which they were made, not misleading.  Vari-L violated Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 by filing false and misleading annual reports with the Commission starting with its 1996 Form 10-KSB continuing through its 1999 Form 10-KSB that misrepresented Vari-L's financial position, including overstating gross profit, net income, and total assets.  Springer caused and willfully aided and abetted Vari-L's violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 by contributing to the violations by issuing unqualified audit reports for fiscal years 1996 through 1999.
+
+  IV.
+
+  In view of the foregoing, the Commission deems it appropriate to accept the Offer submitted by Respondents.  Accordingly, IT IS HEREBY ORDERED, effective immediately, that:
+
+  A. Springer, pursuant to Section 21C of the Exchange Act, cease and desist from committing or causing any violations and any future violations of Sections 10A and 10(b) of the Exchange Act, and Rule 10b-5 thereunder, and from causing any violations and any future violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder.
+
+  B. Springer is denied the privilege of appearing or practicing before the Commission as an accountant.  After ten years from the date of this order, Springer 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 Springer'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.  Springer or the firm with which he is associated is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section");
+
+      b. Springer or the firm has received an unqualified report relating to his or the firm's most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and
+
+      c.  As long as Springer appears or practices before the Commission as an independent accountant, he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.
+
+  C.  Haugen is denied the privilege of appearing or practicing before the Commission as an accountant.  After three years from the date of this order, Haugen 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 Haugen'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.     Haugen or the firm with which he is associated is a member of the SEC Practice Section;
+
+      a. Haugen or the firm has received an unqualified report relating to his or the firm's most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and
+
+      c. As long as Haugen appears or practices before the Commission as an independent accountant, he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.
+
+  D. Haugen, Springer & Co., PC is denied the privilege of appearing or practicing before the Commission as an accountant.  After three years from the date of this Order, Haugen, Springer & Co., PC may request that the Commission consider its reinstatement by submitting an application (attention: Office of the Chief Accountant) to resume appearing or practicing before the Commission as:
+
+    1. A preparer or reviewer, or a firm 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 Haugen, Springer & Co., PC's work in its practice before the Commission will be reviewed either by the independent audit committee of the public company for which it works or in some other acceptable manner, as long as it practices before the Commission in this capacity; and/or
+
+    2. an independent accounting firm. Such an application must satisfy the Commission that:
+
+      a.  Haugen, Springer & Co., PC is a member of the SEC Practice Section;
+
+      a. Haugen, Springer & Co., PC has received an unqualified report relating to the firm's most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and
+
+      b. As long as Haugen, Springer & Co., PC appears or practices before the Commission as an independent accounting firm it will remain a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.
+
+  E.  The Commission's review of any request or application by any of the Respondents to resume appearing or practicing before the Commission may include consideration of, in 
+
+  addition to the matters referenced above, any other matters relating to that Respondent's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.
+
+  By the Commission.
+
+  Jonathan G. Katz
+ Secretary
+
+  
+
+ 
+ Footnote 
+       1        Rule 102(e)(1) provides, in relevant part, that: 
+
+    The Commission may . . . deny, temporarily or permanently, the privilege
+of appearing or practicing before it in any way to any person who is found by the Commission after notice and opportunity for hearing in the matter: . . . (ii) [t]o be lacking in character or integrity or to have engaged in unethical or improper professional conduct; or (iii) [t]o have willfully violated, or willfully aided and abetted the violation of any provision of the Federal securities laws or the rules and regulations thereunder.      
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diff --git a/raw/aaer/2001/AAER-1457.txt b/raw/aaer/2001/AAER-1457.txt
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+
+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  44859 / September 27, 2001
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  1457 / September 27, 2001
+  ADMINISTRATIVE PROCEEDING
+ File No.  3-10590
+
+      In the Matter of  
+  Joseph H. Kiser   
+
+  Respondent. 
+    
+    : : : : : : : :   
+ ORDER INSTITUTING CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS AND IMPOSING A CEASE-AND-DESIST ORDER    I.
+
+  The Securities and Exchange Commission ("Commission") deems it appropriate to institute public cease-and-desist proceedings against Joseph H. Kiser  ("Kiser" or the "Respondent") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").
+
+  In anticipation of the institution of these administrative proceedings, Kiser 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 in which the Commission is a party, and without admitting or denying the findings herein, except that Respondent admits the jurisdiction of the Commission over him and over the matters set forth herein, Respondent has consented to the entry of the findings and the imposition of the cease-and-desist order ("Order") as set forth below.
+
+  II.
+
+  On the basis of this Order and the Offer submitted by Respondent, the Commission finds that:
+
+    A. Joseph H. Kiser, a resident of Aurora, Colorado, currently serves as chief scientific officer of Vari-L Company, Inc. and has been employed by Vari-L since 1954 in various capacities including president, chief executive officer and vice president of engineering.  Kiser served as chairman of the board of directors from approximately 1980 until he stepped down in September 2000.  
+
+    B. Vari-L Company, Inc. ("Vari-L"),   a Colorado company located in Aurora, Colorado, designs, manufactures and markets a wide range of radio frequency and microwave signal source processing components used in commercial and military/aerospace applications such as base stations, cellular phones, satellite communications systems, missile guidance, radar and navigational systems.  Vari-L's common stock is registered with the Commission under Section 12(g) of the Exchange Act and was quoted on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") until it was delisted on September 7, 2000.  Vari-L's common stock currently trades on the Pink Sheets.  The company filed reports on Forms 10-KSB and 10-QSB through its December 31, 1999 Form 10-KSB and currently reports on Forms 10-K and 10-Q.
+
+    C. Vari-L filed materially misstated financial statements with the Commission which reflected consistently increasing revenue and earnings from at least 1996 through the first quarter of 2000.  Vari-L overstated revenue, earnings, and most assets by (i) improperly recognizing revenue before products were shipped to customers by either treating them as bill and hold sales or simply holding its books open at quarterly and year-end periods; (ii) recognizing false revenue; (iii) improperly capitalizing internal labor and related overhead costs as property, equipment and intangible assets; (iv) overstating inventory by disregarding physical inventory counts, estimating inventory amounts in lieu of a physical count, failing to value inventory based on actual manufacturing costs, and failing to provide adequate inventory reserves; and (v) improperly deferring period costs.  These accounting misstatements allowed Vari-L to report pretax income instead of a pretax loss each period from 1996 through the first quarter of 2000. 
+
+    D. In a September 12, 2000 press release Vari-L announced that it was restating its previously issued financial statements to reflect a required $30-$35 million write down of its reported December 31, 1999 balance sheet.  In February 2001, Vari-L filed with the Commission restated financial statements for the annual period ended December 31, 1999, and for quarterly periods ended March 31, 1999, June 30, 1999, September 30, 1999, and March 31, 2000.  Vari-L's March 31, 2000 balance sheet was overstated by $39 million or 132% as a result of the company overstating reported pretax income for the quarter and in prior financial statements.  Vari-L's accounting misstatements resulted in Vari-L reporting cumulative pretax income of $17.1 million from 1996 through the quarter ended March 31, 2000 instead of a $14.4 million cumulative pretax loss for the same period.
+
+    E. Section 13(b)(2)(B) of the Exchange Act states that every issuer must "devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that - . . . (ii) transactions are recorded as necessary (I) to permit preparation of financial statements in conformity with generally accepted accounting principles [GAAP] or any other criteria applicable to such statements . . . ." 
+
+    F. Vari-L violated Section 13(b)(2)(B) when it failed to devise and maintain a system of internal accounting controls and filed financial statements with the Commission that failed to conform with GAAP.  Kiser, as chairman of Vari-L's board of directors, failed to take adequate steps to implement internal accounting controls sufficient to allow the preparation of Vari-L's financial statements in conformity with GAAP and, therefore, was a cause of Vari-L's violation of Section 13(b)(2)(B).  
+
+    G. On April 27, 2000, Vari-L filed a definitive proxy statement on Form 14-A, signed by Kiser, containing material misrepresentations and omissions regarding Kiser's compensation.  The proxy statement sought, among other things, the re-election of Kiser to Vari-L's board of directors.   The proxy statement stated that in 1999 Kiser received a total of $370,000 in salary and bonus and $92,322 in other annual compensation.  The proxy statement failed to disclose an additional $58,000 of compensation Kiser received in 1999 including $8,000 for insurance premiums on Kiser's personal antique gun and auto collections, $11,000 for tax preparation and estate planning services, $16,000 for personal use of a company auto, $18,000 of debt forgiveness, and $5,000 for disability and life insurance.
+
+    H. Section 14(a) of the Exchange Act requires any person who solicits a proxy or consent or authorization in respect to any security registered pursuant to Section 12 of the Exchange Act, other than an exempted security, to comply with such rules as the Commission may promulgate.  Rule 14a-3 provides that no solicitation of a proxy may occur unless each person solicited is concurrently furnished or has previously been furnished with a proxy statement containing the information specified by Schedule 14A.  Item 8 of Schedule 14A requires small business companies to disclose compensation of directors and executive officers in accordance with Item 402 of Regulation S-B.  Item 402 of Regulation S-B requires disclosure of all compensation including "[p]erquisites and other personal benefits, securities or property, unless the aggregate amount of such compensation is the lesser of either $50,000 or 10% of the total of annual salary and bonus reported for the named executive."  In addition, Rule 14a-9 proscribes, among other things, use of a proxy statement "containing any statement which at the time and in light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading . . . ."  
+
+    I. Vari-L violated Section 14(a) of the Exchange Act and Rules 14a-3 and 14a-9 thereunder, by failing fully to disclose information required to be disclosed in Vari-L's proxy statement filed in 2000.  The $58,000 of undisclosed compensation should have been disclosed because it constituted perquisites and other personal benefits that exceeded 10 percent of Kiser's reported annual salary and bonus.  Kiser signed the proxy statement without taking adequate steps to ensure that it fully disclosed all compensation he received in 1999.  Kiser, therefore, was a cause of Vari-L's violation of Section 14(a) of the Exchange Act and Rules 14a-3 and 14a-9 thereunder.
+
+  III.
+
+  In view of the foregoing, the Commission deems it appropriate to accept the Offer submitted by Respondent.  Accordingly, it is
+
+  ORDERED that pursuant to Section 21C of the Exchange Act that Respondent cease and desist from causing any violation and any future violation of Sections 13(b)(2)(B) and 14(a) of the Exchange Act and Rules 14a-3 and 14a-9 thereunder; and
+
+  FURTHER ORDERED that Respondent shall, within 30 days of the entry of this Order, pay disgorgement of $58,000 and prejudgment interest thereon of $4,969 to the United States Treasury to be held in an account pending the filing of the Commission's plan of distribution.  Such payment shall be: (1) made by United States postal money order, certified check, bank cashier's check or bank money order; (2) made payable to the Securities and Exchange Commission; (3) hand-delivered or mailed to the Office of the Comptroller, U.S. Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA  22312; and (4) submitted under cover letter which identifies Kiser as the 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 Donald M. Hoerl, Associate Regional Director, Securities and Exchange Commission, Denver Regional Office, 1801 California Street, Suite 4800, Denver, Colorado  80202.
+
+  By the Commission.
+
+  ______________________________
+ Jonathan G. Katz
+ Secretary
+  
+
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diff --git a/raw/aaer/2001/AAER-1458.txt b/raw/aaer/2001/AAER-1458.txt
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@@ -0,0 +1,1382 @@
+
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+ Litigation Release No. 17156 / September  27, 2001 
+
+ Accounting and Auditing Enforcement Release No. 1458 
+
+ SEC v. Holden, Skooglund, Padda, and Beal (U.S.D.C. N.D. Illinois, Civil Action No. 01-C-7463, filed September 27, 2001) 
+
+ The Commission announced the filing on September 27, 2001 of a complaint charging four executives of a Chicago-area company with a multi-million dollar accounting fraud.  The defendants are Stephen L. Holden, of Deerfield, Illinois, Scott P. Skooglund, of Woodridge, Illinois, Kuldarshan S. Padda, of Chicago, Illinois, and Stephan C. Beal, of Norwell, Massachusetts.  All four were formerly executives of Sabratek Corporation, a Skokie, Illinois developer and seller of remote healthcare equipment, including infusion pumps and flush syringes and related equipment and software used in both hospital and home healthcare situations. 
+
+ The Commission's complaint alleges that the defendants engaged in a scheme to overstate Sabratek's sales and results of operation in its Form 10-K for the year 1998 and Forms 10-Q for the first three quarters of 1998 and the first quarter of 1999.  During those years, Padda was Sabratek's chief executive officer and chairman of the board; Holden was at first Sabratek's chief financial officer, controller, and treasurer and then later its president and treasurer; Beal was Sabratek's vice president of sales; and Skooglund was Sabratek's vice president of finance and chief accounting officer. 
+
+ According to the Commission's complaint, Sabratek's pump and flush syringe businesses were the company's two primary sources of sales.  Prior to 1998, Sabratek capitalized on strong demand for pumps from large institutional customers to increase its sales.  In 1998, however, Sabratek faced first slowing demand for its pumps and later an FDA demand that the company stop selling its flush syringes.  The Commission alleges that despite these adverse developments, Padda and Holden told analysts that Sabratek's sales would continue to grow in 1998.  Based on Padda and Holden's representations, analysts projected that Sabratek's net sales would grow by as much as $23 million in 1998. 
+
+ The Commission charges that to meet these forecasts, from the first quarter of 1998 through the first quarter of 1999, the defendants recognized numerous large, end-of-the-quarter transactions that did not qualify as sales under Generally Accepted Accounting Principles ("GAAP").  In some instances, the defendants allegedly created fictitious sales of pumps that had not been ordered by customers, but instead were parked at third-party warehouses.  In other instances, they allegedly entered into sales agreements containing consignment or right-of-return provisions.  In still other instances, they allegedly agreed to significant seller's obligations, including promises that Sabratek's sales force would assist Sabratek's customers in the resale of these pumps to end-users. 
+
+ The Commission also alleges that throughout 1998 and the first quarters of 1999, certain defendants inflated Sabratek's sales by billing another company a total of $4.5 million for "consulting services" that Sabratek executives in fact largely never provided.   
+
+ The Commission alleges that over the five quarters from the first quarter of 1998 through the first quarter of 1999, Sabratek, through the defendants' actions, overstated net sales by $30.7 million, or more than 60%.  The Commission also alleges that through the defendants' actions, Sabratek reported total operating income of $10.3 million, when in fact it had experienced an operating loss of $8 million over the five quarters in question. 
+
+ The Commission's complaint also charges that the Company's press releases and the MD&A sections of Sabratek's periodic reports filed during 1998 and early 1999, which were approved by Padda and Holden, touted the company's sales growth without disclosing that the sales growth had been achieved through the fraudulent "consulting services" billings and through special inducements and concessions, including extended payment terms, consignment arrangements, rights of return, and other significant seller's obligations. 
+
+ According to the complaint, in the second half of 1999, when news of Sabratek's inflated operating results began to emerge, the company's market capitalization declined by $202.5 million, or 98%.  On December 17, 1999, Sabratek filed a petition to reorganize under Chapter 11 of the Bankruptcy Code. 
+
+ The Commission charges that through the conduct alleged in the complaint, the defendants violated and/or aided and abetted violations of antifraud, reporting, internal controls and record keeping provisions of the Securities Exchange Act of 1934 ("Exchange Act").  Specifically, the complaint charges that Holden violated and/or aided and abetted violations of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2 thereunder; that Skooglund violated and/or aided and abetted violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1 and 13b2-2 thereunder; that Padda violated and/or aided and abetted violations of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2 thereunder; and that Beal violated and/or aided and abetted violations of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1 thereunder.  The complaint also alleges that Holden is additionally liable for certain violations by others because he was a control person under Section 20(a) of the Exchange Act.  The Commission's complaint asks the Court to order permanent injunctions and civil penalties against all the defendants, and disgorgement with prejudgment interest from Holden, Skooglund, and Beal, and to issue an order barring Holden from acting as an officer or director of any issuer of stock registered under Section 12 of the Exchange Act  
+
+ Simultaneously with the filing of the Commission's complaint, Padda and Beal consented to settle the Commission's suit, without admitting or denying the Commission's allegations.  Padda consented to the entry of a final judgment that permanently enjoins him from violations of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2 thereunder, and orders him to pay $125,000 in civil penalties.  Beal consented to the entry of a final judgment that permanently enjoins him from violations Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1 thereunder, and orders him to pay disgorgement of $29,237 and prejudgment interest thereon of $6,193, and to pay $60,000 in civil penalties. 
+
+ In related proceeding, the Commission issued an administrative order against Paul Jurewicz the former chief financial officer of Sabratek.  That order directs Jurewicz to cease and desist from committing or causing any violation or any future violations of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) of the Exchange Act, and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2 thereunder, and to pay disgorgement of $14,838 and prejudgment interest thereon of $2,718.  For more information regarding the administrative proceeding against Jurewicz, see Securities and Exchange Act Release No. 34-44860. 
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diff --git a/raw/aaer/2001/AAER-1460.txt b/raw/aaer/2001/AAER-1460.txt
new file mode 100644
index 0000000000000000000000000000000000000000..1ff1a552d20e73335b4d406a8575dc7eea6c74ae
--- /dev/null
+++ b/raw/aaer/2001/AAER-1460.txt
@@ -0,0 +1,1380 @@
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+              Vari-L Company, Inc., David G. Sherman, Jon L. Clark, and Sarah E. Hume
+           
+     
+ 
+
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+             
+        Vari-L Company, Inc., David G. Sherman, Jon L. Clark, and Sarah E. Hume
+       
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+
+ Washington, D.C. 
+
+ Litigation Release No. 17155 / September 27, 2001 
+
+ Accounting and Auditing Enforcement Release No. 1460 / September 27, 2001 
+
+  SEC v. Vari-L Company, Inc., David G. Sherman, Jon L. Clark, and Sarah E. Hume , Civ. Action No. 01-WM-1903 (District of Colorado) 
+
+ Today, the Securities and Exchange Commission filed suit in the United States District Court for the District of Colorado against Vari-L Company, Inc. ("Vari-L") and three of its former officers for violations of the antifraud, periodic reporting, record keeping, internal controls, proxy solicitation, and lying to auditors provisions of the federal securities laws.  Vari-L is a company that designs and manufactures components for wireless telecommunications products, located in Denver, Colorado.  According to the Complaint, Vari-L engaged in a massive financial reporting fraud designed to show consistently increasing revenue and earnings, instead of losses, from 1996 through the quarter ended March 31, 2000 by recognizing false revenue, improperly capitalizing and depreciating costs, overstating inventory, and improperly deferring period costs. 
+
+ Named as defendants in the Complaint are Vari-L, David G. Sherman of Denver, Colorado, the former president and chief executive officer, and also a director of Vari-L, Jon L. Clark of Navajo Dam, New Mexico, the former chief financial officer of Vari-L, and Sarah H. Hume of Aurora, Colorado, the former controller of Vari-L. 
+
+ According to the Complaint, Sherman managed Vari-L's earnings by imposing strict revenue and earnings targets every quarter and enforcing a no-tolerance policy for failing to meet them.  Hume carried out the scheme by fraudulently recognizing revenue each quarter to "make the numbers," and Clark signed filings with the Commission that he knew contained false revenue and earnings figures.  The Complaint alleges that Sherman, Clark and Hume each realized the fruits of Vari-L's fraudulent financial reporting by exercising Vari-L stock options and selling Vari-L stock for substantial profits in 1999. 
+
+ Specifically, the Complaint alleges Vari-L's financial statements filed with the Commission quarterly and annually from 1996 through 1999 show a company with record income each year.  The Commission claims, however, that Vari-L's reported income growth was fictitious and made possible only by aggressive earnings management and outright fraud and that in reality, Vari-L had losses each fiscal year.  According to the Complaint, Vari-L's March 31, 2000 balance sheet was overstated by $39 million or 132% as a result of the company overstating reported income for the quarter and in prior financial statements.  The Complaint further alleges Vari-L's accounting misstatements resulted in Vari-L reporting income of $17.1 million from 1996 through the quarter ended March 31, 2000 instead of an actual $14.4 million loss for the same period. 
+
+ According to the Complaint, the defendants used a range of improper practices to misstate Vari-L's financial condition.  First, Vari-L allegedly improperly recognized bill and hold sales each quarter through the third quarter of 1998, such that by the quarter ended September 30, 1998, improper bill and hold sales exceeded $2 million.  Second, the Commission claims Vari-L held its books open at the end of each quarter to record revenue on products that shipped after the close of the period.  Third, the Complaint states Vari-L improperly capitalized costs by $24.3 million from 1996 though March 2000 by capitalizing internal labor and overhead costs as property, equipment and intangible assets.  Fourth, Vari-L allegedly overstated inventory by disregarding physical inventory counts, estimating inventory amounts in lieu of physical counts, failing to value inventory based on actual costs to manufacture, and failing to provide adequate inventory reserves. 
+
+ Additionally, the Complaint alleges Vari-L failed to disclose in proxy statements filed in 1998 through 2000 large amounts of compensation paid to Sherman and another officer in violation of the proxy rules, including over $200,000 paid to Sherman from 1997 through 1999 in the form of unauthorized cash advances and other undisclosed compensation.  
+
+ Vari-L, without admitting or denying the allegations in the Complaint, has consented to the entry of a Final Judgment permanently restraining and enjoining it from violating the antifraud, periodic reporting, record keeping, internal controls, and proxy solicitation provisions of the federal securities laws, Sections 10(b), 13(a), 13(b)(2), and 14(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, 14a-3, and 14a-9 thereunder.  Due to a number of unique circumstances presented in this matter, the Final Judgment, when entered, will state that Vari-L's inability to obtain an unqualified audit report for its fiscal years ended June 30, 2000 and June 20, 1999,  while a violation of Section 13(a) of the Exchange Act,  will not be considered a violation of the injunction entered against the company. Vari-L also will be required under the Final Judgment to explain fully the reasons why it is not able to file the audited financial statements required by Section 13(a). 
+
+ Additionally, without admitting or denying the allegations in the Complaint, Clark has consented to the entry of a Final Judgment permanently restraining and enjoining him from violating and/or aiding and abetting violations of the antifraud, periodic reporting, record keeping, internal controls, and lying to auditors provisions of the federal securities laws, Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Exchange Act and Rules 12b-20, 10b-5, 13a-1, 13a-13, 13b2-1, and 13b2-2 thereunder.  Clark has also agreed to be prohibited from acting as an officer or director of a public company, to pay disgorgement, including prejudgment interest, in the amount of $166,631.87, and to pay a $50,000 civil penalty. 
+
+ In separate actions today, the Commission also instituted and settled administrative proceedings against Vari-L's auditors, Charles K. Springer, Robert S. Haugen and Haugen, Springer & Co., P.C. for engaging in improper professional conduct in connection with the audits of Vari-L's financial statements and against Vari-L's former chairman, Joseph H. Kiser, for causing violations of the reporting provisions and proxy rules by Vari-L. 
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diff --git a/raw/aaer/2001/AAER-1461.txt b/raw/aaer/2001/AAER-1461.txt
new file mode 100644
index 0000000000000000000000000000000000000000..70bd7c516efcf6eaeeae2e5ea3e6639343c82d9f
--- /dev/null
+++ b/raw/aaer/2001/AAER-1461.txt
@@ -0,0 +1,1369 @@
+
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+     SEC.gov | Matthew R. Welch and James C. Horne 
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+       
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+
+ LITIGATION RELEASE NO.  17165 / September 28, 2001
+
+  ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1461
+
+   Securities and Exchange Commission v. Matthew R. Welch and James C. Horne  (United States District Court for the Northern District of Illinois, Civ. No. 00-C-5935)
+
+   FORMER OAKGRIGSBY, INC. CONTROLLER ENJOINED, ORDERED TO PAY DISGORGEMENT IN CONNECTION WITH FINANCIAL FRAUD SCHEME  
+
+   The Securities and Exchange Commission announced today that on September 27, 2001,  the Hon. Ronald A. Guzm n of the United States District Court for the Northern District of Illinois entered an Order enjoining Defendant Matthew Welch from future violations of the antifraud, issuer reporting, books and records and internal accounting controls provisions of the federal securities laws and ordering him to pay disgorgement and prejudgment interest of $21,526, provided, however, that payment of all but $10,000 is waived, and penalties not assessed, based on his demonstrated inability to pay additional amounts.  The Commission's enforcement action is the result of Welch's fraudulent scheme to falsify the operating results of OakGrigsby, Inc. to make the company appear more profitable than it was.  OakGrigsby, located in Sugar Grove, Illinois, was a division of Oak Industries, Inc., headquartered in Waltham, Massachusetts. In January 2000, Oak, whose shares had been publicly traded on the New York Stock Exchange, was acquired by Corning, Incorporated.  Defendant Welch consented to the entry of the injunction and payment of disgorgement without admitting or denying the allegations of the Commission's Complaint. 
+
+   The Commission's complaint, filed September 27, 2000, alleged that between July 1995 and January 3, 1997, defendants James Horne and Matthew Welch, respectively the former president and controller of OakGrigsby, inflated OakGrigsby's reported operating profits by 108% to 371%.  Oak Industries incorporated OakGrigsby's inflated numbers in its periodic reports and press releases and, as a result, Oak Industries' income and earnings per share during this period were overstated in amounts ranging from 2% to 15%.   
+
+   Specifically, the Complaint alleged that Defendant Welch fraudulently concealed expenses such as salaries, shipping and travel.  The Complaint alleged that several of these fraudulent entries were made with the knowledge and approval of Defendant Horne, the divisional president of OakGrigsby until March 1996.  OakGrigsby's results were consolidated with other Oak divisions and incorporated into Oak's periodic reports and press releases.  As a result of Welch and Horne's actions, Oak's income per share for the quarter ended December 31, 1995 and the quarters ended March 31, June 30 and September 30, 1996 were materially overstated.  According to the Complaint, Welch, a Naperville, Illinois resident, and Horne, a Lake Bluff, Illinois resident, inflated reported OakGrigsby's profits toensure that the division met specified earnings targets which allowed Horne and Welch to earn bonuses of $55,000 and $15,000, respectively.    
+
+   As a result of the conduct described in the Complaint, the Commission charged Welch and Horne with violations of Sections 10(b) of the Securities and Exchange Act of 1934 and Exchange Act Rule 10b-5 thereunder (antifraud provisions) and Exchange Act Rule 13b2-1 (prohibiting falsification of issuer books and records).  The defendants are also charged 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 and 13a-13 thereunder (issuer books and records and internal accounting controls provisions), and, in addition, Welch was charged with violating Section 13(b)(5) of the Exchange Act (prohibiting knowing falsification of issuer books and records and evasion of internal accounting controls).  The Commission's Complaint sought injunctive relief, disgorgement and civil penalties of bonuses received by Horne and Welch, plus prejudgment interest.  Welch has been enjoined from future violations of all statutory provisions alleged in the Complaint.  The litigation is continuing as to Defendant Horne.  For further information, see Litigation Release No. 16734 (September 27,  2000). 
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diff --git a/raw/aaer/2001/AAER-1464.txt b/raw/aaer/2001/AAER-1464.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6a596ba7deb59ecd1eadec3e1721b39af2a67410
--- /dev/null
+++ b/raw/aaer/2001/AAER-1464.txt
@@ -0,0 +1,1367 @@
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+     SEC.gov | Chiquita Brands International, Inc. 
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+
+             
+                        
+             
+
+ Washington, D.C. 
+
+ Litigation Release No.  17169 / October 3, 2001
+
+ Accounting and Auditing Enforcement Release No. 1464 
+
+ SEC v. Chiquita Brands International, Inc., Civ. Action No. 1:01CV02079 (D.D.C.)(filed October 3, 2001) 
+ Sec Settles Case against Chiquita Brands International, Inc. 
+
+ The Securities and Exchange Commission today issued a settled cease-and-desist order against Chiquita Brands International, Inc. in which the Commission finds that Chiquita violated the books and records -  Section 13(b)(2)(A) - and internal accounting controls - Section 13(b)(2)(B) - provisions of the Securities Exchange Act of 1934 in connection with a payment to foreign customs officials by a wholly-owned foreign subsidiary of Chiquita.  Without admitting or denying the Commission's findings, Chiquita consented to the entry of an order that requires Chiquita to cease and desist from violating those provisions.  The Commission also filed a settled complaint in federal court seeking entry of a consent order requiring Chiquita to pay a $100,000 civil penalty.  Chiquita settled the action without admitting or denying the Commission's allegations. 
+
+ The order finds that Chiquita violated the books and records and internal controls provisions as a result of the conduct of its Colombian subsidiary, Banadex.  According to the order, without the knowledge or consent of any Chiquita employees outside Colombia and in contravention of Chiquita's policies, employees of Banadex authorized the payment of the equivalent of $30,000 to local customs officials to secure renewal of a license at Banadex's Turbo, Colombia port facility.  The subsidiary's books and records incorrectly identified the two installment payments, which were made in 1996 and 1997.  In 1997, Chiquita's internal audit staff discovered the payment during an audit review and, after an internal investigation, Chiquita took corrective action which included terminating the responsible Banadex employees and reinforcing internal controls at Banadex. 
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diff --git a/raw/aaer/2001/AAER-1466.txt b/raw/aaer/2001/AAER-1466.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b427db16884107f000d6530e9f3fa107c143bd34
--- /dev/null
+++ b/raw/aaer/2001/AAER-1466.txt
@@ -0,0 +1,1369 @@
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+           
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+        Richard P. Smyth, Arnold E. Johns, Jr., Michael J. Becker and Alan T. Davis
+       
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+
+ Litigation Release No. 17175 / October 5, 2001 
+Accounting and Auditing Enforcement Release No. 1466 / October 5, 2001 
+
+ Securities and Exchange Commission v. Richard P. Smyth, Arnold E. Johns, Jr., Michael J. Becker and Alan T. Davis, Civil Action No. 1:01-CV-1344 (N.D. Ga.) 
+
+ SEC Obtains Permanent Injunction against Richard P. Smyth 
+
+ The Securities and Exchange Commission ("Commission") announced today that on September 24, 2001, the Honorable Clarence Cooper of the United States District Court for the Northern District of Georgia entered an order of permanent injunction and other relief against Richard P. Smyth ("Smyth") of Fernandina Beach, Florida for engaging in a wide-range of securities law violations, including that misstatements were made by Vista 2000, Inc. ("Vista") in filings with the Commission.  Vista, a now defunct consumer products company, was formerly headquartered in Roswell, Georgia where Smyth, as Vista's co-founder, served as chief executive officer and chairman of its board.  Judge Cooper's recent order permanently enjoined Smyth from further violations of Section 17(a) of the Securities Act of 1933; Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder; Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, 13a-13 thereunder; Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act; Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder; and Sections 16(a) and 16(c) of the Exchange Act and Rules 16a-2 and 16a-3 thereunder.  The order also barred Smyth from acting as an officer or director of any issuer that has a class of securities registered with the Commission pursuant to Section 12 of the Exchange Act or that is required to file reports with the Commission pursuant to Section 15(d) of the Exchange Act.  Smyth was ordered to pay disgorgement and pre-judgment interest in amounts to be resolved upon motion of the Commission at a later date.  Smyth consented to the entry of the order, without admitting or denying the allegations of the Commission's complaint. 
+
+ The Securities and Exchange Commission previously sued Smyth and three other men for various violations of the federal securities law.  The remaining defendants are Arnold E. Johns, Jr. of Atlanta, Georgia, Alan T. Davis of Gainesville, Georgia and Michael J. Becker of Marietta, Georgia.  Johns, Becker and Smyth are former officers of Vista.  Johns was a director of Vista and its president, and Becker was Vista's chief financial officer.  Davis was Vista's outside auditor.  The litigation is continuing as to Johns, Becker and Davis. 
+
+ The Commission's complaint alleged a wide-range of securities law violations, including that misstatements were made by Vista in filings with the Commission.  Smyth was charged with direct violations as a control person of Vista arising from those filings.  The allegations against Smyth included the following: (1) Vista's revenues, income, earnings per share, and assets were overstated by him from 1994 through 1996, (2) Smyth failed to properly and accurately disclose the use of Vista's proceeds from its October 1994 initial public offering, (3) Smyth issued ten false and/or misleading press releases from 1994 through 1996, (4) Smyth misappropriated $481,000 in 1996, (5) Smyth failed to file beneficial stock ownership reports during 1994, 1995 and 1996, (6) Smyth illegally sold short Vista stock during 1996 and (7) Smyth engaged in illegal insider selling of Vista common stock during 1995 and 1996.   
+
+  See also :   L.R. 17044  (June 21, 2001) 
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diff --git a/raw/aaer/2001/AAER-1468.txt b/raw/aaer/2001/AAER-1468.txt
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+ Litigation Release No. 17196 / October 17, 2001
+
+  Accounting and Auditing Enforcement Release No. 1468 / October 17, 2001
+
+   Securities and Exchange Commission v. Millionaire.com and Robert L. White , Case No. 9-01-3897-23 (S.C., Beaufort Division, filed October 1, 2001)
+
+  On October 5, 2001, the U.S. District Court for South Carolina entered a judgment of permanent injunction against Millionaire.com (Millionaire), the publisher of OPULENCE Magazine with headquarters in Bluffton, South Carolina, and its president, Robert L. White.  In the judgment, the court enjoined Millionaire and White from violating the antifraud, record keeping and internal controls provisions of the federal securities laws, and ordered White to pay a $25,000 civil penalty. 
+
+ The court entered the judgment after the U.S. Securities and Exchange Commission (SEC) filed a complaint charging that Millionaire and White violated Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20 and 13a-13, thereunder.  Millionaire and White consented, without admitting or denying the allegations in the complaint, to entry of the permanent injunction against them, and White consented to imposition of the $25,000 civil penalty. 
+
+ In its complaint, the SEC alleged that in a press release issued December 21, 1998, Millionaire falsely claimed that it had sold $8 million of advertising space in its magazine.  The SEC further alleged that in a press release issued December 24, 1998, Millionaire falsely claimed that it had entered into a definitive agreement to purchase an established regional auction house.  In addition, the SEC alleged that on October 5, 2000, Millionaire filed with the Commission a quarterly report for the period ended June 30, 2000, that failed to disclose that Millionaire had lost its contractual right to exclusive use of the Millionaire and Billionaire trademarks.  Finally, the SEC alleged that Millionaire failed to comply with the record keeping and internal controls provisions of the federal securities laws.  The complaint charged White with aiding and abetting Millionaire's violations. 
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diff --git a/raw/aaer/2001/AAER-1471.txt b/raw/aaer/2001/AAER-1471.txt
new file mode 100644
index 0000000000000000000000000000000000000000..067e877d8a6dc43f53f0be48767776ad1ba50cbc
--- /dev/null
+++ b/raw/aaer/2001/AAER-1471.txt
@@ -0,0 +1,1505 @@
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+   SECURITIES EXCHANGE ACT OF 1934
+ Release No.  44970 / October 23, 2001
+
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  1471 / October 23, 2001
+
+  ADMINISTRATIVE PROCEEDING
+ File No.  3-10626
+
+  
+
+
+
+
+        In the Matter of  
+  Gisela de Leon-Meredith, 
+  Respondent.  
+    
+  : : : : : : : :   
+ ORDER INSTITUTING PROCEEDINGS, MAKING FINDINGS, AND IMPOSING A CEASE-AND- DESIST ORDER     I. 
+
+     The Securities and Exchange Commission deems it appropriate that public cease-and-desist proceedings against Respondent Gisela de Leon-Meredith be initiated pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").
+
+    In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement 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 in which the Commission is a party, and without admitting or denying the findings contained herein, except that Respondent admits the Commission's jurisdiction over her and over the subject matter of these proceedings, Respondent has consented to the entry of this Order Instituting Proceedings, Making Findings and Imposing a Cease-and-Desist Order and to the entry of the cease-and-desist order set forth below.
+
+   II. 
+
+    On the basis of this Order and the Offer submitted by Respondent, the Commission finds:
+
+      Respondent  
+
+  Gisela de Leon-Meredith, age 37, resides in Pembroke Pines, Florida and acted as controller of Chestnut Hill Farms ("CHF"), a Miami-based division of Seaboard Corporation, a Delaware corporation headquartered in Shawnee Mission, Kansas.  Seaboard's shares are registered with the Commission under Section 12(b) of the Exchange Act and trade on the American Stock Exchange under the symbol SEB.  Seaboard is a diversified international company primarily engaged in pork production and processing, transportation, energy generation, commodity brokering and produce farming.  CHF is principally engaged in agricultural and shrimp production and marketing.
+
+      Meredith Manipulates CHF's Assets and Expenses  
+
+  A. One of the largest assets on CHF's balance sheet is deferred farming costs, which are costs CHF has incurred in planting and growing produce and shrimp that it has not yet harvested.  CHF capitalizes these costs as a deferred cost asset until harvesting begins, at which point CHF begins reducing the deferred cost asset by amortizing it on the basis of production results, hence expensing these costs to match them with revenues from the harvested crops.
+
+  B. From 1995 through the first quarter of 2000, Meredith booked improper entries in CHF's books and records that overstated the deferred farming cost asset and understated farming expenses on CHF's financial statements.  Meredith knew by December 1998 that the entries were improper and that they had caused CHF's deferred cost asset to be substantially overstated and CHF's farming expenses to be understated, but, rather than disclose these errors to her supervisors or to Seaboard personnel, Meredith deliberately undertook to conceal the errors through other improper entries and adjustments.  
+
+  C. Meredith's deceptive efforts intensified in late 1999 as Seaboard personnel began inquiring about unusual entries in CHF's monthly financial reports.  Finally, in July 2000, after Seaboard's internal auditing department questioned her about apparent discrepancies (now totaling over $7 million) in the deferred cost asset, Meredith confessed her wrongdoing to her immediate supervisor at CHF, who passed it along to Seaboard. 
+
+      Effect of Meredith's Wrongdoing  
+
+  D. Following Meredith's confession, Seaboard launched an investigation into CHF's overstatement of deferred farming costs and, ultimately, terminated Meredith and restated its financial statements from 1995 through the first quarter of 2000.  The restatement affected Seaboard's earnings as follows (in thousands):
+  
+     For the years ended December 31,   
+  Net Earnings as Previously Reported  
+  Restatement Adjustment  
+  Net Earnings as Restated       1999  
+  $240  
+  (193)  
+  $47      1998  
+  $52,355  
+  (1,417)  
+  $50,938      1997  
+  $30,574  
+  (1,495)  
+  $29,079      1996  
+  $5,846  
+  (458)  
+  $5,388      1995  
+  $20,202  
+  (1,694)  
+  $18,508     Furthermore, as a result of the restatement, Seaboard reduced total assets at March 31, 2000 from $1.318 billion to $1.310 billion, and reduced shareholders' equity from $550 million to $545 million.
+
+  E. Because of the misstatements, Seaboard's annual and quarterly reports from December 31, 1995 through March 31, 2000 did not comply with Generally Accepted Accounting Principles.  Also, because of the misstatements, Seaboard did not make and keep books, records and accounts which, in reasonable detail, accurately and fairly reflected its transactions and dispositions of assets.  Meredith, through her actions, caused these irregularities.
+
+      Conclusion  
+
+  F. As a result of the foregoing, Meredith violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, and was a cause of Seaboard's violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.  
+
+   III. 
+
+    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, pursuant to Section 21C of the Exchange Act, that Respondent Meredith cease and desist from committing or causing any violation and any future violation of Sections 13(a), 13(b)(2) and 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder.
+
+    By the Commission.
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+                Jonathan G. Katz
+               Secretary 
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diff --git a/raw/aaer/2001/AAER-1473.txt b/raw/aaer/2001/AAER-1473.txt
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@@ -0,0 +1,1369 @@
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+        Roys Poyiadjis, Lycourgos Kyprianou and AremisSoft Corp.
+       
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+ Litigation Release No.  17210 / October 29, 2001
+  Accounting and Auditing Enforcement Release No.  1473 / October 29, 2001
+
+  SEC OBTAINS PRELIMINARY INJUNCTION AGAINST AREMISSOFT CORPORATION AND TWO FORMER OFFICERS FOR FINANCIAL FRAUD, INSIDER TRADING
+   Securities and Exchange Commission v. Roys Poyiadjis, Lycourgos Kyprianou and AremisSoft Corp. , Civil Action No. 01-CV-8903 (S.D.N.Y.)
+
+  On October 19, 2001, the Honorable Charles S. Haight, Jr., United States District Judge for the Southern District of New York, issued a preliminary injunction against AremisSoft Corporation, an international software company with offices in New Jersey, London, Cyprus, and India, two of its former officers, Roys Poyiadjis and Lycourgos Kyprianou, and ordered other relief against the defendants and two relief defendants, Olympus Capital Investment, Inc., and Oracle Capital, Inc.  The Court's order resulted from the Commission's motion for emergency relief, filed on October 4, 2001, alleging that the defendants overstated the value of the Company's contracts, revenues and recent acquisitions, and that the two former officers engaged in massive insider trading.
+
+  Pending resolution of the Commission's action, the Court's order enjoins the three defendants from violations of Section 17(a) of the Securities Act of 1933 [15 U.S.C. § 77q(a)] and Sections 10(b), 13(a) and 16(a) of the Securities Exchange Act of 1934 [15 U.S.C. §§ 78j(b), 78m(a) and 78p(a)] and Rules 10b-5, 12b, 13a-1, 13a-13, 16a-2 and 16a-3] thereunder [17 C.F.R. §§ 240.10b-5, 12b, 13a-1, 13a-13, 16a-2 and 16a-3].  The Court's order also restrains the defendants and the relief defendants from destroying any documents relating to the Commission's allegations in the Complaint.  With respect to defendants Poyiadjis and Kyprianou and the relief defendants, the order also:
+
+      freezes any of their funds or assets received from the sale of AremisSoft stock;
+
+         directs them to repatriate all such funds or assets to the United States; and
+
+         requires them to submit a sworn accounting of their assets held at any time since December 1, 1999.   
+   For additional information please see Litigation Release No.  17172  (October 4, 2001).
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diff --git a/raw/aaer/2001/AAER-1475.txt b/raw/aaer/2001/AAER-1475.txt
new file mode 100644
index 0000000000000000000000000000000000000000..1bea1bb53294e34e2469121d04dc6b7b61906c19
--- /dev/null
+++ b/raw/aaer/2001/AAER-1475.txt
@@ -0,0 +1,1366 @@
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+        Maurice B. Newman and Richard A. Gerhart
+       
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+ Litigation Release No. 17250 /  November  29, 2001
+
+  Accounting and Auditing Enforcement Release No.  1475 / November 29, 2001
+
+   SEC v. Maurice B. Newman and Richard A. Gerhart,  Civil Action No. SA CV 00-948-GLT (C.D. Cal)
+
+  The Securities and Exchange Commission announced that on November 5, 2001, the Honorable Gary L. Taylor, United States District Judge for the Central District of California, granted summary judgment against Richard A. Gerhart, in a financial fraud case that was filed by the Commission last year.  Gerhart, the former CFO of Sirena Apparel Group, Inc., was charged with fraud and other provisions of the federal securities laws.  In addition to the entry of a judgment of permanent injunction, Gerhart was ordered to pay a $100,000 penalty and prohibited from serving as an officer and director of any company registered with the Commission or that is required to file reports with the Commission.  
+
+  The Commission alleged in its complaint that, to meet revenue and earnings projections for Sirena, a publicly traded company, Sirena's former CEO, Maurice Newman, and Gerhart caused Sirena to report false financial information in an earnings press release and a quarterly report for the third quarter ended March 31, 1999.  The complaint further alleged that Gerhart ordered Sirena personnel to manipulate the company's accounting software to show artificial earnings and made misrepresentations to Sirena's auditors regarding those earnings.  On September 20, 2000, Gerhart and Newman were criminally indicted for the same fraud.  Earlier this year, both Gerhart and Newman pled guilty to the securities fraud and conspiracy charges in the criminal indictment.  
+
+  In the Commission's civil case, Judge Taylor concluded that Gerhart violated the antifraud provisions (Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder), the books and records provision (Rule 13b2-1 of the Exchange Act), the knowing circumvention of internal controls provision (Section 13(b)(5) of the Exchange Act) and lying-to-an-accountant provision (Rule 13b2-2 of the Exchange Act), as well as aiding and abetting violations of the reporting provision (Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder) and the recordkeeping provision (Section 13(b)(2)(A) of the Exchange Act).  Judge Taylor specifically found that Gerhart admitted to falsifying the books and records of Sirena, to conspiring with others to inflate the company's revenues, directing company personnel to manipulate the company's computer system to improperly recognize revenue on the sales of merchandise after a quarter closed, and to creating false shipping documents for the company's outside accountants in an effort to hide the fraud.  
+
+  Gerhart's co-defendant, Newman, previously settled with the Commission, consenting to a permanent injunction, without admitting or denying the allegations in the Commission's complaint, and agreeing to pay a civil penalty in the amount of $30,000.    
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diff --git a/raw/aaer/2001/AAER-1476.txt b/raw/aaer/2001/AAER-1476.txt
new file mode 100644
index 0000000000000000000000000000000000000000..602f0bb0fff2ad466ea242ce8c67857e8217ed5e
--- /dev/null
+++ b/raw/aaer/2001/AAER-1476.txt
@@ -0,0 +1,1573 @@
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+              Pinnacle Holdings, Inc.
+           
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+        Pinnacle Holdings, Inc.
+       
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.   45135 / December 6, 2001
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.   1476 / December 6, 2001
+  ADMINISTRATIVE PROCEEDING
+ File No. 3-10647 
+
+        In the Matter of   
+  PINNACLE HOLDINGS, INC.,   
+      Respondent   
+    
+  : : : : : : :   
+  ORDER INSTITUTING
+    PROCEEDINGS PURSUANT
+  TO SECTION 21C OF THE
+ SECURITIES EXCHANGE
+ ACT OF 1934, AND MAKING
+  FINDINGS, AND ISSUING A 
+  CEASE-AND-DESIST ORDER      I. 
+
+  The Commission deems it appropriate that public administrative proceedings be, and they hereby are, instituted against Pinnacle Holdings, Inc. ("Pinnacle" or the "Company") pursuant to Section 21C of the Securities Exchange Act of 1934 (the "Exchange Act").
+
+  In anticipation of the institution of these administrative proceedings, Pinnacle has submitted an Offer of Settlement, which the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the findings set forth therein, except as to the jurisdiction of the Commission over the matters set forth herein, which is admitted, Pinnacle consents to the issuance of this Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Issuing A Cease-and-Desist Order ("Order").
+
+   II. 
+FINDINGS 
+
+  On the basis of this Order and Pinnacle's Offer of Settlement, the Commission makes the following findings:  1     A. Respondent 
+
+  Pinnacle is a holding company structured as a real estate investment trust whose primary subsidiaries and operating divisions are engaged in the business of acquiring, integrating, operating and leasing communications site space, principally antenna space for wireless telephony, land mobile, two-way radio systems and paging service providers and other wireless devices.  Pinnacle's headquarters are in Sarasota, Florida, and its common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act.  Pinnacle's common stock is quoted on the Nasdaq National Market System.  Pinnacle conducted an initial public offering in February 1999.
+
+   B. Facts 
+
+   1. Summary 
+
+  This matter involves Pinnacle's improper accounting for its acquisition of Motorola, Inc.'s ("Motorola") North American Antenna Site Business (the "Motorola Acquisition").  Pinnacle improperly established liabilities and improperly capitalized costs in connection with the acquisition.  As a result, Pinnacle understated reported expenses for the year 1999 and the first three quarters of 2000.  
+
+  Pinnacle's business strategy is focused on creating a portfolio of communications sites through the acquisition of sites and operation of antenna and other communications sites.  In furtherance of that strategy, in August 1999 Pinnacle acquired from Motorola over 1,800 antenna towers, management agreements and leases, the result of which was effectively to double the number of communications sites operated by Pinnacle.  Pinnacle's establishment of liabilities and capitalization of certain costs incurred following the Motorola Acquisition did not comply with generally accepted accounting principles ("GAAP") and resulted in violations of the periodic reporting, books and records, and internal controls provisions of the federal securities laws.
+
+  In connection with the Motorola Acquisition, Pinnacle improperly established at least $24 million of liabilities, including over $8.5 million in costs that were improperly capitalized.  The costs related to the integration and ongoing business operation of assets acquired from Motorola, and, under GAAP, should have been expensed.  By capitalizing these costs as directly and incrementally related to the Motorola Acquisition, instead of treating them as ongoing operating expenses, Pinnacle understated its general and administrative and corporate development expenses for the periods ended from September 30, 1999 to September 30, 2000.  
+
+  On March 14, 2001, Pinnacle retained a new auditor, which audited Pinnacle's financial statements for the year ended December 31, 2000, and re-audited Pinnacle's financial statements for the year ended December 31, 1999.  2    In amended filings,  3   Pinnacle restated its 1999 audited financial statements, increasing its net losses by $300,000, and restated its results for the first three quarters of 2000 to increase its net losses by $1.7 million and reduce its earnings per share by $0.04.  4    The restatements resulted in Pinnacle being out of compliance as to certain negotiated debt covenants Pinnacle had with certain lenders, requiring Pinnacle to obtain a waiver of those covenants from those lenders.  5     2. The Motorola Acquisition 
+
+     a. Background 
+
+  From its inception in 1995 through 1999, Pinnacle aggressively acquired communications sites, largely from owners of small numbers of communications sites.  To supplement its internal acquisitions department, Pinnacle engaged its former (then current) auditor to perform due diligence and related integration activities with respect to certain of its tower acquisitions.  In addition, the former auditor provided management and strategic consulting, information technology consulting, acquisition accounting and tax consulting services to Pinnacle. 
+
+  In June 1999, Pinnacle entered into an agreement to purchase 1,858 communications sites and related assets from Motorola for approximately $254 million.  The transaction closed on August 31, 1999, but a working capital adjustment provision allowed for subsequent adjustment of the final purchase price.  This transaction posed a significant challenge to Pinnacle management in conducting pre-closing due diligence on the towers.  In addition, the transaction, which effectively doubled the number of towers managed by Pinnacle, posed a significant challenge to Pinnacle management in gaining operational control of the towers and effectively integrating the towers, and information related to the towers, into Pinnacle's operations.  
+
+     b. Accounting Issues 
+
+  In accounting for the Motorola Acquisition, Pinnacle established a liability of $31.45 million for estimated acquisition costs ("the acquisition liability").  6    The acquisition liability was established after the August 31, 1999 closing date for the Motorola Acquisition, in connection with the preparation of Pinnacle's quarterly report filed with the Commission on November 15, 1999, for the period ended September 30, 1999.  
+
+  The acquisition liability included several categories of estimated costs.  The costs included estimates for fees for consulting services that had not yet been performed, and $4 million in back tax, utility, and rent payment liabilities that, under the terms of the purchase and sale agreement between Motorola and Pinnacle, were Motorola liabilities unless discovered by Pinnacle after December 31, 1999.  The acquisition liability also included $5 million for "non-specific liabilities" and, based on a potential severance obligation to former Motorola employees contained in the Motorola Acquisition agreement, a liability of $1.5 million for involuntary termination of acquired employees. 
+
+  Subsequent to the establishment of the acquisition liability, Pinnacle reallocated the accrual amounts among various categories during 2000 in order to account for revisions to its estimates of certain costs arising out of the Motorola Acquisition and Pinnacle's operations.
+
+  Pinnacle ultimately paid its former auditor approximately $14 million in fees associated with consulting work on the Motorola Acquisition and capitalized substantially all of those fees.  Included in the fees that Pinnacle improperly applied against the accruals and capitalized, and subsequently restated, were approximately $6.8 million in post-closing fees for services that Pinnacle incurred as a result of its ongoing business practices and obligations, such as (1) operating, managing and integrating Motorola's assets into existing operations, (2) assessing the Motorola assets for impairment, and (3) assisting Pinnacle in identifying revenue enhancement opportunities after closing.  
+
+  Pinnacle also improperly posted other operating expenses against its Motorola Acquisition accruals in 1999 and 2000, including $922,932 in office rental and administrative items, employee bonuses, information technology consulting, and repair, maintenance and other expenses.
+
+  The capitalization of costs reduced Pinnacle's reported operating expenses because the costs would be amortized over the useful lives of the acquired assets and would not be reported as current operating expenses by Pinnacle.  
+
+   3. Pinnacle's Restatement and Related Filings 
+
+  On April 26, 2001, Pinnacle filed an amended Form 10-K for fiscal year 1999 and on May 4, 2001, filed amended Forms 10-Q for the quarter ended September 30, 1999 and the first three quarters of fiscal year 2000.  In those filings, Pinnacle restated its financial statements for fiscal year 1999, including the third and fourth quarters of fiscal year 1999, and the first three quarters of fiscal year 2000.  The restatements reflected Pinnacle's determination (1) to accrue direct costs of the Motorola Acquisition only as the related services were performed, and (2) to expense approximately $8.5 million in professional fees and other miscellaneous adjustments related to ongoing business expenses necessary to integrate the Motorola assets and liabilities into Pinnacle's operations.  Of the approximately $8.5 million of previously capitalized costs that were restated to current period expenses, approximately $6.8 million or approximately 80 percent, were consulting fees related to the Motorola Acquisition.
+
+  The failure to account properly for the consulting fees and other expenses related to the Motorola Acquisition caused Pinnacle to misstate its general and administrative expenses and its corporate development expenses as set forth below:
+
+       Three Months Ended September 30, 1999:   Corporate Development Expense increased from $2,459,995 to $2,920,787, an increase of 18.73 percent;
+
+        Three Months Ended December 31, 1999:   Corporate Development Expense increased from $4,180,837 to $5,445,269, an increase of 30.24 percent;
+
+        Three Months Ended March 31, 2000:   Corporate Development Expense increased from $3,870,986 to $6,567,815, an increase of 69.67 percent; General and Administrative Expense increased from $1,906,605 to $2,093,068, an increase of 9.78 percent;
+
+        Three Months Ended June 30, 2000:  Corporate Development Expense increased from $4,276,878 to $6,954,531, an increase of 62.61 percent;
+
+        Three Months Ended September 30, 2000:  Corporate Development Expense increased from $13,619,585 to $14,187,345, an increase of 4.17 percent.
+   The changes in Pinnacle's restated financial statements placed Pinnacle in violation of debt covenants contained in agreements under which Pinnacle had borrowed funds from institutional lenders.  Those agreements required compliance with, among other things, certain "leverage ratios," which were negatively affected by the restatements.  Pinnacle was required to obtain a waiver from its lender of those debt covenants.
+
+   III. 
+LEGAL ANALYSIS 
+
+   A. The Improper Accounting for Items Capitalized by Pinnacle 
+
+    Pinnacle's accounting for post-acquisition costs associated with the Motorola Acquisition was improper in at least two respects:  (1) Pinnacle improperly accrued costs that did not meet the criteria for the establishment of a liability, and (2) Pinnacle improperly capitalized certain costs associated with the integration and operation of the sites it acquired from Motorola.
+
+  Accounting Principles Board Opinion No . 16,  Business Combinations  ("APB 16" ), paragraph 76 states: "the cost of a company acquired in a business combination accounted for by the purchase method includes the direct costs of acquisition. ... However, indirect and general expenses related to acquisitions are deducted as incurred in determining net income."  Furthermore, Accounting Interpretation No. 33 of  APB 16  states: "all internal costs associated with a business combination are deducted as incurred in determining net income." 
+
+  Pursuant to this guidance, capitalized acquisition costs may not include a company's costs, whether incurred internally or paid to third parties, that may relate to the acquired assets but that were incurred as a result of the company's ongoing business practices and obligations, such as establishing books and records for acquired operations, preparing its financial statements, developing budgets or operating and strategic plans, or operating, managing and integrating acquired assets into existing operations.  
+
+  In connection with the Motorola Acquisition, Pinnacle improperly capitalized indirect and general costs associated with the integration of the acquired assets into the operations of Pinnacle as well as certain costs associated with the management and operation of the acquired assets.  Pinnacle also improperly capitalized internal costs, such as employee bonuses, building rents, and other operating expenses in connection with the Motorola Acquisition.  
+
+  Certain liabilities recorded in connection with the Motorola Acquisition were also improper.  Statement of Financial Accounting Standards No. 5 ("FAS 5")  Accounting for Contingencies , paragraph 8 provides that an estimated loss from a loss contingency should be accrued if information available prior to the issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated.  Implicit in FAS 5 is the notion that one or more future events will occur confirming the fact of the loss.
+
+  Emerging Issues Task Force Issue Nos. 95-3 and 94-3 interpret the requirements of SFAS No. 5 with respect to the recognition of liabilities for planned business integration and restructuring costs.  That guidance provides that these expected costs should not be recognized as liabilities unless they are directly related to a management plan to exit an activity and the cost has no future economic benefit to the entity.  The costs accrued by Pinnacle did not satisfy either of those criteria.
+
+  Statement of Financial Accounting Concepts No. 6,  Elements of Financial Statements  paragraphs 35 -36 further states that a liability has three essential characteristics:
+
+        (a) it embodies a present duty or responsibility to one or more other entities that entails settlement by probable future transfer or use of assets at a specified or determinable date, on occurrence of a specified event, or on demand, (b) the duty or responsibility obligates a particular entity, leaving it little or no discretion to avoid the future sacrifice, and (c) the transaction or other event obligating the entity has already happened.
+
+    Thus, whether a particular cost constitutes a liability at the date of acquisition requires a determination of (1) whether there exists a legal, equitable or constructive obligation for the company to sacrifice its assets in the future, and (2) whether that obligation existed at the date of acquisition.  Only present obligations, that is, those obligations resulting from a past transaction or event, are liabilities. See Statement of Financial Accounting Concepts No. 6,  Elements of Financial Statements , paragraphs 195-206. 
+
+  The liability that Pinnacle recorded with respect to the Motorola Acquisition did not meet the requirements of Concepts Statement No. 6 because Pinnacle did not have "a present duty or responsibility" to pay third parties for the planned activities before they were performed.  Pinnacle's premature recognition of a liability at the time it reported the business combination was improper.  Recognition of the liabilities in accordance with GAAP as the activities were performed makes more transparent their character as arising from the integration and management of the acquired assets.
+
+  Also included in the accrual Pinnacle recorded were reserves for "non-specific liabilities" that might be incurred with respect to the Motorola Acquisition.  Reserves for "general or unspecified business risks" may not be accrued under FAS 5, paragraph 14. 
+
+     B. Pinnacle Violated the Periodic Reporting Requirements of the Exchange Act. 
+
+  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 certain annual and quarterly reports with the Commission.  Implicit in these rules is the requirement that the reports accurately reflect the financial condition and operating results of the issuer.   See SEC v. IMC International, Inc.,  384 F. Supp. 889, 893 (N.D. Tex.),  aff'd mem., 505  F. 2d 733 (5th Cir. 1974),  cert. denied sub nom. Evans   v. SEC,  420 U.S. 930 (1975) (citing the need for "complete, accurate and timely reports").    No showing of scienter is necessary to establish a violation of Section 13(a).   See SEC v. Savoy Industries, Inc. , 587 F.2d 1149, 1167 (D.C. Cir. 1978).  Rule 12b-20 further requires the inclusion of any additional material information that is necessary to make required statements, in light of the circumstances under which they were made, not misleading.  Information regarding the financial condition of a company is presumptively material.   SEC v. Blavin,  760 F.2d 706, 711 (6 th  Cir. 1985).  
+
+  Pinnacle's accrual for and capitalization of costs relating to the Motorola Acquisition, including the professional fees paid to its former auditor, failed to comply with GAAP and to reflect accurately Pinnacle's assets, liabilities and operating expenses following the transaction.  Pinnacle corrected these inaccuracies in its amended annual and quarterly filings made on April 26 and May 4, 2001.  Accordingly, Pinnacle's financial statements contained in its initial public filings following the Motorola Acquisition (that is, those made prior to Pinnacle's restatement) violated Exchange Act Section 13(a) and Rules 12b-20, 13a-1 and 13a-13 thereunder.
+
+     C. Pinnacle Violated the Recordkeeping and Internal Control Provisions of the Exchange Act. 
+
+  Section 13(b)(2)(A) of the Exchange Act requires issuers to "make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer."  Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit the preparation of financial statements in conformity with GAAP and to maintain the accountability of assets.  No showing of scienter is necessary to establish a violation of Section 13(b).   See SEC v. World-Wide Coin Investments, Ltd., et al. , 567 F. Supp. 724, 749-51 (N.D. Ga. 1983).
+
+  Pinnacle's improper accrual for and capitalization of certain professional fee costs billed by its outside consultants, software costs, employee bonuses and other general and administrative expenses relating to the Motorola Acquisition made its internal accounting records inaccurate in the manner in which they reflected Pinnacle's assets, liabilities and operating expenses.  Pinnacle's failure to maintain records that accurately accounted for its assets, liabilities and certain expenses violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.
+
+   IV.    Based on the foregoing, the Commission finds that Pinnacle violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
+
+   V. 
+ORDER 
+
+  Based on the foregoing, the Commission deems it appropriate to accept Pinnacle's Offer of Settlement and impose the sanctions agreed to therein.
+
+    Accordingly, IT IS HEREBY ORDERED:
+
+  A.  That Pinnacle shall cease and desist from committing or causing any violation or any future violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder; and
+
+  B.  That Pinnacle comply with its undertaking to, upon reasonable request by the Commission or its staff, and on reasonable notice and without service of a subpoena, provide documents or other information, and accept service and take all reasonable actions to make its officers, directors, employees and agents available to testify truthfully at any interview, investigative testimony, deposition, judicial proceeding related to this Order or administrative proceeding arising as a result of the Commission's investigation entitled  In the Matter of Pinnacle Holdings, Inc .  This provision shall not be construed to waive applicable attorney-client, work product or other privileges recognized under federal law held by Pinnacle, its officers, directors, employees or agents, if asserted on a timely basis and in good faith.
+
+  By the Commission.
+
+  Jonathan G. Katz 
+Secretary
+  
+
+ 
+ Footnotes 
+       1     The Commission's findings herein are made pursuant to Pinnacle's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding. 
+
+      2      Pinnacle's new auditor was retained to succeed its former auditor, which had audited Pinnacle's financial statements from 1995, the date of the company's inception ("former auditor").
+
+      3      On April 26, 2001, Pinnacle filed an amended Form 10-K for the year ended December 31, 1999, and on May 4, 2001, Pinnacle filed amended Forms10-Q for the quarters ended September 30, 1999, March 31, 2000, June 30, 2000, and September 30, 2000.
+
+      4      As described in the amended Form 8-K filed by Pinnacle on April 26, 2001, Pinnacle's former auditor disagreed with Pinnacle's decision, in its restatement, to expense costs previously capitalized in 1999 as direct costs in the Motorola Acquisition.
+
+      5      Pinnacle's reported earnings before interest, taxes, depreciation and amortization ("EBITDA"), is used in calculating compliance with certain covenants in a Senior Credit Facility to which Pinnacle is a party.  Under the agreement, Pinnacle was not allowed to permit the ratio of senior debt to annualized EBITDA to exceed certain amounts, as defined in the agreement.  In addition, as a result of the restated financial statements, Pinnacle's EBITDA, a pro forma measure of earnings used by Pinnacle's lenders, analysts and investors, was reduced by amounts of between five percent and fifteen percent for each of Pinnacle's five quarters between and including the quarter ended September 30, 1999 and the quarter ended September 30, 2000.  
+
+      6      As noted earlier, at least $24 million of the liabilities were improperly established.    
+
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+              Timothy Tuttle
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+
+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.     45159 / December 14, 2001
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.     1479
+  ADMINISTRATIVE PROCEEDING
+ File No.  3-10655     
+
+         In the Matter of     
+  TIMOTHY TUTTLE,     
+    Respondent.   
+    
+  : : : : : : :   
+  ORDER INSTITUTING PUBLIC
+ PROCEEDINGS PURSUANT
+ TO SECTION 21C OF THE
+ SECURITIES EXCHANGE ACT
+ OF 1934, MAKING FINDINGS,
+ AND ORDERING RESPONDENT
+  TO CEASE AND DESIST    I.
+
+    The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and they hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Timothy Tuttle ("Tuttle").
+
+  II.
+
+    In anticipation of the institution of these administrative proceedings, the 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 proceeding brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings contained herein, except that Respondent admits that the Commission has jurisdiction over him and the subject matter of these proceedings, the Respondent by his Offer, consents to the entry of the findings and the imposition of the cease-and-desist order set forth below.
+
+  III.
+
+  The Commission makes the following findings:  1     A.   FACTS 
+
+      1.   Summary 
+
+      a. This case involves a financial reporting fraud perpetrated by the senior officers of I. & J. Bagel, Inc. ("I&J"), a California-based entity and wholly-owned subsidiary of Manhattan Bagel Inc. ("Manhattan Bagel" or the "Company"), which, during the relevant period, manufactured and distributed bagel dough and cream cheese products to a network of 220 franchised, licensed and Company-owned bagel bakery stores operating in 15 states and Canada.
+
+      b.  In 1995 and 1996, I&J's Chairman of the Board, Allan Boren ("Boren"), and its president, Eric Cano ("Cano"), orchestrated a scheme to inflate the Company's net income by, among other things, recording fictitious sales on I&J's books.  The effect of these particular misrepresentations was to overstate Manhattan Bagel's consolidated net income before taxes by $206,000 in the year ended December 31, 1995.   Boren's brother, Philip Borini ("Borini"), implemented the fraud by (i) procuring false confirmations for the Company's auditors with respect to the fictitious sales, and (ii) making payments against the fictitious bagel sales using money provided by Boren.  
+
+      c. Respondent Tuttle contributed to Borini's efforts by signing false audit confirmations and orally making false representations to the Company's auditors concerning bagels supposedly purchased by one of two fictitious accounts.  Tuttle also made a sham payment on one of the fictitious accounts using money supplied by Boren.
+
+      d. As a result of his conduct, Tuttle caused violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder and violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. 
+
+                          2.   Respondent 
+
+      a.  Tuttle , age 42, is Borini's brother-in-law.  He is, and was at all relevant times, the owner of Peerless Building Maintenance Company ("Peerless"), a firm providing office cleaning services. Peerless purportedly was a large customer of I&J. Tuttle resides in North Ridge, California.
+
+                          3.   Other Relevant Entities and Individuals 
+
+      a.  Manhattan Bagel  was incorporated in the State of New Jersey with its principal executive offices in Eatontown, New Jersey.  On November 19, 1997, Manhattan Bagel filed a voluntary petition for reorganization under Chapter 11 of the federal Bankruptcy Act.  On July 28, 1998, New World Coffee & Bagels, Inc. ("NWC") entered into an acquisition agreement with Manhattan Bagel whereby NWC would acquire 100% of Manhattan Bagel.  NWC's acquisition of Manhattan Bagel was closed and approved by the United States Bankruptcy Court for the District of New Jersey in November 1998.  Prior to becoming a wholly-owned subsidiary of NWC, Manhattan Bagel's common stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act and quoted on the National Association of Securities Dealers Automated Quotations System ("NASDAQ") under the symbol BGLS.  
+
+       b. I&J  was acquired by Manhattan Bagel on June 29, 1995 as a wholly-owned subsidiary of the Company.   At the time of the acquisition, I&J owned and licensed approximately 17 bagel bakery stores in the Los Angeles area. 
+
+      c.  Boren , age 36, was employed by Manhattan Bagel as the Chairman of the Board of I&J from June 1995  to December 1995, when he resigned.  Boren and his wife were the largest shareholders of Manhattan Bagel from June 1995 to March 1996.
+
+      d.  Cano  was employed by Manhattan Bagel as the President of I&J from June 1995  to April 1996, when he resigned.  He was a consultant to the Company from April 1996 to June 1996.   
+
+      e.  Borini , age 46, is Boren's brother and Tuttle's brother-in-law. 
+
+
+
+                          4.   Discussion   
+
+                a.   Overview 
+
+      (1) Beginning in the second quarter of 1995, just prior to the acquisition, Boren and Cano implemented a scheme to inflate I&J's operating results, by, among other things, creating fictitious bagel sales for two purported wholesale customers, including, Peerless, a small building maintenance company. 
+
+
+
+      (2) After the markets closed on June 20, 1996, Manhattan Bagel announced that following the installation of new management at I&J, Manhattan Bagel "ha[d] uncovered certain improper bookkeeping entries and accounting practices," and  further stated that Manhattan Bagel's independent auditors had advised that, based on the findings to date, Manhattan Bagel would be required to restate its first quarter 1996 financial results. 
+
+      (3) On June 21, 1996, the price of Manhattan Bagel common stock fell approximately 35%, declining from $21.25 to $13.75 on record volume.
+
+      (4) Manhattan Bagel's June 20 Announcement addressed only some of the misrepresentations then contained on its books as a result of the fraudulent scheme.  Manhattan Bagel had not, at the time of the announcement, uncovered a number of other significant misrepresentations, including the fictitious sales, because Boren, Cano and Borini were then actively engaged in efforts to conceal the true facts from the Company's auditors - an effort that continued through August 1996.  Tuttle knew or was reckless in not knowing that his conduct contributed to these efforts.
+
+      (5) The above-referenced conduct caused Manhattan Bagel to make material misrepresentations in its financial statements for the six months ended June 30, 1995, the nine months ended September 30, 1995, and the year ended  December 31, 1995.   These materially inaccurate financial statements were included in periodic reports filed with the Commission, including among others the Form 10-QSB filed on August 15, 1995, Form 10-QSB filed on November 15, 1995, Form 10-KSB filed on March 19,   1996, the Form 10-QSB filed on May 15, 1996 and the Form 10-QSB filed on August 19, 1996.
+
+             b.   Fictitious Sales 
+
+      (1) At the year ended December 31, 1995, I&J's books showed sales to Peerless of $85,356.50.   According to I&J's records, in 1996, Peerless purportedly made two payments on the Peerless account, including one $50,000.00 payment by Peerless check, dated August 12, 1996, signed by Tuttle.  The sales recorded to the Peerless account were fictitious.  Moreover, the $50,000 payment was a sham. 
+
+
+
+      (2) In connection with the 1995 year-end audit of Manhattan Bagel's financial statements, the Company's auditors prepared written requests to Peerless, in October 1995 and again in February 1996, asking that it confirm the respective amounts owed to I&J at September 30, 1995 (the October requests) and December 31, 1995 (the February requests).
+
+      (3) The auditors faxed their October 1995 request to Tuttle, seeking confirmation that Peerless owed I&J $53,597 as of September 30, 1995.  Tuttle knew that Peerless had never purchased products from I&J.  He called Borini to learn what the confirmation concerned.  Borini assured Tuttle that Borini would take care of it.
+
+      (4) In February 1996, the auditors again made a request to Peerless, asking that it confirm a balance due I&J of $70,737 at December 31, 1995.    Tuttle again called Borini, who again told Tuttle that he would take care of the confirmation.
+
+      (5) On August 12, 1996, at Boren's instruction, Tuttle attended a meeting with Cano and an audit partner concerning sales of bagels to I&J.   The meeting was held at the offices of Cano's attorney.  The engagement partner attended by conference call.
+
+      (6) In advance of the meeting with the auditors, Boren met with Tuttle and told Tuttle to confirm orally to the auditors that Peerless owed I&J money for bagel purchases.  Tuttle knew that Peerless had never purchased bagels from I&J.
+
+      (7) In the meeting with the auditors, Tuttle carried out Boren's instruction, falsely telling the auditors that Peerless had purchased bagels and related products from I&J during 1995 and had owed the amounts previously confirmed.  Tuttle knew that these statements were false.  When the auditors asked what Peerless did with all of the bagels, Tuttle falsely replied that Peerless gave bagels to customers.  Tuttle knew that this statement was false. 
+
+      (8) The auditors then asked Tuttle to sign a confirmation.  Tuttle excused himself from the meeting and went to an adjoining room where, unbeknownst to the auditors, Boren and Cano were waiting.  Tuttle expressed concern to them about signing a false confirmation.  Boren told him to sign it, knowing the confirmation would be false.  Tuttle then called Borini, who likewise told Tuttle to sign the false confirmation.   Borini also knew that the confirmation would be false. Tuttle returned to the meeting room and, in the auditor's presence, signed the false account receivable confirmation for the balance that purportedly remained outstanding as of June 30, 1996.   Tuttle knew that the confirmation was false.
+
+      (9) During the same meeting, Tuttle handed the auditors a check for $50,000, which represented most of the balance purportedly due on Peerless' account.  Tuttle told the auditors that these funds belonged to Peerless.  This representation was also false, and Tuttle knew it was false.  Shortly before the meeting, Borini conveyed to Tuttle Boren's instruction that Tuttle write a check to Manhattan Bagel for $50,000.  Borini assured Tuttle that $50,000 would be deposited to Peerless' bank account the next day.  The next day, August 13, 1996, Cano delivered a paper bag to Borini's home containing $50,000 in cash.  Cano and Borini's assistant counted the cash in Borini's dining room.  Borini's assistant then delivered the cash to Borini's attorney, who drew a $50,000 check against his attorney trust account payable to Peerless.  The attorney gave the check to Borini's assistant.  The check was then deposited to Peerless' account.
+
+    B.    LEGAL DISCUSSION 
+
+      1.   Violations of Exchange Act Section 10(b) and Rule 10b-5 
+
+      a. Section 10(b) of the Exchange Act and Rule 10b-5 prohibit any person, in connection with the purchase or sale of securities, from making any untrue statement of a material fact, or omitting to state a material fact, using any device, scheme or artifice to defraud, or engaging in any transaction, practice, or course of business which operates as a fraud.   See   Basic, Inc. v. Levinson , 485 U.S. 224, 231-32 (1988).
+
+      b. Boren, Cano and Borini each violated Section 10(b) of the Exchange Act and Rule 10b-5 by knowingly or recklessly engaging in conduct resulting in material misstatements and omissions in, among other filings, Manhattan Bagel's Forms 10-QSB for the quarters ended June 30, 1995, September 30, 1995, March 31, 1996 and June 30, 1996 and in its Form 10-KSB for the year ended December 31, 1995.
+
+      c. By his conduct outlined above, Tuttle caused these violations of Section 10(b) of the Exchange Act and Rule 10b-5.
+
+      2.   Violations of Exchange Act Section 13(b)(5) and Rule 13b2-1 
+
+      a. Section 13(b)(5) of the Exchange Act prohibits any person from, among other things, knowingly falsifying any book, record, or account of an issuer as described in Section 13(b)(2).  The knowing falsification of the books, records, or accounts of a subsidiary of an issuer is deemed to be a violation of Section 13(b)(5) of the Exchange Act.   See   SEC v. Larry E. Leslie , Litigation Release No. 13651 (May 26, 1993).
+
+      b. As described above, Boren, Cano and Borini knowingly or recklessly falsified the books, records, and accounts of I&J, a subsidiary of Manhattan Bagel.  Thus, they each violated Section 13(b)(5) of the Exchange Act.
+
+      c. By his conduct outlined above, Tuttle caused these violations of Section 13(b)(5) of the Exchange Act.
+
+      d. 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.  Section 13(b)(2)(A) of the Exchange Act requires that every issuer of securities registered pursuant to Section 12 of the Exchange Act make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect its transactions and disposition of assets.
+
+      e. As described above, Boren, Cano and Borini directly and indirectly falsified and caused to be falsified books, records, and accounts of I&J which were subject to the requirement by Section 13(b)(2)(A) of the Exchange Act that such books, records, and accounts be accurate.  These individuals thus violated Exchange Act Rule 13b2-1.
+
+       f.  By his conduct outlined above, Tuttle caused these violations of Exchange Act Rule 13b2-1.  
+
+      3.   Manhattan Bagel's Periodic Reporting Violations 
+
+      a. Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 require issuers to file annual and quarterly reports with the Commission.  An issuer violates these provisions if it files materially false or misleading reports.   GAF v. Milstein , 453 F.2d 720 (2d Cir. 1971);  SEC v. Koenig , 469 F.2d 198 (2d Cir. 1972);  SEC v. Great American Industries, Inc. , 407 F.2d 453 (2d Cir.),  cert. denied , 395 U.S. 920 (1969).  Rule 12b-20 requires that such reports include any additional information that may be necessary in order to make the statements made not misleading.
+
+      b. At all relevant times, Manhattan Bagel was a reporting company subject to the provisions of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13.  Manhattan Bagel's reports on Form 10-QSB for the quarters ended June 30, 1995, September 30, 1995, March 31, 1996, and June 30, 1996 and on Form 10-KSB for the year ended December 31, 1995 were materially inaccurate and misleading, as were a number of subsequent filings that incorporated the prior filings by reference.  Accordingly, Manhattan Bagel violated Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13.
+
+      c. 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 its transactions and dispositions of assets.  Manhattan Bagel violated Section 13(b)(2)(A) of the Exchange Act by failing to make and keep books, records, and accounts that accurately, and in reasonable detail, reflected certain revenue and expense transactions by its wholly-owned subsidiary, I&J.
+
+      d.   By his conduct outlined above, Tuttle caused Manhattan Bagel's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13.
+
+              C.    VIOLATIONS 
+
+    Based on the foregoing, Tuttle caused violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
+
+  IV.
+
+    In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions agreed to by Tuttle in his Offer.
+
+    Accordingly, IT IS ORDERED, that:
+
+    Pursuant to Section 21C of the Exchange Act, Tuttle cease and desist from committing or causing any violation and any future violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 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 thereunder.
+
+    By the Commission.
+
+                  Jonathan G. Katz
+                 Secretary
+  
+
+ 
+ Footnote 
+     1       The Commission makes the findings herein pursuant to the Respondent's Offer.  These findings are not binding on any other person or entity in this or any other proceeding.    
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diff --git a/raw/aaer/2001/AAER-1481.txt b/raw/aaer/2001/AAER-1481.txt
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+ SECURITIES EXCHANGE ACT OF 1934
+ RELEASE NO. 45195 / December 27, 2001
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ RELEASE NO. 1481 / December 27, 2001
+  ADMINISTRATIVE PROCEEDING
+ FILE NO. 3-10663
+
+         In the Matter of    
+   RACHEL ECKHAUS, CPA, 
+      Respondent.  
+	    
+    : : : : : : : :   
+  
+  ORDER INSTITUTING PUBLIC
+  ADMINSTRATIVE PROCEEDINGS
+  PURSUANT TO RULE 102(e)
+ OF THE COMMISSION'S RULES
+ OF PRACTICE AND FINDINGS
+ AND ORDER OF THE COMMISSION      I. 
+
+    The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be and hereby are instituted against Rachel Eckhaus ("Eckhaus" or "Respondent") pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice  1   to determine whether Eckhaus engaged in improper professional conduct.
+
+   II. 
+
+    In anticipation of the institution of this administrative proceeding, Respondent has submitted an Offer of Settlement, which the Commission has determined to accept.  Solely for the purposes of this proceeding and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the Commission's findings contained herein, except that she admits the jurisdiction of the Commission over her and over the subject matter of this proceeding, Respondent consents to the entry of this Order and the findings and imposition of remedial sanctions set forth below.
+
+   III. 
+
+    On the basis of this Order and the Respondent's Offer of Settlement, the Commission makes the following findings:  2     THE RESPONDENT 
+
+     Rachel Eckhaus  is a certified public accountant licensed in New York.  She joined Fine Host as Assistant Controller in March 1995 and resigned in February 1997. 
+
+   RELATED ENTITY 
+
+   Fine Host Corporation  is a Connecticut-based company that, at all times relevant to this Order, provided food and beverage concession, catering and other services to approximately 400 facilities in 38 states.  Fine Host conducted an initial public offering in June 1996, and a secondary offering in February 1997.  Its stock was registered with the Commission under Section 12(g) of the Exchange Act and listed for trading on the Nasdaq National Market System.  On January 7, 1999, subsequent to the extensive restatement of its financial statements, Fine Host entered a proceeding under Chapter 11 of the U.S. Bankruptcy Code.  Pursuant to its plan of reorganization, Fine Host has now become a private entity.
+
+   Summary 
+
+  Fine Host Corporation engaged in an extensive financial fraud that, when detected, resulted in the collapse of its stock price and, eventually, the end of its existence as a public company.  The scheme predated Fine Host's June 1996 initial public offering by several years and continued through the third quarter of the fiscal year ended December 31, 1997.  It involved, as its primary mechanism, the improper capitalization of millions of dollars of Company expenses as assets.  Fine Host also manipulated acquisition reserve accounts, income from vendor rebates, and other items for the purpose of managing reported earnings.  
+
+  Based on an internal investigation, Fine Host issued a restatement of its financial statements in February 1998, reflecting that from 1992 through the third quarter of fiscal year 1997, Fine Host had overstated its pretax income by over $49 million.  For fiscal years 1994, 1995 and 1996, Fine Host had overstated pretax income by 149%, 213%, and 197%, respectively. 
+
+  Because Fine Host did not have a controller ,  Eckhaus, as Fine Host's Assistant Controller, was assigned responsibility to assist the CFO in preparing the Company's financial statements.  As directed by her superiors, she participated in the preparation of financial statements that she knew or, in the exercise of reasonable care, should have known ,  were not in conformity with generally accepted accounting principles ("GAAP").  This conduct constituted improper professional conduct for purposes of Commission Rule of Practice 102(e).
+
+   Fine Host's Fraudulent Accounting Practices 
+
+   Fine Host's improper accounting for "contract rights" 
+
+  Fine Host's operations were based on securing contracts to provide food services to sports arenas, schools, convention centers, and other facilities.  Beginning when Fine Host was a private company, its accounting practice was to aggregate certain costs associated with the pursuit of those contracts in an "acquisition costs" account.  When a contract was signed, the costs attributed to it were then transferred to the "contract rights" account and were treated as capitalized costs to be amortized over the term of the contract.  3    This practice was permissible under GAAP only to the extent these costs were directly related to the acquisition of assets with a future economic benefit to Fine Host.  In practice, however, Fine Host routinely and improperly allocated a pool of general and administrative ("G&A") expenses to the contract rights account, without any documentary support for this practice, rather than properly recognizing these overhead costs as period expenses.  Each quarter, Fine Host assigned a certain (arbitrarily determined) percentage of total costs to each facility.  Fine Host then allocated costs to specific facilities by multiplying the total costs for the quarter by the facility's assigned percentage.
+
+  These improper accounting practices predated Eckhaus's employment with Fine Host.  However, after she was hired by the Company in March 1995, Respondent shared responsibility for preparing Fine Host's financial statements for the fiscal year ended December 27, 1995.  4    She soon became aware that the Company's accounting for the costs of contract acquisitions was not in conformity with GAAP but nevertheless continued to improperly account for these costs.
+
+              It was Eckhaus's responsibility to provide information to auditors from Deloitte & Touche ("Deloitte") in connection with their 1995 year-end audit of the Company's financial statements.  Nevertheless, neither she nor her superiors informed the Deloitte auditors that the Company was improperly capitalizing overhead expenses as contract rights. 
+
+    Fine Host's improper treatment of contract acquisition costs in the period preceding its IPO was material.  In its restatement, Fine Host wrote-off $2,458,000 of such costs as improperly capitalized in 1994, representing approximately 75% of pretax income for the year.  For 1995, Fine Host wrote-off $4,284,000 in contract acquisition costs, approximately 113% of pretax income for the year.
+
+   Fine Host's Improper Accounting for Acquisition Reserves 
+
+    Fine Host regularly acquired other companies in the food services industry.  These acquisitions provided another vehicle to manipulate Fine Host's earnings.  For each acquisition, Fine Host would set up goodwill and an acquisition reserve.  These reserves were then used as a "cookie jar" to offset losses on a purely discretionary basis, sometimes two or three years after the acquisition   In many instances, Fine Host did not discontinue any activity in connection with these acquisitions, or incur costs related to these acquisitions, such as those for terminated employees.  Typically, little (if any) documentation supported the amount taken as a reserve.  
+
+   The Fine Host IPO 
+
+    Fine Host filed the registration statement for its IPO on March 29, 1996.  In its Form S-1, the Company reported results of operations for the fiscal years 1993 through 1995.  Respondent assisted Fine Host's chief financial officer in the preparation of the financial information contained in the registration statement.  
+
+  The staff of the Commission's Division of Corporation Finance reviewed the registration statement and commented upon it in detail.  Although not a direct participant, Respondent was aware of the communications between the Company and the Commission staff.  The staff specifically questioned Fine Host's accounting policy for contract rights.  In response, Fine Host represented that, for all periods after year-end 1995, it would capitalize only two categories of costs associated with contract acquisitions: direct payments made to clients to acquire the contracts and the direct costs of obtaining licenses and permits to operate its contract locations.  Fine Host specifically represented that it would no longer capitalize commissions and proposal costs.  Finally, Fine Host represented that it had not amended its financial statements for the years covered by the registration statement to conform to this policy "since the impact of this adjustment would not be material for any year presented."  In fact, as noted above, the misstatement of Fine Host's financial results due to improper capitalization of contract rights was material for each fiscal year 1993 through 1995.  
+
+    The Fine Host registration statement became effective on June 19, 1996, with net proceeds to the Company of $32 million.  As noted above, the 1994 and 1995 year-end financial statements contained in the registration statement were materially false and were subsequently restated.
+
+ 
+
+   The Fiscal Year Ended December 25, 1996 
+
+    Following the IPO, while Respondent oversaw aspects of its internal accounting, Fine Host improperly continued to spread G&A expenses among its capitalized "contract rights."  The aggregate "contract rights" balance increased every quarter in fiscal year 1996.  In fiscal year 1996, additions to contract rights totaled $12.2 million, while the additions to the fixtures and equipment account approximated $16.5 million.    
+
+    The items capitalized went well beyond both the cost categories Fine Host had represented to the Commission staff it would capitalize in the future and the capitalized cost categories it represented in its 1996 Form 10-K.  In Fine Host's restatement, $6.3 million of capitalized 1996 contract acquisition costs were reversed as improper.  This represented approximately 98% of Fine Host's pretax income for the entire year. 
+
+    During 1996, Fine Host also became increasingly aggressive about misuse of acquisition reserves.  Fine Host improperly lowered its expenses by offsetting $2.65 million in operating expenses against previously recorded acquisition reserves.  This inflated Fine Host's pre-tax income by 41%.
+
+   Subsequent Events 
+
+    By the autumn of 1997, amortization of Fine Host's growing contract rights balance was reducing reported earnings, and Fine Host was experiencing increasing difficulty in meeting analysts' expectations.  Alerted by a member of management that certain of the Company's accounting practices were questionable, the independent directors initiated an internal investigation.  In February 1998, at the conclusion of this investigation, Fine Host announced that it had overstated its pre-tax net income by $49 million, from approximately 1992 through the third quarter of 1997.  
+
+  In Fine Host's restatement, eighteen categories of material accounting errors were identified, with improperly capitalized contract rights of $21.7 million being the largest.  Acquisition reserves totaling $8.4 million were written off because (i) they were costs that should have been expensed as incurred, (ii) the Company lacked documentation linking them to a particular acquisition or (iii) the reserve, when properly decreased, already had been exhausted.  In addition, Fine Host wrote off purported rebates receivable in the amount of $5.5 million, because they were supported by little, if any, documentation. 
+
+    On January 7, 1999, Fine Host entered a proceeding under Chapter 11 of the U.S. Bankruptcy Code.  Pursuant to its plan of reorganization, Fine Host has now become a private entity. 
+
+   Eckhaus Engaged in Improper Professional Conduct for Purposes of Commission Rule of Practice 102(e) 
+
+  Eckhaus assisted Fine Host's chief financial officer by preparing financial statements, which did not conform to GAAP, to be included in the Company's filings; by maintaining false and misleading books and records; and by failing to maintain a system of internal accounting controls sufficient to prevent the recording of improper adjustments.  Eckhaus also failed to provide the Company's auditors with information known to her that would have alerted them to the Company's accounting fraud.  Her disregard for her professional responsibilities allowed the Company to continue its financial fraud for an extended period and constituted improper professional conduct.
+
+   IV. 
+
+  Based upon the foregoing, the Commission finds that Rachel Eckhaus engaged in improper professional conduct for purposes of Rule 102(e)(1) of the Commission's Rules of Practice.
+
+  IT IS HEREBY ORDERED, effective immediately, that:
+
+  Rachel Eckhaus be, and hereby is, denied the privilege of appearing or practicing before the Commission as an accountant.  After two (2) years from the date of this Order, Eckhaus 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 Eckhaus'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.  Eckhaus, or any firm with which she is or becomes associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section");
+
+    b. Eckhaus, or the firm, has received an unqualified report relating to her or the firm's most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and    c. As long as Eckhaus appears or practices before the Commission as an independent accountant, she will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.
+
+  The Commission's review of any request or application by Eckhaus to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Eckhaus's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.   By the Commission.
+
+            Jonathan G. Katz
+           Secretary
+  
+
+ 
+ Footnotes 
+       1      Rule 102(e)(1) of the Commission's Rules of Practice provides in pertinent part that:  
+
+   The Commission may censure a person or deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice and opportunity for hearing in the matter: . . . (ii) to have engaged in unethical or improper professional conduct.
+ 
+      2      The findings herein are made pursuant to the respondent's Offer of Settlement and are not binding on any other person or entity in this or in any other proceeding.
+
+      3      In addition, substantial amounts of these costs were improperly capitalized in "fixtures and equipment" accounts, particularly in 1996 and 1997. 
+
+      4      At that time, Fine Host was preparing for its IPO.  The 1995 financial statements were the latest annual financial statements included in the offering documents.     
+
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diff --git a/raw/aaer/2001/AAER-1482.txt b/raw/aaer/2001/AAER-1482.txt
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+
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+              Jeffrey Bacsik, CPA
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+ SECURITIES EXCHANGE ACT OF 1934
+ RELEASE NO. 45196 / December 27, 2001
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ RELEASE NO. 1482 / December 27, 2001      
+  ADMINISTRATIVE PROCEEDING
+ FILE NO. 3-10664
+
+         In the Matter of    
+   JEFFREY BACSIK, CPA, 
+      Respondent.  
+	    
+    : : : : : : : :   
+  
+ ORDER INSTITUTING PUBLIC
+  ADMINSTRATIVE PROCEEDINGS
+  PURSUANT TO RULE 102(e)
+ OF THE COMMISSION'S RULES
+ OF PRACTICE AND FINDINGS
+ AND ORDER OF THE COMMISSION      I. 
+
+    The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be and hereby are instituted against Jeffrey Bacsik ("Respondent") pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice  1   to determine whether Bacsik engaged in improper professional conduct.
+
+   II. 
+
+    In anticipation of the institution of this administrative proceeding the Respondent has submitted an Offer of Settlement, which the Commission has determined to accept.  Solely for the purposes of this proceeding and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, without any hearing, and without admitting or denying the Commission's findings contained herein other than those contained in part III of the Order under the headings "the respondent" and "related entity," and that the Commission has jurisdiction over him and over the subject matter of this proceeding, Respondent consents to the entry of this Order and the findings and imposition of remedial sanctions set forth below.
+
+   III. 
+
+    On the basis of this Order and the Respondent's Offer of Settlement, the Commission makes the following findings:  
+
+   THE RESPONDENT 
+
+     Jeffrey Bacsik  is a certified public accountant licensed in Connecticut, New Jersey and New York.   At all relevant times he was a partner in the accounting firm of Deloitte & Touche ("Deloitte").  Bacsik served as engagement partner for the audits of the year-end financial statements of Fine Host Corporation from at least 1993 through Fine Host's fiscal year ended December 25, 1996.  He was also the engagement partner for the reviews of Fine Host's quarterly financial statements for the relevant periods in fiscal 1996 and for the first quarter of fiscal 1997.
+
+   RELATED ENTITY 
+
+   Fine Host Corporation  is a Connecticut-based company that, at all times relevant to this Order, provided food and beverage concession, catering and other services to approximately 400 facilities in 38 states.  Fine Host conducted an initial public offering in June 1996, and a secondary offering in February 1997.  Its stock was registered with the Commission under Section 12(g) of the Exchange Act and listed for trading on the Nasdaq National Market System.  On January 7, 1999, subsequent to the extensive restatement of its financial statements, Fine Host entered a proceeding under Chapter 11 of the U.S. Bankruptcy Code.  Pursuant to its plan of reorganization, Fine Host has now become a private entity.
+
+   SUMMARY 
+
+  Fine Host Corporation engaged in an extensive financial fraud that, when detected, resulted in the collapse of its stock price and, eventually, the end of its existence as a public company.  The scheme predated Fine Host's June 1996 initial public offering by several years and continued through the third quarter of the fiscal year ended December 31, 1997.  It involved, as its primary mechanism, the improper capitalization of millions of dollars in Company expenses as assets.  Fine Host also manipulated acquisition reserve accounts, income from vendor rebates, and other items for the purpose of managing reported earnings.  
+
+    Based on an internal investigation, Fine Host issued a restatement of its financial statements in February 1998, reflecting that Fine Host had overstated its pretax income for fiscal years 1992 through 1996 by over $28 million, and for the first three quarters of 1997 by $21 million.  For fiscal years 1994, 1995 and 1996, Fine Host had overstated pretax income by 149%, 213%, and 197%, respectively.   
+
+      Bacsik, as the engagement partner on the Deloitte audit team, failed to ensure that the audit team conducted appropriate audit procedures, in many instances improperly relying on representations of Company management as the principal source of audit evidence.  This failure to exercise due professional care; to ensure that the audit team obtained sufficient competent evidential matter; and to maintain an attitude of professional skepticism constituted improper professional conduct for purposes of Commission Rule of Practice 102(e).
+
+   Fraudulent Accounting Practices in the Period Leading Up To the Initial Public Offering 
+
+   Fine Host's improper accounting for "contract rights" 
+
+  Fine Host's operations were based on securing contracts to provide food and beverage services to sports arenas, schools, convention centers, and other facilities.  Beginning when Fine Host was a private company, its accounting practice was to aggregate certain costs associated with the pursuit of those contracts in an "acquisition costs" account.  When a contract was signed, the costs attributed to it were then transferred to the "contract rights" account and were treated as capitalized costs to be amortized over the term of the contract.  2    This practice was permissible under generally accepted accounting principles ("GAAP") only to the extent these costs were directly related to the acquisition of assets with a future economic benefit to Fine Host.  In practice, however, Fine Host routinely and improperly allocated a pool of general and administrative ("G&A") expenses to the contract rights account, without any documentary support for this practice, rather than properly recognizing these overhead costs as period expenses.  Each quarter, Fine Host assigned a certain (arbitrarily determined) percentage of total costs to each facility.  Fine Host then allocated costs to specific facilities by multiplying the total costs for the quarter by the facility's assigned percentage.
+
+   Audit failures during the pre-IPO period. 
+
+  Before (as well as after) Fine Host's June 1996 IPO, Bacsik and other members of the audit team did little to evaluate the appropriateness of Fine Host's accounting for "contract rights" or to ensure that Fine Host's capitalized costs conformed to GAAP.  In connection with the audit of Fine Host's 1995 financial statements (the most current annual statements included in the registration statement for its 1996 IPO), the Deloitte audit team, under the supervision of Bacsik and others, sampled only nine items - totaling $9,332 - to test total contract acquisition costs of $4.6 million.  These included airfare, lodging, food, flowers, and color illustrations for a proposal, items that, on their face, are unlikely subjects for capitalization. 
+
+              In addition, a schedule prepared by Fine Host's management revealed that Fine Host was allocating costs to particular facilities based on percentages of total costs capitalized, with the same percentages assigned to multiple locations.  This meant that identical amounts were capitalized at multiple locations, a clear indication that costs were being assigned on an arbitrary basis, a practice not in conformity with GAAP.  Nevertheless, Bacsik and the audit team did not question this practice. 
+
+  Fine Host's improper treatment of contract acquisition costs in the period preceding its IPO was material.  In its restatement, Fine Host wrote-off $2,458,000 of such costs as improperly capitalized in 1994, representing approximately 75% of pretax income for the year.  For 1995, Fine Host wrote-off $4,284,000 in contract acquisition costs, approximately 113% of pretax income for the year.  Bacsik signed Deloitte's unqualified audit report for the restatement in February 1998.  He also signed the Deloitte audit reports on the 1994 and 1995 financial statements when they were originally issued, before Fine Host was a reporting company, and consented to the reissuance of those reports in connection with the 1996 IPO.
+
+   Fine Host's Improper Accounting for Acquisition Reserves 
+
+    Fine Host frequently acquired other companies in the food services industry.  These acquisitions provided another vehicle to manipulate Fine Host's earnings.  For each acquisition, Fine Host would set up goodwill and an acquisition reserve.  These reserves were then used as a "cookie jar" to offset losses on a discretionary basis, sometimes two or three years after the acquisition.
+
+    In many instances, Fine Host did not discontinue any activity in connection with these acquisitions, or incur costs related to these acquisitions, such as those for terminated employees, which were the basis for establishing such reserves under GAAP.  Typically, little (if any) documentation supported the amount taken as a reserve.  Indeed, as Fine Host's report of internal investigation later concluded: "[o]ften the only available documentation consisted of the journal entry used."
+
+  Bacsik failed to ensure that the audit team performed any significant analysis of these acquisition reserve accounts, thus failing to detect that they were being used as a means of fraudulently manipulating Fine Host's results of operations.    
+
+   Fine Host's Improper Accounting for Vendor Rebates 
+
+  Fine Host received rebates and signing bonuses from various vendors throughout the relevant period.  Its practice was to estimate, at the beginning of each year, the amount of rebates and signing bonuses it expected to receive throughout the year, then recognize income  monthly on a  pro rata  basis.  As was later acknowledged by both Fine Host and Deloitte, Fine Host did not substantiate that it would realize the rebate receivable balance that it had recorded.  Separately, Fine Host also immediately and improperly recorded as income the entire amount of signing bonuses received from vendors (or expected to be received), even when such signing bonuses related to multiple-year contracts.
+
+    The effect of this practice on Fine Host's results of operations for 1994 and 1995 was to increase income by $330,000 and $554,000, respectively.  As alleged below, moreover, the effect ballooned in later periods, causing Fine Host to eventually write off $5.5 million of rebates receivable, $3.9 million of which was in the first three quarters of 1997.
+
+  Bacsik failed to ensure that his audit team performed any significant audit procedures during the pre-IPO period to verify that Fine Host's rebate receivable balance was collectible.  Instead, Bacsik and the audit team relied on management representations concerning the accuracy of Fine Host's financial statements.
+
+   The Fine Host IPO 
+
+  The registration statement for the Fine Host IPO was filed on March 29, 1996.  In its Form S-1, Fine Host reported results of operations for the fiscal years 1993-95.  Bacsik served as the Deloitte engagement partner during the IPO process. 
+
+  
+
+    The staff of the Commission's Division of Corporation Finance reviewed the registration statement and questioned Fine Host's accounting policy for contract rights.  In response, Fine Host represented that, for all periods after year-end 1995, it would capitalize only two categories of costs associated with contract acquisitions: direct payments made to clients to acquire the contracts and the direct costs of obtaining licenses and permits to operate its contract locations.  Fine Host specifically represented that it would no longer capitalize commissions and proposal costs.  Finally, Fine Host represented that it had not amended its financial statements for the years covered by the registration statement to conform with this policy "since the impact of this adjustment would not be material for any year presented."  In fact, the misstatement of Fine Host's financial results due to improper capitalization of contract rights was material for each fiscal year 1993 through 1995.
+
+    Bacsik was involved in the IPO review process.  He reviewed staff comment letters and Fine Host's responses.  Bacsik was aware of Fine Host's representation that certain categories of costs it had previously capitalized would be treated as period expenses subsequent to year-end 1995.  He was also aware that Fine Host management had represented to the Commission staff that Fine Host did not restate its financial results for the periods covered by the registration statement because the costs it had improperly capitalized as contract rights were not material to any period.  This representation was inaccurate but Bacsik accepted it.  As noted above, however, a material portion of Fine Host's pre-tax income for 1994 and 1995 was attributable to its improper accounting practices. 
+
+    The Form S-1 went effective on June 19, 1996.  Net proceeds to the Company from the offering were approximately $32 million.   
+
+   The Fiscal Year Ended December 25, 1996 
+
+    Following the IPO, Fine Host improperly continued to spread G&A expenses among its capitalized "contract rights."  The aggregate "contract rights" balance increased every quarter in fiscal year 1996.  3    In fiscal year 1996, additions to contract rights totaled $12.2 million, while additions to the fixtures and equipment account approximated $16.5 million.  
+
+    The items capitalized went well beyond both the two cost categories Fine Host had represented to the Commission staff it would capitalize in the future and the capitalized cost categories it disclosed in its 1996 Form 10-K.  In Fine Host's restatement, $5.6 million of capitalized 1996 contract acquisition costs were reversed as improper.  This represented approximately 98% of Fine Host's pretax income for that year.    During 1996, Fine Host also became increasingly aggressive in misusing acquisition reserves and rebates to conceal its deepening financial problems.  Fine Host improperly lowered its expenses by offsetting $2.65 million in operating expenses against previously recorded acquisition reserves.  This inflated Fine Host's pretax income by 41%.  Income from rebates was overstated by approximately $800,000 for 1996.
+
+   Audit failures in 1996 
+
+    After the IPO, the failure of Bacsik and other members of the audit team to detect Fine Host's accounting fraud continued through an additional year-end audit .   Bacsik knew (from the IPO review process) that Fine Host had a history of capitalizing G&A expenses as "contract rights," and he also knew that Fine Host had, in 1996, added $12.2 million in additional "contract rights" to its balance sheet.  Nevertheless, Deloitte auditors, under the supervision of Bacsik and others, did inadequate testing in this area. 
+
+    Even the limited procedures performed by Bacsik's audit team provided indications of problems that warranted further inquiry.  Deloitte auditors, including Bacsik, knew that Fine Host had capitalized employee sales commissions during 1996 and should have known that this practice did not conform to GAAP.
+
+    During 1996, Fine Host partially shifted its fraudulent capitalization of period expenses from the contract rights account to the fixtures and equipment accounts.  A schedule provided by management to Deloitte disclosed that 1996 additions to the fixtures and equipment accounts approximated $16.5 million. These significant additions should have caused the Deloitte auditors, including Bacsik, to conduct a more detailed examination of this area.  They did not, however, request a detailed list of these additions, or supporting documents such as vendor invoices.   Bacsik's audit team examined a sample of only eight property additions during the 1996 audit, totaling $213,628 or approximately 1.3% of total property additions
+
+  Similarly, Deloitte auditors, under the supervision of Bacsik and others, failed to provide any meaningful review of Fine Host's accounting for acquisition reserves and vendor rebates.  That year reserves were established for four acquisitions, totaling more than $4.9 million.  Bacsik and the audit team accepted the representations of Company management concerning the appropriateness of these additions, without conducting a detailed analysis of these reserves or obtaining sufficient evidential matter to test the reserves for compliance with GAAP requirements.  With respect to vendor rebates, Bacsik and the audit team did not address the issue in any significant way.
+
+  On February 7, 1997, Fine Host conducted a secondary offering of 2,689,000 shares of its common stock, with net proceeds to Fine Host of approximately $59 million.  The registration materials contained financial information for fiscal years 1994 and 1995 and for the nine-month period ended September 25, 1996 ,  that as noted above, was materially false and misleading.  Bacsik served as the Deloitte engagement partner in connection with this registration statement.
+
+   Subsequent Events 
+
+    By the autumn of 1997, amortization of Fine Host's growing contract rights balance was eating into reported earnings, and Fine Host was experiencing increasing difficulty in meeting analysts' expectations.  Alerted by a member of management that certain of the Company's accounting practices were questionable, the independent directors initiated an internal investigation.  In February 1998, at the conclusion of this investigation, Fine Host announced that it had overstated its pretax income by $28  million for the fiscal years 1992 through 1996 and by $21 million in the first three quarters of 1997. 
+
+  In Fine Host's restatement, eighteen categories of material accounting errors were identified, with improperly capitalized contract rights of $21.7 million being the largest.  Acquisition reserves totaling $8.4 million were written off because (i) they were costs that should have been expensed as incurred, (ii) the Company lacked documentation linking them to a particular acquisition or (iii) the reserve, when properly decreased, already had been exhausted.  In addition, Fine Host wrote off purported rebates receivable in the amount of $5.5 million, because they were supported by little if any documentation.  Bacsik, as the engagement partner, signed Deloitte's unqualified audit report on Fine Host's restated financial statements.
+
+    On January 7, 1999, Fine Host entered a proceeding under Chapter 11 of the U.S. Bankruptcy Code.  Pursuant to its plan of reorganization, Fine Host has now become a private entity. 
+
+   Bacsik Engaged in Improper Professional Conduct for Purposes of Commission Rule of Practice 102(e) 
+
+   Bacsik failed to obtain sufficient competent evidential matter 
+
+      In conducting an audit, an auditor must obtain sufficient competent evidential matter through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under audit.  AICPA Codification of Statements on Auditing Standards ("AU") § 326.01.  
+
+  Based on the foregoing, in connection with Fine Host's 1996 registration statement (which incorporated Fine Host's financial statements for fiscal years 1993 through 1995), Fine Host's 1997 registration statement, and Fine Host's year-end 1996 financial statements, Bacsik failed to ensure that the audit team obtained sufficient competent evidence in support of Fine Host's accounting for: (1) capitalized "contract rights;"(2) capitalized "fixtures and equipment;" (3) vendor rebates; and (4) acquisition reserves. 
+
+   Bacsik failed to maintain an attitude of professional skepticism 
+
+      An auditor is required to exercise professional skepticism when performing audit procedures and gathering and analyzing audit evidence.  AU § 230.07.  
+
+  Based on the foregoing, in connection with Fine Host's 1996 registration statement (which incorporated Fine Host's financial statements for fiscal years 1993 through 1995, Fine Host's 1997 registration statement, and Fine Host's year-end 1996 financial statements, Bacsik failed to maintain an attitude of professional skepticism concerning Fine Host's accounting for:  (1) capitalized "contract rights;"(2)   capitalized "fixtures and equipment;" (3) vendor rebates; and (4) acquisition reserves.  Specifically, Bacsik accepted uncorroborated representations of Fine Host's management in lieu of performing appropriate audit procedures, in contravention of AU § 333.  "[R]epresentations from management are part of the evidential matter the independent auditor obtains, but they are not a substitute for the application of those auditing procedures necessary to afford a reasonable basis for an opinion regarding the financial statements under audit."  AU § 333.02.
+
+   Bacsik failed to render accurate audit reports. 
+
+    An auditor's report must express an opinion on the financial statements taken as a whole and must contain a clear indication of the character of the auditor's work. AU § 508.04.  The auditor can determine that he is able to express an unqualified opinion only if he has conducted his audit in accordance with GAAS.  AU § 508.07.
+
+  Based on the foregoing, Bacsik failed to render accurate audit reports when he stated in the audit reports for fiscal years 1993 through 1995 that were included in Fine Host's 1996 and 1997 registration statements and in the audit report for fiscal year 1996 that Fine Host's financial statements were in conformity with GAAP and that the audits were performed in accordance with GAAS.  In fact, the financial statements were not in conformity with GAAP, and the audits were not performed in accordance with GAAS.
+
+   Bacsik failed to exercise due professional care 
+
+      Auditors must exercise due professional care in performing the audit and preparing the audit report.  AU § 230.01.  
+
+  Based on the foregoing, in connection with Fine Host's 1996 registration statement (which incorporated Fine Host's financial statements for fiscal years 1993 through 1995), Fine Host's 1997 registration statement, and Fine Host's year-end 1996 financial statements, Bacsik failed to exercise due professional care by failing to plan and supervise properly audit procedures necessary to afford a reasonable basis for the audit opinions. 
+
+  
+
+   IV. 
+
+  Based upon the foregoing, the Commission finds that, in connection with the audits of the financial statements of Fine Host Corporation, Jeffrey Bacsik engaged in improper professional conduct for purposes of Rule 102(e) of the Commission's Rules of Practice.  Specifically, Bacsik was responsible for repeated instances of unreasonable conduct, each resulting in a violation of applicable professional standards.
+
+  IT IS HEREBY ORDERED, effective immediately, that:
+
+  Jeffrey Bacsik be, and hereby is, denied the privilege of appearing or practicing before the Commission as an accountant.  After two (2) years from the date of this Order, Bacsik 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 Bacsik'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.  Bacsik, or any firm with which he is or becomes associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section");
+
+    b. Bacsik, or the firm, has received an unqualified report relating to his or the firm's most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and 
+
+
+    c.  As long as Bacsik appears or practices before the Commission as an independent accountant, he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.
+
+  The Commission's review of any request or application by Bacsik to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Bacsik's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.   By the Commission.
+
+            Jonathan G. Katz
+           Secretary
+  
+
+ 
+ Footnotes 
+       1      Rule 102(e)(1) of the Commission's Rules of Practice provides in pertinent part that:  
+
+   The Commission may censure a person or deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice and opportunity for hearing in the matter: . . . (ii) to have engaged in unethical or improper professional conduct.  Improper professional conduct includes repeated instances of unreasonable conduct, each resulting in a violation of applicable professional standards, that indicate a lack of competence to practice before the Commission.
+ 
+      2      In addition, substantial amounts of these costs were improperly capitalized in the "fixtures and equipment" accounts, particularly in 1996 and 1997. 
+
+      3       Deloitte conducted reviews of Fine Host's quarterly financial statements throughout the relevant period.    
+
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diff --git a/raw/aaer/2001/AAER-1483.txt b/raw/aaer/2001/AAER-1483.txt
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+ SECURITIES EXCHANGE ACT OF 1934
+ RELEASE NO. 45197 / December 27, 2001
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ RELEASE NO. 1483 / December 27, 2001
+  ADMINISTRATIVE PROCEEDING
+ FILE NO. 3-10665
+
+         In the Matter of    
+   BARBARA HORVATH, CPA, 
+      Respondent.  
+	    
+    : : : : : : : :   
+  
+ ORDER INSTITUTING PUBLIC
+  ADMINSTRATIVE PROCEEDINGS
+  PURSUANT TO RULE 102(e)
+  OF THE COMMISSION'S RULES
+ OF PRACTICE AND FINDINGS
+ AND ORDER OF THE COMMISSION      I. 
+
+    The Securities and Exchange Commission ("Commission") deems it that public administrative proceedings be and hereby are instituted against Barbara Horvath, CPA ("Respondent") pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice  1   to determine whether Horvath engaged in improper professional conduct.
+
+   II. 
+
+    In anticipation of the institution of this administrative proceeding, the Respondent has submitted an Offer of Settlement, which the Commission has determined to accept.  Solely for the purposes of this proceeding and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the Commission's findings contained herein, except that she admits the jurisdiction of the Commission over her and over the subject matter of this proceeding, Respondent consents to the entry of this Order and the findings and imposition of remedial sanctions set forth below.
+
+   III. 
+
+    On the basis of this Order and the Respondent's Offer of Settlement, the Commission makes the following findings:  2     THE RESPONDENT 
+
+     Barbara Horvath  is a certified public accountant licensed in New York and Pennsylvania, employed at all relevant times by Deloitte & Touche ("Deloitte").   She was assigned in 1996 to be the senior manager on the engagement for Fine Host's initial public offering.  She also served as the senior manager on the 1996 year-end audit.  Promoted to partner at Deloitte in 1997, Horvath was assigned to be the engagement partner for the never-completed audit of Fine Host's 1997 financial statements.  3     RELATED ENTITY 
+
+   Fine Host Corporation  is a Connecticut-based company that, at all times relevant to this Order, provided food and beverage concession, catering and other services to approximately 400 facilities in 38 states.  Fine Host conducted an initial public offering in June 1996, and a secondary offering in February 1997.  Its stock was registered with the Commission under Section 12(g) of the Exchange Act and listed for trading on the Nasdaq National Market System.  On January 7, 1999, subsequent to the extensive restatement of its financial statements, Fine Host entered a proceeding under Chapter 11 of the U.S. Bankruptcy Code.  Pursuant to its plan of reorganization, Fine Host has now become a private entity.
+
+   SUMMARY 
+
+  Fine Host Corporation engaged in an extensive financial fraud that, when detected, resulted in the collapse of its stock price and, eventually, the end of its existence as a public company.  The scheme predated Fine Host's June 1996 initial public offering by several years and continued through the third quarter of the fiscal year ended December 31, 1997.  It involved, as its primary mechanism, the improper capitalization of millions of dollars in Company expenses as assets.  Fine Host also manipulated acquisition reserve accounts, income from vendor rebates, and other items for the purpose of managing reported earnings.  
+
+    Based on an internal investigation, Fine Host issued a restatement of its financial statements in February 1998, reflecting that from 1992 through the third quarter of fiscal year 1997, Fine Host had overstated its pretax income by over $49 million.  For fiscal years 1994, 1995 and 1996, Fine Host had overstated pretax income by 149%, 213%, and 197%, respectively.   
+
+      Horvath, as a senior member of the Deloitte audit team, failed to conduct appropriate audit procedures, in many instances improperly relying on representations of Company management as the principal source of audit evidence.  This failure to exercise due professional care; to obtain sufficient competent evidential matter; and to maintain an attitude of professional skepticism, constituted improper professional conduct for purposes of Commission Rule of Practice 102(e).
+
+   Fine Host's Fraudulent Accounting Practices 
+
+   Fine Host's improper accounting for "contract rights" 
+
+  Fine Host's operations were based on securing contracts to provide food and beverage services to sports arenas, schools, convention centers, and other facilities.  Beginning when Fine Host was a private company, its accounting practice was to aggregate certain costs associated with the pursuit of those contracts in an "acquisition costs" account.  When a contract was signed, the costs attributed to it were then transferred to the "contract rights" account and were treated as capitalized costs to be amortized over the term of the contract.  4    This practice was permissible under generally accepted accounting principles ("GAAP") only to the extent these costs were directly related to the acquisition of assets with a future economic benefit to Fine Host.  In practice, however, Fine Host routinely and improperly allocated a pool of general and administrative ("G&A") expenses to the contract rights account, without any documentary support for this practice, rather than properly recognizing these overhead costs as period expenses.  Each quarter, Fine Host assigned a certain (arbitrarily determined) percentage of total costs to each facility.  Fine Host then allocated costs to specific facilities by multiplying the total costs for the quarter by the facility's assigned percentage.
+
+   Fine Host's Improper Accounting for Acquisition Reserves 
+
+    Fine Host frequently acquired other companies in the food services industry.  These acquisitions provided another vehicle to manipulate Fine Host's earnings.  For each acquisition, Fine Host would set up goodwill and an acquisition reserve.  These reserves were then used as a "cookie jar" to offset losses on a discretionary basis, sometimes two or three years after the acquisition.
+
+    In many instances, Fine Host did not discontinue any activity in connection with these acquisitions, or incur costs related to these acquisitions, such as those for terminated employees, which were the basis for establishing such reserves under GAAP.  Typically, little (if any) documentation supported the amount taken as a reserve.  Indeed, as Fine Host's report of internal investigation later concluded: "[o]ften the only available documentation consisted of the journal entry used."    
+
+   Fine Host's Improper Accounting for Vendor Rebates 
+
+  Fine Host received rebates and signing bonuses from various vendors throughout the relevant period.  Its practice was to estimate, at the beginning of each year, the amount of rebates and signing bonuses it expected to receive throughout the year, then recognize income  monthly on a  pro rata  basis.  As was later acknowledged by both Fine Host and Deloitte, Fine Host did not substantiate that it would realize the rebate receivable balance that it had recorded.  Separately, Fine Host also immediately and improperly recorded as income the entire amount of signing bonuses received from vendors (or expected to be received), even when such signing bonuses related to multiple-year contracts.
+
+   The Fine Host IPO 
+
+  The registration statement for the Fine Host IPO was filed on March 29, 1996.  In its Form S-1, Fine Host reported results of operations for the fiscal years 1993-95.  Horvath served as the Deloitte audit senior manager during the IPO process. 
+
+ 
+
+    The staff of the Commission's Division of Corporation Finance reviewed the registration statement and questioned Fine Host's accounting policy for contract rights.  In response, Fine Host represented that, for all periods after year-end 1995, it would capitalize only two categories of costs associated with contract acquisitions: direct payments made to clients to acquire the contracts and the direct costs of obtaining licenses and permits to operate its contract locations.  Fine Host specifically represented that it would no longer capitalize commissions and proposal costs.  Finally, Fine Host represented that it had not amended its financial statements for the years covered by the registration statement to conform with this policy "since the impact of this adjustment would not be material for any year presented."  In fact, the misstatement of Fine Host's financial results due to improper capitalization of contract rights was material for each fiscal year 1993 through 1995.
+
+    Horvath was aware of Fine Host's representation that certain categories of costs it had previously capitalized would be treated as period expenses subsequent to year-end 1995.  She was also aware that Fine Host management had represented to the Commission staff that Fine Host did not restate its financial results for the periods covered by the registration statement because the costs it had improperly capitalized as contract rights were not material to any period.  This representation was inaccurate but Horvath accepted it without inquiry. 
+
+    The Form S-1 went effective on June 19, 1996.  Net proceeds to the Company from the offering were approximately $32 million.   
+
+   The Fiscal Year Ended December 25, 1996 
+
+    Following the IPO, Fine Host improperly continued to spread G&A expenses among its capitalized "contract rights."  The aggregate "contract rights" balance increased every quarter in fiscal year 1996.  5    In fiscal year 1996, additions to contract rights totaled $12.2 million, while the additions to the fixtures and equipment account approximated $16.5 million.  
+
+    The items capitalized went well beyond both the two cost categories Fine Host had represented to the Commission staff it would capitalize in the future and the capitalized cost categories it disclosed in its 1996 Form 10-K.  In Fine Host's restatement, $6.3 million of capitalized 1996 contract acquisition costs were reversed as improper.  This represented approximately 98% of Fine Host's pretax income for that year.    During 1996, Fine Host also became increasingly aggressive in misusing acquisition reserves and rebates to conceal its deepening financial problems.  Fine Host improperly lowered its expenses by offsetting $2.65 million in operating expenses against previously recorded acquisition reserves.  This inflated Fine Host's pretax income by 41%.  Income from rebates was overstated by approximately $800,000 for 1996.
+
+   Audit failures in 1996 
+
+    In 1996, Fine Host added $12.2 million in additional "contract rights" to its balance sheet.  Nevertheless, Deloitte auditors, under the supervision of Horvath and others, did inadequate testing of this area.
+
+    Even the limited procedures performed by the auditors, however, provided indications of problems that warranted further inquiry.  Deloitte auditors, including Horvath, knew that Fine Host capitalized employee sales commissions during 1996, and that it had told Commission staff that it would not follow that practice.  Horvath should have known that this practice did not conform with GAAP.      
+
+    During 1996, Fine Host partially shifted its fraudulent capitalization of period expenses from the contract rights account to the fixtures and equipment accounts.  A schedule provided by management to Deloitte disclosed that 1996 additions to the fixtures and equipment accounts approximated $16.5 million. These significant additions should have caused the Deloitte auditors, including Horvath, to conduct a more detailed examination of this area.  They did not, however, request a detailed list of these additions, or supporting documents such as vendor invoices.   The Deloitte team, under the supervision of Horvath and others, examined a sample of only eight property additions during the 1996 audit, totaling $213,628 or approximately 1.3% of total property additions.
+
+    Similarly, Deloitte auditors, under the supervision of Horvath and others, failed to provide any meaningful review of Fine Host's accounting for acquisition reserves and vendor rebates.  In 1996, reserves were established for four acquisitions, totaling more than $4.9 million.  Horvath accepted the representations of Company management concerning the appropriateness of these additions, without conducting a detailed analysis of these acquisition reserves or obtaining evidential matter to test the reserves for compliance with GAAP requirements.  With respect to vendor rebates, the auditors did not address the issue in any significant way.
+
+  On February 7, 1997, Fine Host conducted a secondary offering of 2,689,000 shares of its common stock, with net proceeds to Fine Host of approximately $59 million.  The registration materials contained financial information for fiscal years 1994 and 1995 and for the nine-month period ended September 25, 1996 ,  that as noted above, was materially false and misleading.  Horvath supervised a review of the working papers and performed other procedures in connection with this registration statement.
+
+  On October 27, 1997, Fine Host issued $175 million of convertible subordinated notes in a private placement under Rule 144A of the Securities Act of 1933.  This offering document contained financial information for fiscal years 1994, 1995, and 1996 and for the six-month period ended June 25, 1997 ,  that was materially false and misleading.  Horvath, now the engagement partner for Fine Host, signed Deloitte's reissued audit report, containing an unqualified opinion, on Fine Host's financial statements for fiscal years 1994, 1995 and 1996.
+
+   Subsequent Events 
+
+    By the autumn of 1997, amortization of Fine Host's growing contract rights balance was eating into reported earnings, and Fine Host was experiencing increasing difficulty in meeting analysts' expectations.  Alerted by a member of management that certain of the Company's accounting practices were questionable, the independent directors initiated an internal investigation.  In February 1998, at the conclusion of this investigation, Fine Host announced that it had overstated its pretax income by $49 million, from approximately 1992 through the third quarter of 1997. 
+
+  In Fine Host's restatement, eighteen categories of material accounting errors were identified, with improperly capitalized contract rights of $21.7 million being the largest.  Acquisition reserves totaling $8.4 million were written off because (i) they were costs that should have been expensed as incurred, (ii) the Company lacked documentation linking them to a particular acquisition or (iii) the reserve, when properly decreased, already had been exhausted.  In addition, Fine Host wrote off purported rebates receivable in the amount of $5.5 million, because they were supported by little if any documentation.   
+
+    On January 7, 1999, Fine Host entered a proceeding under Chapter 11 of the U.S. Bankruptcy Code.  Pursuant to its plan of reorganization, Fine Host has now become a private entity. 
+
+   Horvath Engaged in Improper Professional Conduct for Purposes of Commission Rule of Practice 102(e) 
+
+   Horvath failed to obtain sufficient competent evidential matter 
+
+      In conducting an audit, an auditor must obtain sufficient competent evidential matter through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under audit.  AICPA Codification of Statements on Auditing Standards ("AU") § 326.01.  
+
+  Based on the foregoing, in connection with Fine Host's 1996 and 1997 registration statements and Fine Host's year-end 1996 financial statements, Horvath failed to obtain sufficient competent evidence in support of Fine Host's accounting for:  (1) capitalized "contract rights;"(2) capitalized "fixtures and equipment;" (3) vendor rebates; and (4) acquisition reserves. 
+
+   Horvath failed to maintain an attitude of professional skepticism 
+
+      An auditor is required to exercise professional skepticism when performing audit procedures and gathering and analyzing audit evidence.  AU § 230.07.  
+
+  Based on the foregoing, in connection with Fine Host's 1996 and 1997 registration statements and Fine Host's year-end 1996 financial statements, Horvath failed to maintain an attitude of professional skepticism concerning Fine Host's accounting for:  (1) capitalized "contract rights;"(2)   capitalized "fixtures and equipment;" (3) vendor rebates; and (4) acquisition reserves.  Specifically, Horvath accepted uncorroborated representations of Fine Host's management in lieu of performing appropriate audit procedures, in contravention of AU § 333.  "[R]epresentations from management are part of the evidential matter the independent auditor obtains, but they are not a substitute for the application of those auditing procedures necessary to afford a reasonable basis for an opinion regarding the financial statements under audit."  AU § 333.02.
+
+   Horvath failed to exercise due professional care 
+
+      Auditors must exercise due professional care in performing the audit and preparing the audit report.  AU § 230.01.  
+
+  Based on the foregoing, in connection with Fine Host's 1996 and 1997 registration statements and Fine Host's year-end 1996 financial statements, Horvath failed to exercise due professional care by failing to perform audit procedures necessary to afford a reasonable basis for the audit opinions. 
+
+   
+
+   IV. 
+
+  Based upon the foregoing, the Commission finds that, in connection with the audits of the financial statements of Fine Host Corporation, Barbara Horvath engaged in improper professional conduct for purposes of Rule 102(e) of the Commission's Rules of Practice.  Specifically, Horvath was responsible for repeated instances of unreasonable conduct, each resulting in a violation of applicable professional standards.
+
+  IT IS HEREBY ORDERED, effective immediately, that:
+
+  Barbara Horvath is censured pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice for the conduct described herein and undertakes that:
+
+  1. She, or any firm with which she is or becomes associated in any capacity, is and will remain a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section") as long as she appears or practices before the Commission as an independent accountant, and 
+
+     
+2. She will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education, as long as she appears or practices before the Commission as an independent accountant.
+
+
+  By the Commission.
+
+            Jonathan G. Katz
+           Secretary
+  
+
+ 
+ Footnotes 
+       1      Rule 102(e)(1) of the Commission's Rules of Practice provides in pertinent part that:  
+
+   The Commission may censure a person or deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice and opportunity for hearing in the matter: . . . (ii)  ...  to have engaged in  ...  improper professional conduct.  Improper professional conduct includes repeated instances of unreasonable conduct, each resulting in a violation of applicable professional standards, that indicate a lack of competence to practice before the Commission.
+ 
+      2      The findings herein are made pursuant to the respondent's Offer of Settlement and are not binding on any other person or entity in this or in any other proceeding.
+
+      3      Concurrent with the settlement of this matter by Horvath, the Commission issued an Order Instituting Public Administrative Proceedings in the matter of Jeffrey Bacsik, the Deloitte engagement partner at all relevant times.
+
+      4      In addition, substantial amounts of these costs were improperly capitalized in "fixtures and equipment" accounts, particularly in 1996 and 1997. 
+
+      5       Deloitte conducted reviews of Fine Host's quarterly financial statements throughout the relevant period.    
+
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+                   Litigation Release No.  19520 / January 4, 2006 
+
+ Accounting and Auditing Enforcement Release No. 2360 / January 4, 2006 
+
+  Securities and Exchange Commission v. McAfee, Inc.,  Civil Action No. 06-009 (PJH) (N.D. Cal.) (January 4, 2006) 
+
+ SEC SUES MCAFEE, INC. FOR ACCOUNTING FRAUD 
+
+ MCAFEE AGREES TO SETTLE AND PAY A $50 MILLION PENALTY  
+
+ The Securities and Exchange Commission today filed securities fraud charges against McAfee, Inc. (formerly known as Network Associates, Inc.), a Santa Clara, California-based manufacturer and supplier of computer security and antivirus tools.  The Commission's complaint alleges that from the second quarter of 1998 through 2000, McAfee misled investors when it engaged in a fraudulent scheme to overstate its revenue and earnings by hundreds of millions of dollars in violation of the federal securities laws.  The complaint specifically alleges that, during the period 1998 through 2000, McAfee inflated its cumulative net revenues by $622 million and that, for 1998 alone, McAfee overstated revenues by $562 million (a misstatement of 131 percent).   
+
+ McAfee has consented, without admitting or denying the allegations of the complaint, to the entry of a Court order enjoining it from violating the antifraud, books and records, internal controls, and periodic reporting provisions of the federal securities laws.  The order also requires that McAfee pay a $50 million civil penalty, which the Commission will seek to distribute to harmed investors pursuant to the Fair Funds provision of the Sarbanes-Oxley Act of 2002.  In addition, McAfee has agreed to appoint an Independent Consultant to examine and recommend improvements to McAfee's internal accounting controls and revenue recognition and reserves practices to better ensure compliance with the federal securities laws.  This proposed settlement is subject to court approval. 
+
+ According to the complaint, McAfee defrauded investors into believing that it had legitimately met or exceeded its revenue projections and Wall Street earnings estimates during the 1998 through 2000 period.  In reality, however, McAfee had used a variety of undisclosed ploys during the period to aggressively oversell its products to distributors in amounts that far exceeded the public's demand for the products.  While engaging in this "channel stuffing," McAfee improperly recorded the sales to distributors as revenue.  McAfee offered its distributors lucrative sales incentives that included deep price discounts and rebates in an effort to persuade the distributors to continue to buy and stockpile McAfee products.  McAfee also secretly paid distributors millions of dollars to hold the excess inventory, rather than return it to McAfee for a refund and consequent reduction in McAfee's revenues.  In other instances, McAfee used an undisclosed, wholly-owned subsidiary, Net Tools, Inc., to repurchase inventory that McAfee had oversold to its distributors.  All of these actions were inconsistent with Generally Accepted Accounting Principles and led to McAfee's October 2003 restatement of its financial results for 1997 through 2003. 
+
+ The complaint further alleges that McAfee took action to conceal the fraud from investors by, among other things, wrongly recording in its books the payments and discounts that it offered to distributors, and improperly manipulating reserve accounts to increase inadequate sales reserves and cover the costs of the distributor payments.  The complaint alleges that McAfee defrauded investors by reporting false and materially misleading financial and other information in periodic reports, financial statements, and securities registration statements that McAfee filed with the Commission, in press releases, and in other public statements.   
+
+ The Final Judgment would enjoin McAfee from 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 Securities Exchange Act of 1934, and Exchange Act Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder.   
+
+ This is the fourth lawsuit that the Commission has filed in connection with fraudulent accounting issues at McAfee.  See  SEC v. Terry W. Davis ,  Litigation Release No. 18189  (June 12, 2003);  SEC v. Prabhat K. Goyal ,  Litigation Release No. 18748  (June 16, 2004);  SEC v. Evan S. Collins ,  Litigation Release No. 18986  (November 30, 2004).  
+
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diff --git a/raw/aaer/2006/AAER-2362.txt b/raw/aaer/2006/AAER-2362.txt
new file mode 100644
index 0000000000000000000000000000000000000000..41ee2539c6e26d55414458c9adca61e7080aea6a
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+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES ACT OF 1933 
+Release No.  8653 / January 11, 2006 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  53100 / January 11, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2362 / January 11, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-12146 
+ 
+In the Matter of 
+ 
+Pegasus Satellite 
+Communications, Inc., and 
+ 
+Pegasus Media & 
+Communications, Inc. 
+ 
+Respondents. 
+ 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-DESIST 
+PROCEEDINGS, MAKING FINDINGS, AND 
+IMPOSING A CEASE-AND-DESIST ORDER 
+PURSUANT TO SECTION 8A OF THE 
+SECURITIES ACT OF 1933 AND SECTION 
+21C OF THE SECURITIES EXCHANGE ACT 
+OF 1934 
+ 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that 
+cease-and-desist proceedings be, and hereby are, instituted, pursuant to Section 8A of the 
+Securities Act of 1933 (“Securities Act”) and Section 21C of the Securities Exchange Act of 
+1934 (“Exchange Act”), against Pegasus Satellite Communications, Inc. (“PSC”) and Pegasus 
+Media & Communications, Inc. (“PM&C”) or collectively the “Respondents.” 
+II. 
+In anticipation of the institution of these proceedings, Respondents have submitted Offers 
+of Settlement (the “Offers”) which the Commission has determined to accept. Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and prior to a hearing pursuant to the 
+Commission’s Rules of Practice, 17 C.F.R. § 201.100 et seq., and without admitting or denying 
+the findings herein, except as to the Commission’s jurisdiction over them and the subject matter 
+of these proceedings, which are admitted, Respondents consent to the entry of this Order 
+Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist 
+ 
+ 
+2 
+ 
+ 
+                                                
+Order Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities 
+Exchange Act of 1934 (“Order”), as set forth below. 
+III. 
+On the basis of this Order and Respondents’ Offers, the Commission finds1 that: 
+Respondents 
+l. PSC was a Delaware corporation with  corporate headquarters in Bala Cynwyd, 
+Pennsylvania. Through its operating subsidiaries, PSC operated broadcast television systems and 
+provided direct broadcast satellite television services to customers in certain rural areas of the 
+United States. 
+2. PM&C was a Delaware corporation with  corporate headquarters in Bala Cynwyd, 
+Pennsylvania, which together with its subsidiaries owned and operated broadcast television 
+systems in exclusive territories primarily within rural areas of 41 states. 
+3. Respondents filed quarterly and annual  reports with the Commission on Forms 
+10-Q and 10-K through June of 2004.  PSC filed registration statements that incorporated these 
+annual and quarterly reports on Forms S-4 through May 2001.2
+Summary 
+This is a reporting and disclosure matter.  Respondents inflated their publicly reported 
+subscriber counts.  They did so by including the accounts of customers whose accounts were or 
+should have otherwise been de-activated.  Because the subject accounts were not receiving 
+services or making payments to the Respondents, the Respondents effectively increased the 
+number of subscribers reported in press releases and in quarterly and year-end filings issued by 
+the Respondents and filed with the Commission on Forms 10-Q and 10-K during, at least, 1999 
+to 2001.  Reported subscriber numbers are a key performance measure by which investors and 
+analysts evaluated companies operating in the satellite television business.  On June 2, 2004, 
+PSC, PM&C, and their subsidiary Pegasus Satellite Television, Inc. (“PST”), among other 
+affiliates, filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy 
+Code in the Bankruptcy Court for the District of Maine.
+3
+ 
+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 Until the completion of a reorganization in 2001, PSC was required to file periodic reports with the Commission 
+under Section 13(a) of the Exchange Act as a result of registering securities pursuant to Section 12(g) of the Exchange Act.  
+During the relevant time, PM&C was not subject to the Exchange Act’s reporting requirements, but did file reports on a 
+voluntary basis.  However, PM&C was still subject to the antifraud provisions of Section 10(b) of the Exchange Act and Rule 
+10b-5 thereunder for false statements contained in those reports. 
+ 
+3 In re Pegasus Satellite Television, Inc. et al., Case No. 04-20878 (U.S. Bankr. D. Me.) 
+3 
+ 
+ 
+Respondents’ Billing Practices 
+PSC and PM&C billed their customers through a billing system maintained by a 
+telecommunications cooperative.  The system generated subscriber statistics that were used to 
+prepare reports.  The system used certain criteria to determine which accounts would be 
+considered active and included in the subscriber statistics and which accounts would be 
+considered dropped, or “churned,” and excluded from subscriber statistics.  Under this system, a 
+customer bill was generated one day after activation and was payable 21 days thereafter.  The 
+subscriber record keeping system automatically cut off and marked as churned accounts that 
+were overdue by 54 days.  Such churned accounts were not counted as part of the reportable 
+subscriber base.  The system also churned accounts with a zero balance that were not receiving 
+services.   
+Respondents’ Conduct 
+During at least 1999 through 2001, Respondents knowingly or recklessly implemented 
+certain adjustments to inflate the number of active subscribers to their satellite television services 
+as reported in their public filings.  Personnel associated with the Respondents in at least two 
+ways overrode features of the subscriber billing system that would have deemed certain accounts 
+to be inactive or churned.  Respondents “re-aged” certain accounts by extending them beyond 
+the 54 day limit.  This was done by manual intervention that overrode the automatic system cut-
+off features.  In addition, Respondents kept certain accounts out of the churn category by 
+assigning penny-credits to otherwise churned accounts.  By these means, the Respondents added 
+to their so-called “no-core” accounts—which were accounts that did not receive standard 
+television packages and remained active as part of the publicly reported subscriber count. 
+PSC and PM&C typically reported the inflated subscriber numbers at or near the end of 
+quarterly or annual reporting periods.  For example, on June 26, 2000, four days before the June 
+30 end of the second quarter of that year, PST added approximately 2,400 subscribers to its 
+active accounts by moving those accounts from the suspended category to the active category on 
+its books and records.  By issuing penny-credits to these accounts, PST was able to activate the 
+accounts for reporting purposes. PST repeated this conduct on September 7 and 8, 2001, prior to 
+the September 30 end of the third quarter of that year, when it moved approximately 1,042 and 
+950 accounts, respectively, from churn status to active status by use of penny-credits.  Similar 
+actions occurred on numerous other occasions throughout the period between 1999 and 
+December 2001. 
+In the periodic reports then filed with the Commission, PSC and PM&C reported the 
+number of subscribers for any given reporting period.  In each quarterly and annual filing on 
+Forms 10-Q and 10-K during the reporting periods from the third quarter of 1999 through 
+December 2001, PSC and PM&C disclosed the number of its subscribers and attributed increases 
+in subscriber numbers to, among other things, “internal growth.”  Neither PSC nor PM&C ever 
+explained that a portion of their subscriber base consisted of “no-core” accounts. In their Forms 
+10-K for the year 2001, which contained virtually identical disclosures, PSC and PM&C reported 
+1,519,000 subscribers, compared to 1,403,000 for the prior year.  In the same reports, PSC and 
+PM&C stated that the year-to-year increase “was substantially due to internal growth.”  PSC and 
+PM&C omitted to mention that the internal growth each cited included some non-core 
+4 
+ 
+ 
+subscribers that were activated by various means including the re-aging of accounts and the 
+issuance of penny-credits as described above. 
+Stock analysts and public investors typically focused on subscriber numbers as one of the 
+most important performance metrics for a company operating a satellite television business.  
+Analysts’ reports issued during the time subscriber numbers were inflated often cited those 
+inflated numbers as part of the basis for their investment recommendations regarding PSC, 
+PM&C and their affiliate companies. 
+In February 2002, PSC’s management and audit committee undertook a review of the 
+method by which it publicly reported the number of its subscribers. 
+In their 2001 10-Ks filed with the Commission on April 3 and April 9, 2002, respectively, 
+PSC and PM&C announced that: 
+ 
+Our publicly reported subscriber counts in the past have included a 
+number of accounts whose service has been suspended for prolonged 
+periods of time. Because we believe it would improve our public reporting 
+and internal analyses, we are changing our method of reporting 
+subscribers, beginning with the first quarter of 2002 so as to exclude these 
+accounts. We estimate that if we had instituted this change at December 
+31, 2001, we would have reported approximately 1.4 million subscribers. 
+ 
+Legal Discussion 
+The elements of fraud under Section 17(a) of the Securities Act and Section 10(b) of the 
+Exchange Act and Rule 10b-5 thereunder, are, in general: (1) a device, scheme, or artifice to 
+defraud or misstatements or omissions of material fact; (2) made in connection with the offer, 
+sale, or purchase of securities; where (3) the defendants acted with scienter.  The Supreme Court 
+has defined scienter as a “mental state embracing intent to deceive, manipulate or defraud.”  
+Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976).  The scienter requirement may also be met by 
+recklessness.  In Re The Lesley Fay Companies, Inc., 871 F. Supp. 686 (S.D.N.Y. 1995) 
+(explaining the evolution of recklessness to establish scienter).  Courts have held that an issuer’s 
+public dissemination of materially false or misleading information through the press or in public 
+filings with the Commission combined with public trading in the issuer’s securities satisfy the 
+nexus requirement of Section 10(b), and that selling or offering securities in the midst of a fraud, 
+with knowledge of the fraud, violates Section 17(a).  S.E.C. v. Texas Gulf Sulphur Co., 401 F.2d 
+833 (2d. Cir. 1968) (en banc), cert. denied, 394 U.S. 976 (1969).  See also, S.E.C. v. Savoy 
+Indus., 587 F.2d 1149, 1171 (D.C.Cir. 1978), cert denied, 440 U.S. 913 (1979). 
+Section 13(a) of the Exchange Act requires all issuers whose securities are registered 
+with the Commission pursuant to Section 12 of the Exchange Act to file with the Commission 
+periodic reports containing information prescribed by Commission rules and regulations.  
+Pursuant to Section 13(a), the Commission has promulgated Rules 13a-1 and 13a-13, which 
+require issuers to file annual and quarterly reports, respectively.  Rule 12b-20 requires periodic 
+reports to contain any additional information necessary to ensure that statements in the reports 
+are not, under the circumstances, materially misleading.  The filing of reports containing 
+5 
+ 
+ 
+materially false or misleading information constitutes a violation of the reporting provisions of 
+the federal securities laws.  See, e.g., Savoy Indus., 587 F.2d at 1165.  A showing of scienter is 
+not required to establish liability under the reporting provisions.  Id. at 1167. 
+Section 13(b)(2)(A) of the Exchange Act requires issuers to keep books, records, and 
+accounts that, in reasonable detail, accurately and fairly reflect company transactions and the 
+disposition of assets.  Section 13(b)(2)(B) of the Exchange Act requires an issuer to “devise and 
+maintain a system of internal accounting controls” that is sufficient to provide reasonable                              
+assurance that transactions are recorded as necessary to permit preparation of financial 
+statements in conformity with generally accepted accounting principles and to maintain 
+accountability for assets.  Rule 13b2-1 of the Exchange Act prohibits any person from directly or 
+indirectly falsifying any book, record or account required to be kept pursuant to Section 
+13(b)(2)(A) of the Exchange Act.  Violations of Sections 13(b)(2)(A) and 13(b)(2)(B) do not 
+require a showing of materiality or scienter.  S.E.C. v. Worldwide Coin Investments, Ltd., 567 F. 
+Supp. 724, 749-51 (N.D. Ga. 1983). 
+IV. 
+As a result of the conduct described above, PSC violated 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 l0b-5, 
+12b-20, 13a-1, 13a-13 and 13b2-1 thereunder.  As a result of its conduct described above, 
+PM&C violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. 
+V. 
+Undertakings 
+In determining to accept the Respondents’ Offers, the Commission further considered the 
+following undertakings by Respondents.  Ongoing Cooperation: Respondents shall cooperate 
+fully with the Commission in any and all investigations, litigations or other proceedings relating 
+to or arising from the matters described in the Order.  In connection with such cooperation, 
+Respondents have undertaken to produce promptly, without service of a notice or subpoena, any 
+and all documents and other information requested by the Commission’s staff. 
+ 
+VI. 
+Accordingly, it is hereby ORDERED that: 
+PSC cease and desist from committing or causing any violations and any future violations 
+of Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of 
+the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder.   
+PM&C cease and desist from committing or causing any violations and any future 
+violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. 
+By the Commission. 
+Nancy M. Morris  
+Secretary 
+6 
+ 
+ 
+ 
\ No newline at end of file
diff --git a/raw/aaer/2006/AAER-2369.txt b/raw/aaer/2006/AAER-2369.txt
new file mode 100644
index 0000000000000000000000000000000000000000..dfeb1db961a1c61557a2542ab32d3508562162a1
--- /dev/null
+++ b/raw/aaer/2006/AAER-2369.txt
@@ -0,0 +1,1394 @@
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+              Ronald Ferguson, Elizabeth Monrad, Robert Graham, Christopher Garand, and Christian Milton
+           
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+        Ronald Ferguson, Elizabeth Monrad, Robert Graham, Christopher Garand, and Christian Milton
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No.  19552 / February 2, 2006 
+
+ Accounting and Auditing Enforcement Release No.  2369 / February 2, 2006 
+
+  SECURITIES AND EXCHANGE COMMISSION V. RONALD FERGUSON, ELIZABETH MONRAD, ROBERT GRAHAM, CHRISTOPHER GARAND, AND CHRISTIAN MILTON,  Case No. 06 Civ 0778 (S.D.N.Y.) 
+
+ SEC CHARGES ONE AIG AND FOUR GEN RE EXECUTIVES FOR AIDING IN AIG SECURITIES FRAUD 
+
+ The Securities and Exchange Commission today announced that it filed an enforcement action against five former senior executives of General Re Corporation (Gen Re) and American International Group, Inc. (AIG) for helping AIG mislead investors through the use of fraudulent reinsurance transactions.  Four of the former executives, Ronald Ferguson, Elizabeth Monrad, Robert Graham and Christopher Garand, were with Gen Re, while the fifth, Christian Milton, was with AIG.  The complaint, filed today in federal court in Manhattan, alleges that the defendants and others aided and abetted AIG's violations of the antifraud and other provisions of the federal securities laws by helping AIG structure two sham reinsurance transactions that falsely increased AIG's loss reserves in the fourth quarter of 2000 and first quarter of 2001 by a total of $500 million.  The transactions were initiated by AIG to quell criticism by analysts concerning a reduction in the company's loss reserves in the third quarter of 2000. 
+
+ In its complaint the Commission alleges 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 complaint details recorded conversations among the defendants and other evidence reflecting the planning and implementation of the sham transaction.  On the basis of this evidence, the complaint charges that the defendants understood from the beginning that they were structuring a sham transaction involving the creation of phony documents for the purpose of providing apparent support for false accounting entries AIG made on its books. 
+
+ As the defendants and others at Gen Re and AIG knew, AIG accounted for the sham transactions as if they were real reinsurance contracts that transferred risk from Gen Re to AIG, when all parties involved knew that was not true.  As a result of AIG's accounting treatment for these transactions, the company's financial results showed false increases in reserves that AIG touted in the company's quarterly earnings releases for the fourth quarter of 2000 and the first quarter of 2001.  Without the phony loss reserves, AIG's financial results in both quarters would have shown further declines in its loss reserves.  In a press release dated March 30, 2005, AIG admitted that the accounting for these transactions was improper and would be corrected.  In its 2004 Form 10-K filed with the Commission on May 31, 2005, AIG restated its financial statements to recharacterize the transactions as deposits rather than as reinsurance. 
+
+ The Commission's complaint charges Ferguson, Monrad, Milton, Graham, and Garand with aiding and abetting AIG's violations of Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1 of the Securities Exchange Act of 1934.  The complaint seeks permanent injunctive relief, disgorgement of ill-gotten gains, if any, plus prejudgment interest, civil money penalties, and orders barring each defendant from acting as an officer or director of any public company. 
+
+ In connection with the same conduct alleged in the Commission's complaint, the U.S. Department of Justice, Fraud Section, Criminal Division (DOJ) has filed federal criminal charges against Ferguson, Monrad, Graham, and Milton in the U.S. District Court for the Eastern District of Virginia.     
+
+ The Commission's investigation is continuing.  The Commission acknowledges the assistance and cooperation by the DOJ, the U.S. Attorney's Office for the Eastern District of Virginia, and the U.S. Postal Inspection Service in this matter. 
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2006/AAER-2371.txt b/raw/aaer/2006/AAER-2371.txt
new file mode 100644
index 0000000000000000000000000000000000000000..212ed1b5fb0e291792362fa022918e35e8d8be2e
--- /dev/null
+++ b/raw/aaer/2006/AAER-2371.txt
@@ -0,0 +1,1398 @@
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+              American International Group, Inc.
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ LITIGATION RELEASE NO.  19560 / February 9, 2006 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO.  2371 / February 9, 2006 
+
+  SECURITIES AND EXCHANGE COMMISSION V. AMERICAN INTERNATIONAL GROUP, INC.,  Case No. 06 CV 1000 (S.D.N.Y.) 
+
+ SEC CHARGES AIG WITH SECURITIES FRAUD 
+
+ The Securities and Exchange Commission announced today the filing and settlement of charges that American International Group, Inc. (AIG) committed securities fraud.  The settlement is part of a global resolution of federal and state actions under which AIG will pay in excess of $1.6 billion to resolve claims related to improper accounting, bid rigging and practices involving workers' compensation funds. 
+
+ The Commission announced the settlement in coordination with the Office of the New York State Attorney General, the Superintendent of Insurance of the State of New York and the United States Department of Justice, which have also reached settlements with AIG.   
+
+ The settlement with the Commission provides that AIG will pay $800 million, consisting of disgorgement of $700 million and a penalty of $100 million, and undertake corporate reforms designed to prevent similar misconduct from occurring.  The penalty amount takes into account AIG's substantial cooperation during the Commission's investigation.    
+
+ The Commission's complaint, filed today in federal court in Manhattan, alleges that AIG's reinsurance transactions with General Re Corporation (Gen Re) were designed to inflate falsely AIG's loss reserves by $500 million in order to quell analyst criticism that AIG's reserves had been declining.  The complaint also identifies a number of other transactions in which AIG materially misstated its financial results through sham transactions and entities created for the purpose of misleading the investing public.    
+
+ Specifically, the Commission's complaint alleges that in December 2000 and March 2001, AIG entered into two sham reinsurance transactions with Gen Re that had no economic substance but were designed to allow AIG to improperly add a total of $500 million in phony loss reserves to its balance sheet in the fourth quarter of 2000 and the first quarter of 2001.  The transactions were initiated by AIG to quell analysts' criticism of AIG for a prior reduction of the reserves.  In addition, the complaint alleges that in 2000, AIG engaged in a transaction with Capco Reinsurance Company, Ltd. (Capco) to conceal approximately $200 million in underwriting losses in its general insurance business by improperly converting them to capital (or investment) losses to make those losses less embarrassing to AIG.  The complaint further alleges that in 1991,   AIG established Union Excess Reinsurance Company Ltd. (Union Excess), an offshore reinsurer, to which it ultimately ceded approximately 50 reinsurance contracts for its own benefit.  Although AIG controlled Union Excess, it improperly failed to consolidate Union Excess's financial results with its own, and in fact took steps to conceal its control over Union Excess from its auditors and regulators.  As a result of these actions and other accounting improprieties, AIG fraudulently improved its financial results. 
+
+ Shortly after federal and state regulators contacted AIG about the Gen Re transaction, AIG commenced an internal investigation that eventually led to a restatement of its prior accounting for approximately 66 transactions or items.  In its restatement, AIG admitted not only that its accounting for certain transactions had been improper, but also that the purpose behind some of those transactions was to improve financial results that AIG believed to be important to the market.  AIG also conceded in its restatement that certain transactions may have "involved documentation that did not accurately reflect the true nature of the arrangements … [and] misrepresentations to members of management, regulators and AIG's independent auditors."  Furthermore, the restatement summarized several transactions that AIG accounted for improperly, including, among others, two sham reinsurance transactions with Gen Re and certain transactions involving Capco and Union Excess.  As a result of the restatement, AIG reduced its shareholders' equity at December 31, 2004 by approximately $2.26 billion (or 2.7%).   
+
+ In the Commission's settlement, AIG has agreed, without admitting or denying the allegations of the complaint, to the entry of a Court order enjoining it from violating the antifraud, books and records, internal controls, and periodic reporting provisions of the federal securities laws.  The order also requires that AIG pay a civil penalty of $100 million and disgorge ill-gotten gains of $700 million, all of which the Commission will seek to distribute to injured investors.  AIG has also agreed to certain undertakings designed to assure the Commission that future transactions will be properly accounted for and that senior AIG officers and executives receive adequate training concerning their obligations under the federal securities laws.  AIG's remedial measures include, among other things, (i) appointing a new Chief Executive Officer and Chief Financial Officer; (ii) putting forth a statement of tone and philosophy committed to achieving transparency and clear communication with all stakeholders through effective corporate governance, a strong control environment, high ethical standards and financial reporting integrity; (iii) establishing a Regulatory, Compliance and Legal Committee to provide oversight of AIG's compliance with applicable laws and regulations; and (iv) enhancing its "Code of Conduct" for employees and mandating that all employees complete special formal ethics training.  This proposed settlement is subject to court approval. 
+
+ The settlement takes into consideration AIG's cooperation during the investigation and its remediation efforts in response to material weaknesses identified by its internal review.  From the outset of the investigation, AIG gave complete cooperation to the investigation by the Commission's staff.  Among other things, AIG (i) promptly provided information regarding any relevant facts and documents uncovered in its internal review; (ii) provided the staff with regular updates on the status of the internal review; and (iii) sent a clear message to its employees that they should cooperate in the staff's investigation by terminating those employees, including members of AIG's former senior management, who chose not to cooperate in the staff's investigation.   
+
+ The Commission acknowledges the assistance and cooperation of the Office of the New York State Attorney General, the Superintendent of Insurance of the State of New York, the U.S. Department of Justice, Fraud Section, Criminal Division, and the U.S. Postal Inspection Service.   
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2006/AAER-2372.pdf b/raw/aaer/2006/AAER-2372.pdf
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diff --git a/raw/aaer/2006/AAER-2374.txt b/raw/aaer/2006/AAER-2374.txt
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19558 / February 8, 2006 
+
+ Accounting and Auditing Enforcement  Release No. 2374 / February 8, 2006 
+
+  Securities and Exchange Commission v. Elsie M. Leung , U.S. District Court for the Central District of California, Civil Action No. CV 03-4376 MRP (PLAx) 
+
+ Former Chief Financial Officer of Gemstar-TV Guide International, Inc. Settles SEC Action 
+
+
+ The Securities and Exchange Commission today announced that Elsie M. Leung, the former chief financial officer of Gemstar-TV Guide International, Inc., agreed to pay over $1.3M to settle the SEC's charges alleging that she participated in a scheme to defraud investors by inflating Gemstar's licensing and advertising revenues.  As part of the settlement, Leung, who also served as co-president, chief operating officer, and a member of the board of directors of Gemstar, will be permanently barred from serving as an officer or director of a public company.  
+
+ Leung, age 59, of Pasadena, CA, agreed to pay a total of $1,364,866 in disgorgement, interest, and penalties and consented to the entry of a final judgment in the SEC's civil litigation against her in the United States District Court for the Central District of California.  The final judgment, which is subject to approval by the Honorable Mariana R. Pfaelzer, permanently enjoins Leung from future violations of the federal securities laws, and orders Leung to pay disgorgement of $600,000, representing her ill-gotten bonus during the relevant period, pre-judgment interest of $14,866, and a civil penalty of $750,000.  In addition to a permanent officer or director bar, Leung also consented to an SEC order barring her from appearing or practicing before the SEC as an accountant.  Leung consented to the final judgment and SEC order without admitting or denying the allegations.  
+
+ The SEC will seek to have the monies paid by Leung included in a fund established for harmed shareholders of Gemstar pursuant to the Fair Funds provision of the Sarbanes-Oxley Act of 2002.  The fund also includes payments from previous settlements by Gemstar and its former co-president and general counsel. 
+
+ Gemstar is a Los Angeles-based media and technology company that publishes TV Guide magazine and an interactive program guide (IPG) for televisions that enables consumers to navigate through and select television programs.  During the relevant period, Gemstar generated revenues from the IPG by licensing the technology to third parties and selling advertising on the IPG.  In statements to securities analysts and the investing public, Gemstar repeatedly touted the IPG technology and IPG advertising revenues as the company's future and as the "value driver" of the company's stock, and downplayed expected declines in revenue from TV Guide magazine. 
+
+ The SEC's complaint, filed in June 2003, alleges that from June 1999 through September 2002, Gemstar overstated its total revenues by at least $248 million to meet its ambitious projections for revenue growth from IPG licensing and advertising. The complaint further alleges that Leung directed and approved Gemstar's fraudulent recording of IPG licensing and advertising revenue and approved fraudulent disclosure documents.  The complaint alleges that Leung knew, but did not disclose, that Gemstar was improperly recognizing and reporting licensing and advertising revenue from seven companies and that she participated in fraudulently diverting revenue from one business sector to another to meet sector revenue projections.  Additionally, the complaint alleges that Leung signed false management representation letters to Gemstar's auditors regarding the structure of certain transactions.   
+
+ The complaint charges Leung with securities fraud, falsifying Gemstar's books and records, aiding and abetting Gemstar's reporting and record-keeping violations, and making false statements to auditors, in violation of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, 13b2-1, and 13b2-2 thereunder. 
+
+ 
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+ SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2006/AAER-2380.txt b/raw/aaer/2006/AAER-2380.txt
new file mode 100644
index 0000000000000000000000000000000000000000..422ed5567731b95ec60b195c505508c6a1a75e8a
--- /dev/null
+++ b/raw/aaer/2006/AAER-2380.txt
@@ -0,0 +1,231 @@
+  
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 53344 / February 22, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2380 / February 22, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12215 
+ 
+ 
+In the Matter of 
+ 
+THOMAS J. YOHO, 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 Thomas J. Yoho, CPA (“Yoho” or 
+“Respondent”) pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.1   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings  
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Public 
+Administrative Proceedings Pursuant to Rule 102(e) of the Commission’s Rules of Practice, 
+Making Findings, and Imposing Remedial Sanctions (“Order”), as set forth below.   
+ 
+ 
+                                                 
+1  Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+ The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before 
+it . . . to any person who is found . . . to have engaged in unethical or improper professional conduct. 
+ 
+ 
+ 
+ 
+ 
+III. 
+ 
+ On the basis of this Order and Res pondent’s Offer, the Commission finds2 that:  
+ 
+A. RESPONDENT 
+ 
+1. Thomas J. Yoho, age 58, is a certified public accountant licensed in Connecticut 
+and New York and is a partner at KPMG LLP (“KPMG”).  Yoho was the SEC concurring review 
+partner on KPMG’s audits of Xerox Corporation (“Xerox” or the “Company”) for the years 1994-
+2000. 
+ 
+B. FACTS 
+ 
+2. KPMG is a national public accounting firm and, during the relevant period covered 
+by this Order, served as the independent public accountant for Xerox.  
+ 
+3. Xerox is a New York corporation with its principal place of business in Stamford, 
+Connecticut.  At all times pertinent to the period covered by this Order, the common stock of 
+Xerox was registered with the Commission pursuant to Section 12(b) of the Securities Exchange 
+Act of 1934 (“Exchange Act”) and traded on the New York Stock Exchange.  On April 18, 2002, 
+Xerox was enjoined by the United States District Court for the Southern District of New York 
+from future violations of antifraud and other provisions of the securities laws and rules alleged to 
+have been violated in a complaint filed by the Commission [SEC v. Xerox Corporation, 02 CV 
+2780 (DLC)].  Pursuant to a consent to settlement by Xerox, the company also was assessed a civil 
+penalty of $10 million.  In consenting to settlement, Xerox neither admitted nor denied the 
+allegations of the Commission’s Complaint. 
+  
+4. Xerox for several years, including in 2000, employed “topside adjustments” 
+through which it, among other things, adjusted allocations of revenues it received from leasing 
+photocopiers and other types of office equipment.  Two of these adjustments were called “return 
+on equity” or “ROE” and “margin normalization.”  These adjustments had the effect of increasing 
+the amount of revenue Xerox could recognize from its leases in the quarter in which the equipment 
+was installed at a customer location, but at the cost of reducing the revenue the company could 
+recognize in future quarters from service and finance charges.  These adjustments enabled Xerox to 
+meet quarterly and annual earnings projections which management had discussed in meetings with 
+Wall Street brokerage firms.   
+ 
+5. KPMG was Xerox’s auditor for 40 years until late 2001, when it was terminated by 
+Xerox.  For each of the years 1997 through 2000, KPMG signed audit reports to accompany 
+Xerox’s annual financial statements filed with the Commission.  Each year, the audit report stated 
+that KPMG conducted an audit of Xerox’s financial statement in accordance with Generally 
+Accepted Auditing Standards (“GAAS”), that KPMG planned and performed the audit to obtain 
+                                                 
+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
+reasonable assurance that the financial statements were free of material misstatement, that KPMG 
+assessed the accounting principles used and significant estimates made by Xerox management and 
+that it evaluated the overall consolidated financial statement presentation.  The audit report further 
+represented that, as a result of KPMG’s audit, it was KPMG’s opinion that Xerox’s financial 
+statements presented fairly, in all material respects, Xerox’s financial position and that its results of 
+operations were fairly presented in the financial statements in conformity with Generally Accepted 
+Accounting Principles (“GAAP”). 
+ 
+6. In June 2002, after Xerox had replaced KPMG with a new independent auditor, 
+Xerox restated over $6 billion in equipment revenues and $1.9 billion in pre-tax earnings for the 
+years 1997-2000.  On January 29, 2003, the Commission filed a complaint in the United States 
+District Court for the Southern District of New York alleging that KPMG and four of its partners 
+violated the federal securities laws in connection with KPMG’s audits of Xerox’s 1997-2000 
+financial statements.  The Commission’s complaint alleged that ROE and margin normalization, as 
+well as other adjustments, were inconsistent with GAAP and materially misstated Xerox’s earnings 
+and revenues in quarterly and annual financial statements filed with the Commission from at least 
+1997 through 2000.  The complaint further alleged that KPMG and its partners knew or should 
+have known about the improper topside adjustments that resulted in $3 billion of the restated 
+revenues and $1.2 billion of the restated earnings.  On October 3, 2003, the complaint was 
+amended to add respondent Yoho as a defendant.3  In conjunction with this Order, the Court has 
+dismissed the complaint against Yoho at the request of the Commission. 
+  
+7. As the concurring review partner on the Xerox engagement, Yoho reviewed the 
+work of the KPMG audit team.  In that capacity, Yoho concluded that no matters had come to his 
+attention that caused him to believe that the Xerox financial statements covered by KPMG’s audits  
+were not in conformity with GAAP in all material respects or that the audits were not performed in 
+accordance with GAAS.  Yoho also signed certain audit workpapers. 
+ 
+8.   One of the duties of the concurring review partner on a KPMG audit engagement 
+is to make an “objective review of significant auditing, accounting or reporting considerations.”  
+The concurring review partner may deem it appropriate to perform an “in-depth review” in 
+situations which come to his attention.  
+ 
+9. In February 2001, Yoho and the engagement team decided to perform an “in-depth 
+review” of the 2000 Xerox audit work papers.  The review was to focus on, among other things, 
+revenue recognition, valuation of receivables and restructurings.  A small team made up of KPMG 
+partners not part of the audit team assisted Yoho.  The review was to focus on audit work by 
+KPMG offices in Stamford, Connecticut, Rochester, New York, London and Rio de Janeiro, where 
+Xerox had major offices.  Yoho personally conducted the review in Stamford, where Xerox was 
+headquartered. 
+ 
+                                                 
+3  KPMG and one of its partners, Joseph T. Boyle, subsequently settled this litigation with the Commission. 
+See Litigation Release No. 19191 / April 19, 2005/Accounting and Auditing Enforcement Release No. 2235 / April 
+19, 2005 (KPMG settlement); Litigation Release No. 19418 / October 6, 2005/Accounting and Auditing 
+Enforcement Release No. 2333 / October 6, 2005 (Boyle settlement). 
+ 
+ 3
+10. The KPMG partner responsible for reviewing the audit work at Xerox’s principal 
+manufacturing and marketing office in Rochester reported to Yoho that she had several questions  
+regarding the local KPMG partner’s review of ROE, which accounted for the bulk of topside 
+adjustments by Xerox in the United States and abroad.  She informed Yoho that the ROE policy 
+that had been put in place several years earlier  had not been subjected to annual testing to 
+determine if the topside adjustment was applied appropriately.  She also reported that the local 
+auditor “expressed concern as to whether all the pieces are in fact covered” with respect to ROE 
+because some of the audit work was performed by auditors in other offices. 
+ 
+11. The partner who conducted the Rochester review also reported to Yoho that one 
+analysis showed that due to the topside adjustments to revenue, Xerox’s finance rates were below 
+the prime rate and that the spread below prime had increased as Xerox’s credit worsened.  She also 
+told Yoho that certain work papers related to this subject were missing. 
+ 
+12. The KPMG partner responsible for the review of audit work in Brazil reported to 
+Yoho that there were outstanding issues between Brazil and the principal engagement partners in 
+Stamford about the appropriateness of the margin normalization and ROE accounting in Brazil.  
+These issues included whether use of interest rates of 6, 7.1 and 10 percent after topside 
+adjustments for financial reporting purposes were appropriate.  Interest rates in Brazil in 2000 were 
+16 to 20 percent. 
+ 
+13. Despite the issues raised by the KPMG partners charged with review of Rochester 
+and Brazil, Yoho completed his review without further investigation, other than a telephone 
+discussion with the partner who reviewed the Rochester location. 
+ 
+14. Yoho subsequently prepared a one-page report titled “In-Depth Workpaper 
+Review.”  He did not mention any of the reservations expressed by his colleagues.  He concluded 
+that “the audit procedures as documented in the workpapers adequately support the issuance of our 
+opinion in the Xerox Corporation consolidated financial statements for the year ended December 
+31, 2000.” 
+ 
+C. VIOLATIONS AND FINDINGS 
+ 
+15. The third general standard of GAAS (AU Section 230 of the Codification of 
+Auditing Standards) requires that an auditor exercise due professional care in the performance of 
+the audit.  This standard requires the independent auditor to perform his work with due care.  Due 
+care imposes a responsibility upon each person within an independent auditor’s organization to 
+observe the standards of field work and reporting prescribed by GAAS.  Exercise of due care also 
+requires critical review at every level of supervision of the work done and the judgment exercised 
+by those assisting in the audit. 
+ 
+16. GAAS also requires professional skepticism in the performance of an audit.  (AU 
+Section 316A.21).  The performance of auditing procedures during the audit may result in the 
+detection of conditions or circumstances that should cause the auditor to consider whether material 
+misstatements exist.  Examples of such conditions include when analytical procedures disclose 
+significant differences from expectations, transactions selected for testing are not supported by 
+ 
+ 4
+proper documentation and supporting records or files that should be readily available are not 
+promptly produced when requested. 
+ 
+17. Yoho failed in his obligations as concurring review partner to exercise due 
+professional care and professional skepticism when he was informed of missing work papers, 
+audit results that differed from reasonable expectations, lack of testing of ROE and unresolved 
+differences between KPMG auditors in Brazil and those leading the engagement in Stamford.  
+Rather than pursue these issues, he prepared a brief report that did not disclose any of the issues 
+found in the “in-depth review,” despite the importance of margin normalization and ROE to 
+Xerox’s reported earnings over the years. 
+ 
+18. Based on the foregoing, the Commission finds that Yoho engaged in improper 
+professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+Respondent Yoho is censured pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of 
+Practice.  
+ 
+  By the Commission. 
+ 
+ 
+       Nancy M. Morris 
+       Secretary 
+ 
+ 5
\ No newline at end of file
diff --git a/raw/aaer/2006/AAER-2382.txt b/raw/aaer/2006/AAER-2382.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5427fdfa293309e4526e3bd2d90b8708ae1694c9
--- /dev/null
+++ b/raw/aaer/2006/AAER-2382.txt
@@ -0,0 +1,1392 @@
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+                   SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No.   19578 / February 27, 2006 
+
+ Accounting and Auditing Enforcement Release No.  2382 / February 27, 2006 
+
+  Securities and Exchange Commission v. NetEase.com, Inc. , No. 06-CV-342 (EGS) (D.D.C.)  
+
+ SEC BRINGS SETTLED ACTIONS AGAINST NETEASE.COM, INC. AND TWO FORMER OFFICERS FOR IMPROPER REVENUE RECOGNITION 
+
+ The Securities and Exchange Commission today filed a settled action against NetEase.com, Inc., an internet company based in China, alleging that NetEase materially overstated its revenues and understated its net loss by improperly recognizing revenue.   
+
+ In its complaint, the Commission alleges that NetEase employees circumvented the company's internal accounting controls and falsified the company's books and records in connection with hundreds of advertising and e-commerce contracts in 2000 and 2001.  According to the complaint, NetEase improperly recorded revenue from the transactions, recognizing revenue for unperformed contracts and for other agreements that lacked economic substance.  The Commission also alleges that NetEase prematurely recognized revenue by artificially bifurcating advertising contracts, a technique that its employees referred to as "revenue-brought-forward."  For example, a six-month contract would be documented in two separate agreements, one with a three-month term and another "bonus contract" pursuant to which NetEase supposedly would provide free services for three additional months.  According to the complaint, NetEase concealed the "bonus" contracts from its independent auditors and recognized revenue over the three-month term instead of the true six-month term.   
+
+ The Commission further alleges that, as a result of these improper techniques, NetEase made false and misleading statements about its financial condition in quarterly earnings releases and in periodic reports furnished to the Commission.  NetEase overstated its quarterly revenue in 2000 by amounts ranging from 5% to 290% and materially overstated its fiscal 2000 revenue by $4.3 million, or 109%.  The company also understated its net loss by 16% in its "glossy" annual report for the year ended December 31, 2000, and included inflated financial results in the registration statement for its June 2000 initial public offering.  In August 2001, following an internal investigation, NetEase restated its fiscal 2000 financial results and corrected, before public dissemination, its financial results for the quarter ended March 31, 2001.   
+
+ Without admitting or denying the allegations in the Commission's complaint, NetEase consented to entry of a final judgment permanently enjoining the company from violating reporting, books and records, and internal control provisions of the federal securities laws, specifically, Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 12b-20, 13a-16 and 13b2-1 thereunder.  In accepting NetEase's settlement offer, the Commission considered the company's cooperation with the SEC investigation.  The settlement is subject to court approval. 
+
+ In related matters, the Commission also instituted settled administrative proceedings against Helen Haiwen He, NetEase's former CFO, and Geoffrey Jie Wei, NetEase's former Chief Accountant and Acting CFO.  The Commission's Order against Helen He found that she was NetEase's CFO during 2000, signed false and misleading reports, and facilitated NetEase's improper revenue recognition for two barter arrangements that lacked economic substance.  The Commission's Order against Geoffrey Wei found that Wei, in conjunction with Helen He, was responsible for NetEase's accounting policies and preparation of its financial statements in 2000.  The Commission further found that Wei was aware of or was reckless in not knowing of NetEase's improper revenue recognition practices.   
+
+ The Commission ordered Helen He to cease and desist from committing or causing any violations and any future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 and Rules 13b2-1 and 13b2-2 under the Exchange Act, and from causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-16 thereunder.  The Commission ordered Geoffrey Wei to cease and desist from committing or causing any violations and any future violations of Rules 13b2-1 and 13b2-2 under the Exchange Act, and from causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-16 thereunder.  The Commission also denied Wei, who is licensed as a CPA in China, the privilege of appearing or practicing before the Commission under Rule 102(e)(1)(iii) of the Commission's Rules of Practice, with a right to apply for reinstatement after one year.  Both Helen He and Wei consented to the Commission's Orders without admitting or denying the findings contained in those Orders. 
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+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+  
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  53378 / February 27, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2383 / February 27, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-12218 
+      
+In the Matter of : ORDER INSTITUTING PROCEEDINGS  
+ : PURSUANT TO SECTION 21C OF THE 
+Geoffrey Jie Wei, CPA (China), : SECURITIES EXCHANGE ACT 
+ : OF 1934 AND RULE 102(e) OF THE  
+Respondent. : 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”) and 
+Rule 102(e)(1)(iii) of the Commission’s Rules of Practice1 against Geoffrey Jie Wei 
+(“Wei” or “Respondent”). 
+  
+II. 
+  
+ In anticipation of the institution of these proceedings, Respondent has submitted 
+an Offer of Settlement (the “Offer”), which the Commission has determined to accept.  
+Solely for the purpose of these proceedings and any other proceedings brought by or on 
+behalf of the Commission, or to which the Commission is a party, and without admitting 
+or denying the findings herein, except as to the Commission’s jurisdiction over 
+Respondent and the subject matter of these proceedings, which Respondent admits, 
+                                                 
+1  Rule 102(e)(1)(iii) provides, in pertinent part, that: 
+ 
+ The Commission may . . . deny, temporarily or permanently, the privilege of appearing or 
+practicing before it . . . to any person who is found . . . to have willfully violated, or willfully 
+aided and abetted the violation of any provision of the Federal securities laws or the rules and 
+regulations thereunder. 
+ 
+Respondent consents to the issuance of this Order Instituting Proceedings Pursuant to 
+Section 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the 
+Commission’s Rules of Practice, Making Findings and Imposing Remedial Sanctions and 
+a Cease-and-Desist Order (“Order”), as set forth below. 
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds2 that: 
+ 
+A. Respondent  
+ 
+Geoffrey Jie Wei, age 38, is a citizen of China.  Wei was NetEase.com, Inc.’s 
+(“NetEase” or the “Company”) Vice President of Finance and Chief Accountant in 2000.  
+Wei also was the Acting CFO from January 2001 until September 2001, when he resigned 
+from the Company.  Wei obtained a CPA certification in China in 1996 and previously 
+worked for  PricewaterhouseCoopers and KPMG.  Wei currently is a director (and formerly 
+served as chairman of the audit committee) of The Hartcourt Companies, Inc., a company 
+based in China whose American Depositary Shares (“ADS”) are registered with the 
+Commission under Section 12(g) of the Exchange Act and are quoted on the OTC bulletin 
+board. 
+ 
+B. Other Relevant Parties 
+ 
+NetEase.com, Inc. is a Cayman Islands corporation established in July 1999 to 
+conduct an Internet business in China.  In June 2000, NetEase raised $65 million in an 
+initial public offering in the United States.  NetEase offers a wide range of Internet 
+services to Chinese customers including news, email, instant messaging, chat rooms and 
+online auctions.  During the relevant time, NetEase had approximately 250 employees 
+and operated through offices in Beijing, Shanghai and Guangzhou, China.  NetEase’s 
+ADS are registered with the Commission pursuant to Section 12(g) of the Exchange Act 
+and trade on the Nasdaq Stock Market under the ticker symbol NTES.   
+ 
+C. Facts 
+ 
+1. Summary
+ 
+During 2000 and 2001, NetEase employees circumvented the Company’s internal 
+accounting controls and falsified the Company’s books and records in connection with 
+hundreds of advertising and e-commerce contracts.  NetEase then recorded revenue from 
+the transactions in a manner that did not conform with U.S. Generally Accepted 
+Accounting Principles (“GAAP”).  As a result, NetEase materially overstated its revenue 
+and made numerous false and misleading statements about its financial condition in 
+                                                 
+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
+annual and periodic reports filed with the Commission and in other public statements, 
+including earnings releases.3   
+ 
+Wei was aware of, or was reckless in not knowing of, the improper revenue 
+recognition practices of the Company.  Wei warned a NetEase officer that the company’s 
+revenue recognition practices were illegal.  Despite his own warnings, Wei failed to stop 
+or was reckless in not detecting that NetEase staff was altering advertising contracts to 
+improperly accelerate revenue recognition.  Wei also signed a false or misleading 
+management representation letter to NetEase’s independent auditor in connection with 
+their fiscal 2000 audit.     
+ 
+In part, as a result of Wei’s conduct or failures to act, NetEase materially 
+overstated its revenue and net income in financial statements furnished to the 
+Commission.  By engaging in this conduct, Wei willfully violated Rules 13b2-1 and 
+13b2-2 under the Exchange Act and willfully aided and abetted and was a cause of 
+NetEase’s violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act 
+and Rules 12b-20 and 13a-16 thereunder.   
+ 
+  2. Background
+ 
+In April 2001, a potential purchaser of NetEase identified and questioned a large 
+amount of past due accounts receivable balances.  As a result, NetEase’s audit committee 
+conducted an internal investigation, which found that the Company’s management had 
+directed employees to circumvent internal controls on a widespread basis causing the 
+Company to materially overstate revenue.  Specifically, NetEase materially inflated 
+revenue by $4.3 million, or 109%, and understated net loss by 16% for the fiscal year 
+ended December 31, 2000.  NetEase also overstated revenue by approximately 5%, 36%, 
+138%, 290%, and 116% for the fiscal quarters ended March 31, June 30, September 30,  
+and December 31, 2000, and March 31, 2001, respectively, and understated net loss by 
+6%, 20% and 23% for the final three quarters in year 2000.  To correct its improper 
+accounting, NetEase restated previously reported fiscal year 2000 financial results and 
+corrected, before public dissemination, its financial results for the quarter ended March 
+31, 2001. 
+ 
+3. Relevant GAAP 
+ 
+GAAP permits revenue recognition when, among other things, the seller has 
+provided the product or service to the customer.  Statement of Financial Accounting 
+Concepts No. 5, “Recognition and Measurement in Financial Statements of Business 
+Enterprises.”  When a company renders services over time, revenue generally is 
+recognized on a straight line basis over the service period.  Staff Accounting Bulletin: 
+No. 101, “Revenue Recognition in Financial Statements.”  For barter transactions, a 
+company is required to record revenue based on the fair values of the assets or services 
+exchanged by the parties.  Accounting Principles Board Opinion No. 29, “Accounting for 
+                                                 
+3  The Commission filed a related case against NetEase in Federal District Court on 
+February 27, 2006.   
+ 3
+Nonmonetary Transactions”; Emerging Issues Task Force Issue No. 99-17, “Accounting 
+for Advertising Barter Transactions.”  Finally, GAAP requires that companies account 
+for transactions in accordance with their substance, rather than their form.  Statement of 
+Financial Accounting Concepts No. 2, “Qualitative Characteristics of Accounting 
+Information.” 
+ 
+As is discussed below, NetEase improperly accounted for hundreds of advertising 
+and e-commerce transactions during 2000 and 2001.  For some arrangements, NetEase’s 
+accounting did not conform with GAAP because the Company recognized revenue when 
+it had not rendered any services to the customer.  In other instances, NetEase improperly 
+accelerated revenue recognition by recording revenue over an artificially shortened  
+service period.  Finally, NetEase improperly recognized revenue in connection with 
+barter arrangements lacking economic substance in that neither party provided any 
+products or services to the other or because the Company had no evidence establishing 
+that anything of value was provided.     
+ 
+4. Circumvention of Internal Controls
+ 
+NetEase established a system of internal accounting controls in 2000 that 
+segregated revenue recognition controls among three departments – Sales, Contracts and 
+Finance.  The Sales Department was responsible for negotiating contracts.  The Contracts 
+Department was responsible for signing contracts, arranging for advertising placements, 
+and completing documents evidencing that the advertisements were shown on NetEase’s 
+website.  The Finance Department was responsible for affixing NetEase’s corporate seal 
+on the contracts and for preparing revenue recognition journal entries.   However, this 
+system did not provide reasonable assurances that services actually were performed 
+before recognizing revenue.  NetEase also failed to maintain its internal controls by 
+verifying whether NetEase employees were complying with them.  
+ 
+In 2000 and 2001, NetEase’s employees in these departments circumvented the 
+Company’s internal controls in order to materially inflate reported revenue.  NetEase’s 
+improper revenue recognition can be classified into the following three categories, even 
+though some transactions may involve more than one category:      
+ 
+a. Recording approximately $2 million in revenue in connection with barter 
+arrangements lacking economic substance;   
+b. Shifting approximately $1.1 million in revenue into earlier quarters by 
+artificially bifurcating advertising arrangements with customers into two 
+contracts and improperly recognizing revenue over a shortened time.  
+NetEase employees referred to this technique as “revenue-brought-
+forward”; and   
+c. Recording approximately $1.2 million of revenue in fictitious revenue in 
+situations in which NetEase had not performed the required advertising or 
+e-commerce services.   
+ 4
+For all three categories, NetEase’s Contracts Department, which was responsible 
+for arranging for the provision of the services, prepared reports falsely showing that 
+NetEase had performed the advertising.  The Finance Department, which placed the 
+Company’s seal on the contracts, prepared revenue recognition journal entries using the 
+Contract Department’s false performance records.  Finally, the Sales Department 
+artificially bifurcated sales arrangements into two contracts in order to accelerate revenue 
+into earlier quarters.  For example, a contract having a six-month term was divided into 
+two agreements, one having a three-month term and another “bonus contract” for which 
+NetEase provided “free” services for three additional months.  Contrary to GAAP, 
+NetEase recognized revenue over the shortened three-month period instead of the true 
+term of six months.  To identify which contracts to conceal from its independent auditor, 
+employees marked the initial contracts with the prefix “G” and the bonus contracts with 
+the prefix “Z.”  
+ 
+5. Wei’s Involvement in NetEase’s Improper Recognition of Revenue  
+ 
+During the time of the company’s improper revenue recognition, Wei was 
+NetEase’s Vice President of Finance and Chief Accountant and was, in conjunction with 
+the CFO, responsible for NetEase’s accounting policies and preparation of its financial 
+statements.  During part of this time, Wei also was the Acting CFO.  Wei advised 
+members of the sales department that the “revenue brought forward” technique was 
+improper.  Despite his knowledge that the practice was improper, and despite his 
+responsibility for the company’s accounting, Wei did not stop the practice or bring it to 
+the attention of NetEase’s board or independent auditor.  Instead, Wei was aware, or was 
+reckless in not knowing, that sales department staff were altering contracts in a manner 
+that would accelerate recognition of revenue into earlier periods.  The altered periods did 
+not reflect the true terms of the payment arrangements and resulted in the premature 
+recognition of revenue by NetEase.   
+ 
+On February 14, 2001, in connection with the audit of NetEase’s fiscal 2000 
+financial results, Wei signed NetEase’s management representation letter to its 
+independent auditor.  In the letter, Wei stated, among other things, that NetEase’s 
+financial statements were “fairly presented” in conformance with GAAP; that the 
+Company and its executives, including Wei, had given the auditor “all financial records 
+and related data”; and that all material transactions had been properly recorded in the 
+Company’s accounting records.  Wei was reckless in making these representations, which 
+were not true.  Based in part on this letter, NetEase’s auditor issued an audit report 
+containing an unqualified opinion for fiscal 2000, which was included in the Company’s 
+annual report disseminated to investors along with proxy materials. 
+ 
+  6. False Financial Results 
+NetEase publicly disseminated materially false and misleading financial results 
+for the quarters ended March 31, June 30, and September 30, 2000, and the quarter and 
+year ended December 31, 2000, as follows:  
+ 
+ 5
+a. First Quarter Ended March 31, 2000 – NetEase’s registration statement for 
+its June 30, 2000 IPO, which was filed with the Commission on June 29, 
+2000, included financial statements for the quarter ended March 31, 2000, 
+which overstated quarterly revenue by approximately 5%. 
+ 
+b. Second Quarter Ended June 30, 2000 – NetEase’s earnings press release 
+issued on July 31, 2000, and Form 6-K furnished to the Commission on or 
+about August 3, 2000, overstated second quarter revenue by 
+approximately 36% and understated net loss by 6%.  The earnings release 
+also falsely claimed 103% revenue growth over the previous quarter.  The 
+restated results reflect 56% growth.   
+ 
+c. Third Quarter Ended September 30, 2000 – NetEase’s earnings press 
+release issued on October 31, 2000, and Form 6-K furnished the same day, 
+overstated quarterly revenue by approximately 138% and understated net 
+loss by 20%.  The press release falsely claimed revenue growth of 47% 
+over the previous quarter and a 539% increase over the same quarter in the 
+prior year.  The restated results reflect a 16% decline in revenue from the 
+previous quarter and a 169% increase from the prior year’s quarter. 
+ 
+d. Fourth Quarter Ended December 31, 2000 – NetEase’s earnings press 
+release for the quarter and year ended December 31, 2000 (issued on 
+March 1, 2001), and Form 6-K furnished to the Commission the same day, 
+overstated quarterly revenue by approximately 290% and annual revenue 
+by 109% and understated net loss by 23% for the quarter and 16% for the 
+year.  The earnings release claimed fourth quarter revenue growth of 25% 
+over the previous quarter and a 159% increase over the same quarter in the 
+prior year.  The release also claimed that full year 2000 revenue increased 
+311% over the prior year.  The restated fourth quarter results reflect a 24% 
+drop from the previous quarter, a 34% drop from the prior year’s quarter, 
+and the restated full year results reflect a 97% increase from the prior year.  
+NetEase falsely attributed increases in its advertising revenue to a 
+continued increase in the number of advertisers as well the size of their 
+purchases. 
+ 
+e. Year Ended December 31, 2000 – NetEase’s glossy annual report for 
+fiscal 2000, which was disseminated to investors with the Company’s 
+proxy materials on or about April 1, 2001, overstated full year revenue by 
+$4.3 million, or 109% ($4.0 million versus $8.3 million), understated its 
+net loss by $3.2 million, or 16% (-$20.5 million versus -$17.3 million) and 
+understated its ADS loss per share by $.13, or 16% (-$.82 versus -$.69).  
+The glossy annual report falsely represented that NetEase’s annual 
+advertising revenue grew by 456% ($1.3 million to $7.3 million). The 
+Company’s annual report on Form 20-F for fiscal 2000, which was filed 
+with the Commission on August 31, 2001, included corrected financial 
+results (based upon the August 2001 restatement).   
+ 6
+IV. 
+ 
+LEGAL DISCUSSION 
+ 
+A. Geoffrey Wei Willfully Aided and Abetted and Was a Cause of NetEase’s 
+Violations of the Reporting and Recordkeeping Provisions of the 
+Exchange Act 
+Section 13(a) of the Exchange Act and Rule 13a-16 thereunder generally require 
+foreign private issuers with securities registered under Section 12 of the Exchange Act to 
+file certain reports on Form 6-K with the Commission.  The obligation to file such reports 
+includes the requirement that they be true and correct.  Exchange Act Rule 12b-20 
+provides that in addition to the information expressly required to be included in a 
+statement or report, there shall be added such further material information, if any, as may 
+be necessary to make the required statements, in the light of the circumstances under 
+which they were made, not misleading.  Financial statements in Commission filings that 
+do not comply with GAAP are presumed to be misleading.  Regulation S-X, 17 C.F.R. 
+210.4-01(a)(1). 
+Section 13(b)(2)(A) of the Exchange Act requires Section 12 registrants to make 
+and keep books, records, and accounts that accurately and fairly reflect their transactions 
+and dispositions of their assets.  Section 13(b)(2)(B) of the Exchange Act requires issuers 
+to devise and maintain a system of internal accounting controls sufficient to provide 
+reasonable assurances that, among other things, transactions are recorded as necessary to 
+permit preparation of financial statements in conformity with GAAP and to maintain the 
+accountability of assets. 
+ 
+No showing of scienter is required to prove violations of Sections 13(a), 
+13(b)(2)(A) and 13(b)(2)(B).  See, e.g., SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 
+(D.C. Cir. 1978), cert. denied, 440 U.S. 913 (1979); SEC v. World-Wide Coin 
+Investments, Ltd., 567 F. Supp. 747, 749-50 (N.D. Ga. 1983).     
+ 
+As discussed above, NetEase’s books and records did not accurately and fairly 
+reflect the terms of contracts that NetEase personnel had altered to accelerate revenue 
+into the first quarter of 2001.  Wei was aware of, or was reckless in not knowing of, some 
+of these changes.  Wei also was aware, or reckless in not knowing, that the Company’s 
+prior filings with the Commission materially overstated its revenue.  By this conduct, 
+Wei willfully aided and abetted and was a cause of NetEase’s violations of the reporting, 
+recordkeeping and internal controls provisions of the Exchange Act. 
+ 
+ B. Wei Willfully Violated Exchange Act Rules 13b2-1 and 13b2-2 
+ 
+ Rule 13b2-1 of the Exchange Act prohibits any person from, directly or 
+indirectly, falsifying or causing to be falsified any book, record or account subject to 
+Section 13(b)(2)(A).  Rule 13b2-2 of the Exchange Act prohibits directors and officers 
+from, directly or indirectly, making or causing to be made materially false or misleading 
+statements to an accountant in connection with an audit or the preparation of Commission 
+ 7
+filings.  As detailed above, Wei was aware, or was reckless in not knowing, that 
+alterations to contracts were made for the purpose of improperly accelerating NetEase’s 
+recognition of revenue.  Wei also signed an inaccurate management representation letter 
+to the auditor, which it relied on in issuing an audit report containing an unqualified 
+opinion for NetEase’s fiscal 2000 financial statements.  As a result, Wei willfully 
+violated Rules 13b2-1 and 13b2-2 of the Exchange Act.  
+ 
+V. 
+ 
+Based on the foregoing, the Commission finds that Geoffrey Wei willfully 
+violated Rules 13b2-1 and 13b2-2 of the Exchange Act, and willfully aided and abetted 
+and was a cause of NetEase.com, Inc.’s violations of Sections 13(a), 13(b)(2)(A) and 
+13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-16 thereunder. 
+ 
+VI. 
+ 
+In view of the foregoing, the Commission deems it appropriate to impose the 
+sanctions agreed to in Respondent’s Offer. 
+ 
+Accordingly, IT IS HEREBY ORDERED, effective immediately, that: 
+ 
+A. Geoffrey Wei shall cease and desist from committing or causing any 
+violations and any future violations of Rules 13b2-1 and 13b2-2 of the Exchange Act, 
+and from causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) 
+and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-16 thereunder.   
+ 
+B. Geoffrey Wei is denied the privilege of appearing or practicing before the 
+Commission as an accountant. 
+ 
+C. After one year from the date of this order, Respondent may request that 
+the Commission consider his reinstatement by submitting an application (attention: 
+Office of the Chief Accountant) to resume appearing or practicing before the 
+Commission as: 
+      
+       1. a preparer or reviewer, or a person responsible for the preparation 
+or review, of any public company’s financial statements that are filed with the 
+Commission.  Such an application must satisfy the Commission that Respondent’s work 
+in his practice before the Commission will be reviewed either by the independent audit 
+committee of the public company for which he works or in some other acceptable 
+manner, as long as he practices before the Commission in this capacity; and/or 
+      
+  2.    an independent accountant.  Such an application must satisfy 
+the Commission that: 
+      
+           (a) Respondent, or the public accounting firm with which he is 
+associated, is registered with the Public Company Accounting Oversight Board (“Board”) 
+ 8
+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 or an approved foreign oversight 
+body in cooperation with 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 Respondent will not receive appropriate supervision or, if the Board has not 
+conducted an inspection, has received an unqualified report relating to his, or the firm’s, 
+most recent peer review conducted in accordance with the guidelines adopted by the 
+former SEC Practice Section of the American Institute of Certified Public Accountants 
+Division for CPA Firms or an organization providing equivalent oversight and quality 
+control functions;  
+   (c) Respondent has resolved all disciplinary issues with the 
+Board, and has complied with all terms and conditions of any sanctions imposed by the 
+Board (other than reinstatement by the Commission); and 
+ 
+   (d) Respondent acknowledges his responsibility, as long as 
+Respondent appears or practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the Board, including, but not 
+limited to, all requirements relating to registration, inspections, concurring partner 
+reviews and quality control standards.   
+ 
+      D. The Commission will consider an application by Respondent to 
+resume appearing or practicing before the Commission provided that his CPA 
+certification in China is current and he has resolved any disciplinary issues with the 
+applicable accountancy authority in China.  However, if the resolution of any 
+disciplinary action by an accountancy authority is dependant on reinstatement by 
+the Commission, the Commission will consider an application on its other merits.  
+The Commission’s review may include consideration of, in addition to the matters 
+referenced above, any other matters relating to Respondent’s character, integrity, 
+professional conduct, or qualifications to appear or practice before the Commission. 
+ 
+ 
+By the Commission.     
+ 
+       N ancy M. Morris 
+       S ecretary 
+ 9
\ No newline at end of file
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+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES ACT OF 1933 
+Release No.  8665 / February 27, 2006 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  53381 / February 27, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2386 / February 27, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-12221 
+ 
+ 
+In the Matter of 
+ 
+             SUN COMMUNITIES, INC.     
+             and SUN COMMUNITIES 
+             OPERATING LIMITED 
+             PARTNERSHIP, 
+              
+Respondents. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-DESIST 
+PROCEEDINGS PURSUANT TO SECTION 8A 
+OF THE SECURITIES ACT OF 1933 AND 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, MAKING 
+FINDINGS AND IMPOSING A CEASE-AND-
+DESIST ORDER  
+ 
+ 
+ 
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“ SEC” or “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 Sun Communities, Inc. (“Sun”) and Sun Communities Operating 
+Limited Partnership (“SCOLP”) (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 
+ 2
+                                                
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over them and over the subject matter of these 
+proceedings, which are admitted, Respondents consent to the entry of this Order Instituting  Cease-
+and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of 
+the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order 
+(“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Res pondents’ Offers, the Commission finds1 that:  
+ 
+A. RESPONDENTS 
+ 
+  Sun Communities, Inc. is a self-administered and self-managed real estate investment 
+trust.  Sun, as the general partner of Sun Communities Operating Limited Partnership, owns, 
+operates, develops and finances manufactured housing communities concentrated in the 
+Midwestern and Southeastern United States.  Sun went public in 1993.  The common stock of Sun 
+is registered pursuant to Section 12(b) of the Exchange Act and is listed on the New York Stock 
+Exchange.  Sun incorporated their Forms 10-K and 10-Q in offers of their securities from 2000 
+through 2002.  
+  
+Sun Communities Operating Limited Partnership is the main operating subsidiary 
+through which Sun owns, operates, develops and finances manufactured housing communities.  
+SCOLP was a separate SEC filer until May 2004 when it suspended its SEC filings.  Sun also 
+consolidated SCOLP’s financial statements in its own financial statements during the time at issue 
+in this Order.  SCOLP incorporated their Forms 10-K and 10-Q in offers of their securities during 
+the time at issue. 
+ 
+ 
+B. SUMMARY 
+ 
+This matter involves false and misleading financial reporting in Sun’s financial statements 
+and in SCOLP’s separate financial statements included in the periodic reports filed with the 
+Commission for fiscal years 2000 through 2002.  As a result of this improper reporting, Sun and 
+SCOLP violated Sections 17(a)(2) and 17(a)(3) of the Securities Act2 and various reporting, 
+record-keeping and internal control provisions of the Exchange Act.  In all three years, Sun 
+(through SCOLP) failed to properly account for losses in its investment in SunChamp, LLC 
+(“SunChamp”), a limited liability company it formed with Champion Enterprises, Inc. 
+(“Champion”) to develop manufactured housing communities. 
+ 
+ 
+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  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).  
+ 3
+In particular, during the relevant periods, through sales of its members’ interests in 
+SCOLP-controlled limited liability companies that held the SunChamp interests, SCOLP sold 
+portions of its interests in SunChamp to four outside investors.  While these transactions had 
+economic substance as between the parties, Sun should have applied Accounting Principles Board 
+Opinion No. 18, “The Equity Method of Accounting for Investments In Common Stock” (March 
+1971), (“APB 18”), Statement of Position 78-9, “Accounting for Investments in Real Estate 
+Ventures” (“SOP 78-9”) and Statement of Financial Accounting Standards No. 66, “Accounting 
+for Sales of Real Estate” (“FAS 66”) in recognizing its share of SunChamp losses when applying 
+the equity method of accounting.  Under APB 18, SOP 78-9 and FAS 66, ownership did not 
+transfer to the outside investors and therefore, Sun should have recorded additional SunChamp 
+losses to reflect its share of SunChamp. 
+ 
+Sun and SCOLP also failed to comply with other generally accepted accounting principles 
+(“GAAP”) during that time.  For example, Sun used a 90-day lag in recording SunChamp’s losses 
+and recorded the effect of certain of the sale agreements with investors prior to the closing dates.  
+In addition, Sun erroneously established reserves, unrelated to SunChamp.  The effect of some of 
+these entries was to shift earnings and losses between quarters. 
+   
+ As a consequence of these ac tions, Sun and SCOLP have violated Sections 17(a)(2) and (3) 
+of the Securities Act and Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and 
+Rules 12b-20, 13a-1, 13a-13, and 13b2-1 thereunder.  
+ 
+C. FACTS 
+ 
+ 1.        Creation of SunChamp 
+ 
+ Sun acquires, operates and expands manufactured housing communities.    SunChamp is a 
+joint venture that was formed in 1999 by a subsidiary of SCOLP (Sun/Forest, LLC) and a 
+subsidiary of Champion Enterprises (MHCDC), a large producer of manufactured homes.  
+SunChamp was organized to purchase and develop manufactured housing communities.  Pursuant 
+to the terms of the agreement, SCOLP ceded day-to-day management of SunChamp to a Champion 
+subsidiary.  SCOLP retained rights and responsibilities as to SunChamp: 1) SCOLP had the right 
+to approve operating and construction budgets, 2) SCOLP had the right to approve all new 
+acquisitions of properties, 3) SCOLP was obligated to fund 50% of the operating losses, 4) SCOLP 
+was obligated to fund 75% of budgeted capital costs for acquiring, developing, and expanding 
+communities and 5) Sun’s affiliates provided loans to SunChamp as additional financing.  
+ 
+2. Transactions with Outside Investors 
+ 
+ In late September 2000, Sun completed the transfer of a portion of its investment in 
+SunChamp to an entity owned by a Champion executive for $3.2 million cash.  In October 2000, 
+Sun completed the transfer of an additional portion of its SunChamp ownership to another outside 
+investor for $2 million in cash and $4 million in non-recourse promissory notes.  Finally, in July 
+2001, Sun completed the transfers of a portion of its SunChamp ownership to two outside investors 
+for a total of $2 million cash and $4 million in non-recourse promissory notes.  In these July 2001 
+ 4
+                                                
+transfers, Sun exercised its right to redeem the interest sold in the October sale by $2 million and 
+reduced the note received in that transaction from $4 million to $2 million.  In total, the transfers in 
+October 2000 and July 2001 to three outside investors that involved seller (SCOLP) financing 
+resulted in SCOLP’s selling interests in SunChamp totaling $10 million in exchange for $4 million 
+in cash and $6 million in non-recourse notes.  SCOLP’s ownership in SunChamp increased during 
+this period as a result of several capital contributions it made to SunChamp during the year. 
+ 
+3. Application of APB 18 – Cost and Equity Method Accounting 
+ 
+Pursuant to APB 18, when an investor does not hold a controlling interest of an investment 
+in a corporate subsidiary, there are two recommended methods to account for the investment - the 
+cost method or the equity method of accounting.3  If the investor has the ability to exercise 
+significant influence over the investment, then it must use equity method accounting for that 
+investment.  If the investor owns 20% or more of a corporation’s voting stock, it is presumed to 
+have the ability to exercise significant influence over the investment and thus, unless demonstrated 
+otherwise, it is required to use the equity method.4  If the investor owns less than 20% of a 
+corporation’s voting stock, it is presumed to not have the ability to exercise significant influence 
+over the investment unless demonstrated otherwise.5  
+The 20% ownership measure is not a bright line test.  APB 18 outlines several other factors 
+to consider in determining whether a company has significant influence over an investment in a 
+corporate subsidiary.  Those factors include: 1) representation on the board of directors; 2) 
+participation in the policy-making processes; 3) significant intercompany transactions; and 4) 
+investee dependence on the investor.  Finally, GAAP guidance concludes that the equity method is 
+the preferred method for investors in corporate joint ventures to reflect the nature of their 
+investment in the venture.6
+ 
+3  APB No. 18, ¶ 17.  The usual condition for control is ownership of a majority (over 50%) of the 
+outstanding voting stock.  The power to control may also exist with a lesser percentage of ownership. 
+ 
+4  The equity method requires a company to record its initial investment at cost on its balance sheet.  When the 
+equity interest generates earnings or incurs losses, the investor’s proportionate share of those earnings or losses must be 
+recorded in the investor’s income statement and the investment amount on the balance sheet is adjusted by the amount 
+of earnings and/or losses.  Under the cost method, an investor records its investment on its balance sheet at cost “and 
+recognizes as income dividends received that are distributed from net accumulated earnings of the investee since the 
+date of acquisition by the investor.”  APB 18 ¶6a.  
+ 
+5  Emerging Issues Task Force 00-01, “Investor Ba lance Sheet and Income Statement Display under the 
+Equity Method for Investments in Certain Partnerships and Other Ventures,” states that investors in unincorporated 
+entities such as partnerships and other unincorporated joint ventures generally account for their investments using 
+the equity method of accounting by analogy to APB 18 if the investor has the ability to exercise significant influence 
+over the investee.  Guidance as to the accounting for investments in limited liability companies was issued in March 
+2004 in EITF Issue No. 03-16, “Accounting for Investments in Limited Liability Companies.”  EITF 03-16 
+concluded that the provisions of SOP 78-9 and related guidance also apply to such limited liability companies.    
+ 
+6  APB 18 ¶16 and Statement of Position 78-9, "Accounting for Investments in Real Estate Ventures,” 
+December 1974 (“SOP 78-9”) ¶4.   
+ 
+ 5
+4. Sun’s Non-GAAP Accounting for SunChamp 
+ 
+a. Incorrect Use of Bright Line Test 
+ 
+ Sun improperly accounted for its  investment in SunChamp from January 1, 2000 through 
+December 31, 2002, primarily by recognizing for accounting purposes sales of its SunChamp 
+interest to outside investors.  Beginning in the third quarter of 2000, SCOLP transferred portions of 
+its SunChamp ownership to outside investors to, among other things, reduce its ownership below 
+20%, with the belief that doing so would allow Sun to not apply the equity method of accounting 
+and thereby not record SunChamp losses in its financial statements.  After recognizing each of the 
+transfers of SunChamp ownership to four outside investors, Sun determined that it owned less than 
+20% of SunChamp.  However, Sun failed to properly consider whether it had the ability to exercise 
+significant influence over SunChamp.  Hence Sun did not record any of SunChamp’s operating 
+losses during the third and fourth quarters of 2000 and all of 2001.  This determination was not 
+supported by GAAP.  
+ 
+ b. Equity method acco unting under SOP 78-9  
+ 
+In this case, because Sun transferred portions of its interest in SunChamp to outside 
+investors -- transfers that were in substance transfers of real estate – Sun’s interest in SunChamp 
+should have been calculated based on the substantive economic rights and obligations as set forth 
+in the SunChamp Operating Agreement.  Sun was required to consider whether the transactions 
+transferred the risks and rewards of ownership for accounting purposes.   
+ SOP 78-9 requires that Sun record its pr oportionate share of the SunChamp losses 
+otherwise allocable to the outside investors if it is probable that those investors will not bear their 
+share of the losses.  Thus, Sun should not have reduced its proportionate share of SunChamp 
+ownership represented by the non-recourse promissory notes because it is not probable that the 
+outside investors will bear their share of the losses associated with that portion of ownership.   
+ 
+SOP 78-9 also presents recommendations on accounting for investments in real estate 
+ventures.  It states that the sale of an investment in a real estate venture is the equivalent of a sale of 
+an interest in the underlying real estate and should be evaluated under the guidelines set forth in 
+FAS 66.7
+c. Transactions not sales under FAS 66 
+ Sun was required to consider whether the transactions transferred ownership under FAS 
+66.8  Pursuant to FAS 66, ¶ 5, a seller may not recognize gains or losses on real estate sales 
+transactions by the full accrual method until all of the following criteria are met:  
+                                                 
+7  SOP 78-9 ¶ 39. 
+  
+8  Emerging Issues Task Force No. 98-8, “Accounting for Transfers of Investments That Are in Substance Real 
+Estate” (May 21, 1998), states that the sale or transfer of an investment in the form of a financial asset that is in 
+substance real estate should be accounted for in accordance with FAS 66.  As noted, neither the accounting personnel at 
+Sun nor, despite full disclosure of the agreements and details regarding the sales transactions, their outside auditor 
+ 6
+                                                                                                                                                            
+ 
+1. A sale is consummated.  
+2. The buyer’s initial and continuing investments are adequate to demonstrate a commitment 
+to pay for the property.  
+3. The seller’s receivable is not subject to future subordination.  
+4. The seller has transferred to the buyer the usual risks and rewards of ownership in a 
+transaction that is in substance a sale and does not have a substantial continuing 
+involvement with the property.  
+  
+(1) Three of the four buyers di d not demonstrate a commitment to 
+pay  
+SCOLP’s last three transfers did not satisfy the criterion of FAS 66 requiring that the 
+“buyer’s initial and continuing investments are adequate to demonstrate a commitment to pay for 
+the property,” because the payments of three of the buyers were from one half to two thirds funded 
+by non-recourse notes.  The notes were drafted so that the investors could accrue, rather than pay, 
+interest until the due dates and required accelerated payment of principal and interest only from 
+money returned to them from the operations of SunChamp or from cash distributions from the 
+SunChamp properties.9  If the investors fail to pay the notes when due, SCOLP’s sole recourse is to 
+look to the investors’ interests in SunChamp for payment.  Thus, the outside investors’ continuing 
+investment is not adequate to demonstrate “a commitment to pay for the property” over and above 
+the cash portion they put down.   
+(2) Sun did not transfer risks and rewards and had continuing 
+involvement with SunChamp 
+ SCOLP’s transfers of interests to all of th e outside investors also did not satisfy the 
+criterion of FAS 66 requiring that the “seller has transferred to the buyer the usual risks and 
+rewards of ownership in a transaction that is in substance a sale and does not have a substantial 
+continuing involvement with the property.”  After the transfers of the members’ interests, SCOLP 
+still had “continuing involvement” with the SunChamp properties.  SCOLP retained the right to 
+purchase certain eligible properties once they reach 92% occupancy, at a price set by a specific 
+formula.  Once certain eligible properties reach 95% occupancy, SCOLP has a similar purchase 
+right and MHCDC has the right to require SCOLP to purchase those eligible properties, at a price 
+set by a specific formula.  SCOLP’s continuing involvement with the underlying SunChamp real 
+estate properties constitutes a continuing involvement with the members’ interests sold by SCOLP 
+to the investors.  Finally, Sun did not give the outside investors the right to pledge or exchange 
+their interest in the assets they received.  Therefore, this transaction should be accounted for as a 
+financing, leasing or profit-sharing arrangement rather than as a sale.    
+ 
+recommended or considered the application of FAS 66 to the sales during their review of the relevant period financial 
+statements. 
+ 
+9  In addition, the notes were not supported by irrevocable letters of credit from independent established lending 
+institutions, one of the criteria listed in FAS 66 as establishing adequate initial investments.  Further, the outside 
+investors were not contractually required to pay each year on their non-recourse notes to Sun, one criteria of FAS 66 
+for establishing adequate continuing investment.   
+ 7
+ 
+ 5. Sun Should Have Used Equity Method Accounting at All Times 
+ Because Sun never should have treated the tr ansfers to outside investors as sales under 
+APB 18, SOP 78-9 and FAS 66, Sun retained ownership of greater than 20% of SunChamp for 
+accounting purposes at all times prior to consolidating SunChamp.  Thus, under APB 18, Sun was 
+presumed to exercise significant influence over SunChamp during that time.  In fact, Sun did 
+exercise significant influence over SunChamp.  Aside from its ownership interest, Sun’s significant 
+influence is evidenced by numerous facts which did not change after the transactions with the 
+outside investors.  SCOLP relinquished none of its managerial rights to the outside investors, who 
+were purely passive investors.  SCOLP continued to participate in the policy-making processes of 
+SunChamp by exercising its voting rights on half the seats on the equivalent of SunChamp’s Board 
+of Directors.  SCOLP approved operating and construction budgets and all new acquisitions of 
+properties by SunChamp.  Sun also engaged in significant related party transactions with 
+SunChamp, by providing subordinated debt financing to SunChamp.  Finally, SunChamp was 
+financially dependent on Sun because, unlike the outside investors, Sun provided financing to 
+SunChamp and SCOLP was required to provide financial support through equity contributions.   
+6. Improper application of GAAP resulte d in materially overstated financial 
+statements 
+ 
+ Because Sun incorrectly dete rmined not to apply equity method accounting to SunChamp 
+from July 1, 2000 to December 31, 2001, it did not record SunChamp’s losses for those years.  
+Thus, Sun materially overstated its income from July 1, 2000 through December 31, 2001, as 
+reported in its SEC periodic filings.  Thus, Sun’s Form 10-K for fiscal year 2000 and its Form 10-
+Q for the third quarter of 2000 contained material overstatements of income.  Likewise, Sun’s 
+Form 10-K for fiscal year 2001 and its Forms 10-Q for all quarters of 2001 contained material 
+overstatements of income. 
+ 
+ In 2002, SCOLP made additional capital contributions to SunChamp.  The outside 
+investors made no additional cash contributions nor were they required to contribute additional 
+cash unless they wished to maintain their percentage ownership in the SunChamp interests.  Sun 
+believed its contributions would eventually increase its ownership of SunChamp to greater than 
+20%.  Thus, beginning in the first quarter of 2002, Sun applied equity method accounting for its 
+interest in SunChamp.  However, Sun continued to improperly account for the SunChamp 
+investment by, among other things, failing to disregard the transfers to the outside investors when 
+determining what percentage of SunChamp losses to record under the equity method.  Sun thus 
+recorded a smaller amount of SunChamp losses on its financial statements than required under 
+GAAP.  This incorrect determination led Sun to materially overstate its income on its Form 10-K 
+for 2002 and all of its Forms 10-Q for 2002, as filed with the SEC.  These financial statements all 
+were reviewed (as to quarters) and audited (as to years) by Sun’s outside auditor and Sun’s annual 
+financial statements for the periods were opined on by its outside auditor without qualification. 
+ 
+  
+ 
+ 
+ 8
+ 7.  Sun’s Other Non-GAAP Accounting from January 1, 2000 to December 31, 
+2002 
+ 
+ a.  90-Day Lag 
+ 
+ During 2000 and 200 2, Sun used a 90-day lag in recording SunChamp’s losses on its 
+financial statements because it believed that there were impediments to timely recordation of 
+accurate numbers.  This belief was not justified.  Sun’s improper use of a 90-day lag enabled Sun 
+to avoid recording SunChamp’s second quarter losses in the third quarter of 2000.   
+Sun’s auditor told Sun that the SEC was generally opposed to reporting on a lag because 
+of its interest in real time reporting.  The auditor recommended that Sun consider a shorter lag 
+period.  Sun did not employ a shorter lag period or forego the lag.  Sun’s application of a 90-day 
+lag was not factually supported and thus was not justified under GAAP.   
+  b.   Premature Recognition of Transactions with Outside Investors 
+ 
+ During 2000 and 2001, Sun made the agreements with three outside investors effective 
+months before all of the details of the agreements were finalized, the papers were signed, or money 
+changed hands.  Thus, Sun accounted for transactions with the outside investors before the parties 
+had reached final agreement.  Sun considered the transactions effective at the time of alleged oral 
+agreements, despite having nothing in writing to record the transactions, and no down payment.  
+Accounting for these transactions before they were finalized had the effect of reducing Sun’s 
+perceived ownership percentage in SunChamp prematurely in several quarters.  Sun’s application 
+of this method reduced Sun’s perceived ownership below 20%, thereby, in Sun’s view at the time, 
+avoiding equity method accounting, and thus avoiding the recording of any SunChamp losses in 
+several quarters.  These accounting conclusions were not justified and were in violation of GAAP.  
+Thus, Sun materially overstated its income for those quarters, as reported in its SEC periodic 
+filings.    
+For example, Sun accounted for one of the transactions in the third quarter of 2000 
+although the investor did not sign a binding letter of intent until the fourth quarter of 2000 (October 
+6, 2000) and the deal did not close until October 26, 2000.  According to Sun, this transaction had 
+the effect of reducing Sun’s ownership percentage below 20% for the third quarter of 2000.  Thus, 
+even under Sun’s flawed view of the equity method (i.e., utilizing a 20% bright line approach and 
+treating the transfers to the outside investors as sales), Sun should not have changed to the cost 
+method in the third quarter of 2000 since the investment was not finalized until after September 30, 
+2000. 
+              c.  General Reserve Account and Expense Accrual 
+ 
+           Sun maintained reserves for which either the justification was not sufficient under GAAP, 
+or for which the justifications had ceased to exist.  For example, in 2000 and 2001, Sun 
+maintained improper reserves as well as reserves for expenses against a gain on sale of real estate 
+assets unrelated to SunChamp in an account called “accrued expenses.”   
+ 9
+ 
+ Statement of Financial Accounting Standa rds No. 5, “Accounting for Contingencies,” 
+(“FAS 5”), ¶8, states that “a loss contingency...shall be accrued...if...it is probable that an asset 
+had been impaired or a liability had been incurred at the date of the financial statements 
+...[and]...the amount of the loss can be reasonably estimated.”  Moreover, FAS 5, ¶14 expressly 
+prohibits general reserves.  Because Sun’s potential exposure was not reasonably estimable, the 
+reserves were not recorded in conformity with FAS 5 and resulted in a misstatement of net 
+income on Sun’s financial statements in the period the reserve was recorded.  
+ 
+ Further, Sun violated GAAP by releasing excess reserves without appropriate 
+justification.  While expenses related to the reserve were recorded against the reserve, unrelated 
+expenses also were offset against the reserve, resulting in understatements of revenues and 
+expenses.   
+ 
+Sun improperly recorded accrued expenses to match expenses related to seasonal revenue.  
+FASB Concepts Statement No. 6, “Elements of Financial Statements,” (“Concept 6”) states that a 
+liability can be released only at a determinable date, upon the occurrence of a specified event, or 
+upon demand.  A change in an accounting estimate should be accounted for in the period of change 
+if the change affects that period only, or the period of change and future periods if the change 
+affects both.  GAAP does not allow for the deferral of accounting adjustments arising from a 
+change in estimate or the correction of an error. 
+ 
+ 8. Impact of Accounting Misst atements on Operating Earnings 
+ 
+As a result of Sun’s non-GAAP accounting, for the years ended December 31, 2000, 2001 
+and 2002, Sun overstated its income by approximately $3.7 million (9%), $4.7 million (11%) and 
+$2.7 million (13%), respectively. 
+ 
+D. LEGAL ANALYSIS 
+ 
+As a result of the conduct described above, and given that Sun and SCOLP incorporated 
+their Forms 10-K and 10-Q in offers of their securities from 2000 through 2002, Sun and SCOLP 
+violated Sections 17(a)(2) and 17(a)(3) of the Securities Act from 2000 through 2002.  Sun’s 
+accounting misstatements based on improper application of FAS 66 and equity accounting were 
+material.  These accounting errors directly or indirectly increased reported income during a period 
+by causing Sun not to record SunChamp’s losses properly.  Similarly, Sun and SCOLP violated 
+Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder by filing with 
+the Commission Forms 10-Q and 10-K containing materially false and misleading financial 
+statements for the period January 1, 2000 through December 31, 2002.  Sun’s financial statements 
+were false and misleading because they were not presented in conformity with GAAP by virtue of 
+the fact that Sun: 1) failed to properly account for losses in Sun’s investment in SunChamp, 2) 
+delayed recording SunChamp’s losses for 90 days and prematurely recognized transactions, and 3) 
+released reserves, unrelated to SunChamp, for expenses unrelated to the establishment of the 
+reserve, and 4) accrued expenses prior to the period in which they actually were expended.  
+ 10
+Finally, Sun and SCOLP violated Sections 13(b)(2)(A) and (B) in 2000 through 2002 by failing to 
+make and keep accurate books and records and failing to devise and maintain sufficient internal 
+accounting controls.  Sun and SCOLP also violated Rule 13b2-1 in 2000 through 2002 in 
+connection with its improper use of reserves.   
+ 
+ Based on the foregoing, the Commission finds that Sun and SC OLP have violated Sections 
+17(a)(2) and (3) of the Securities Act and Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the 
+Exchange Act and Rules 12b-20, 13a-1, 13a-13, and 13b2-1 thereunder.  
+ 
+IV. 
+ 
+Undertakings 
+ 
+Respondent Sun has undertaken to: 
+ 
+1. Employ an independent consultant ("Independent Consultant "), not unacceptable to 
+the staff of the Commission, to review and evaluate its internal controls, record-
+keeping, and financial reporting policies and procedures as they relate to its 
+compliance with the books and records, internal accounting controls provisions of 
+the Exchange Act in connection with its accounting for its investment in 
+SunChamp.   
+ 
+2. Cooperate fully with the Independent Consultant and provide the Independent 
+Consultant with access to its files, books, records, and personnel as reasonably 
+requested for the review. 
+ 
+3. Require, at the conclusion of the Independent Consultant's review of the 
+Policies and Procedures, which in no event will be more than 180 days after the 
+date of entry of the Order, the Independent Consultant to submit to Sun and to the 
+Commission staff a written report regarding the Sun’s compliance with its Policies 
+and Procedures and the adequacy of those Policies and Procedures. The report 
+shall include a description of the review performed, the conclusions reached and, if 
+necessary, make recommendations for changes in or improvements to the Policies 
+and Procedures and provide a procedure for implementing the recommended 
+changes or improvements. 
+ 
+4. Within 30 days after the date of issuance of the report of the Independent 
+Consultant ("Report Date"), adopt all recommendations contained in the report and 
+remedy any deficiencies in its Policies and Procedures; provided, however, that as 
+to any recommendation that Sun believes is unnecessary or inappropriate, Sun 
+may, within 45 days of the Report Date, advise the Independent Consultant and 
+Commission staff in writing of any recommendations that it considers to be 
+unnecessary or inappropriate. With respect to any recommendation that Sun 
+considers unnecessary or inappropriate, Sun need not adopt that recommendation 
+at that time but shall propose in writing an alternative policy, procedure, or system 
+ 11
+designed to achieve the same objective or purpose.  In the event Sun and the 
+Independent Consultant are unable to agree on an alternative proposal acceptable 
+to the Commission staff, Sun will abide by the original recommendation of the 
+Independent Consultant; 
+ 
+5. Within 120 days of the Report Date, submit an affidav it to the Commission staff 
+stating that it has implemented any and all actions recommended by the 
+Independent Consultant, or explaining the circumstances under which it has not 
+implemented such actions; 
+ 
+6. Require the Independent Consultant to en ter 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 SUN, or 
+any of its present or former affiliates, directors, officers, employees, or agents 
+acting in their capacity.  The agreement will also provide that the Independent 
+Consultant  will require that any firm with which 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 Commission, enter into any employment, consultant, attorney-
+client, auditing or other professional relationship with Sun, or any of its present or 
+former affiliates, directors, officers, employees, or agents acting in their capacity 
+as such for the period of the engagement and for a period of two years after the 
+engagement. 
+ 
+7. Sun: (a) shall not have the authority to terminate the Independent Consultant 
+without the prior written approval of the Commission staff; (b) shall compensate 
+the Independent Consultant, and persons engaged to assist the Independent 
+Consultant, for services rendered pursuant to the Order at their reasonable and 
+customary rates; and (c) shall not be in and shall not have an attorney-client 
+relationship with the Independent Consultant and shall not seek to invoke the 
+attorney-client or any other doctrine or privilege to prevent the Independent 
+Consultant from transmitting any information, reports, or documents to the 
+Commission. 
+ 
+V. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents Sun and SCOLP’s Offers. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+ A.       Respondents S un and SCOLP 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 Sections 
+ 12
+13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, and 
+13b2-1 thereunder; and 
+ 
+ B. Respondent Sun comply  with the undertakings in Section IV., above. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       N a n c y  M .  M o r r i s  
+       S e c r e t a r y  
+ 
+ 
+ 
\ No newline at end of file
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new file mode 100644
index 0000000000000000000000000000000000000000..bb03f8eb55d76b452b566e381db70e5e84946f5e
--- /dev/null
+++ b/raw/aaer/2006/AAER-2388.txt
@@ -0,0 +1,109 @@
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 53387 / February 28, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2388 / February 28, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12222 
+       
+      :  
+ :  
+ :  
+ In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO  
+ ELSIE M. LEUNG, CPA   : RULE 102(e) OF THE  
+      : COMMISSION’S RULES OF 
+Respondent.     : PRACTICE, MAKING FINDINGS, AND 
+      : IMPOSING REMEDIAL SANCTIONS 
+      :  
+      :  
+____________________________________ :  
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted against Elsie M. 
+Leung, CPA (“Leung”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of Practice.1   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Leung has submitted an Offer of 
+Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the purpose 
+                                                 
+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
+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, Leung 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 Leu ng’s Offer, the Commission finds that:  
+ 
+ 1. Elsie M. Leung is a resident of Pa sadena, California.  Leung was the Chief 
+Financial Officer of Gemstar-TV Guide International, Inc. (“Gemstar”) from 1994 to November 7, 
+2002, a Co-President from July 2000 to November 7, 2002, Chief Operating Officer or a Co-Chief 
+Operating Officer from January 1996 to November 7, 2002, and a director from 1994 to May 2003.  
+In November 2002, Leung resigned as an officer of Gemstar.  Leung is a Certified Public 
+Accountant licensed in California, but her license is currently inactive. 
+ 
+ 2. Gemstar is a Delaware corporation with its principal place of business in Los 
+Angeles, California.  At all relevant times, Gemstar’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 Stock Market. 
+ 
+ 3. On July 13, 2004, the Commission filed a third amended complaint 
+(“complaint”) against Leung in SEC v. Henry C. Yuen, et al. (Case No. CV 03-4376 MRP 
+(PLAx)).  On February 21, 2006, the court entered a final judgment permanently enjoining Leung, 
+by consent, from future violations or aiding and abetting 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 13(b)(5) of the 
+Exchange Act, and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, 13b2-1, and 13b2-2 thereunder.  
+Leung was also ordered to pay $600,000 in disgorgement, $14,866.38 in prejudgment interest, and 
+a $750,000 civil penalty. 
+ 
+ 4. The Commission’s complaint alleged, among other things, that Leung (i) touted 
+that Gemstar’s current and future growth would come from licensing technology to third parties 
+and selling advertising on a new media platform; (ii) caused Gemstar to improperly record 
+licensing and advertising revenue; (iii) caused Gemstar to fraudulently overstate its revenues by 
+$223.3 million in Gemstar’s periodic filings with the Commission, analysts calls, and press 
+releases, which resulted in Gemstar’s overstating its licensing revenue by 57.4% and its 
+advertising revenue by 278.1% and which enabled Gemstar to meet its projected financial 
+results; (iv) misrepresented and/or omitted to disclose the actual structure of certain Gemstar 
+transactions and that a substantial amount of licensing and advertising revenue was being created 
+through fraudulent schemes in Gemstar’s periodic filings with the Commission, analysts calls, 
+and press releases; and (v) omitted to disclose material information to Gemstar’s independent 
+auditors regarding the structure of certain transactions during the auditors’ 2001 quarterly 
+reviews.   
+ 3
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Leung’s Offer. 
+ 
+Accordingly, it is hereby ORDERED, effective immediately, that Leung is suspended 
+from appearing or practicing before the Commission as an accountant.   
+ 
+ By the Commission. 
+ 
+ 
+ 
+       N a n c y  M .  M o r r i s  
+       S e c r e t a r y  
+ 
\ No newline at end of file
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@@ -0,0 +1,147 @@
+UNITED STATES OF AMERICA  
+Before The  
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No.  53391 / March 1, 2006 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No.  2389 / March 1, 2006 
+ADMINISTRATIVE PROCEEDING  
+File No.   3-12225 
+ 
+In the Matter of  
+Michael A. Conway, CPA,  
+Respondent. 
+ 
+:  
+:  
+:  
+:  
+:  
+:  
+:  
+:  
+ORDER INSTITUTING PUBLIC  
+ADMINISTRATIVE PROCEEDINGS, MAKING  
+FINDINGS AND IMPOSING REMEDIAL  
+SANCTIONS PURSUANT TO RULE 102(e)  
+OF THE COMMISSION'S RULES OF PRACTICE  
+I.  
+The Securities and Exchange Commission ("Commission") deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted against 
+Respondent Michael A. Conway, CPA ("Conway" or "Respondent") pursuant to Rule 
+102(e)(3)(i) of the Commission's Rules of Practice.
+ 1  
+II.  
+In anticipation of the institution of these proceedings, Conway has submitted an Offer of 
+Settlement ("Offer"), which the Commission has determined to accept.  Solely for the purpose of 
+these proceedings and any other proceeding brought by or on behalf of the Commission or to 
+which the Commission is a party, and without admitting or denying the findings, except as to the 
+Commission's jurisdiction over the subject matter of these proceedings and as to the entry of the 
+injunction set forth in Section III, which are admitted, Conway consents to the entry of this Order 
+                                                 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+  
+     The Commission, with due regard to the public interest and without preliminary hearing, may, by order . . . 
+suspend from appearing or practicing before it any . . . accountant . . . who . . . has been by name     . . . permanently 
+enjoined by any court of competent jurisdiction by reason of his or her misconduct in an action brought by the 
+Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of 
+the rules and regulations thereunder.  
+ 
+Instituting Public Administrative Proceedings, Making Findings and Imposing Remedial 
+Sanctions Pursuant to Rule 102(e) of the Commission's Rules of Practice ("Order"). 
+III.  
+On the basis of this Order and Respondent’s Offer, the Commission finds that:  
+A. Conway, age 62, is a certified public accountant licensed in New York and was, during the 
+relevant period covered by this Order, a partner at KPMG LLP (“KPMG”).  Conway was the  co-
+engagement partner for Xerox Corporation (“Xerox” or the “Company”) for the year 2000. 
+Conway retired from KPMG in 2004.  
+B. KPMG is a national public accounting firm and, during the relevant period covered by this 
+Order, served as the independent public accountant for Xerox.  
+C. Xerox is a New York corporation with its principal place of business in Stamford, 
+Connecticut.  At all times pertinent to the period covered by this Order, the common stock of 
+Xerox was registered with the Commission pursuant to Section 12(b) of the Securities Exchange 
+Act of 1934 ("Exchange Act") and traded on the New York Stock Exchange.  Xerox’s fiscal year 
+ends on December 31. 
+D. On January 29, 2003, the Commission filed a complaint against Conway and others in the 
+United States District Court for the Southern District of New York. SEC v. KPMG LLP, et al., 
+No. 03-0671 (DLC).  On February 27, 2006, the Court entered a final judgment permanently 
+enjoining Conway from violating Sections 17(a)(2) and (3) of the Securities Act of 1933 
+(“Securities Act”) and from aiding and abetting violations of Section 13(a) of the Exchange Act 
+and Rules12b-20, 13a-1 and 13a-13 thereunder.  Conway consented to the entry of the final 
+judgment without admitting or denying the allegations of the Commission's complaint.2
+E. The Commission’s complaint alleged, among other things, that Conway violated Sections 
+17(a)(2) and (3) of the Securities Act and aided and abetted violations of Section 13(a) of the 
+Exchange Act and Rules12b-20, 13a-1 and 13a-13 thereunder.  The complaint alleged that in the 
+course of serving as the co-engagement partner for Xerox, Conway authorized the issuance of 
+the KPMG audit report that accompanied the 2000 Annual Report on Form 10-K filed by Xerox 
+with the SEC.  That audit report stated that KPMG conducted an audit of Xerox’s financial 
+statement in accordance with Generally Accepted Auditing Standards, that KPMG planned and 
+performed the audit to obtain reasonable assurance that the financial statements were free of 
+material misstatement, that KPMG assessed the accounting principles used and significant 
+estimates made by Xerox management and that it evaluated the overall consolidated financial 
+statement presentation.  The audit report further represented that, as a result of KPMG’s audit, it 
+was KPMG’s opinion that Xerox’s financial statements presented fairly, in all material respects, 
+                                                 
+2 Scienter is not required to prove violations of Sections 17(a)(2) or (3) of the Securities Act.  Aaron v. SEC, 446 
+U.S. 680, 697 (1980).  Violations of these sections may be established by showing negligence alone.  SEC v. 
+Hughes Capital Corp., 124 F.3d 449, 453-54 (3d Cir. 1997); SEC v. Steadman, 967 F.2d 636, 643 n.5 (D.C. Cir. 
+1992). 
+ 
+ 2
+Xerox’s financial position and results of operations in conformity with Generally Accepted 
+Accounting Principles.  The Complaint further alleged that each of these representations was 
+materially false and misleading or omitted to disclose material information which would make 
+the statements not false and misleading. 
+IV.  
+In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+accept Conway’s Offer of Settlement. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+A. Conway is suspended from appearing or practicing before the Commission as an 
+accountant. 
+ B. After two (2) years from the date of this order, Conway 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 Conway’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) Conway, 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) Conway, or the registered pub lic accounting firm with which he is 
+associated, has been inspected by the Board and that inspection did not identify any criticisms of 
+or potential defects in Conway’s or the firm’s quality control system that would indicate that 
+Conway will not receive appropriate supervision; 
+   (c) Conway has resolved all disc iplinary issues with the Board and has 
+complied with all terms and conditions of any sanctions imposed by the Board (other than 
+reinstatement by the Commission); and 
+ 
+   (d) Conway acknowledges his responsibility, as long as Conway 
+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 Conway 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 Conway’s character, integrity, professional conduct, or 
+qualifications to appear or practice before the Commission. 
+          By the Commission. 
+                                                                       Nancy M. Morris 
+      Secretary 
+ 
+ 
+ 4
\ No newline at end of file
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+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 53404 / March 3, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2392 / March 3, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12227 
+ 
+ 
+ 
+In the Matter of 
+ 
+ 
+ANDREW J. McADAMS, 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 Andrew J. 
+McAdams, CPA (“Respondent” or “McAdams”) pursuant to Rule 102(e)(1)(ii) of the 
+Commission’s Rules of Practice.1
+ 
+ 
+ 
+II. 
+ 
+                     
+1  Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+ The Commission may . . . deny, temporarily or permanently, the privilege of appearing or 
+practicing before it . . . to any person who is found . . . to have engaged in unethical or improper 
+professional conduct. 
+ 
+ 2
+                    
+ 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, 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 2 that:  
+ 
+A. SUMMARY 
+ 
+   Aerosonic Corporation (“Aerosonic” or “the Company”), an airplane parts 
+manufacturer located in Clearwater, Florida, recorded fictitious revenue at the direction 
+of its former Chief Executive Officer (“CEO”) and former Chief Financial Officer 
+(“CFO”) through a number of accounting schemes, including creating fraudulent 
+inventory entries and improper revenue recognition, in violation of Generally Accepted 
+Accounting Principles (“GAAP”).  As audit engagement partner on the Aerosonic audits 
+for PricewaterhouseCoopers LLP (“PwC”), McAdams supervised the audit services PwC 
+performed for Aerosonic.  PwC issued audit reports containing unqualified opinions on 
+Aerosonic’s fiscal year 1999 through 2002 financial statements, signed by McAdams.  In 
+supervising those audit services, however, McAdams failed to perform his work in 
+accordance with Generally Accepted Auditing Standards (“GAAS”) for the audits of 
+Aerosonic's financial statements for its fiscal years ended 1999 through 2002.  With 
+regard to some significant audit items in those years, 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 placed undue reliance upon former 
+senior management's representations.  McAdams thereby engaged in improper 
+professional conduct in connection with PwC’s audits of Aerosonic’s financial statements 
+within the meaning of SEC Rule 102(e).   
+ 
+B. RESPONDENT 
+ 
+ McAdams , 52, of Palm Harbor, Florida has been a PwC (or Coopers & Lybrand 
+LLP, one of PwC's predecessor firms) partner since 1985, and was the managing partner 
+of PwC's Tampa and Orlando offices from 2001 until February 2005.  From fiscal year 
+1996 to fiscal year 2002, McAdams was the engagement partner for the audits of 
+ 
+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
+Aerosonic’s year-end financial statements by PwC and Coopers & Lybrand LLP.  In 
+February 2005, McAdams became a business development partner for PwC.  McAdams 
+is a certified public accountant licensed in the State of Florida.   
+ 
+C. OTHER RELEVANT ENTITIES 
+ 
+ 1. Aerosonic is a Delaware corporation headquartered in Clearwater, 
+Florida.  Aerosonic is an airplane instruments manufacturer whose common stock is 
+registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act 
+of 1934 (“Exchange Act”).  Aerosonic's fiscal year ends on January 31st (i.e. fiscal year 
+2003 begins February 1, 2002 and ends January 31, 2003).    
+  
+2. PwC  is an accounting firm, headquartered in New York, New York.   PwC 
+audited Aerosonic’s financial statements for the fiscal years ended 1999 through 2002 (“the 
+relevant time period”), that were included by Aerosonic in its filings with the Commission 
+on Form 10-K.  PwC also performed review procedures on Aerosonic’s quarterly reports 
+on Form 10-Q. 
+ 
+D. FACTS 
+ 
+ 1. Aerosonic’s False Financial Statements
+ 
+ Aerosonic’s primary business as an airplane instruments manufacturer made 
+inventory one of its most important assets.  From fiscal year 1999 through 2002, 
+inventory was Aerosonic’s largest and fastest growing balance sheet item, at its height 
+totaling $10.9 million at year-end, and representing between 40% to 50% of total assets.  
+Inventory growth became particularly critical to Aerosonic beginning in 1999; 
+specifically, inventory levels needed to be sustained at high levels to keep the cash-
+strapped company from defaulting on millions of dollars worth of loans secured by the 
+Company’s inventory.  Aerosonic’s CEO, through his autocratic management style and 
+tight control of the Company’s finances, was determined to ensure that Aerosonic 
+recorded inventory values necessary to support its growth and outstanding debt.    
+ 
+ Beginning in 1999, Aerosonic’s CEO and CFO began managing earnings by 
+causing Aerosonic to record fictitious revenue, or avoid significant inventory write-offs, 
+through a number of revenue recognition and inventory schemes.  These accounting 
+manipulations included:  (a) overstating inventory by falsifying inventory records;  
+(b) failing to value inventory at lower of cost or market; (c) improperly capitalizing labor 
+and overhead costs into inventory; (d) failing to provide adequate reserves for obsolete 
+and slow moving inventory; and (e) inflating earnings by recording fictitious and 
+premature revenues.  The fraudulent accounting had a material impact on Aerosonic’s 
+financial statements for the relevant time period, inflating Aerosonic’s income before 
+taxes reported in its Form 10-Q and Form 10-K filings with the Commission from fiscal 
+year 1999 through the first three quarters of fiscal year 2003.    
+ 
+ 4
+ On March 17, 2003, Aerosonic’s new management disclosed that Aerosonic had 
+materially misstated financial results for its fiscal years 1999 through 2002, and for its 
+first three quarters of 2003.  In October 2003, Aerosonic restated over $8.6 million in 
+revenue and inventory-related items for its fiscal years ended 1999 through 2002, and for 
+its first three fiscal quarters of 2003. 
+ 
+ McAdams was aware, at least since 1999, that Aerosonic’s CEO dominated the 
+Company’s board of directors, management, and financial reporting, and that Aerosonic’s 
+inventory carried an inherent risk of material misstatement and was significant to the 
+balance sheet.  Since 2000, the PwC audit teams headed by McAdams also had identified 
+indications of significant weaknesses in Aerosonic’s financial accounting process, such 
+as in one year, “[an] accounting staff that was inadequate in light of the complexity and 
+size of the business.”  Yet without sufficient audit inquiry, McAdams caused PwC to 
+render an unqualified audit report on the financial statements included in Aerosonic’s 
+annual reports on Form 10-K for fiscal years ended 1999 through 2002.   
+ 
+a) Aerosonic’s Improper Inventory Accounting
+ 
+ Aerosonic’s material overstatement of its  inventory values from fiscal year 1999 
+through the first three quarters of 2003 resulted in a cumulative overstatement of 
+inventory, and corresponding understatement of expenses, totaling approximately $6.7 
+million.  Aerosonic’s reported inventory values and earnings were inflated primarily by 
+its CEO and CFO’s falsification of Aerosonic’s inventory records.  In fact, approximately 
+$4.2 million of Aerosonic’s $6.7 million inventory overstatement was the result of 
+falsified physical inventory records.  In each of those years, Aerosonic’s CEO and CFO 
+inflated inventory by manually adjusting Aerosonic’s general ledger inventory values 
+after those balances had been finalized through Aerosonic’s year-end physical inventory 
+process.   
+ 
+Aerosonic further inflated its inventory balances by failing to write down or 
+reserve sufficiently for slow moving and obsolete inventory.  Under GAAP, Aerosonic’s 
+management was required to determine reasonable estimates for its obsolete and slow 
+moving inventory, and to record appropriate write-offs and reserves based upon those 
+estimates.  Around 1997, Aerosonic’s CEO and CFO took the position that Aerosonic’s 
+inventory never became obsolete because all slow moving inventory would eventually 
+sell or be re-engineered into salable items.  Although the Company continued to record 
+an increasing reserve for obsolete and slow moving inventory, those reserves were 
+insufficient.  McAdams expressed concern about Aerosonic’s aged excess inventory to 
+Aerosonic’s CEO and CFO and to its Audit Committee as early as January 1999, and 
+PwC recommended that the Company immediately perform a comprehensive inventory 
+review.  From fiscal year 1999 through the first three quarters of fiscal year 2003, 
+however, McAdams knew that Aerosonic had never conducted the recommended 
+comprehensive inventory review.    
+  
+ 5
+ Under GAAS, McAdams was required to ensure that the Aerosonic audit teams 
+obtained sufficient competent evidential matter and not rely upon uncorroborated 
+management representations when it was inappropriate to do so. (AU §§ 333A.02, and 
+326.19a).  McAdams, however, failed to ensure that the audit teams obtained sufficient 
+competent evidential matter to support Aerosonic’s 1999 through 2002 year-end 
+inventory values.  First, McAdams failed to ensure that the audit team obtained sufficient 
+additional evidence required to support Aerosonic’s physical inventory balances after 
+noting material year-end book to physical inventory differences in fiscal years 2000 
+through 2002.  Instead, McAdams accepted former senior management's representations 
+that the book to physical inventory discrepancies were a result of the limitations in the 
+Company's inventory tracking system and that those differences should be treated as a 
+reserve.   McAdams accepted management’s representations without further 
+investigating, or requesting that Aerosonic otherwise reconcile, the discrepancies.  
+Second, McAdams knew that the Company never performed the comprehensive 
+inventory review that PwC recommended to senior management and the Audit 
+Committee in 1999.  Yet, McAdams relied too greatly upon Aerosonic's inventory reports 
+when auditing slow moving and obsolete inventory, without testing whether those reports 
+were reliable.        
+ 
+ b) Aerosonic Recorded Fictitious and Premature Revenue  
+ 
+(1) The Shreiner Transaction 
+ 
+ During Aerosonic’s fiscal years 1999 through 2002, former senior management 
+engaged in additional accounting schemes to inflate revenue.  In violation of GAAP, 
+Aerosonic improperly recognized revenue on a transaction with the Netherlands-based 
+Shreiner Company (“Shreiner”) in fiscal year 1999.  Specifically, Schreiner had 
+contracted with Aerosonic to send a payment from Shreiner to a third-party vendor, less a 
+five-percent commission paid to Aerosonic.  Rather than recording only the five-percent 
+fee, Aerosonic recognized the entire amount as revenue, and the payment through to 
+Shreiner as an expense, resulting in a material overstatement of its fiscal year 1999 
+revenue.  During Aerosonic’s fiscal year 1999 audit, the PwC audit team caught the 
+accounting error.  McAdams then proposed an adjustment to correct the error, which the 
+Company recorded.  Because McAdams did not review the journal posting for the 
+transaction, and did not otherwise obtain sufficient evidential matter to support the 
+adjustment, the audit team did not realize that the adjustment did not properly correct the 
+Company’s books as was intended and therefore was itself erroneous.  As a result, 
+Aerosonic materially overstated its fiscal year 1999 earnings. 
+ 
+ McAdams became aware of the erroneous Shreiner adjustment during 
+Aerosonic’s fiscal year 2000 audit.  Under GAAS, McAdams then had an obligation to 
+either ensure that Aerosonic restated its fiscal year 1999 financial statements, or cause 
+PwC to issue an audit report containing a qualified opinion. (AU §561.05 and .06).  
+Instead, the Company recorded a “correcting” entry for the 1999 transaction in 
+Aerosonic’s fiscal year 2000 financial statements.  This caused Aerosonic to materially 
+ 6
+misstate its financial statements for both fiscal year 1999 and fiscal year 2000.  Yet, 
+McAdams signed an unqualified report on the fiscal year 2000 financial statements and 
+did not withdraw the unqualified report previously issued on the fiscal year 1999 
+financial statements. 
+ 
+  (2) Meopta  
+ 
+ Aerosonic further violated GAAP during its fiscal years 2001 and 2002 by 
+improperly recognizing revenue and inflating inventory in connection with a sham 
+circular sale.  In the last days of its fiscal year 2001, Aerosonic sold obsolete counters to 
+a Czech company, Meopta Optika A.S. (“Meopta”), resulting in an overstatement of 
+Aerosonic’s 2001 income before taxes by $397,465, or 53%.  At or about the time of the 
+Meopta “sale,” Aerosonic’s CEO arranged for the Company to repurchase the counters at 
+an inflated price in fiscal year 2002 from Meopta’s parent company, TCI Group, over a 
+six month period in the following fiscal year.  Aerosonic placed the counters back into its 
+inventory as they were received, which artificially inflated its fiscal year 2002 inventory 
+values.  Because the transaction lacked economic substance, Aerosonic had no basis 
+under GAAP for recognizing revenue on the Meopta transaction or increasing its fiscal 
+year 2002 inventory values by the counter repurchase price. 
+  
+ McAdams knew at the time of the 2001 audit that this significant sale had 
+occurred in the last days of fiscal year 2001, and should have noted that it represented 
+over half of Aerosonic’s income before taxes for the year.  While McAdams requested 
+and obtained a written confirmation from the buyer, under the circumstances, he should 
+have done more, including, among other things, reviewing the purchase order or shipping 
+documents related to the transaction. (AU §316.27).  As a result, when Aerosonic 
+repurchased the counters in fiscal year 2002, McAdams and his audit team failed to 
+recognize warning signs that would have alerted them to the need to examine whether 
+there had been a circular sale.  If McAdams had required that the shipping and 
+purchasing documents be reviewed during the 2001 audit, during the 2002 audit he could 
+have discovered that the same number of counters that had been sold to Meopta were 
+repurchased from TCI, and that TCI's invoice letterhead carried the same address in 
+Czechoslovakia as Meopta.  McAdams’s failure to obtain sufficient competent supporting 
+evidence for the transaction constituted a departure from GAAS. 
+  
+ 2.    McAdams Did Not Adequately Plan and Perform Aerosonic’s Audits 
+ 
+For proper audit planning, GAAS requires, among other things: (1) identification 
+of areas requiring special attention, or of special concern; (2) consideration of conditions 
+that may require extension or modification of audit tests, such as the risk of material error 
+or fraud, (3) incorporation of identified risks into both audit planning and audit 
+execution, and (4) adequate communication of those risks to the audit team. (AU §§ 
+311.01, 311.03, and 311.06, and 312.17).  McAdams’ audit planning failed to comply 
+with GAAS because he did not ensure that known risks were properly incorporated into 
+PwC’s Aerosonic audit plans.  For example, McAdams failed to incorporate appropriate 
+ 7
+testing for slow moving and obsolete inventory, an area that he knew was at risk for 
+material misstatement.  He also failed to ensure that the audit plan adequately addressed 
+the audit risks presented by Aerosonic’s accounting environment, such as the CEO’s 
+autocratic personality or his domination and control of management and the board of 
+directors.  Given Aerosonic’s CEO’s personality and control, and the materiality of 
+Aerosonic’s excess inventory, McAdams failed to exercise the appropriate attitude of 
+professional skepticism and plan additional auditing procedures necessary to afford a 
+reasonable basis for an opinion on the financial statements. (AU § 333.02).   
+ 
+3. McAdams Did Not Ensure Adequate Work Paper Documentation  
+ 
+Complicating the ability of PwC’s audit team to catch Aerosonic’s fraud from 
+1999 through 2002 was the lack of audit documentation detail in prior years’ audit work 
+papers.  Under GAAS, the work papers must document audit procedures applied, tests 
+performed, information obtained, and pertinent conclusions reached in the audit 
+engagement. (AU §§ 339.02 - .03).  
+ 
+For Aerosonic’s fiscal year 1999 through 2002 audits, McAdams permitted the 
+engagement team member performing particular audit procedures to determine the level 
+of documentation detail.  McAdams directly reviewed a limited number of audit work 
+papers to determine whether procedures were completed or sufficiently documented.  In 
+fact, documentation of substantive procedures in many of the 1999 through 2002 audit 
+workpapers was inadequate.  By failing to require appropriate documentation,
+ McAdams 
+violated GAAS and impeded PwC’s ability to adequately test and determine whether 
+Aerosonic’s financial statements and adjustments complied with GAAP. 
+ 
+ 4.   McAdams did not Properly Staff and Supervise the 2002 Audit 
+ 
+ GAAS requires that audits be adequately staffed and audit assistants properly 
+supervised, and that the auditor with final responsibility (generally the audit partner) 
+assign tasks to, and supervise, any assistants. (AU §§ 150.02 and 230.06).  Ordinarily, 
+audit areas presenting higher risk require assignment of experienced personnel, or more 
+extensive supervision by the audit partner during the engagement. (AU § 312.17). 
+ 
+McAdams, as Aerosonic’s audit engagement partner, was responsible for ensuring 
+that all of the audits were properly staffed and supervised.  When the audit manager for 
+Aerosonic’s fiscal year 2002 audit began “transitioning off” that audit shortly after the 
+initial planning phase and interim audit work, McAdams was responsible for either 
+reassigning his tasks or assuming the tasks himself.  Among the departing manager’s 
+tasks that McAdams was required to assign or assume was the more detailed review of all 
+audit staff work.  McAdams, however, neither personally performed the departing 
+manager's detailed audit review nor assured that other staff performed the review, in 
+violation of GAAS. 
+ 
+E. McADAMS ENGAGED IN IMPROPER PROFESSIONAL CONDUCT 
+ 8
+ 
+ 1. McAdams Did Not Render Accurate Audit Reports on Behalf of PwC  
+ 
+ The auditor’s role is to express an opinion about whether the audited financial 
+statements fairly present in all material respects the required information in conformity 
+with GAAP.  As the audit engagement partner, McAdams caused PwC to issue audit 
+reports containing unqualified opinions on Aerosonic’s financial statements for fiscal 
+years ended 1999 through 2002, inaccurately representing that the financial statements 
+were in conformity with GAAP.  This was due to his failure to exercise due professional 
+care, as described below.  
+    
+ 2. McAdams Did Not Exercise Due Professional Care  
+   
+ GAAS’ Third General Standard provides that "due professional care is to be 
+exercised in the performance of the audit and preparation of the audit report." (AU § 
+150.02).  Among other things, due professional care requires an auditor to: (1) adequately 
+plan and properly perform the audit; (2) properly consider the audit risk that the financial 
+statements might be materially misstated; (3) obtain sufficient competent evidence to 
+support the assertions in the financial statements by, among other things, corroborating 
+management representations where appropriate; and (4) maintain an attitude of 
+professional skepticism.  As described above, McAdams failed to fulfill these 
+requirements when conducting Aerosonic’s fiscal year 1999 through 2002 audits, thereby 
+violating GAAS. 
+    
+F. FINDINGS 
+ 
+Based on the foregoing, the Commission finds that: 
+ 
+      In connection with the audits of Aerosonic’s financial statements for fiscal 
+years ended 1999 through 2002, McAdams engaged in improper professional 
+conduct pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of Practice 
+based upon 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. 
+ 9
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the 
+sanctions agreed to in Respondent McAdams’ Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+A. McAdams is denied the privilege of appearing or practicing before the 
+Commission as an accountant. 
+ 
+B. After two (2) 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, 
+ 10
+including, but not limited to, all requirements relating to registration, inspections, 
+concurring partner reviews and quality control standards.   
+ 
+C. The Commission will consider an application by Respondent to 
+resume appearing or practicing before the Commission provided that his 
+state CPA license is current and he has resolved all other disciplinary issues 
+with the applicable state boards of accountancy.  However, if state licensure 
+is dependant on reinstatement by the Commission, the Commission will 
+consider an application on its other merits.  The Commission’s review may 
+include consideration of, in addition to the matters referenced above, any 
+other matters relating to Respondent’s character, integrity, professional 
+conduct, or qualifications to appear or practice before the Commission. 
+ 
+ 
+ By the Commission. 
+ 
+ 
+       
+        N a n c y  M .  M o r r i s  
+        S e c r e t a r y  
\ No newline at end of file
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+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  53444 / March 8, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2393 / March 8, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-12231
+  
+ 
+ 
+ 
+In the Matter of 
+ 
+MICHAEL B. JOHNSON, CPA and 
+MICHAEL JOHNSON & CO., LLC, 
+ 
+Respondents. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE- 
+ AND-DESIST PROCEEDINGS PURSUANT 
+TO SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934 AND RULE 
+102(e) OF THE COMMISSION'S RULES OF 
+PRACTICE, MAKING FINDINGS, AND 
+IMPOSING REMEDIAL SANCTIONS AND 
+A CEASE-AND-DESIST ORDER 
+    
+   
+I. 
+ 
+ The Securities and Exchange Commission ("Commission") deems it appropriate that public 
+administrative proceedings and cease-and-desist proceedings be, and hereby are, instituted against 
+Michael B. Johnson ("Johnson") and Michael Johnson & Co., LLC ("Johnson & Co.") (hereinafter 
+referred to collectively as "Respondents") pursuant to Section 21C of the Securities Exchange Act 
+of 1934 ("Exchange Act") and Rule 102(e)(1)(ii) of the Commission's Rules of Practice.1   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondents have submitted Offers 
+of Settlement (the "Offer"), which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+                                                 
+1 Rules 102(e)(1)(ii) provides, in pertinent part, that the Commission may deny, temporarily or 
+permanently, the privilege of appearing or practicing before it to any person who is "found…to 
+have engaged in improper professional conduct."  
+ 2
+                                                
+herein, except as to the Commission's jurisdiction over them and the subject matter of these 
+proceedings, which are admitted, Respondents consent to the entry of this Order Instituting Public 
+Administrative and Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities 
+Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice, Making Findings, 
+and Imposing Remedial Sanctions and a Cease-and-Desist Order ("Order"), as set forth below. 
+ 
+III. 
+ 
+ On the basis of this Order and Res pondents' Offers, the Commission finds2 that: 
+ 
+1. Johnson, age 56, is a resident of Littleton, Colorado.  Johnson has been the manager 
+and sole member of Johnson & Co. and a licensed certified public accountant in Colorado since 
+1975.  He also is a licensed certified public accountant in Florida and Mississippi. 
+ 
+2. Johnson & Co. is an accounting firm locat ed in Denver, Colorado.  Johnson is the 
+only member of, and the only certified public accountant affiliated with, the firm.  
+ 
+3. Johnson & Co., through the particip ation of Johnson, audited the financial 
+statements of Winners Internet Network, Inc. ("Winners"), now known as American Television and 
+Film Company ("American"), for the years ended December 31, 1997 and 1998 and compiled 
+financial statements for the ten months ended October 31, 1998 and 1999, which were included in a 
+Form 10-SB registration statement filed by Winners with the Commission on December 23, 1999.  
+Johnson supervised the audits and compilations of these financial statements and signed the audit 
+reports for the 1997 and 1998 audits on behalf of Johnson & Co.  
+ 
+ 4. Johnson participated in the preparation and audit of Winners' December 31, 1999 
+financial statements, which were included in a current report on Form 8-K filed by Winners with the 
+Commission on May 19, 2000.  Johnson signed the resulting audit report for this audit.  In addition, 
+Johnson & Co. prepared, and Johnson and Johnson & Co. conducted reviews of, Winners' financial 
+statements for the quarters ended March 31, June 30 and September 30, 2000, versions of which 
+were included in Forms 10-QSB and 10-QSB/A filed by Winners with the Commission on 
+November 21 and 22, 2000 and December 6, 2000, respectively, under the name of Winners' wholly 
+owned subsidiary, Glennaire Financial Services, Inc. 
+ 
+ 5. Winners, a former Nevada corporation with offices in St. A ugustine, Florida and 
+the country of Liechtenstein, offered online processing of Internet gaming and other financial 
+transactions using its proprietary processing software between 1999 and June 2002.  Thereafter, 
+Winners had no operations.   
+ 
+6. In December 1999, Winners filed a general form of registration of securities of a 
+small business issuer with the Commission on Form 10-SB, which Winners withdrew before it 
+ 
+2  The findings herein are made pursuant to Respondents' Offers of Settlement and are not 
+binding on any other person or entity in this or any other proceeding.   
+ 
+ 3
+became effective.  In May 2000, Winners' common stock became registered with the Commission 
+pursuant to Section 12(g) of the Exchange Act, when Winners acquired Glennaire Financial 
+Services, Inc., a public shell whose common stock was registered with the Commission pursuant to 
+Section 12(g) of the Exchange Act, effective September 1999.  On February 26, 2004, Winners 
+terminated the registration of its common stock by filing a Form 15 with the Commission.  
+Therefore, from May 2000 to at least February 26, 2004, Winners, now American, was required to 
+file periodic reports with the Commission.  American's common stock is quoted on the National 
+Quotation Bureau's Pink Sheets.   
+ 
+7. Once its operations began in 1999, Winne rs maintained incomplete and inaccurate 
+books and records for its European operations that encompassed accounts including its software 
+asset, receivables, revenues, and the majority of its expenses and liabilities.  In connection with the 
+preparation of the financial statements identified in Paragraph 4, an employee of Johnson & Co., 
+under Johnson's supervision, made false entries to certain of Winners' accounts. 
+ 
+8. The financial statements of Winners referred to in paragraphs 3 and 4 above 
+materially overstated Winners' software asset by between $75,000 and $300,000, resulting in an 
+overstatement of total assets by between 3% and 191%, by improperly capitalizing purported 
+demonstration software costs in Winners' software asset account. 
+ 
+ 9. Winners' December 31 , 1999 financial statements, which Johnson and Johnson & 
+Co. prepared and audited and that were filed with the Commission in Winners' Form 8-K current 
+report, materially overstated Winners' software asset by approximately $421,000, by improperly 
+capitalizing operating expenses in the software asset account.  This resulted in an overstatement of 
+total assets by 416%. 
+ 
+ 10. Winners' December 31 , 1999 financial statements also materially overstated 
+Winners' licensing and processing revenues by approximately $372,000, resulting in an 
+overstatement of total revenues by 83%, and accounts receivable by approximately $533,000, 
+resulting in an overstatement of total assets by 528%, and understated expenses by $161,000, 
+resulting in a 16% understatement of total expenses, by improperly:  (a) recording licensing fees; 
+(b) recognizing receivables from licensing fees Winners had little or no chance of collecting; and 
+(c) recognizing revenue and receivables that had not been realized or earned by Winners.  These 
+overstatements enabled Winners to report net income of $5,067 instead of a net loss of over 
+$501,000. 
+ 
+ 11. Financial statements for the initial three quarters of calendar year 2000 were 
+included in Forms 10-QSB and 10-QSB/A filed by Winners with the Commission in November 
+and December 2000.  These financial statements improperly recognized a $1 million software asset 
+from a transaction that lacked economic substance, resulting in an overstatement of total assets by 
+between 73% and 2,550%. 
+ 
+ 12. Johnson & Co. issued audit reports accompanying Winners' year-end financial 
+statements for 1997 and 1998 that contained a going concern modification and an unqualified audit 
+report for 1999.  These reports falsely stated that the financial statements were presented fairly in 
+ 4
+                                                
+all material respects in conformity with Generally Accepted Accounting Principles ("GAAP") and 
+that the audits of these financial statements were conducted in accordance with Generally Accepted 
+Auditing Standards ("GAAS").  These statements were false, since portions of the underlying 
+financial statements were not presented in conformity with GAAP, which, in turn, rendered false 
+the statements that the audits were conducted in accordance with GAAS, since the failure to 
+address a deviation from GAAP in an audit report is a violation of GAAS.   
+  
+13. In addition, Johnson & Co.'s audit of Winners' 1999 financial statements was not in 
+accordance with GAAS. Among other things, by participating in both the preparation and audit of 
+these financial statements, Johnson and Johnson & Co. failed to maintain their independence from 
+Winners.  Johnson and Johnson & Co. also failed to adequately plan their audit, failed to obtain 
+competent evidential matter, failed to use due professional care, failed to properly evaluate 
+Winners' ability to continue as a going concern, and failed to adopt reasonable procedures to retain 
+audit documentation. 3 
+ 
+14. Johnson and Johnson & Co. acted recklessly in compiling, reviewing and auditing 
+the financial statements which contained the false statements described in Paragraphs 7 through 13.  
+Johnson also acted recklessly in overseeing the recording of entries to Winners' accounts for the 
+year ended December 31, 1999 and for the quarters ended March 31, June 30 and September 30, 
+2000. 
+ 
+15. As a result of the conduct described above, Johnson (a) violated 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; (b) violated Section 13(b)(5) of the Exchange Act, which, among 
+other things, prohibits any person from knowingly falsifying any book, record or account subject to 
+Section 13(b)(2) of the Exchange Act; (c) violated Rule 13b2-1, which 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; (d) caused Winners' violations of Section 13(a) of the 
+Exchange Act and Rules 12b-20, 13a-11 and 13a-13 thereunder, which require every issuer of a 
+security registered pursuant to Section 12 of the Exchange Act to file with the Commission, in 
+accordance with such rules and regulations as the Commission may prescribe as necessary or 
+appropriate for the protection of investors and to insure fair dealing in the security, such quarterly 
+and current reports as the Commission may prescribe; (e) caused Winners' violations of Section 
+13(b)(2)(A) of the Exchange Act, which requires public companies to make and keep books and 
+records which accurately and fairly reflect its transactions and dispositions of assets; and (f) 
+engaged in improper professional conduct.   
+ 
+16. As a result of the conduct described above, Johnson & Co. (a)  violated 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; (b) violated Rule 13b2-1, which prohibits any 
+person from directly or indirectly falsifying or causing to be falsified, any book record or account 
+ 
+3   According to Johnson, certain original workpapers relating to the audit of Winners' December 
+31, 1999 financial statements were missing within approximately fifteen months after completion 
+of the audit.   
+ 5
+subject to Section 13(b)(2)(A) of the Exchange Act; (c) caused Winners' violations of Section 13(a) 
+of the Exchange Act and Rules 12b-20, 13a-11 and 13a-13 thereunder, which require every issuer of 
+a security registered pursuant to Section 12 of the Exchange Act  to file with the Commission, in 
+accordance with such rules and regulations as the Commission may prescribe as necessary or 
+appropriate for the protection of investors and to insure fair dealing in the security, such quarterly 
+and current reports as the Commission may prescribe; (d) caused Winners' violations of Section 
+13(b)(2)(A) of the Exchange Act, which requires public companies to make and keep books and 
+records which accurately and fairly reflect its transactions and dispositions of assets; and (d) 
+engaged in improper professional conduct.   
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents' Offers. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+A. Effective immediately, Michael Johnson shall cease and desist from committing or 
+causing any violations and any future violations of Sections 10(b) and 13(b)(5) of the Exchange Act 
+and Rules 10b-5 and 13b2-1 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-11 
+and 13a-13 promulgated thereunder. 
+ 
+B. Effective immediately, Michael Johnson & Co. shall cease and desist from 
+committing or causing any violations and any future violations of Section 10(b) of the Exchange 
+Act and Rules 10b-5 and 13b2-1 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-11 
+and 13a-13 promulgated thereunder. 
+ 
+C. Respondent Johnson & Co. shall, within thirty (30) days of the entry of this Order, 
+pay disgorgement of $10,250 and prejudgment interest of $6,248.86 for a total of $16,498.86 to the 
+United States Treasury, representing unjust enrichment in the form of audit and other fees received 
+from Winners while Respondents engaged in the conduct described above. 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 Johnson & Co. 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 Polly Atkinson, Division of Enforcement, Securities and Exchange Commission, 1801 
+California Street, Suite 1500, Denver, Colorado  80202. 
+ 
+D. Respondents are denied the privilege of appearing or practicing before the 
+Commission as accountants pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.   
+ 
+ 6
+E. After four (4) years from the date of this order, Respondents, or either of them,  may 
+request that the Commission consider their reinstatement. 
+ 
+F. Respondent Johnson 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 
+application must satisfy the Commission that Respondent Johnson'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 application must satisfy the 
+Commission that: 
+      
+          (a) Respondent  Johnson, 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 Johnson, or the register ed 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 firm's quality control system that would 
+indicate that the respondent will not receive appropriate supervision or, if the Board has not 
+conducted an inspection, has received an unqualified report relating to his, or the firm’s, most 
+recent peer review conducted in accordance with the guidelines adopted by the former SEC 
+Practice Section of the American Institute of Certified Public Accountants Division for CPA 
+Firms; or an organization providing equivalent oversight and quality control functions;; 
+  (c) Respondent Johnson 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 Johnson acknowledges his responsibility, as long as he 
+appears or practices before the Commission as an independent accountant, to comply with all 
+requirements of the Commission and the Board, including, but not limited to, all 
+requirements relating to registration, inspections, concurring partner reviews and quality 
+control standards.   
+      
+F. Respondent Johnson & Co. may reques t that the Commission consider its 
+reinstatement by submitting an application (attention: Office of the Chief Accountant) to 
+resume appearing or practicing before the Commission as an independent accountant.  Such 
+application must satisfy the Commission that: 
+      
+ 7
+  1. Respondent Johnson & Co. is re gistered 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 Johnson & Co. has been inspected by the Board and that 
+inspection did not identify any criticisms of, or potential defects in, the firm's quality control 
+system that would indicate that any of its employees will not receive appropriate supervision, or, if 
+the Board has not conducted an inspection, has received an unqualified report relating to Johnson 
+& Co.'s most recent peer review conducted in accordance with the guidelines adopted by the 
+former SEC Practice Section of the American Institute of Certified Public Accountants Division 
+for CPA Firms; or an organization providing equivalent oversight and quality control functions;  
+ 
+3. Respondent Johnson & Co. has resolved all disciplinary issues with the 
+Board, and has complied with all terms and conditions of any sanctions imposed by the Board 
+(other than reinstatement by the Commission); and 
+ 
+4. Respondent Johnson & Co . acknowledges its responsibility, as long as it 
+appears or practices before the Commission as an independent accountant, to comply with all 
+requirements of the Commission and the Board, including, but not limited to, all requirements 
+relating to registration, inspections, concurring partner reviews and quality control standards.   
+ 
+ G. The Commission will consider an appl ication by Respondents Johnson and/or 
+Johnson & Co. to resume appearing or practicing before the Commission provided that their 
+state CPA licenses are current and they have resolved all other disciplinary issues with the 
+applicable state boards of accountancy.  However, if state licensure is dependant on 
+reinstatement by the Commission, the Commission will consider an application on its other 
+merits. The Commission's review may include consideration of, in addition to the matters 
+referenced above, any other matters relating to Respondents' character, integrity, professional 
+conduct, or qualifications to appear or practice before the Commission.   
+ 
+ 
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       N a n c y  M .  M o r r i s  
+       S e c r e t a r y  
\ No newline at end of file
diff --git a/raw/aaer/2006/AAER-2395.txt b/raw/aaer/2006/AAER-2395.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9678bdb3a72a49722f6e2adb523433e222fb9c69
--- /dev/null
+++ b/raw/aaer/2006/AAER-2395.txt
@@ -0,0 +1,93 @@
+UNITED STATES OF AMERICA
+before the
+SECURITIES AND EXCHANGE COMMISSION
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 53517 / March 20, 2006 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2395 / March 20, 2006 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12242 
+: 
+: 
+In the Matter of : ORDER INSTITUTING PUBLIC 
+: ADMINISTRATIVE 
+: PROCEEDINGS PURSUANT TO RULE 
+BRUCE G. HILL, ESQ. : 102(e) 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 
+Bruce G. Hill, Esq. (“Hill” or “Respondent”) pursuant to Rule 102(e)(3)(i) of the Commission’s 
+Rules of Practice.1 
+1Rule  102 (e)(3 )(i) pro vides , in releva nt part, tha t: 
+Th e Co mmission, with d ue reg ard to  the pu blic inter est and  withou t prelim inary he aring, m ay, by o rder , . . . 
+suspend f rom appear ing or pra cticing  befor e it  any attorney  . . . wh o has be en by name .  . . perman entl y enj oined by 
+any court of competent juris diction, by reas on of his or her misconduct in an action brought by the Commission, 
+from violati ng or aiding and abetting t he violati on of any provision of t he Federal securiti es laws or of t he rules and 
+regulations t hereunder. 
+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 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. Hill, age 42, has been an attorney licensed to practice in the Commonwealth of 
+Massachusetts. He served as vice president, secretary, and general counsel of Inso Corporation 
+from March 1994 through March 1999, and then vice president of business development from 
+March 1999 until 2000. 
+2. Inso (SEC File No. 0-23384) was, during the relevant period, a Delaware 
+corporation with its headquarters in Boston, Massachusetts.  At all relevant times, Inso was a 
+supplier of software for sharing and publishing electronic information whose common stock was 
+traded on the NASDAQ National Market System and registered with the Commission pursuant 
+to Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”). 
+3. On June 21, 2002, the Commission filed a complaint in the United States District 
+Court for the District of Massachusetts against Hill in SEC v. Bruce Hill, et al., Civil Action No. 
+02 CV 11244 (EFH) (D. Mass.). On March 2, 2006, the Court entered a final judgment by 
+consent against Hill, permanently enjoining him from violating or aiding and abetting violations 
+of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(5) 
+of the Exchange Act and Rules 10b-5, 12b-20, 13a-13, 13b2-1 and 13b2-2 thereunder.  Hill was 
+also ordered to disgorge $66,674, together with prejudgment interest of $30,362, for a total of 
+$97,036. Hill was further barred from acting as an officer or director of any publicly-traded 
+company. 
+4. The Commission’s complaint alleged, among other things, that : 
+a. Hill participated in a scheme to inflate Inso’s revenue for the quarter ended 
+September 30, 1998 (the company’s third quarter) and a subsequent cover-up of that scheme.  In 
+its Form 10-Q for the third quarter of 1998 filed with the Commission on or about November 16, 
+1998, and in a Form S-3 filed with the Commission on or about December 18, 1998, Inso falsely 
+2
+
+reported $3 million in revenue from a sham software transaction with a Malaysian distributer that 
+was purportedly entered on September 30, 1998, the last day of the third quarter.  The revenue 
+from that transaction should not have been reported in Inso’s filings with the Commission 
+because Hill and another Inso employee had an undisclosed oral side agreement with the 
+distributor which provided that Inso itself would sell the software to the end user and that the 
+distributor would not have to pay for its supposed purchase of the software.  Hill knew or was 
+reckless in not knowing that the revenue had been improperly reported.  Further, Hill later took 
+steps to conceal the sham nature of the transaction with the Malaysian distributor.  Among other 
+things, Hill orchestrated the providing of $4 million in letters of credit to the Malaysian 
+distributor to finance the payment of the third quarter receivable, caused a false board resolution 
+to be provided to Inso's bank purporting to authorize the letters of credit, and gave false 
+information to Inso's chief financial officer and outside auditors about the purpose of the letters 
+of credit. The complaint also alleged that Hill was unjustly enriched by his conduct when he 
+avoided a loss of $66,674 by selling 3,604 shares of Inso stock on or about November 23, 1998, 
+before the fraud became public. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate and in the public interest 
+to impose the sanction agreed to in Respondent Hill’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that Hill is suspended from 
+appearing or practicing before the Commission as an attorney. 
+By the Commission. 
+Nancy M. Morris 
+Secretary 
+3
diff --git a/raw/aaer/2006/AAER-2397.txt b/raw/aaer/2006/AAER-2397.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0f5fbdfca04859c7780603fc28bc86ee231db4ae
--- /dev/null
+++ b/raw/aaer/2006/AAER-2397.txt
@@ -0,0 +1,160 @@
+ UNITED STATES OF AMERICA  
+Before The  
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No.  53533 / March 21, 2006 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No.   2397 / March 21, 2006 
+ADMINISTRATIVE PROCEEDING  
+File No.   3-12244 
+ 
+In the Matter of  
+Anthony P. Dolanski, CPA  
+Respondent. 
+ 
+:  
+:  
+:  
+:  
+:  
+:  
+:  
+:  
+ORDER INSTITUTING PUBLIC  
+ADMINISTRATIVE PROCEEDINGS, MAKING  
+FINDINGS AND IMPOSING REMEDIAL  
+SANCTIONS PURSUANT TO RULE 102(e)  
+OF THE COMMISSION'S RULES OF PRACTICE 
+I.  
+The Securities and Exchange Commission (“Commission”) deems it appropriate and in the public 
+interest that public administrative proceedings be, and hereby are, instituted against Respondent 
+Anthony P. Dolanski, CPA, (“Dolanski” or “Respondent”) pursuant to Rule 102(e)(3)(i) of the 
+Commission's Rules of Practice.1  
+II.  
+In anticipation of the institution of these proceedings, Dolanski has submitted an Offer of 
+Settlement (“Offer”), which the Commission has determined to accept.  Solely for the purpose of 
+these proceedings and any other proceeding brought by or on behalf of the Commission or to 
+which the Commission is a party, and without admitting or denying the findings, except as to the 
+Commission's jurisdiction over the subject matter of these proceedings and as to the entry of the 
+injunction set forth in Section III, which are admitted, Dolanski consents to the entry of this Order 
+                                                 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+  
+     The Commission, with due regard to the public interest and without preliminary hearing, may, by  
+order . . . suspend from appearing or practicing before it any . . . accountant . . . who . . . has been by  
+name . . . permanently enjoined by any court of competent jurisdiction by reason of his or her misconduct 
+in an action brought by the Commission, from violating or aiding and abetting the violation of any 
+provision of the Federal securities laws or of the rules and regulations thereunder.  
+ 
+Instituting Public Administrative Proceedings, Making Findings and Imposing Remedial 
+Sanctions Pursuant to Rule 102(e) of the Commission's Rules of Practice (“Order”).  
+III.  
+On the basis of this Order and Respondent’s Offer, the Commission finds that:  
+A. Dolanski, age 60, was, during the relevant period covered by this Order, licensed in Pennsylvania 
+and was a partner at KPMG LLP (“KPMG”).  Dolanski was the engagement partner on KPMG’s 
+audits of the Xerox Corporation (“Xerox” or the “Company”) for the years 1995-1997.  Dolanski left 
+KPMG in 1998.  
+B. KPMG is a national public accounting firm and, during the relevant period covered by this Order, 
+served as the independent public accountant for Xerox.  
+C. Xerox is a New York corporation with its principal place of business in Stamford, Connecticut.  
+At all times pertinent to the period covered by this Order, the common stock of Xerox was registered 
+with the Commission pursuant to Section 12(b) of the Securities Exchange Act of 1934 ("Exchange 
+Act") and traded on the New York Stock Exchange.  Xerox’s fiscal year ended on December 31. 
+D. On January 29, 2003, the Commission filed a complaint against Dolanski and others in the United 
+States District Court for the Southern District of New York. SEC v. KPMG LLP, et al., No. 03-0671 
+(DLC).  On February 27, 2006, the Court entered a final judgment permanently enjoining Dolanski 
+from violating Sections 17(a)(2) and (3) of the Securities Act of 1933 (“Securities Act”) and from 
+aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 
+13a-13 thereunder.  Dolanski consented to the entry of the final judgment without admitting or 
+denying the allegations of the Commission's complaint.2
+E. The Commission’s complaint alleged, among other things, that Dolanski violated Sections 
+17(a)(2) and (3) of the Securities Act and aided and abetted violations of Section 13(a) of the 
+Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.  The complaint alleged that in the 
+course of serving as the engagement partner for Xerox, Dolanski signed on behalf of KPMG an audit 
+report that accompanied the 1997 Annual Report on Form 10-K filed by Xerox with the SEC.  That 
+audit report stated that KPMG conducted an audit of Xerox’s financial statement in accordance with 
+Generally Accepted Audit Standards, that KPMG planned and performed the audit to obtain 
+reasonable assurances that the financial statements were free of material misstatements, that KPMG 
+assessed the accounting principles used and significant estimates made by Xerox management and 
+that it evaluated the overall consolidated financial statement presentation.  The audit report further 
+represented that, as a result of KPMG’s audit, it was KPMG’s opinion that Xerox’s financial 
+condition and results of operation were fairly presented in the financial statements in conformity with 
+Generally Accepted Accounting Principles.  The Complaint further alleged that each of these 
+                                                                                                                                                 
+2 Scienter is not required to prove violations of Sections 17(a)(2) or (3) of the Securities Act.  Aaron v. 
+SEC, 446 U.S. 680, 697 (1980).  Violations of these sections may be established by showing negligence.  
+SEC v. Hughes Capital Corp., 124 F.3d 449, 453-54 (3d Cir. 1997); SEC v. Steadman, 967 F.2d 636, 643 
+n.5 (D.C. Cir. 1992). 
+ 
+  2 
+ 
+ 
+representations was materially false and misleading or omitted to disclose material information 
+which would make the statements not false and misleading.  
+IV.  
+In view of the foregoing, the Commission deems it appropriate and in the public interest to accept 
+Dolanski’s Offer of Settlement. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+            A.       Dolanski is suspended from appearing or practicing before the Commission as an 
+accountant. 
+ B. After one (1) year from the date of this order, Dolanski 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 Dolanski’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) Dolanski, 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) Dolanski, 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 Dolanski’s or the firm’s quality control system that would indicate that Dolanski 
+will not receive appropriate supervision or, if the Board has not conducted an inspection, has 
+received an unqualified report relating to his, or the firm’s, most recent peer review conducted in 
+accordance with the guidelines adopted by the former SEC Practice Section of the American Institute 
+of Certified Public Accountants Division for CPA Firms or an organization providing equivalent 
+oversight and quality control functions; 
+   (c) Dolanski has resolved all discip linary issues with the Board, and has 
+complied with all terms and conditions of any sanctions imposed by the Board (other than 
+reinstatement by the Commission); and 
+ 
+   (d) Dolanski acknowledges his responsi bility, as long as Dolanski 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, 
+  3 
+ 
+ 
+inspections, concurring partner reviews and quality control standards. 
+      
+C. The Commission will consider an application by Dolanski 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 
+Dolanski’s character, integrity, professional conduct, or qualifications to appear or practice 
+before the Commission. 
+ 
+          By the Commission. 
+                                                                       Nancy M. Morris 
+                Secretary 
+ 
+  
+  
+  
+ 
+ 
+ 
+  4 
+ 
+ 
\ No newline at end of file
diff --git a/raw/aaer/2006/AAER-2398.txt b/raw/aaer/2006/AAER-2398.txt
new file mode 100644
index 0000000000000000000000000000000000000000..940953210471bbda7315fbdfab94ab8b6eb551d3
--- /dev/null
+++ b/raw/aaer/2006/AAER-2398.txt
@@ -0,0 +1,1392 @@
+
+
+ 
+ 
+   
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+
+     
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+     SEC.gov | Savvides & Partners/PKF Cyprus, Pavlos Meletiou, R.K. Dhawan and Co., and R.K. Dhawan 
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+              Savvides & Partners/PKF Cyprus, Pavlos Meletiou, R.K. Dhawan and Co., and R.K. Dhawan
+           
+     
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+        Savvides & Partners/PKF Cyprus, Pavlos Meletiou, R.K. Dhawan and Co., and R.K. Dhawan
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19622 / March 22, 2006 
+
+ Accounting and Auditing Enforcement Release No. 2398 / March 22, 2006 
+
+  SEC 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.) 
+
+ SEC Files Fraud Action Against Savvides & Partners/PKF Cyprus, Pavlos Meletiou, R.K. Dhawan and Co., and R.K. Dhawan in Connection With Their Audits of AremisSoft Corporation 
+
+ 
+
+ On March 21, 2006, the Commission filed a civil injunctive action against accounting firms Savvides & Partners/PKF Cyprus ("PKF Cyprus") and R.K. Dhawan and Co., and two partners from those firms, Pavlos Meletiou and R.K. Dhawan, alleging that the defendants violated the federal securities laws by failing to conduct basic audit procedures in their audits of subsidiaries of AremisSoft Corporation ("AremisSoft").  AremisSoft purported to be a multinational software development and marketing company.  Its stock traded publicly on the Nasdaq National Market until trading was halted in 2001.  The fraudulent audits failed to discover that AremisSoft grossly inflated its revenues and profit.  After the fraud was exposed in 2001, AremisSoft declared bankruptcy. 
+
+ The Commission's complaint, filed in the United States District Court for the Southern District of New York, charges that PKF Cyprus, a Cyprus-based firm and a member of PKF International Ltd., issued audit reports for AremisSoft subsidiaries in 1999 and 2000 signed by Pavlos Meletiou that falsely stated that its audits were conducted in accordance with U.S. Generally Accepted Auditing Standards (U.S. GAAS) and that the subsidiaries' financial statements were fairly presented in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP).  The false financial statements of these companies were included as part of AremisSoft's consolidated financial statements filed with AremisSoft's year 1999 and 2000 Forms 10-K filed with the Commission, and in AremisSoft registration statements.  Meletiou had attended meetings with senior AremisSoft executives in which the AremisSoft financial fraud was openly discussed. 
+
+ The complaint further charges 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 its audits were conducted in accordance with U.S. GAAS and the financial statements complied with U.S. GAAP.  The companies' false financial statements were included as part of AremisSoft's consolidated financial statements filed with AremisSoft's year 2000 Form 10-K.  But five of the nine companies were never in fact acquired by AremisSoft and four were shells with insignificant assets, revenues, and income. 
+
+ In its action, the Commission seeks penalties, disgorgement of all profits realized from the unlawful conduct, with prejudgment interest, from all defendants and injunctions against all defendants prohibiting future violations of the anti-fraud, reporting, books and records, and internal control provisions of the federal securities laws (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 Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, and 13b2-1 under that Act). 
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diff --git a/raw/aaer/2006/AAER-2399.txt b/raw/aaer/2006/AAER-2399.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d1b4c1b9013b3314e46996878f19f622ff2ac784
--- /dev/null
+++ b/raw/aaer/2006/AAER-2399.txt
@@ -0,0 +1,1397 @@
+
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+ 
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+              David T. Leboe and Dale G. Rasmussen
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19623 / March 27, 2006 
+
+ Accounting and Auditing Enforcement Release No. 2399 / March 27, 2006 
+
+  Securities and Exchange Commission v. David T. Leboe and Dale G. Rasmussen , Civil Action No. H-06-1020 (SDTX) (March 27, 2006) 
+
+ SEC CHARGES TWO FORMER ENRON EMPLOYEES
+WITH VIOLATING FEDERAL SECURITIES LAWS 
+
+ David T. Leboe, Former Enron Accountant, and Dale G. Rasmussen, Former Enron Attorney, Simultaneously Settle Charges 
+
+ The Securities and Exchange Commission today charged David T. Leboe, a former Enron accountant, and Dale G. Rasmussen, a former Enron attorney, with violating the antifraud provisions of the federal securities laws and with aiding and abetting Enron's violations of the reporting and record-keeping provisions.  As alleged in the Commission's Complaint, Leboe and Rasmussen, along with others, engaged in a scheme to manipulate Enron's publicly-reported earnings, which resulted in Enron filing materially false and misleading financial statements in the company's annual report on Form 10-K for the fiscal year ended December 31, 2000, and in the company's quarterly report on Form 10-Q for the third quarter of fiscal year 2000. 
+
+ Specifically, the Commission's Complaint alleges, among other things, that Leboe and Rasmussen worked on a project known as "Coyote Springs 2," which involved the sale of a power plant development project in Oregon.  In conformity with relevant accounting rules, revenues from such a project could only be recognized over time, on a percentage of completion basis, as the construction progressed.  Subsequently, Leboe and Rasmussen, among others, carried out a scheme to circumvent the accounting rules and to recognize an immediate gain based on the appreciation in the price of the turbine generator that was to be installed at the Coyote Springs 2 power plant. 
+
+ As alleged in the Complaint, Leboe engaged in a number of improper accounting practices that materially increased Enron's annual and quarterly revenue and net income, in a departure from Generally Accepted Accounting Principles (GAAP).  These practices included, among other things, improperly accelerating the recognition of revenue from the sale of the Coyote Springs 2 construction contract, and concealing undocumented side agreements from Enron's independent auditors.  In addition, the Complaint alleges that Leboe actively sought to keep others from disclosing information to Enron's independent auditors about these side agreements.  Furthermore, the Complaint alleges that Rasmussen, the primary Enron in-house attorney working on the sale, negotiated various terms of the transaction and drafted several of the key documents.  While doing this, he worked closely with Enron's accountants to ensure that the wording in the legal documents did not jeopardize Enron's efforts to circumvent GAAP.  In addition, the Complaint alleges that Rasmussen was aware that undocumented side agreements relating to the sale were being concealed from Enron's independent auditors and that he actively sought to keep others from disclosing information to the auditors about these side agreements. 
+
+ Simultaneously with the filing of the Complaint, Leboe and Rasmussen, without admitting or denying the Commission's allegations, each consented to the entry of a final judgment that permanently enjoins each from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5 and 13b2-1 thereunder, and 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.  As part of the settlement agreements, which are subject to the approval of the U.S. District Court, each has agreed to pay nominal disgorgement of $1 and a civil penalty of $30,000.  The Commission intends to have these funds paid into a court account pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002 (Fair Fund) for ultimate distribution to victims of the fraud. 
+
+ Leboe also consented to the entry of an Administrative Order, pursuant to Rule 102(e) of the Commission's Rules of Practice, barring him from appearing or practicing before the Commission as an accountant, with a right to re-apply after five years.  Similarly, Rasmussen consented to the entry of an Administrative Order, pursuant to Rule 102(e) of the Commission's Rules of Practice, barring him from appearing or practicing before the Commission as an attorney, with a right to re-apply after three years. 
+
+ The Commission acknowledges the assistance of the U.S. Department of Justice Enron Task Force.  The Commission's investigation is continuing as to others. 
+
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diff --git a/raw/aaer/2006/AAER-2403.txt b/raw/aaer/2006/AAER-2403.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6551179da79e71ce337c7260e7de68faa7ff3844
--- /dev/null
+++ b/raw/aaer/2006/AAER-2403.txt
@@ -0,0 +1,231 @@
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  53566 / March 29, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2403 / March 29, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.   3-12249 
+ 
+ 
+In the Matter of 
+ 
+NETOPIA, INC.,  
+ 
+Respondent. 
+ 
+ORDER INSTITUTING CEASE-AND-DESIST 
+PROCEEDINGS, MAKING FINDINGS, AND 
+IMPOSING A CEASE-AND-DESIST ORDER 
+PURSUANT TO SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934  
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), against Netopia, Inc. (“Netopia” or “Respondent”).   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to 
+Section 21C of the Securities Exchange Act of 1934 (“Order”), as set forth below.   
+ 
+ 
+ 
+ 
+ 
+ 2
+III. 
+ 
+ On the basis of this Order and Responde nt’s Offer, the Commission finds that:  
+ 
+A. Summary
+ 
+1. This matter involves false financial re porting by Netopia, an Emeryville, California 
+corporation providing broadband and wireless products and services.  On two separate occasions in 
+2002 and 2003, Netopia sales personnel entered into improper side arrangements with a customer 
+making the customer’s payment obligation contingent on future events.  As a result, Netopia 
+reported significantly inflated revenue to the Commission and investors.  The first such transaction 
+allowed Netopia to report one of the largest software sales in the Company’s history, while the 
+second transaction allowed Netopia to falsely report its first profitable quarter since the quarter 
+ended June 30, 2000.   
+ 
+2  Even after senior Netopia executives learned information suggesting that revenue 
+had been improperly recognized, the company failed to take appropriate action.  In a July 6, 2004, 
+press release, Netopia falsely stated that one of the deals was being written off simply because the 
+customer had failed to pay, when in fact the customer had no obligation to pay and the revenue 
+should never have been recorded in the first place. 
+ 
+B.      Respondent
+ 
+3. Netopia, Inc. is a Delaware corporation headquartered in Emeryville, California that 
+develops, markets and supports broadband and wireless products and services including both 
+computer hardware and software.  Netopia’s common stock is registered with the Commission 
+pursuant to Section 12(g) of the Exchange Act.  Netopia was delisted from the NASDAQ Stock 
+Market on October 20, 2004 as a result of its failure to file a 10-Q for the period ended June 30, 
+2004.  Netopia stock is currently listed for quotation on the OTC Bulletin Board System.   
+ 
+C. Netopia’s Improper Revenue Recognition
+  
+Netopia’s Third Quarter 2002 Software Revenue Is Inflated By Nearly 14% 
+Due To An Improper Side Agreement With A Thinly-Capitalized Reseller.                                      
+ 
+4. In 2002, Netopia’s sales force began negotiating the company’s first sale to 
+Interface Computer Communications (“ICC”), a computer reseller which developed databases and 
+information technology infrastructure for the education sector.  On May 23, 2002, Netopia 
+obtained a purchase order from ICC for approximately $1.6 million in software and related 
+maintenance, one of the largest software sales in Netopia’s history.  Before placing the order, 
+Netopia personnel and ICC agreed that payment to Netopia was contingent upon ICC receiving its 
+payment from the school district it anticipated buying the software.  ICC’s purchase order provided 
+that ICC would make two payments, and that the second payment would be made upon receipt of a 
+purchase order from the end user.     
+ 
+ 3
+ 5. Under Generally Accepted Accounting Pr inciples (“GAAP”), revenue cannot be 
+recognized if the customer is not obligated to pay.  Upon realizing that Netopia could not recognize 
+revenue on the sale because payment was contingent upon the end user paying for the software 
+from ICC, personnel in Netopia’s sales department “whited out” the contingency language on the 
+purchase order and forwarded the altered purchase order to Netopia’s finance department.  While 
+the sales personnel altered the purchase order, they orally re-affirmed the contingency with ICC.  
+Netopia recognized approximately $1.6 million in revenue for the sale in the fiscal quarter ended 
+June 30, 2002.   
+ 
+6. In addition to the payment contingency in the side agreement, revenue recognition 
+was improper under GAAP because Netopia did not have a reasonable basis to believe that it 
+would collect from ICC.  In order to assess collectibility, among other things, Netopia performed a 
+credit check which indicated that ICC qualified for at most $15,000 in credit – far lower that the 
+$1.6 million order.  Contrary to the information available regarding collectibility, Netopia 
+recognized revenue on this sale.    
+ 
+ 7. Although ICC paid  Netopia the first installment of approximately $800,000 in June 
+2002, the remainder was paid only after ICC received payment from the school district the 
+following quarter.   
+ 
+8.  On August 14, 2002 , Netopia filed with the Commission its Form 10-Q for the 
+quarter ended June 30.  The financial statements in the Form 10-Q improperly included 
+approximately $750,000 in software license revenue from the ICC transaction.  As a result, 
+Netopia’s software revenue was inflated by 13.7% and its operating loss was understated by 13%. 
+ 
+Netopia Enters Into A Second Contingent Transaction With The Reseller, 
+Allowing The Company To Falsely Report Its First-Ever Profitable Quarter.  
+ 
+9. In late 2002, Netopia and ICC began working on a similar project for a different 
+school district.  Netopia sales personnel had forecast a $750,000 purchase order from ICC by the 
+end of the fiscal year ending September 30, 2003.  As the quarter drew to a close, however, 
+Netopia learned that ICC would not be ready to place the order because the project had increased 
+in scope and was still being negotiated.       
+ 
+10. Not wanting to lose the revenue for the quarter, Netopia sales personnel asked the 
+reseller to nonetheless submit a purchase order in the amount forecast.  On September 29, 2003, 
+ICC issued a purchase order to Netopia in the amount of $750,400.  Netopia sales personnel 
+entered into an oral side agreement providing that ICC would not pay Netopia unless and until it 
+received its payment from the end user school district.  At this point the large deal between ICC 
+and the school district was in the preliminary stages.   
+ 
+11. On October 7, 2003, ICC sent a side letter to Neto pia’s sales personnel confirming 
+the payment contingency and stating that in the event the end user decided not to purchase the 
+Netopia software, ICC would owe no money to Netopia.  The letter was not forwarded to 
+ 4
+Netopia’s finance department nor was it informed of the oral agreement, and, as a result, revenue 
+from the contingent transaction was recognized by Netopia in violation of GAAP.  
+ 
+12. On December 19, 2003, Netopia filed with the Commission its Form 10-K for the 
+fiscal year ended September 30, 2003.  The financial statements in the Form 10-K improperly 
+included approximately $750,000 in software license, maintenance and deferred revenue from the 
+second ICC transaction.  As a result, Netopia’s software revenue for the quarter was overstated by 
+16%, and the Company falsely reported operating income of $302,000 (rather than operating losses 
+of $433,000) – Netopia’s first reported quarterly profit since the quarter ended June 30, 2000. 
+ 
+Netopia Issues a Misleading Press Release After Senior Executives 
+Discover The September Side Agreement.  
+ 
+13. By April 2004, Netopi a and ICC had yet to complete the larger school district deal 
+contemplated in September 2003, and ICC had failed to make any payments on the $750,000 
+order.  Sometime thereafter, while attempting to collect the receivable, Netopia senior executives 
+learned of the side agreement making ICC’s payment contingent on payment from the school 
+district.  Nevertheless, rather than reverse the revenue from the Company’s 2003 financial 
+statements, as required by GAAP, on July 6, 2004, the Company issued a misleading press release 
+falsely describing ICC’s lack of payment as a “bad debt.”  The Company also filed the press 
+release with the Commission as an exhibit to a Form 8-K. 
+ 
+D. The Restatement and Subsequent Events
+ 
+14. On July 12, 2004, Netopi a’s Audit Committee obtained a copy of the October 7, 
+2003 side letter.  On July 22, 2004, after the close of the market, Netopia announced that it was 
+conducting an internal investigation.  The day after the Company made the announcement, its 
+stock price dropped from $4.31 to $3.60 a share (a 16% decline). 
+ 
+15. Following an internal investigation by Netopia’s audit committee, on February 1, 
+2005, Netopia restated its financial statements primarily based on the two software transactions.  
+For the first transaction, recorded as revenue in the quarter ended June 30, 2002, Netopia 
+eliminated $750,000 (of approximately $1.6 million originally recorded) of software license 
+revenue and deferred $632,000 of such revenue to the following quarter.  The elimination of the 
+revenue on the first ICC transaction alone resulted in restated revenue for software and services of 
+$4.7 million compared with previously reported revenue of $5.5 million (a 13.7% overstatement), 
+and an increase of operating losses from the previously-reported $4.9 million to $ 5.7 million (a 
+13% understatement).   For the second transaction, recorded as revenue in the quarter ended 
+September 30, 2003, Netopia eliminated software license, maintenance and deferred revenue of 
+$750,400.  This restatement of the second ICC transaction alone resulted in restated revenue for 
+software and services of $3.9 million compared with previously-reported revenue of $4.7 million 
+(a 16% overstatement) and restated operating losses of $433,000 compared to previously-reported 
+operating income of $302,000 (a 243% overstatement). 
+ 5
+ 
+ 
+E. Legal Conclusions 
+ 
+16. As a result of the conduct described above, Netopia failed to file with the 
+Commission accurate and complete reports, including Forms 10-K, 10-Q and 8-K, and filed reports 
+that failed to include material information necessary to make its statements not misleading.   
+ 
+ 17. Because Netopia improperly recorded re venue, its books, records and accounts did 
+not, in reasonable detail, accurately and fairly reflect its transactions, revenues and net income or 
+loss.  In addition, Netopia failed to implement internal accounting controls relating to its revenue 
+accounts which were sufficient to provide reasonable assurances that these accounts were 
+accurately stated in accordance with GAAP.       
+ 
+ 18. As a result of the conduct described a bove, the Company violated Sections 13(a), 
+13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 
+thereunder. 
+  
+IV. 
+ 
+ In determining to accept the Offer, the Commission considered remedial acts promptly 
+undertaken by the Respondent and cooperation afforded the Commission staff. 
+ 
+V. 
+ 
+ In view of the foregoing, the Commission deems it appropri ate accept the Offer submitted 
+by the Respondent Netopia. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+ A. Respondent Netopia cease and desist from committing or causing any violations and 
+any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 
+12b-20, 13a-1, 13a-11, and 13a-13 thereunder. 
+ 
+ 
+ 
+  
+ By the Commission. 
+ 
+ 
+ 
+       N a n c y  M .  M o r r i s  
+       S e c r e t a r y  
\ No newline at end of file
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+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 53573 / March 30, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2405 / March 30, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12251 
+ 
+ 
+In the Matter of 
+ 
+ARON R. CARR, 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 Aron R. Carr, CPA 
+(“Carr” or “Respondent”), pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.1
+II. 
+In anticipation of the institution of these proceedings, 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, Respondent consents to the entry of this Order Instituting Public 
+Administrative Proceedings Pursuant to Rule 102(e) of the Commission’s Rules of Practice, 
+Making Findings, and Imposing Remedial Sanctions (“Order”), as set forth below. 
+                                                 
+1 Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+The Commission may . . . deny, temporarily or permanently, the privilege of appearing or 
+practicing before it . . . to any person who is found . . . to have engaged in unethical or improper 
+professional conduct. 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds2 that: 
+ 
+A. RESPONDENT 
+Aron R. Carr, age 30, was formerly a manager at KPMG.  He joined KPMG in 1997 and 
+became a manager in September 2002.  He was a senior auditor on the FY 2002 audit of Tenet 
+Healthcare Corporation (“Tenet”).  Carr is, and at all relevant times was, a certified public 
+accountant licensed in the State of Texas. 
+B. FACTS 
+1. Tenet Healthcare Corporation 
+Tenet owns and operates acute care hospitals and related health care services.  As of May 
+31, 2002 (Tenet’s fiscal year end), Tenet was the second-largest investor-owned hospital 
+company in the United States, owning or operating 116 hospitals nationwide.  Through FY 2002, 
+Tenet’s fiscal year ended on May 31.  At the end of the fourth quarter of FY 2002, Tenet 
+announced that the fourth quarter was the tenth straight quarter that its earnings growth had 
+exceeded 20%, the seventh in a row in which earnings growth had exceeded 25%, and the fifth in 
+a row in which earnings growth exceeded 30%. 
+Tenet had achieved these results through the use of an undisclosed aggressive charge 
+strategy that it began using in FY 2000.  Pursuant to this strategy, Tenet had aggressively 
+increased its gross charges (that is, its listed retail prices) for the purpose of meeting its 
+management-determined earnings targets.  Most hospital revenue typically consists of fixed fee 
+payments determined by government payors or by contracts with managed care companies, 
+which are not affected by increases in gross charges.  Gross charges, however, have a direct 
+impact on Medicare outlier payments and managed care stop loss payments.3  Tenet 
+implemented its undisclosed aggressive pricing strategy to trigger substantial increases in 
+revenue from Medicare outlier payments and stop loss payments. 
+From April 1999 through April 2002, Tenet hospitals raised charges, on average, over 
+75%.  This resulted in a significant growth in outlier revenue for Tenet from $225 million in FY 
+1999 to $758 million in FY 2002, and had a dramatic impact on the company’s earnings.  
+                                                 
+2  The findings herein are made pursuant to Respondent’s Offer and are not binding on any other 
+person or entity in this or any other proceeding. 
+ 
+3 Medicare outlier payments are supplemental payments designed to compensate hospitals for 
+treating extraordinarily sick Medicare patients.  Calculating outlier payments involves various 
+steps, but the starting point for these calculations is the gross charges set by a hospital.  Stop loss 
+payments are analogous to Medicare outlier payments but arise in the managed care context.  
+Stop loss payments typically are a percentage of the gross charges and are triggered after gross 
+charges reach a certain level. 
+ 2
+Tenet’s outlier revenue in 1999 represented about 27% of its earnings per share from operations 
+and jumped to 41% when Tenet’s outlier revenue topped $758 million in FY 2002. 
+From FY 2000 through FY 2002, Tenet’s filings with the Commission contained no 
+reference to Tenet’s aggressive pricing strategy of raising gross charges for the purpose of 
+increasing revenue from Medicare outlier payments.  No information was disclosed about the 
+growth trend in outlier payments, the impact of gross charges on Tenet’s revenue, or the 
+sustainability of its aggressive pricing strategy. 
+On October 28, 2002, an industry analyst from UBS Warburg published two reports 
+disclosing that Tenet’s earnings growth had been driven by dramatically increasing outlier 
+payments (the “UBS Reports”).  The industry analyst correctly hypothesized that Tenet fueled 
+the growth in outlier payments by significantly increasing its gross charges.  The publication of 
+the UBS Reports and Tenet’s subsequent reaction to it contributed to a loss of market 
+capitalization of more than $11 billion. 
+2. KPMG’s FY 2002 Audit of Tenet’s Financial Statements 
+Tenet’s FY 2002 Form 10-K included its FY 2002 financial statements along with 
+KPMG’s audit report containing an unqualified opinion stating that KPMG performed an audit in 
+accordance with Generally Accepted Auditing Standards (“GAAS”).  In August 2002, the 
+KPMG audit partner, Clete D. Madden (“Madden”), signed and authorized the release of this 
+audit report.  Before issuing the audit report, Madden specifically verified, in the working papers, 
+that the working papers were complete, when in fact the working papers and audit were not 
+substantially complete. 
+3. The Improper Modification of Working Papers 
+The working papers of an audit are the principal record of the work done and the 
+conclusions reached during the audit.  See AU § 339.  Shortly after the publication of the UBS 
+Reports in October 2002, Madden began modifying the working papers by adding comments 
+about outlier payments.  He also assembled his audit team and instructed them to “clean up” the 
+working papers.  Madden continued to modify working papers, and directed the audit team to 
+modify working papers, even after learning in November 2002 that the Department of Health and 
+Human Services (“DHHS”) and the Commission’s staff were separately investigating Tenet and 
+its outlier payments.4
+a. Improper Changes to Complete the FY 2002 Audit 
+The audit team, including Carr, spent over 500 hours changing the working papers in 
+November and December 2002.  The audit team modified more than 350 working papers from 
+the FY 2002 audit, including adding nine references to outlier payments.  The audit team made 
+these modifications months after Madden signed and authorized the release of the audit report on 
+Tenet’s FY 2002 financial statements.  Because of the modifications made by the audit team, it is 
+                                                 
+4 The Commission has issued a separate order addressing the conduct of the partner and senior 
+manager on the Tenet audit engagement. 
+ 3
+impossible to determine the actual condition of all of the working papers at the time that the FY 
+2002 audit report was issued. 
+The modifications include documenting procedures that the audit team performed in 
+November 2002 giving the impression that additional work was done before the issuance of the 
+audit report.  For example, in November 2002, a staff member created a working paper 
+documenting an assessment of the risk of material financial statement misstatement due to fraud.  
+GAAS required that this assessment and documentation be done before the issuance of the audit 
+report.  See AU § 316 (2000).  Carr (as well as Madden and the senior manager) then backdated 
+his signatures on this document, giving the false impression that he had reviewed and signed this 
+document before the issuance of the audit report. 
+b. After-the-fact Creation of the FY 2001 Audit Compliance Binder 
+During November 2002, Carr also improperly created eight documents that together 
+comprise what the auditors referred to as the Compliance Binder, and that related to the FY 2001 
+audit.  Carr was a manager when he improperly created the Compliance Binder.  The purpose of 
+the Compliance Binder was to document the procedures that tested Tenet’s healthcare 
+compliance function.  The audit team purportedly relied on the fact that Tenet was closely 
+monitoring its compliance policies to conclude that the risk of financial statement misstatement 
+due to fraud was mitigated. 
+Carr created the FY 2001 Compliance Binder by copying certain working papers from 
+either the FY 2000 or the FY 2002 Compliance Binder and placing the copies in the FY 2001 
+Compliance Binder.  Carr did not do any of the substantive work detailed in the FY 2001 
+Compliance Binder and did not know what work, if any, was performed.  Carr also misleadingly 
+created an altered “ethics” document and placed it in the FY 2001 Compliance Binder.  Tenet 
+provided a “FY 2002 Ethics Program Attendance Sheet” to the audit team during the FY 2002 
+Audit.  In November 2002, Carr copied the sheet and placed it in the FY 2001 Compliance 
+Binder.  However, because Tenet’s document was titled “FY 2002 Ethics Program Attendance 
+Sheet,” Carr covered up that title and pasted the title “FY 2001 Ethics Program Attendance 
+Sheet” onto the document before he copied it.  Even though Carr created the Compliance Binder 
+in November 2002, he placed the date of July 2001 on each working paper that made up the 
+binder. 
+C. THE RESPONDENT ENGAGED IN IMPROPER PROFESSIONAL CONDUCT 
+WITHIN THE MEANING OF RULE 102(e) OF THE COMMISSION’S RULES 
+OF PRACTICE 
+Rule 102(e)(1)(ii) of the Commission’s Rules of Practice provides, in part, that the 
+Commission may censure or deny, temporarily or permanently, the privilege of appearing or 
+practicing before it to any person who is found by the Commission to be lacking in character or 
+integrity, or to have engaged in improper professional conduct.  Rule 102(e)(1)(iv) defines 
+improper professional conduct with respect to persons licensed as accountants. 
+As applicable here, improper professional conduct means a “single instance of highly 
+unreasonable conduct that results in a violation of applicable professional standards in 
+ 4
+circumstances in which an accountant knows, or should know, that heightened scrutiny is 
+warranted.”  Rule 102(e)(1)(iv)(B)(1).  As explained herein, Carr acted highly unreasonably in 
+failing to comply with GAAS by improperly modifying and creating working papers. 
+GAAS states that the working papers are the principal record of the work done and the 
+conclusions reached during an audit.  AU § 339.  The working papers should document that the 
+auditor has adequately planned and supervised the work, gained a sufficient understanding of 
+internal controls, and obtained sufficient competent evidential matter to afford a reasonable basis 
+for an opinion.  AU § 339.05 (2000).  It follows from the AU § 339 requirements on working 
+papers “that any addition, deletion, or modification to the working papers after they have been 
+finalized in connection with the completion of the audit may be made only with appropriate 
+supplemental documentation, including an explanation of the justification for the addition, 
+deletion or modification.”5  The Commission has previously stated, “Working papers prepared or 
+collected by auditors in the course of an audit provide the single most important support for their 
+representation regarding compliance with [GAAS].  They serve as the repository for the 
+competent evidential matter necessary to afford the auditors with a reasonable basis for opining 
+on an issuer’s financial position.…  It is therefore imperative that auditors preserve their working 
+papers in a complete and unaltered form.”6
+As a result of the conduct described above, Carr violated applicable professional 
+standards by inappropriately modifying working papers and improperly creating the FY 2001 
+Compliance Binder to evidence audit procedures that Carr knew or reasonably should have 
+known were not performed.  Carr also violated these applicable professional standards by 
+misleadingly creating a document and placing it in the working papers. 
+D. FINDINGS 
+Based on the foregoing, the Commission finds that the Respondent engaged in improper 
+professional conduct within the meaning of Rule 102(e)(1)(ii) of the Commission’s Rules of 
+Practice.  Specifically, by altering the working papers after the issuance of the audit report, after 
+the publication of the UBS Reports, and after government investigators began looking at Tenet, 
+Respondent engaged in highly unreasonable conduct that resulted in a violation of applicable 
+professional standards in circumstances in which he knew, or should have known, that 
+heightened scrutiny was warranted. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in the Offer made by Respondent. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+A. Carr is denied the privilege of appearing or practicing before the Commission as an 
+accountant. 
+                                                 
+5 In re Fiedelman, SEC Rel. No. 48578 (Oct. 1, 2003). 
+6 In re Leidesdorf & Co., SEC Rel. No. 13268 (Feb. 16, 1977). 
+ 5
+B. After three years from the date of this Order, Carr 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. 
+ 6
+C. The Commission will consider an application by Respondent to resume appearing or 
+practicing before the Commission provided that his state CPA license is current and he has resolved 
+all other disciplinary issues with the applicable state boards of accountancy.  However, if state 
+licensure is dependent on reinstatement by the Commission, the Commission will consider an 
+application on its other merits.  The Commission’s review may include consideration of, in addition 
+to the matters referenced above, any other matters relating to Respondent’s character, integrity, 
+professional conduct, or qualifications to appear or practice before the Commission. 
+ By the Commission. 
+ 
+ 
+ 
+       N ancy M. Morris 
+       S ecretary 
+ 7
\ No newline at end of file
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+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 53574 / March 30, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2406 / March 30, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12252 
+ 
+ 
+In the Matter of 
+ 
+CLETE D. MADDEN, CPA, and 
+DAVID L. HUFFMAN, CPA, 
+ 
+Respondents. 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+PURSUANT TO RULE 102(e) OF THE 
+COMMISSION’S RULES OF 
+PRACTICE, MAKING FINDINGS, AND 
+IMPOSING REMEDIAL SANCTIONS 
+ 
+ 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that 
+public administrative proceedings be, and hereby are, instituted against Clete D. Madden, CPA 
+(“Madden”), and David L. Huffman, CPA (“Huffman”) (collectively, “Respondents”), pursuant 
+to Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.
+1
+II. 
+In anticipation of the institution of these proceedings, Respondents have each 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, Respondents consent to the entry of this Order Instituting Public 
+Administrative Proceedings Pursuant to Rule 102(e) of the Commission’s Rules of Practice, 
+Making Findings, and Imposing Remedial Sanctions (“Order”), as set forth below. 
+                                                 
+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. 
+III. 
+On the basis of this Order and Respondents’ Offers, the Commission finds2 that: 
+ 
+A. SUMMARY 
+These proceedings arise out of the failed audit of Tenet Healthcare Corporation’s 
+(“Tenet”) fiscal year (“FY”) 2002 financial statements and the auditors’ after-the-fact 
+modifications to the working papers creating the false impression that the audit had been 
+adequately performed.  Clete Madden, who was the KPMG partner in charge of the Tenet audit 
+engagement, failed to complete the audit and then participated in and directed the after-the-fact 
+modifications.  David Huffman, the senior manager on the Tenet audit engagement, shares 
+responsibility for the audit failure and also participated in and directed the after-the-fact 
+modifications. 
+In August 2002, Madden released an audit report containing an unqualified opinion 
+stating that KPMG had performed an audit in accordance with Generally Accepted Auditing 
+Standards (“GAAS”).  When the audit report was released, however, Madden and Huffman 
+knew, or reasonably should have known, that several procedures in critical audit areas had not 
+been completed.  Tenet included the audit report in its FY 2002 Form 10-K, which failed to 
+disclose that Tenet’s substantial earnings growth was driven by an aggressive pricing strategy 
+designed to trigger an increase in outlier payments, a component of Medicare revenue.  Many of 
+the unfinished audit procedures concerned outlier revenue even though Madden had identified 
+Tenet’s disclosure deficiency in this area. 
+In October 2002, an industry analyst discovered that Tenet was exploiting the Medicare 
+program through its aggressive pricing strategy.  The publication of the analyst’s reports in late 
+October 2002 contributed to a 47% loss (more than $11 billion) in Tenet’s market capitalization.  
+Government investigators, including the Commission’s staff, then began looking at Tenet, its 
+strategy, and its Medicare outlier revenue.  In November 2002, the Tenet audit team, led by 
+Madden and Huffman, began modifying the working papers from the FY 2002 audit, despite 
+public knowledge of the analyst’s report, the dramatic decrease in Tenet’s market value, and the 
+pending government investigations.  More than 350 working papers were modified and nine of 
+the ten references to outlier payments in the working papers were added in November and 
+December of 2002.  Almost none of these improper modifications provide any indication that 
+they had been made more than three months after the issuance of the FY 2002 audit report.  
+Huffman went even further by signing off on audit evidence for the FY 2001 audit that he knew, 
+or should have known, was improperly created in November 2002.  After spending more than 
+500 hours modifying the working papers in late 2002, the audit team went on to make further 
+improper changes to the FY 2002 working papers after receiving a Commission subpoena in July 
+2003.  The net effect of the improper, after-the-fact modifications is that the working papers 
+inaccurately reflect (1) that the Tenet audit was complete when the audit report was issued, and 
+(2) that Madden had sufficiently considered Tenet’s outlier revenue growth and determined that 
+Tenet did not need to disclose that trend. 
+                                                 
+2  The findings herein are made pursuant to Respondents’ Offers and are not binding on any other 
+person or entity in this or any other proceeding.
+ 2
+The failure to timely complete the FY 2002 Tenet audit and the after-the-fact 
+modification of the working papers violated GAAS.  As such, Madden and Huffman engaged in 
+improper professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of 
+Practice. 
+B. RESPONDENTS 
+1. Clete D. Madden, age 45, was formerly a partner at KPMG.  From 1995 through 
+2003, Madden worked on KPMG’s audit of Tenet Healthcare Corporation and was the KPMG 
+engagement partner in charge of the FY 2002 audit.  Madden is, and at all relevant times was, a 
+certified public accountant licensed in the state of Texas and was licensed by California from 
+2002 through 2004. 
+2. David L. Huffman, age 39, was formerly a senior manager at KPMG.  From 1998 
+through 2003, he was the senior manager on KPMG’s audit of Tenet Healthcare Corporation.  
+Huffman is, and at all relevant times was, a certified public accountant licensed in the State of 
+Texas. 
+C. FACTS 
+1. Tenet Healthcare Corporation 
+Tenet owns and operates acute care hospitals and related health care services.  As of May 
+31, 2002 (Tenet’s fiscal year end), Tenet was the second-largest investor-owned hospital 
+company in the United States, owning or operating 116 hospitals nationwide.  Through FY 2002, 
+Tenet’s fiscal year ended on May 31.  At the end of the fourth quarter of FY 2002, Tenet 
+announced that the fourth quarter was the tenth straight quarter that its earnings growth had 
+exceeded 20%, the seventh in a row in which earnings growth had exceeded 25%, and the fifth in 
+a row in which earnings growth exceeded 30%. 
+Tenet had achieved these results through the use of an undisclosed aggressive charge 
+strategy that it began using in FY 2000.  Pursuant to this strategy, Tenet had aggressively 
+increased its gross charges (that is, its listed retail prices) for the purpose of meeting its 
+management-determined earnings targets.  Most hospital revenue typically consists of fixed fee 
+payments determined by government payors or by contracts with managed care companies, 
+which are not affected by increases in gross charges.  Gross charges, however, have a direct 
+impact on Medicare outlier payments and managed care stop loss payments.3  Tenet 
+implemented its undisclosed aggressive pricing strategy to trigger substantial increases in 
+revenue from Medicare outlier payments and stop loss payments. 
+                                                 
+3 Medicare outlier payments are supplemental payments designed to compensate hospitals for 
+treating extraordinarily sick Medicare patients.  Calculating outlier payments involves various 
+steps, but the starting point for these calculations is the gross charges set by a hospital.  Stop loss 
+payments are analogous to Medicare outlier payments but arise in the managed care context.  
+Stop loss payments typically are a percentage of the gross charges and are triggered after gross 
+charges reach a certain level. 
+ 3
+From April 1999 through April 2002, Tenet hospitals raised charges, on average, over 
+75%.  This resulted in a significant growth in outlier revenue for Tenet from $225 million in FY 
+1999 to $758 million in FY 2002, and had a dramatic impact on the company’s earnings.  
+Tenet’s outlier revenue in 1999 represented about 27% of its earnings per share from operations 
+and jumped to 41% when Tenet’s outlier revenue topped $758 million in FY 2002. 
+From FY 2000 through FY 2002, Tenet’s filings with the Commission contained no 
+reference to Tenet’s aggressive pricing strategy of raising gross charges for the purpose of 
+increasing revenue from Medicare outlier payments.  No information was disclosed about the 
+growth trend in outlier payments, the impact of gross charges on Tenet’s revenue, or the 
+sustainability of its aggressive pricing strategy. 
+On October 28, 2002, an industry analyst from UBS Warburg published two reports 
+disclosing that Tenet’s earnings growth had been driven by dramatically increasing outlier 
+payments (the “UBS Reports”).  The industry analyst correctly hypothesized that Tenet fueled 
+the growth in outlier payments by significantly increasing its gross charges.  The publication of 
+the UBS Reports and Tenet’s subsequent reaction to it resulted in a loss of market capitalization 
+of more than $11 billion. 
+2. KPMG’s FY 2002 Audit of Tenet’s Financial Statements 
+Tenet’s FY 2002 Form 10-K included its FY 2002 financial statements along with 
+KPMG’s audit report containing an unqualified opinion stating that KPMG performed an audit in 
+accordance with GAAS.  In August 2002, Madden signed and authorized the release of this audit 
+report.  Before issuing the audit report, Madden and Huffman specifically verified in KPMG’s 
+required “Audit Checklist,” which is part of the working papers, that the working papers were 
+complete, when, in fact, they knew, or reasonably should have known, that the working papers 
+and audit were not substantially complete. 
+a. Failure to Adequately Assess Fraud and Audit Risks 
+GAAS required Madden and Huffman to assess the risk of material financial statement 
+misstatement due to fraud and design audit procedures accordingly, and to document such work 
+in the working papers.  See AU § 316 (2000).  Madden and Huffman did not complete this 
+assessment and documentation until November 2002, three months after the issuance of the audit 
+report. 
+GAAS also required Madden and Huffman to consider audit risk and design audit 
+procedures adequate to address that risk.4  See AU § 312.  Accordingly, Madden and Huffman 
+needed to assess the risk that Tenet’s internal controls would not prevent or timely detect a 
+material misstatement.  Madden and Huffman did not adequately assess this risk before the 
+issuance of the audit report. 
+The mandatory procedures outlined in the Audit Checklist required that, before releasing 
+the audit report, Madden and Huffman confirm that they had reviewed the working paper 
+                                                 
+4 “Audit Risk” refers to the risk that the auditor may unknowingly fail to appropriately modify 
+his opinion on financial statements that are materially misstated. 
+ 4
+documenting the assessment of the risk of material financial statement misstatement due to fraud.  
+The Audit Checklist also required Madden to confirm that he had “reviewed working papers for 
+critical audit objectives.” Madden and Huffman signed the Audit Checklist before the audit 
+report was issued.  At the time the report was issued, Madden and Huffman knew, or reasonably 
+should have known, that they had failed to sufficiently assess fraud risk and audit risk during the 
+audit, as required by GAAS. 
+b. Failure to Complete Analytical Procedures in Critical Audit Areas 
+GAAS requires auditors to use analytical procedures for planning the audit and ensuring 
+at the end of the audit that the work performed was sufficient.  See AU § 329.  GAAS provides 
+that analytical procedures can also be used to perform substantive testing of account balances 
+and are an important part of the audit process.  See id.  Madden and Huffman, however, failed to 
+review and ensure that the audit team had finished the following analytical procedures in critical 
+audit areas before issuing the August 2002 audit report:  (1) testing the annual EBIT (“Earnings 
+Before Interest and Taxes”) variances at certain Tenet hospitals and evaluating significant 
+unexplained differences, and (2) reviewing and testing accounts receivable balances at all Tenet 
+hospitals. 
+GAAS required Madden and Huffman to ensure that the analytical work was performed 
+and reviewed to determine whether it was adequate and the results consistent with the audit 
+report.  AU § 311.  Because analytical procedures are an important and required part of an audit, 
+KPMG’s Audit Checklist required that Madden and Huffman review the documentation of 
+analytical procedures before the release of the audit report.  Madden and Huffman confirmed on 
+the Audit Checklist that they had each reviewed the documentation of analytical procedures 
+when, in fact, they had not done so.  As such, Madden and Huffman knew, or reasonably should 
+have known, that required and important analytical procedures were not completed and reviewed 
+before the audit report was issued. 
+c. Failure to Address Concerns about Tenet’s Disclosures 
+During the planning and performance of the FY 2002 audit, Madden was aware of 
+Tenet’s aggressive pricing strategy.  Further, if Madden and Huffman had substantially 
+completed the audit before the issuance of the audit report and, specifically if they had done the 
+work identified above, they would have more completely understood the importance of and 
+issues concerning outlier payments and Tenet’s aggressive pricing strategy. 
+In March 2002, Madden learned from the chief financial officers at two Tenet hospitals 
+that some of Tenet’s earnings growth was driven principally by increases in outlier payments 
+that, in turn, were triggered by gross charge increases.  Also in March 2002, Madden told Tenet’s 
+Chief Accounting Officer (“CAO”) that Tenet should consider disclosing the amount of stop loss 
+and outlier payments received by Tenet because those lines of revenue were impacted by gross 
+charge increases.  The CAO immediately dismissed Madden’s suggestion.  Before releasing the 
+audit report, Madden, as required by GAAS, reviewed Tenet’s draft FY 2002 Form 10-K 
+Management’s Discussion and Analysis (“MD&A”).  Madden made a note on the MD&A draft 
+to convey the message to the CAO that the reimbursement resulting from the aggressive pricing 
+ 5
+strategy might constitute a trend that needed to be disclosed.  The CAO made no changes to 
+Tenet’s MD&A disclosure after receiving Madden’s note. 
+After sending the marked-up version of the MD&A draft to the CAO, Madden told Tenet 
+senior management that the audit team had reviewed the document and that they did not have 
+any additional matters that needed to be incorporated into the document before filing.  After 
+identifying inadequacies in Tenet’s MD&A, Madden violated GAAS by accepting the CAO’s 
+rebuff and failing to take further action, such as expressing his concerns to a higher level at 
+Tenet.  See AU §§ 550, 380.12. 
+3. The Improper Modification of Working Papers 
+The working papers of an audit are the principal record of the work done and the 
+conclusions reached during the audit.  See AU § 339.  Shortly after the publication of the UBS 
+Reports in October 2002, Madden began modifying the working papers by adding comments 
+about outlier payments.  He also assembled his audit team, including Huffman, and instructed 
+them to “clean up” the working papers.  In all, 18 members of the audit team spent over 500 
+hours changing the working papers in November and December 2002. 
+They modified more than 350 working papers, including adding nine references to outlier 
+payments.  In addition to creating the substantive comments about outlier revenue, the “clean-
+up” included preparing new working papers documenting (1) audit procedures that the audit 
+team started prior to August 2002 but did not complete until months after the issuance of the 
+audit report, (2) audit work that the audit team started after October 2002, and (3) audit 
+procedures that were never performed.  Almost all of the working paper modifications made by 
+the audit team fail to include any information revealing that the change or addition occurred after 
+the issuance of the audit report.  In fact, almost all of the newly created and modified working 
+papers were given a date before the issuance of the audit report. 
+Madden and Huffman continued to modify working papers, and directed the audit team to 
+modify working papers, even after learning in November 2002 that the Department of Health and 
+Human Services (“DHHS”) and the Commission’s staff were separately investigating Tenet and 
+its outlier payments.  Neither Madden nor Huffman raised any questions as to whether they 
+should continue modifying working papers in light of the pending government investigations.  
+Because of the modifications made and directed by Madden and Huffman, it is impossible to 
+determine the actual condition of all of the working papers at the time that the FY 2002 audit 
+report was issued. 
+a. Improper Changes Concerning Outlier Payments 
+In August 2002, before Madden released the report for the FY 2002 audit, the working 
+papers only had one indirect reference to outlier payments.   Starting in November 2002, after the 
+publication of the UBS Reports, Madden and his audit team added nine comments about outlier 
+payments.  Madden added comments documenting (1) the aggressive pricing strategy, (2) 
+Madden’s conversations with Tenet personnel concerning outlier payments, and (3) that the 
+growth in outlier payments explained or validated improved financial measurements, such as 
+EBIT, at various hospitals.  Huffman also reviewed most of the comments about outlier 
+ 6
+payments.  Huffman made changes to some of the comments or initialed working papers 
+containing the comments to evidence his review of the working papers. 
+No one on the audit team dated any of the nine comments added concerning outlier 
+payments.  These comments about outlier payments created the false impression that Madden 
+had concluded, during the audit, that Tenet’s aggressive pricing strategy and the resulting 
+increase in outlier payments did not need to be disclosed.  Huffman did not date any of his 
+review notations. 
+b. Improper Changes to Complete the FY 2002 Audit 
+Madden and his team also performed and then documented procedures in November 
+2002 giving the impression that other work was finished and reviewed before the issuance of the 
+audit report.  For example, in November 2002, Madden instructed an audit staff member to 
+create a working paper documenting an assessment of the risk of material financial statement 
+misstatement due to fraud.  Madden and Huffman then backdated their signatures on this 
+document, giving the false impression that they had reviewed and signed this document before 
+the issuance of the audit report. 
+As another example, the audit team also finalized the hospital site visit procedures on or 
+after November 2002.  Hospital site visit procedures were an important component in assessing 
+audit and fraud risk by assessing the efficacy of Tenet’s internal controls to identify, among other 
+things, significant business risks and significant or unusual accounting or reporting issues.  
+Although field work had been performed at fifteen hospitals before issuance of the audit report, 
+the audit team managers had not completed their review of the field work and follow-up work for 
+twelve of those hospital site visits as of November 2002.  But the modified working papers 
+showed that the audit team completed all of the work and that Huffman and other managers 
+finished reviewing all of the site visit working papers, without noting that a substantial portion of 
+the review and some of the follow-up work occurred after the issuance of the audit report. 
+In November 2002, certain staff members of the audit team finished the analytical review 
+procedures concerning the analysis of the annual EBIT variances at certain Tenet hospitals and 
+the analytical review procedures reviewing and testing accounts receivable balances at all Tenet 
+hospitals.  These staff members, however, placed the date of July 2002 on these working papers.  
+Madden and Huffman first reviewed these working papers, and added undated comments, in or 
+after November 2002. 
+c. After-the-fact Creation of the FY 2001 Audit Compliance Binder 
+During November 2002, another manager on the Tenet audit engagement team 
+improperly created eight documents that together comprise what the auditors referred to as the 
+Compliance Binder, and that related to the FY 2001 audit.  The purpose of the Compliance 
+Binder was to document the procedures that tested Tenet’s healthcare compliance function.  The 
+audit team purportedly relied on the fact that Tenet was closely monitoring its compliance 
+policies to conclude that the risk of financial statement misstatement due to fraud was mitigated.  
+The other manager created the FY 2001 Compliance Binder by copying certain working papers 
+from either the FY 2000 or the FY 2002 Compliance Binder and placing the copies in the FY 
+ 7
+2001 Compliance Binder.  The other manager did not do any of the substantive work detailed in 
+the FY 2001 Compliance Binder and did not know what work, if any, was performed.  Even 
+though the other manager created the Compliance Binder in November 2002, he placed the date 
+of July 2001 on each working paper that made up the binder.  To indicate that he had reviewed 
+the FY 2001 Compliance Binder, Huffman initialed each of the working papers in the binder 
+without dating any of his initials when he knew or should have known that the other manager 
+had recently created the binder. 
+d. Improper Changes after KPMG’s Receipt of a Commission Subpoena 
+On June 30, 2003, the Commission staff informed KPMG that the staff was issuing a 
+subpoena for working papers from the Tenet audits.  On July 1, 2003, KPMG in-house counsel 
+gave notice by e-mail to certain employees and partners, including Madden and Huffman, that a 
+subpoena was about to be received and to take all steps necessary to “retain and preserve” 
+documents related to Tenet.  KPMG’s Audit Manual at the time stated: “We make no 
+modifications to our working papers if such working papers are the subject of a subpoena 
+directed to KPMG.” 
+Madden and Huffman received notice of the expected subpoena at about the same time 
+that they had planned to perform further “clean up” of the working papers.  Upon receiving the 
+notice, Madden and Huffman discussed what instruction they should provide to the audit team 
+concerning the clean up efforts.  Madden and Huffman informed the audit team that they should 
+not destroy or discard any document relating to the audit.  However, in contravention of 
+KPMG’s policy and in disregard of in-house counsel’s instruction, Madden and Huffman 
+decided that the audit team could continue modifying working papers.  Huffman then instructed 
+the other members of the audit team accordingly.  Several of the audit team members added 
+initials or other comments to the working papers after receiving notice of the subpoena, but did 
+not date these additions.  Huffman also asked former team members who had left KPMG to 
+return and add initials to working papers that related to the FY 2002 audit.  For example, at 
+Huffman’s request, a former manager, who had left KPMG in October 2002, returned in August 
+2003 to add undated initials to working papers that Huffman had flagged for him.  As part of this 
+“clean up” effort, audit team members modified or added at least 22 documents after the issuance 
+of the subpoena. 
+D. THE RESPONDENTS ENGAGED IN IMPROPER PROFESSIONAL CONDUCT 
+WITHIN THE MEANING OF RULE 102(e) OF THE COMMISSION’S RULES 
+OF PRACTICE 
+Rule 102(e)(1)(ii) of the Commission’s Rules of Practice provides, in part, that the 
+Commission may censure or deny, temporarily or permanently, the privilege of appearing or 
+practicing before it to any person who is found by the Commission to be lacking in character or 
+integrity, or to have engaged in improper professional conduct.  Rule 102(e)(1)(iv) defines 
+improper professional conduct with respect to persons licensed as accountants. 
+As applicable here, improper professional conduct means either (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 
+ 8
+warranted,” or (2) “[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.”  Rule 102(e)(1)(iv)(B).  As stated below, Madden and Huffman acted 
+unreasonably in failing to comply with GAAS during the FY 2002 audit of Tenet’s financial 
+statements.  Further, as stated below, Madden and Huffman also acted highly unreasonably in 
+failing to comply with GAAS by improperly modifying working papers. 
+1. Failure to Properly Plan the Audit  
+GAAS requires the auditor to adequately plan the audit work.  AU § 311.01.  As part of 
+that planning, GAAS requires the auditor to assess both fraud and audit risks in designing and 
+performing the audit.  AU §§ 312.01, 316.12 (2000).  The auditor must assess the risk of material 
+financial statement misstatement due to fraud and consider that assessment in designing audit 
+procedures.  AU § 316.12 (2000).  The auditor must also consider audit risk in designing the 
+audit and evaluating audit results.  AU §§ 312, 319.  In considering audit risk, the auditor must 
+assess the risk that the company’s internal controls will not prevent or timely detect a material 
+financial statement misstatement.  AU §312.27. 
+Prior to the issuance of the FY 2002 audit report, Madden and Huffman failed to fully 
+assess fraud risk and design audit procedures based on that assessment.  As to audit risk, Madden 
+and Huffman failed to ensure that hospital site visit procedures were complete and adequate, and 
+to respond to the results of that work by designing adequate audit procedures to address internal 
+controls findings, significant business risks, and significant or unusual accounting or reporting 
+issues.  Madden and Huffman’s conduct in this regard did not comply with GAAS. 
+2. Failure to Exercise Due Professional Care and Obtain Sufficient Competent 
+Evidence  
+GAAS requires auditors to exercise due professional care in performing an audit and in 
+preparing an audit report.  AU § 230.01.  GAAS also requires that auditors obtain sufficient 
+competent evidential matter to afford a reasonable basis for an audit opinion.  AU § 326.01.  Part 
+of obtaining sufficient audit evidence is a requirement to use analytical procedures.  AU § 329.  
+As described above, prior to the issuance of the audit report, Madden and Huffman did not finish 
+important analytical procedures to test Tenet’s assertions concerning its earnings and accounts 
+receivable balance.  Madden and Huffman violated GAAS by failing to exercise due professional 
+care and to obtain sufficient competent evidence. 
+3. Failure to Properly Supervise and Review Audit Work  
+GAAS requires that audit work be properly supervised and reviewed to determine that it 
+was adequate and the results consistent with the audit opinion.  AU §§ 311.01 & .13.  Madden 
+and Huffman failed to review, until months after the issuance of the audit report: (1) the working 
+paper documenting an assessment of the risk of material financial statement misstatement due to 
+fraud, (2) procedures performed at 12 of the 15 hospital site visits, and (3) the analytical 
+procedures with respect to EBIT and accounts receivable.  Madden and Huffman failed to 
+provide adequate supervision as required by GAAS. 
+ 9
+4. Failure to Render an Accurate Audit Report 
+GAAS dictates that an auditor may express an unqualified opinion only after conducting 
+an audit in accordance with GAAS from which to base the opinion.  AU § 508.07.  This is 
+consistent with the common sense notion that an auditor must finish the audit before releasing an 
+audit report.  Because Madden had not completed and performed an audit in accordance with 
+GAAS, he further violated GAAS when he issued an audit report containing an unqualified 
+opinion. 
+5. Failure to Take Appropriate Action to Correct Tenet’s Disclosure 
+GAAS requires an auditor to read the other information in a company’s annual reports to 
+confirm that the other information is not materially inconsistent with information in the financial 
+statements.  AU § 550.04.  If the auditor, while reviewing such other information for material 
+inconsistency, becomes aware of information that he believes is a material misstatement of fact, 
+he should discuss the matter with the client.  If the auditor then “concludes he has a valid reason 
+for concern,” the auditor should suggest that the client consult an expert such as legal counsel.  
+AU § 550.05.  If the auditor continues to conclude that a material misstatement of fact remains, 
+he should take further action, such as notifying his client in writing or consulting with his legal 
+counsel; he must do something.  AU § 550.06.  GAAS also requires that the auditor discuss his 
+observations with the audit committee.  AU § 380.12.  Madden told Tenet’s CAO that Tenet 
+should consider disclosing the amount of stop loss and outlier payments (revenue); the CAO 
+dismissed the idea.  Madden raised the issue again when he reviewed the FY 2002 Form 10-K 
+MD&A disclosure; Tenet made no such disclosure.  After identifying inadequacies in Tenet’s 
+MD&A, Madden violated GAAS by accepting the CAO’s rebuff and failing to express his 
+concerns to a higher level at Tenet such as the audit committee or Tenet’s in-house or disclosure 
+counsel. 
+6. Failure to Maintain Integrity of Working Papers 
+GAAS states that the working papers are the principal record of the work done and the 
+conclusions reached during an audit.  AU § 339.  The working papers should document that the 
+auditor has adequately planned and supervised the work, gained a sufficient understanding of 
+internal controls, and obtained sufficient competent evidential matter to afford a reasonable basis 
+for an opinion.  AU § 339.05 (2000).  It follows from the AU § 339 requirements on working 
+papers “that any addition, deletion, or modification to the working papers after they have been 
+finalized in connection with the completion of the audit may be made only with appropriate 
+supplemental documentation, including an explanation of the justification for the addition, 
+deletion or modification.”5  The Commission has previously stated, “Working papers prepared or 
+collected by auditors in the course of an audit provide the single most important support for their 
+representation regarding compliance with [GAAS].  They serve as the repository for the 
+competent evidential matter necessary to afford the auditors with a reasonable basis for opining 
+                                                 
+5 In re Fiedelman, SEC Rel. No. 48578 (Oct. 1, 2003). 
+ 10
+on an issuer’s financial position. …  It is therefore imperative that auditors preserve their 
+working papers in a complete and unaltered form.”6
+As a result of the conduct described above, Madden and Huffman violated applicable 
+professional standards by inappropriately modifying the working papers months after the 
+issuance of the audit report and, in some cases, after learning of the government investigations of 
+Tenet concerning outlier payments.  Madden and Huffman further violated applicable 
+professional standards by allowing the audit team to continue inappropriately modifying working 
+papers after notice of the Commission’s subpoena.  Huffman also violated applicable 
+professional standards by reviewing and signing off on the improper creation of the FY 2001 
+Compliance Binder. 
+E. FINDINGS 
+Based on the foregoing, the Commission finds that the Respondents engaged in improper 
+professional conduct within the meaning of Rule 102(e)(1)(ii) of the Commission’s Rules of 
+Practice.  Specifically, the Respondents, by failing to complete the FY 2002 audit before the 
+issuance of the audit report and by inappropriately modifying working papers after the issuance 
+of the audit report, 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. 
+Further, by inappropriately modifying the working papers after the issuance of the audit 
+report, after the publication of the UBS Report, and after learning about the government 
+investigations into Tenet, Respondents engaged in highly unreasonable conduct that resulted in a 
+violation of applicable professional standards in circumstances in which they knew, or should 
+have known, that heightened scrutiny was warranted. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in the Offers made by Respondents Madden and Huffman. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+A. Madden is denied the privilege of appearing or practicing before the Commission as 
+an accountant. 
+B. Huffman is denied the privilege of appearing or practicing before the Commission as 
+an accountant. 
+1. After four years from the date of this Order, Huffman 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: 
+                                                 
+6 In re Leidesdorf & Co., SEC Rel. No. 13268 (Feb. 16, 1977). 
+ 11
+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 Huffman’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: 
+a. Huffman, 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. Huffman, 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 Huffman’s or the firm’s 
+quality control system that would indicate that Huffman will not receive 
+appropriate supervision; 
+c. Huffman 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. Huffman acknowledges his responsibility, as long as Huffman 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. 
+2. The Commission will consider an application by Huffman 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  
+ 12
+may include consideration of, in addition to the matters referenced above, any other matters 
+relating to Huffman’s character, integrity, professional conduct, or qualifications to appear 
+or practice before the Commission. 
+ By the Commission. 
+ 
+ 
+ 
+       N ancy M. Morris 
+       S ecretary 
+ 13
\ No newline at end of file
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+              Exotics.com, Inc., et al.
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+        Exotics.com, Inc., et al.
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+                        
+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19645 / April 7, 2006 
+
+ Accounting and Auditing Enforcement  Release No. 2408 / April 7, 2006 
+
+  SECURITIES AND EXCHANGE COMMISSION v. EXOTICS.COM, INC., ET AL. , (United States District Court, District of Nevada, C.A. No. CV-S-05-0531-PMP-GWF) 
+
+ FINAL JUDGMENT AGAINST EXOTICS.COM, INC. IN MARKET MANIPULATION AND FINANCIAL FRAUD CASE 
+
+ The Securities and Exchange Commission announced today that, on March 29, 2006, a federal district court in Nevada entered a final judgment of default against Exotics.com, Inc. in connection with a stock manipulation and accounting fraud scheme that occurred from 1999 to 2002.  The final judgment permanently enjoins Exotics.com from violating the antifraud, securities registration, books and records, internal controls and reporting provisions of the federal securities laws. 
+
+ In April 2005, the Commission filed a civil fraud action against Exotics.com, a Nevada corporation based in Vancouver, British Columbia, and 12 other defendants and one relief defendant involved in the fraudulent scheme.  Exotics.com owns, operates and licenses adult Web sites in major cities throughout the United States and abroad.  In its complaint, the Commission alleged that Exotics.com filed reports with the Commission containing material misstatements and omissions between February 2000 and August 2002, issued a false and misleading press release in March 2001 and caused false and misleading spam e-mails and faxes to be disseminated in December 2001.  The complaint also alleged that Exotics.com issued stock without registration or a valid exemption in order to obtain loans and to further the scheme to manipulate its stock.  According to the complaint, Exotics.com also failed to file required reports with the Commission, failed to maintain accurate books and records and failed to implement adequate internal accounting controls.  The registration of Exotics.com's securities with the Commission was terminated voluntarily by the company in May 2004. 
+
+ The final judgment enjoins Exotics.com from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, 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 Rules 13a-1, 13a-11, 13a-13, 12b-20 and 12b-11 thereunder and the securities registration provisions, Sections 5(a) and 5(c) of the Securities Act of 1933.  The litigation is continuing with regard to the remaining defendants and the relief defendant. 
+
+ For further information, see Litigation Release Number  19207  (April 28, 2005).  
+ 
+
+ 
+    
+ SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2006/AAER-2416.pdf b/raw/aaer/2006/AAER-2416.pdf
new file mode 100644
index 0000000000000000000000000000000000000000..16d6fd5ff661ee5de2c34363619761597a6b1226
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diff --git a/raw/aaer/2006/AAER-2420.txt b/raw/aaer/2006/AAER-2420.txt
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index 0000000000000000000000000000000000000000..8a0570f4ce1ecba97f5bfbd811c8ee28db5ee2d2
--- /dev/null
+++ b/raw/aaer/2006/AAER-2420.txt
@@ -0,0 +1,1402 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Ranko Cucuz, William D. Shovers, Jesus Bonilla-Valdez, Ronald Lee Kolakowski, and HLI Operating Company, Inc., f/k/a Hayes Lemmerz International, Inc. 
+     
+     
+     
+     
+     
+     
+     
+         !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); 
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+              Ranko Cucuz, William D. Shovers, Jesus Bonilla-Valdez, Ronald Lee Kolakowski, and HLI Operating Company, Inc., f/k/a Hayes Lemmerz International, Inc.
+           
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+        Ranko Cucuz, William D. Shovers, Jesus Bonilla-Valdez, Ronald Lee Kolakowski, and HLI Operating Company, Inc., f/k/a Hayes Lemmerz International, Inc.
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19668 / April 25, 2006 
+
+ Accounting and Auditing Enforcement 
+Release No.  2420/ April 25, 2006 
+
+  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 
+
+ SEC Charges Hayes Lemmerz International, Inc., and Four Former Senior Officers with Fraud 
+
+ On April 25, 2006, the Commission filed a complaint in the United States District Court for the Eastern District of Michigan against HLI Operating Company, Inc., formerly known as Hayes Lemmerz International, Inc. (Hayes), and four of its former senior officers.  The Commission charged that Ranko Cucuz (Hayes' former Chief Executive Officer), William D. Shovers (Hayes former Chief Financial Officer), Jesus Bonilla-Valdez (former Vice President of the Aluminum Wheel Group (AWG), a large business unit of Hayes) and Ronald Lee Kolakowski (former President of the North American Wheel Group (NAWG), a large operating division of Hayes) participated in a multi-year accounting fraud at the company between 1999 and 2001.   As detailed below, defendants Hayes and Kolakowski have agreed to settle this matter without admitting or denying the allegations in the Commission's complaint.    
+
+ The Commission's complaint alleges that a financial fraud took place at Hayes from fiscal year 1999 through the first quarter of 2001 and that Hayes, acting through former senior officers and employees, engaged in a fraudulent scheme to achieve corporate earnings targets and mask declining operating results.  The complaint alleges 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 and (4) improperly recording certain customer discounts to balance sheet accounts.   
+
+ The complaint alleges that, as a result of Hayes' fraudulent scheme, Hayes made materially false filings with the Commission in fiscal years 1999 and 2000 and for the first quarter of 2001, including the company's  annual report on Form 10-K for the fiscal year ending January 31, 2001,  and the quarterly reports on Forms 10-Q for the quarterly periods ended April 30, 2000, July 31, 2000, October 31, 2000 and April 30, 2001.   The complaint alleges that Hayes former senior management directed NAWG plant personnel to engage in many of the improper accounting practices detailed above.   
+
+ The complaint also alleges that, upon learning of the fraudulent accounting scheme, Cucuz and Shovers made affirmative misrepresentations to the company's outside independent auditor about Hayes' financial statements and caused Hayes to make Commission filings containing material misrepresentations. The complaint further alleges that Cucuz and Shovers took affirmative steps to conceal information about the improper accounting practices from Hayes' outside independent auditor and Hayes' Audit Committee and Board of Directors.  Finally, the complaint alleges that Cucuz and Shovers made material misrepresentations about Hayes' financial condition in connection with a $300 million Rule 144A bond offering by Hayes in June 2001.    
+
+ In December 2001, Hayes restated its results for fiscal years 1999, 2000 and for the first quarter of 2001.  Hayes filed for Chapter 11 bankruptcy due, in part, to revelations about its improper accounting practices.  Hayes emerged from bankruptcy in June 2003. 
+ The Commission's complaint alleges that by engaging in the foregoing conduct: (i) defendant Hayes 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), as well as the reporting, books and records, and internal controls provisions of the Exchange Act (Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, and 13a-13); (ii) defendants Cucuz, Shovers, Bonilla-Valdez and Kolakowski violated the antifraud provisions of the Exchange Act (Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5), the internal control and books and records provisions of the Exchange Act (Section 13(b)(5) and Exchange Act Rule 13b2-1) and aided and abetted Hayes' violations of the issuer reporting, books and records, and reporting 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).  The complaint additionally charges Cucuz and Shovers with violating the antifraud provisions of the Securities Act (Section 17(a) of the Securities Act) and the provision of the Exchange Act that prohibits an officer or director from lying to auditors (Exchange Act Rule 13b2-2).   
+ Hayes has agreed to settle the Commission's action, without admitting or denying the allegations in the complaint, by consenting to the entry of a final judgment permanently enjoining it from violating Securities Act Section 17(a), 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-13.    Kolakowski has also agreed to settle the Commission's action, without admitting or denying the allegations in the complaint, by consenting to the entry of a final judgment (a) permanently enjoining him from violating Exchange Act Sections 10(b) and 13(b)(5) and Exchange Act Rules 10b-5 and 13b2-1, 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; (b) ordering him to pay a civil penalty of $75,000; and (c) imposing an officer and director bar for a period of ten years. 
+
+ With respect to the three remaining defendants -- Cucuz, Shovers and Bonilla-Valdez --  the Commission's complaint seeks an injunction against future violations of the federal securities laws, an order prohibiting them from acting as officers or directors of a public company, disgorgement of all unlawful gains with prejudgment interest, and civil monetary penalties.   
+
+ In a related matter, the Commission also announced today that it instituted settled administrative proceedings against Allen Buntin, James Jarrett and Greg Jones, all of whom are former business unit controllers at Hayes'  NAWG operating division. 
+
+ In these related administrative proceedings, the Commission issued three Orders Instituting Administrative Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions (Orders) against Allen Buntin, James Jarrett, and Greg Jones individually.  In the Matter of Allen Buntin; In the Matter of James Jarrett; and In the Matter of Greg Jones.    
+
+ The Orders require that Buntin, Jarrett and Jones cease and desist from committing or causing any violations and any future violations of Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1 and causing any violations and any future violations of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Exchange Act Rules 13a-1 and 13a-13.  Buntin, Jarrett and Jones consented to the issuance of the respective Orders without admitting or denying the findings in the Orders. 
+
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diff --git a/raw/aaer/2006/AAER-2421.txt b/raw/aaer/2006/AAER-2421.txt
new file mode 100644
index 0000000000000000000000000000000000000000..56d12dd927ee7313247178479781ec46ca8882cc
--- /dev/null
+++ b/raw/aaer/2006/AAER-2421.txt
@@ -0,0 +1,285 @@
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 53725 / April 26,2006 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2421 / April 26,2006 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12278 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+In the Matter of PURSUANT TO RULE 102(e) OF THE 
+COMMISSION'S RULES OF 
+CHAIM SCHWARTZBAKD, CPA PRACTICE, MAKING FINDINGS, AND 
+(Israel), IMPOSING REMEDIAL SANCTIONS 
+Respondent. I 
+The Securities and Exchange Commission ("Commission") deems it appropriate that 
+public administrative proceedings be, and hereby are, instituted against Chaim Schwartzbard, 
+CPA ("Respondent" or "Schwartzbard") pursuant to Rule 102(e)(l)(ii) of the Commission's Rules 
+of Practice.' 
+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, Respondent consents to the entry of this Order Instituting Public 
+I Rule 102(e)(l)(ii) provides, in pertinent part. that: 
+'I'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. 
+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. 
+On the basis of this Order and Respondent's Offer, the Commission finds2 that: 
+A. SUMMARY 
+This matter concerns improper professional conduct within the meaning of Rule 
+102(e)(l)(ii) of the Commission's Rules of Practice by Schwartzbard in connection with two 
+transactions between Lumenis Ltd. ("Lumenis"), an Israeli manufacturer, and its largest U.S. 
+distributor ("the Distributor"). From 1999 to May 2004, Deloitte & Touche Brightman Almagor 
+("Brightman Almagor") served as Lumenis' outside auditor, and Schwartzbard was the audit 
+engagement partner. In late 2001 and during 2002, Schwartzbard engaged in repeated instances of 
+unreasonable conduct that resulted in violations of applicable professional standards. First, in 
+connection with a transaction in which Lumenis improperly recognized a total of $1.1 million in 
+revenue in the quarters ended December 3 1,2001 and March 3 1,2002, Schwartzbard, among 
+other things, failed to make the inquiries or employ the necessary procedures to determine 
+whether Lumenis' revenue recognition comported with generally accepted accounting principles 
+("GAAP"), and as such violated the applicable generally accepted auditing standards ("GAAS"). 
+Second, in connection with a transaction in mid-2002 that resulted in Lumenis' improper 
+recognition of $4 million in revenue, Schwartzbard, among other things, negligently failed to 
+exercise due professional care and professional skepticism in reporting on Lumenis' financial 
+statements for the quarter ended June 30,2002. As a result of his improper professional conduct, 
+the Commission is denying Schwartzbard the privilege of appearing or practicing before the 
+Commission as an accountant, provided that he may apply for reinstatement after three years. 
+B. RESPONDENT 
+Chaim Schwartzbard, age 50, is an audit partner at Brightman Almagor, an Israeli member 
+firm of Deloitte Touche Tohmatsu. Schwartzbard is a citizen of Israel and an Israeli certified 
+public accountant ("CPA"). From 1999 to May 2004, Brightman Almagor was Lumenis' outside 
+auditor, and Schwartzbard was the audit engagement partner. The services provided by 
+Brightman Almagor included annual audits and quarterly reviews of the Lumenis financial 
+statements to be conducted in accordance with GAAS. 
+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. 
+1 
+ C. FACTS 
+1. Background 
+a. Lumenis is an Israeli corporation with its headquarters in Yokneam, Israel 
+that designs and manufactures laser and light based systems for aesthetic, surgical and other 
+applications. Lumenis maintains manufacturing facilities and other operations in the United 
+States. During the relevant period, Lumenis' stock was registered with the Commission pursuant 
+to Section 12(g) of the Securities Exchange Act of 1934. Lumenis' fiscal year ends on December 
+31. 
+b. Brightman Almagor is the Israeli member firm of Deloitte Touche 
+Tohmatsu. From 1999 to 2004, Brightman Almagor was engaged by Lumenis to audit Lumenis' 
+operations. During the same time period, Brightman Almagor engaged Deloitte & Touche LLP 
+("Deloitte USA"), a subsidiary of Deloitte & Touche USA LLP, to audit Lumenis' U.S. 
+operations. Deloitte & Touche USA LLP is the U.S. member firm of Deloitte Touche Tohmatsu. 
+c. During 1999 through May 2004, Brightman Almagor audited and reviewed 
+financial statements that were included in filings made with the Commission on Forms 10-K and 
+Forms 10-Q by Lumenis. 
+2. The $1Million Transaction 
+a. Lumenis improperly recognized a total of $1.1 million in revenue in its 
+Form 10-K for the year ended December 31,200 1 filed with the Commission on April 17,2002 
+and its Form 10-Q for the quarter ended March 3 1,2002 filed with the Commission on May 15, 
+2002, in connection with a transaction with the Distributor in late 2001. 
+b. Throughout 1998, 1999 and 2000, the Distributor amassed a large debt to 
+Lumenis. By the beginning of 2001, the Distributor owed Lumenis over $3.5 million in overdue 
+accounts payable. In February 2001, Lumenis began requiring the Distributor to pay for its orders 
+via credit card. In connection with a new distribution agreement the parties entered "as of' 
+December 31, 2001, Lumenis forgave the entire amount the Distributor owed it. As part of the 
+agreement, Lumenis required the Distributor to place a $1 million order for Lumenis products. At 
+the same time, Lumenis also agreed to "loan" the Distributor $1.25 million. 
+c. The $1.25 million loan primarily was intended to serve two purposes: 
+$250,000 was to be used by the Distributor to pay for taxes resulting from the forgiveness of the 
+payables, and the remaining $1 million permitted the Distributor to purchase $1 million of 
+Lumenis products in what amounted to a transaction lacking economic substance. 
+d. Schwartzbard was aware that only $250,000 of the $1.25 million loan 
+was to be used for taxes. A December 20,2001 document sent to Schwartzbard described the 
+deal as a $1 million loan to the Distributor with the Distributor required to purchase not less than 
+$1 million in equipment at closing, and a $250,000 loan for taxes. In subsequent emails between 
+Schwartzbard and Lumenis, Schwartzbard acknowledged that there was a connection between the 
+loan and the expected $1 million purchase, and expressed concerns that this may cause a revenue 
+recognition issue. 
+e. Lumenis took steps in late December 2001 to hide the fact that $1 
+million of the loan was provided in connection with the Distributor's purchase of an identical 
+amount of Lumenis products. Lumenis deleted from the distribution agreement references to the 
+requirement that the Distributor purchase $1 million in products, though the Distributor in fact 
+placed such an order at the time that it entered the agreement. Lumenis also began to claim that 
+the entire $1.25 million loan, and not just $250.000 of the loan, was for taxes the Distributor 
+would incur as a result of the forgiveness of the payables. Schwartzbard accepted management's 
+revised representation that the entire loan was to be used for taxes without further inquiry or 
+testing. Notwithstanding the link between the loan and the Distributor order, Lumenis recognized 
+a combined $1.1 million from this purchase as revenue in the fourth quarter of 2001 and the first 
+quarter of 2002. Schwartzbard did not raise any objection to the revenue recognition. 
+f. Lumenis' recognition of $1.1 million in revenue in connection with this 
+transaction was not in conformity with GAAP because, among other things, the transaction lacked 
+economic substance. As a result, the Lumenis financial statements published in its Form 10-K for 
+the year ended December 31,2001 filed with the Commission on April 17,2002 and its Form 10- 
+Q for the quarter ended March 31,2002 filed with the Commission on May 15,2002 were 
+materially misstated. 
+3. The $4 Million Transaction 
+a. A $4 million transaction at the close of the quarter ended June 30, 2002 
+resulted in revenue recognition in Lumenis7 Form 10-Q filed with the Commission on August 15, 
+2002 that did not comport with GAAP. 
+b. As the second quarter of 2002 was coming to a close, Lumenis contacted 
+the Distributor and requested that it place a $4 million order under a special arrangement. Instead 
+of requiring the Distributor to pay for the products pursuant to the terms of the new distribution 
+agreement, Lumenis offered the Distributor extended payment terms, including $2 million being 
+due in 270 days, to facilitate the Distributor's ability to resell the products to pay for the goods. 
+The Distributor agreed to the terms. It was the largest order the Distributor had ever placed with 
+Lumenis, 
+c. On August 2,2002, prior to the filing of Lumenis' second quarter 2002 
+financial statements, Deloitte USA notified Schwartzbard that it needed to consult with the 
+Deloitte USA national office to determine if a clause in the Distributor's distribution agreement 
+constituted a revenue incentive that would require a reduction in the amount of reported 
+Distributor revenue. On August 3, Schwartzbard, without waiting to learn the results of the 
+consultation between Deloitte USA and its national office, approved the Lumenis' publication of a 
+press release announcing the second quarter 2002 financial results. The release announced 
+revenue of $92.2 million, including $4 million from the Distributor transaction, and stated that 
+Lumenis' revenue was in line with previous revenue guidance of $90-95 million. Lumenis' stock 
+price, which had been declining steadily, more than doubled in the days following the release, 
+jumping from $3.19 per share on August 5 to $6.55 per share on August 26, 2002. 
+d. On August 12,2002, Deloitte USA informed Schwartzbard of its 
+conclusions that (1) Lumenis needed an independent third party valuation to determine if the 
+clause in the Distributor's distribution agreement constituted a revenue incentive requiring a 
+reduction in revenue and (2) recognition of revenue on sales to the Distributor should be deferred 
+until the Distributor sold the products to end users. With respect to the latter point, Deloitte USA 
+stated that revenue should not be recognized when products were sold to the Distributor because 
+Lumenis had forgiven the Distributor's payables that had been earned in the normal course of 
+business under the previous distribution agreement. Deloitte USA also stated its conclusion to 
+defer sales revenue was based on the fact that the Distributor did not appear to be a viable entity 
+without Lumenis' business. 
+e. On August 13,2002, Schwartzbard emailed a senior Lumenis executive 
+and informed him that after discussions with Deloitte USA, both he and Deloitte USA had 
+concerns with respect to the revenue incentive issue, the waiver of debt issue and the viability of 
+the Distributor without Lumenis business. Schwartzbard requested that Lumenis provide him 
+with substantial information to resolve these outstanding issues, and also requested that the issues 
+be discussed with the Lumenis audit committee. By August 15, Lumenis had not provided the 
+requested information to Schwartzbard. Despite this, Schwartzbard authorized the release of a 
+review report signed by him for use in the Form 10-Q Lumenis filed with the Commission that 
+day. The financial statements included with the Form 10-Q improperly recognized the entire $4 
+million order as revenue in the second quarter of 2002. 
+f. Lumenis' recognition of $4 million in revenue in connection with this 
+transaction violated GAAP because, among other things, collectability from the Distributor was 
+not reasonably assured, and as such Lumenis materially misstated its financial statements 
+published in its Form 10-Q filed with the Commission on August 15, 2002. 
+4. 	 Schwartzbard Engaged in Improper Professional 
+Conduct Within the Meaning of Rule 102(e) 
+a. Rule 102(e)(l)(ii) of the Commission's Rules of Practice provides, in part, 
+that the Commission may censure or deny, temporarily or permanently, the privilege of appearing 
+or practicing before the Commission to any person who is found by the Commission to have 
+engaged in improper professional conduct. Rule 102(e)(l)(iv) defines improper professional 
+conduct with respect to persons licensed to practice as accountants. As applicable here, improper 
+professional conduct means "[rlepeated 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)(l)(iv)(B)(2). As stated below, Schwartzbard acted 
+unreasonably in failing to require Lumenis to comply with GAAP and in failing to comply with 
+GAAS during Brightman Almagor's audit and reviews of Lumenis' 2001 and first and second 
+quarter 2002 financial statements. 
+b. GAAS requires that auditors conducting an audit exercise due professional 
+care and maintain a proper level of professional skepticism. Codification of Statements on 
+Auditing Standards (2001) ("AU") AU 5 230.01; AU 5 230.07. Auditing standards also require 
+auditors to obtain sufficient competent evidential matter to afford a reasonable basis for an 
+opinion regarding the financial statements under audit. AU 5 326.01; AU 5 326.21; AU 5 
+326.22. Under GAAS, representations from management are not a substitute for the application 
+of auditing procedures necessary to afford a reasonable basis for the auditor's opinion. AU 5 
+333.02. An auditor has a responsibility to perform an audit to obtain reasonable assurance that 
+material misstatements in financial statements due to fraud are detected. AU 5 316.0 1. 
+c. GAAS requires that auditors "state whether the financial statements are 
+presented in accordance with generally accepted accounting principles." AU 5 41 0.01. 
+"Generally accepted accounting principles recognize the importance of reporting transactions and 
+events in accordance with their substance. The auditor should consider whether the substance of 
+transactions or events differs materially from their form." AU 5 41 1.06. An auditor can issue an 
+audit report with an unqualified opinion only if he has conducted the audit in accordance with 
+GAAS. AU 5 508.07. 
+d. GAAS also requires an independent accountant to both consider matters 
+that have required adjustments in prior years and quarters and the consistency of management's 
+responses relative to other inquiries and procedures performed. AU 5 722.13. 
+e. In connection with interim reviews of financial statements, if "the 
+accountant becomes aware of information that leads him or her to question whether the interim 
+financial information to be reported conforms with generally accepted accounting principles, the 
+accountant should make additional inquiries or employ other procedures he or she considers 
+appropriate to provide the limited assurance for a review engagement." AU 5 722.1 8. 
+f. By accepting management's representations regarding the purpose of the 
+$1 million loan described above without further inquiry, despite knowledge of seemingly 
+contradictory information, Schwartzbard failed to exercise due professional care and maintain a 
+proper level of professional skepticism. Schwartzbard further violated GAAS by failing to make 
+the inquiries or employ the necessary procedures to determine whether Lumenis' $1.1 million in 
+revenue recognition in connection with this late 2001 transaction comported with GAAP. 
+Schwartzbard failed to obtain sufficient competent evidential matter to afford a reasonable basis 
+for his opinion regarding the financial statements at issue. 
+g. Schwartzbard's failure to obtain a complete understanding of the $4 
+million, end of second quarter of 2002 Distributor sales transaction and failure to properly assess 
+the Distributor revenue incentive, viability and past debt forgiveness issues constituted a failure to 
+exercise due professional care and maintain a proper level of professional skepticism. 
+Schwartzbard violated GAAS when he signed the Brightman Almagor review report and allowed 
+the use of the firm's name to be associated with Lumenis' financial statements for the quarter 
+ended June 30,2002. Schwartzbard violated GAAS by not exercising due professional care and 
+professional skepticism in reporting on Lumenis' June 30, 2002 financial statements. Finally, 
+Schwartzbard was negligent in not knowing that recognition of the $4 million did not comport 
+with GAAP and in not knowing that additional procedures were needed to determine whether 
+Lumenis' quarterly financial statements were materially misstated. 
+Based on the foregoing, the Commission finds that Schwartzbard engaged in improper 
+professional conduct pursuant to Rule 102(e)(l)(ii) of the Commission's Rules of Practice by 
+engaging 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. 
+A. Ongoing- Cooperation Undertakin~s 
+In determining to accept the Offer, the Commission further considered the following 
+efforts voluntarily undertaken by Respondent: 
+Respondent shall cooperate fully with the Commission in any and all investigation, 
+litigation or other proceeding relating to or arising from the matters described in the Order. In 
+connection with such cooperation, Respondent has undertaken: 
+1. To appear and be interviewed by Commission staff, subject to the 
+privileges and protections available under the attorney-client privilege and attorney work-product 
+protections, at such reasonable times and places as the staff requests upon reasonable notice; 
+2. To 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; 
+3. To appoint Stephen M. Sacks, Esq. as agent to receive service of 
+such notices and subpoenas; 
+4. With respect to such notices and subpoenas, to waive 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 
+5. To consent to personal jurisdiction over Respondent in any United 
+States District Court for purposes of enforcing any such subpoena. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent's Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+A. Schwartzbard is denied the privilege of appearing or practicing before the 
+Commission as an accountant. 
+B. After three years from the date of this Order, Respondent may request that the 
+Commission consider his reinstatement by submitting an application 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 or an equivalent Israeli organization acceptable to 
+the Chief Accountant of the Commission 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 or 
+equivalent Israeli organization, 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 CPA license is current and he has resolved 
+all other disciplinary issues with the applicable boards of accountancy. However, if CPA 
+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. 
+Nancy M. Morris 
+Secretary 
\ No newline at end of file
diff --git a/raw/aaer/2006/AAER-2423.txt b/raw/aaer/2006/AAER-2423.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7011e84c0bf5fef06a62c83bd63780eb90715119
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+++ b/raw/aaer/2006/AAER-2423.txt
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+     SEC.gov | Lumenis Ltd., Sagi A. Genger and Kevin Morano 
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+              Lumenis Ltd., Sagi A. Genger and Kevin Morano
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+        Lumenis Ltd., Sagi A. Genger and Kevin Morano
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19675 / April 27, 2006 
+
+ Accounting And Auditing Release No.  2423 / April 27, 2006 
+
+  SEC v. Lumenis Ltd., Sagi A. Genger and Kevin Morano , United States District Court for the Southern District of New York, Civil Action No. 06-3225-LAK 
+
+ SEC Charges Lumenis Ltd. and One Former and One Current Officer With Fraudulent Scheme to Inflate Revenue 
+
+ 
+
+ The Commission filed a civil fraud action today in federal district court in the Southern District of New York against Lumenis Ltd., its former chief operating officer, Sagi A. Genger, and its former chief financial officer and current senior vice president of marketing and development, Kevin Morano, for their participation in a series of fraudulent transactions that resulted in the publication of materially false financial statements by Lumenis in 2002 and 2003. Lumenis is an Israeli corporation with executive offices in New York whose stock was publicly traded in the United States. Genger is a resident of New York, New York and Morano is a resident of Pennington, New Jersey. Without admitting or denying the Commission's allegations, Lumenis and Genger each consented to the entry of final judgments enjoining them from future violations of certain federal securities laws, and, as to Genger, ordering payment of a $75,000 civil penalty and imposing a five year officer and director bar. 
+
+ The Commission's Complaint alleges that from at least late 2001 through early 2003, Lumenis, acting through senior officers, engaged in a fraudulent scheme to inflate revenue and misrepresent other important financial metrics so as to deceive investors as to the company's true financial condition. According to the Complaint, the scheme involved the improper recognition of a series of sales transactions that resulted in Lumenis' publication of materially false and misleading financial statements in six consecutive financial reporting periods, starting with those for the year ended December 31, 2001. According to the Complaint, Genger and Morano worked in concert to further the fraudulent scheme at Lumenis. The Complaint alleges Genger induced distributors and other customers to make excessive end-of-the-quarter product purchases that for various reasons should not have been included in Lumenis' reported financial results, and that Genger knowingly or recklessly disregarded the fact that these transactions did not qualify for recognition as proper sales. For example, according to the Complaint, in one transaction Genger agreed that a distributor would not have to pay for products it ordered from Lumenis until the distributor had collected on certain sales orders Lumenis was to provide it. The Complaint alleges that Lumenis' recognition of revenue when such a contingency arrangement existed departed from generally accepted accounting principles, and that Genger knowingly or recklessly disregarded this fact at the time the revenue was improperly recognized. The Complaint also alleges that Morano allowed Lumenis to recognize revenue and profits from a number of the improper transactions while knowingly or recklessly disregarding the various conditions that should have precluded recognition. 
+
+ The Complaint alleges that through their fraudulent conduct, (1) Lumenis violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder; (2) Genger violated Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and aided and abetted Lumenis' 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 (3) Morano violated Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2 thereunder, and aided and abetted Lumenis' 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, 13a-11 and 13a-13 thereunder. 
+
+ Without admitting or denying the allegations of the Complaint, Lumenis and Genger have consented to the entry of final judgments. With respect to Lumenis, the final judgment permanently will enjoin it from violating Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. With respect to Genger, the final judgment will (1) permanently enjoin him from variously violating or aiding and abetting violations of Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, 13b2-1 and 13b2-2 thereunder; (2) order him to pay a civil monetary penalty in the amount of $75,000; and (3) prohibit him from serving as an officer or director of a publicly traded company for five years. 
+
+ In related administrative proceedings, the Commission (1) issued an Order revoking Lumenis' securities registration for its repeated failure to file required periodic reports with the Commission; and (2) issued a separate Order finding that Chaim Schwartzbard, an audit partner at Israel's Deloitte & Touche Brightman Almagor, engaged in improper professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice in connection with his former role as a Lumenis outside auditor. The Schwartzbard Order found that he engaged in repeated instances of unreasonable conduct that indicate a lack of competence to practice before the Commission, and denied him the privilege of practicing before the Commission as an accountant for three years. Lumenis and Schwartzbard separately consented to the issuance of their respective Orders without admitting or denying any of the findings contained therein. 
+
+ For further information, see  Securities Exchange Act Release No. 53724  (April 26, 2006)[Order revoking Lumenis's securities registration]; and  Securities Exchange Act Release No. 53725  (April 26, 2006)[Order suspending Schwartzbard]. 
+
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diff --git a/raw/aaer/2006/AAER-2424.txt b/raw/aaer/2006/AAER-2424.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3d4f441e2cde51f3ce6c148bdfaf6b7d91e524be
--- /dev/null
+++ b/raw/aaer/2006/AAER-2424.txt
@@ -0,0 +1,212 @@
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  53732 / April 27, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2424 / April 27, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.   3-12280 
+ 
+ 
+In the Matter of 
+ 
+OIL STATES 
+INTERNATIONAL, INC.  
+ 
+Respondent. 
+ 
+ORDER INSTITUTING CEASE-AND-DESIST 
+PROCEEDINGS, MAKING FINDINGS, AND 
+IMPOSING A CEASE-AND-DESIST ORDER 
+PURSUANT TO SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934  
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), against Oil States International, Inc. (“Oil States” or 
+“Respondent”).   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to 
+Section 21C of the Securities Exchange Act of 1934 (“Order”), as set forth below.   
+ 
+ 
+ 
+ 
+ 
+ 2
+                                                
+III. 
+ 
+ On the basis of this Order and Res pondent’s Offer, the Commission finds1 that:  
+ 
+Summary 
+1. This matter involves Oil States’ viol ations of the books and records and 
+internal controls provisions of the Foreign Corrupt Practices Act (“FCPA”) (Sections 
+13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act), arising from certain payments made through 
+its Hydraulic Well Control, LLC (“HWC”) subsidiary.  Oil States, through certain employees of 
+HWC, provided approximately $348,350 in improper payments to employees of Petróleos de 
+Venezuela, S.A. (“PDVSA”), an energy company owned by the government of Venezuela.  The 
+employees were asked to participate in the scheme by a consultant for HWC, after he was 
+requested to do so by the PDVSA employees.  HWC improperly recorded the payments in its 
+accounting books and records as ordinary business expenses, which were consolidated into those 
+of its parent, Oil States.  Oil States’ internal controls failed to ensure that HWC’s books and 
+records accurately reflected the nature and purpose of these payments. 
+Respondent 
+2. Oil States is a Delaware corpora tion with its headquarters in Houston, 
+Texas.  Oil States is a specialty provider to oil and gas drilling and production companies in the 
+United States and in many of the world’s active oil and gas producing regions, including South 
+America.  Oil States’ common stock is registered with the Commission pursuant to Section 12(b) 
+of the Exchange Act and is traded on the New York Stock Exchange. 
+Relevant Party 
+3. HWC was a wholly-owned subsidiary of Oil States during the relevant 
+period.  HWC operates specially designed rigs and provides well site services, including 
+workover and snubbing services, to oil and gas producers in Venezuela and other countries.  
+HWC has its headquarters in Houma, Louisiana and has a branch office in Eastern Venezuela 
+(“HWC Venezuela”).  HWC Venezuela contributed approximately 1% of Oil States’ 
+consolidated revenues during the relevant period.  
+Facts 
+A. Background 
+4. In 2000, HWC hired a Venezuelan consultant (the “Consultant”) to 
+interface with employees of PDVSA on behalf of HWC in the field and at the office level.  
+Specifically, the Consultant acted on behalf of HWC to follow up on daily operations, translate 
+ 
+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
+                                                
+information into Spanish, write up tickets in accordance with PDVSA requirements and submit 
+HWC invoices to PDVSA for payment.  HWC did not investigate the background of the 
+Consultant.  The Consultant was not involved in the solicitation to obtain business on behalf of 
+HWC, and only worked on the operational matters referenced above.  The Consultant submitted 
+invoices for his services to HWC.  HWC had certain FCPA policies in place; however, HWC 
+provided no formal training or education to the Consultant regarding the requirements of the 
+FCPA.  Further, a written contract between HWC and the Consultant failed to address 
+compliance with the requirements of U.S. law, including the provisions of the FCPA. 
+5. In December 2003, the Consultant was approached by three PDVSA 
+employees about a proposed “kickback” scheme.  The PDVSA employees proposed that the 
+Consultant submit inflated bills to HWC for his services and kickback the excess to the PDVSA 
+employees.  At the same time, HWC would improperly bill PDVSA for “lost rig time” on jobs.2  
+If HWC did not comply with the proposed scheme, the PDVSA employees were capable of 
+stopping or delaying HWC’s work.  After learning of the proposed scheme from the Consultant, 
+three HWC Venezuela employees acceded to and facilitated the improper activity.  The 
+Consultant provided inflated invoices for his services and other documents inaccurately 
+reflecting the amount of rig time billable to PDVSA.  HWC employees incorporated these 
+documents into HWC’s books and records and HWC passed on an undetermined amount of the 
+improper payments in inflated invoices to PDVSA.   
+B. Over-charges for Lost Rig Time 
+6. On December 10, 2003, the Consultant submitted to HWC an invoice for 
+services that sought payment of B50,000,000 ($26,041.66), plus taxes.3  On December 16, 2003, 
+the Consultant submitted to HWC an invoice for services that sought payment of B52,000,000 
+($27,083.33), plus taxes.  HWC paid the Consultant.  HWC’s payment of these invoices resulted 
+in the first improper payments to the PDVSA employees through the consultant.  Due to the 
+difficulties in assessing lost rig time and the falsified documentation prepared by the Consultant 
+and approved by the HWC and PDVSA employees, it is not possible to quantify the total amount 
+of “lost rig time,” if any, paid for by PDVSA during this time period.4   
+7. On November 12, 2004, HWC received an invoice from the Consultant 
+that sought payment of B296,980,332 ($154,677.00).  Payment of the invoice by HWC resulted 
+in improper payments to the PDVSA employees.  On November 17, 2004, HWC billed PDVSA 
+approximately $400,840.63 for forty-three days of rig time.  HWC employees have confirmed 
+that at least some portion of the forty-three days would have been deemed “lost rig time” by the 
+PDVSA employees and therefore not properly chargeable to PDVSA. 
+ 
+2 “Lost rig time” is time that PDVSA contends is not properly billable to it. 
+ 
+3 Calculation of the U.S. dollar value of the payments made in Venezuelan local currency (Bolivar) is based 
+upon an exchange rate calculated as follows: Venezuelan Bolivar amount divided by 1,920. 
+ 
+4 “Lost rig time” is a frequently disputed calculati on because there are varying legitimate but subjective 
+reasons for billing a client for downtime during a job.   
+ 4
+C. Over-charges for Gel 
+8. In March 2004, the PDVSA employees approached the Consultant with a 
+change in the scheme.  The PDVSA employees instructed the Consultant to continue to submit 
+inflated invoices to HWC, this time for the inclusion of “gel” (a mineral-based material that is 
+used in drilling to control viscosity and to protect formations from drilling fluids) that had not 
+actually been used on PDVSA jobs.  The Consultant and the HWC employees agreed to continue 
+the improper payments and, between April 2004 and November 2004, participated in five 
+transactions involving over-charges to PDVSA for gel.  During this time, HWC paid the 
+Consultant approximately $412,000, some or all of which was used to make improper payments 
+to the PDVSA employees.  During this same time period, HWC charged PDVSA $348,350 for 
+gel.  The amount of gel legitimately charged to PDVSA is unknown. 
+9. In August 2004, HWC’s Vice President of Finance in the U.S. noticed 
+increasing contract labor (including consulting) expenses at HWC Venezuela.  When he inquired 
+into the increasing expenses, the controller at HWC Venezuela responded that the expenses were 
+“gel-related.”  Despite this vague explanation, HWC’s Vice President of Finance conducted no 
+additional investigation of the issue and the scheme continued. 
+10. In December 2004, during a routine review of HWC’s results while 
+preparing the budget for the following fiscal year, HWC senior management in the U.S. 
+discovered departures from HWC Venezuela’s operating plan.  Specifically, HWC management 
+noted an unexplained narrowing of profit margins in the Venezuelan operations, which caused 
+management to make immediate inquiry.  As a result of that inquiry, the U.S. management of 
+HWC learned of the kickback scheme.  HWC reported the matter to Oil States’ management, 
+which, in turn, reported the scheme to the company’s audit committee.  An internal investigation 
+conducted by Oil States uncovered no evidence that HWC or Oil States employees in the United 
+States were aware of or sanctioned the improper payments.  Upon completion of the internal 
+investigation, Oil States terminated its relationship with the Consultant and disciplined the 
+employees responsible for the misconduct (including dismissing two HWC Venezuela 
+employees).  Oil States also corrected its books and records, strengthened its regulatory 
+compliance program, and reimbursed PDVSA for the improper charges.  Oil States also 
+voluntarily provided their report of investigation to the Commission and the Department of 
+Justice, and disclosed the scheme in its public filings.  It then cooperated fully with the 
+investigation conducted by the Commission staff. 
+D. Violations 
+11. The FCPA, enacted in 1977, added Ex change 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 
+ 5
+conformity with generally accepted accounting principles or any other criteria applicable to such 
+statements, and to maintain accountability for assets.   
+12. Because HWC improperly recorded the payments to the PDVSA 
+employees as ordinary business expenses, its books, records and accounts did not, in reasonable 
+detail, accurately and fairly reflect its transactions and dispositions of assets. 
+13. As a result of the conduct described above, Oil States violated Section 
+13(b)(2)(A) of the Exchange Act. 
+14. In addition, HWC failed to take steps to ensure that the Consultant 
+complied with the FCPA and to ensure that the nature and purpose of the payments to the 
+PDVSA employees were accurately reflected in HWC’s books and records.   
+15. As a result of the conduct describe d above, Oil States violated Section 
+13(b)(2)(B) of the Exchange Act.  
+ 
+Oil States’ 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 Oil States’ Offer. 
+ 
+ Accordingly, it is hereby ORDERED that Respondent Oil States 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. 
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       N a n c y  M .  M o r r i s  
+       S e c r e t a r y  
+        
\ No newline at end of file
diff --git a/raw/aaer/2006/AAER-2425.txt b/raw/aaer/2006/AAER-2425.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e89e87c44063a2f31f9b90903d5500a39e792abb
--- /dev/null
+++ b/raw/aaer/2006/AAER-2425.txt
@@ -0,0 +1,1389 @@
+
+
+ 
+ 
+   
+     
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+ 
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+     SEC.gov | Michael E. Peppel, Ira H. Stanley, Jr. and David J. White 
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+         !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}(); 
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+        Michael E. Peppel, Ira H. Stanley, Jr. and David J. White
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19685 / May 3, 2006 
+
+ Accounting and Auditing Enforcement No. 2425 / May 3, 2006 
+
+  Securities and Exchange Commission v. Michael E. Peppel, Ira H. Stanley, Jr. and David J. White , Civil Action No. 3:06-CV-00131 WHR (S.D. OH) 
+
+ SEC Charges Former Executives and Customer of MCSi, Inc. With Fraud 
+
+ On May 2, 2006, the United States Securities and Exchange Commission (Commission) filed a complaint in United States District Court for the Southern District of Ohio against Michael E. Peppel (Peppel), the former CEO of MCSi, Inc. (MCSi), Ira H. Stanley, Jr. (Stanley), its former CFO, and David J. White (White), a customer of MCSi, alleging violations of the antifraud, issuer reporting, and issuer books and records provisions of the federal securities laws.  
+
+ The Commission alleges in its complaint that, in order to meet analysts' expectations, Peppel and Stanley falsified the company's financial statements from the first quarter of 2001 through the third quarter of 2002. The complaint alleges they did so by materially overstating revenues and income, and by making fictitious journal entries in the company's books. It is further alleged that Stanley concealed this conduct from MCSi's auditors by removing evidence of the false journal entries from the company's books. Finally, the complaint alleges that at the time MCSi was making false reports regarding its financial condition, Peppel sold approximately $6.8 million of his common stock in a registered offering.  
+
+ The complaint alleges that Peppel and Stanley violated Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13a-14, 13b2-1 and 13b2-2, and also aided and abetted MCSi's violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13. The complaint alleges that, in addition, Stanley violated Section 13(b)(5) of the Exchange Act. The Commission is seeking injunctions from future violations of these provisions, officer/director bars, disgorgement, prejudgment interest, and civil money penalties from both Peppel and Stanley.  
+
+ The Commission further alleges that David White, a British citizen and owner of a UK company, assisted Peppel and Stanley in carrying out MCSi's largest fraudulent transaction and that White signed a false audit confirmation regarding that transaction. The Commission alleges that, by this conduct, White violated Section 10(b) of the Exchange Act and Rule 10b-5, and aided and abetted MCSi's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13. White has agreed to settle the Commission's action against him, and has consented to entry of an injunction against the antifraud and issuer reporting provisions of the federal securities laws. He has also agreed to pay a penalty of $50,000. 
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+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 53762 / May 5, 2006 
+ 
+INVESTMENT COMPANY ACT OF 1940 
+Release No. 27312 / May 5, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2426 / May 5, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12286 
+ 
+ 
+ 
+In the Matter of 
+ 
+UNIFIED FUND SERVICES, INC. 
+AND MICHAEL E. DURHAM 
+ 
+ 
+Respondents. 
+ORDER INSTITUTING ADMINISTRATIVE 
+AND CEASE-AND-DESIST PROCEEDINGS, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS AND A CEASE-
+AND-DESIST ORDER PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934 AND SECTIONS 
+9(b) AND 9(f) OF THE INVESTMENT 
+COMPANY ACT OF 1940 
+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 21C of the Securities Exchange Act of 1934 (“Exchange Act”), 
+and Sections 9(b) and 9(f) of The Investment Company Act of 1940 (“Investment Company 
+Act”) against Unified Fund Services, Inc. (“Unified”) and pursuant to Section 9(f) of the 
+Investment Company Act against Michael E. Durham (“Durham”) (Unified and Durham are 
+referred to collectively herein as “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 
+Administrative and Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial 
+Sanctions and a Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange Act 
+of 1934, and Sections 9(b) and 9(f) of the Investment Company Act of 1940 (“Order”), as set 
+forth below. 
+III. 
+On the basis of this Order and Respondents’ Offers, the Commission finds1 that:  
+OVERVIEW 
+1. Unified Fund Services, Inc. (“Unified” ), a mutual fund services company, 
+provided fund administration services to the Liquid Green Money Market Fund (“Liquid Green”) 
+and its predecessor, the Unified Taxable Money Market Fund (“UTMM”).  From March 2001 
+through December 2001, the portfolio manager for Liquid Green and UTMM purchased callable 
+bonds that exceeded the maturity limit for securities eligible for purchase by a money market 
+fund under Investment Company Act Rule 2a-7.  Unified incorrectly substituted the call dates for 
+the maturity dates of the bonds in the fund accounting records and also used the call dates for 
+purposes of determining compliance with Rule 2a-7.  As a result of these errors, Unified caused 
+the funds to hold themselves out as money market funds when they were not entitled to do so 
+because they did not meet the risk limiting conditions of Rule 2a-7 resulting in violations of 
+Sections 35(d) and 34(b) of the Investment Company Act.   
+2. Unified also provided fund administration services and served as the fund 
+accountant for the Florida Street Bond Fund (“Florida Street”), a high-yield bond fund.  In 
+August 1999, when Unified began providing accounting services to Florida Street, the assets on 
+Florida Street’s balance sheet included a substantial interest receivable that was uncollectible.  
+Unified carried this balance over when it began providing accounting services, and Unified did 
+not receive accounting records from the predecessor accountant that adequately substantiated the 
+receivable.  From August 1999 through June 2001, Unified caused Florida Street to continue to 
+carry and accrue uncollectible interest on bonds and to fail to write off interest on bonds no 
+longer owned by the fund.  As a result of these errors, Unified (1) caused Florida Street to 
+materially overstate its interest receivable; (2) computed an incorrect net asset value (“NAV”), 
+and (3) caused Florida Street to sell and redeem its shares at incorrect NAVs.  Finally, from 2000 
+through 2002, Unified was late in filing several mutual funds’ semi-annual reports and Form N-
+SARs with the Commission.  By this conduct, Unified willfully2 violated or aided and abetted 
+and caused violations of pricing, books and records, and naming provisions of the Investment 
+Company Act, and reporting provisions of the Exchange Act.  Michael Durham (“Durham”), a 
+Unified executive, caused or substantially assisted these violations. 
+                                                      
+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 “Willfully” as used in this Order means intentionally committing the act that constitutes the violation.  Cf. 
+Wonsover v. SEC, 205 F.3d 408,411 (D.C. Cir. 2000); Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965). 
+ - 2 - 
+RESPONDENTS 
+3. Unified, a mutual fund services company, is an Indiana corporation formed in 
+1990 with its principal place of business in Indianapolis, Indiana.  Unified has been registered 
+with the Commission as a transfer agent since 1990.  Unified provides mutual fund 
+administration, transfer agency and other services to over 137 mutual funds with over $15 billion 
+in assets.  Unified is a wholly-owned subsidiary of Unified Financial Services, Inc.  From 1999 
+through 2002, Unified provided certain mutual fund accounting and administrative services to 
+UTMM, Liquid Green and Florida Street, pursuant to service contracts then in place between 
+Unified and the funds.  Among other things, Unified calculated NAVs, prepared and filed 
+regulatory reports with the Commission, and performed compliance testing. 
+4. Michael E. Durham, a 45-year-old resident of Greenwood, Indiana, was the Vice 
+President of Fund Accounting at Unified from 1995 until his termination in August 2003.  
+OTHER RELEVANT ENTITIES 
+5. Unified Funds, an Indiana corporation, was an open-end series investment 
+company3 from 1996 until 2001.  One of Unified Funds’ portfolios was UTMM.  On October 1, 
+2001, UTMM dissolved after it transferred all of its assets to Liquid Green, a portfolio of 
+AmeriPrime Advisors Trust. 
+6. AmeriPrime Advisors Trust (“AAT”), an Ohio business trust, is an open-end 
+investment company that has been registered with the Commission since 1999.  Currently, AAT 
+has eight portfolios with over $307 million in assets.  In October 2001, AAT formed Liquid 
+Green as one of its portfolios.  In February 2002, Liquid Green dissolved after transferring all of 
+its assets to another money market fund. 
+7. AmeriPrime Funds (“AF”), an Ohio business trust, is an open-end investment 
+company that has been registered with the Commission since 1995.  Currently, AF has six 
+portfolios with over $103 million in assets.  In July 1999, Florida Street, a high-yield bond fund, 
+became a portfolio under AF.  In November 2001, AF’s board decided to liquidate Florida Street 
+as a result of the problems described herein. 
+8. Unified Investment Advisers, Inc. (“UIA”) was an Indiana corporation and 
+registered investment adviser from February 1995 until it terminated its registration in 
+October 2002.  UIA was a wholly-owned subsidiary of Unified Financial Services, Inc.  UIA’s 
+only client was UTMM, and later Liquid Green, which ceased operations in February 2002.  In 
+October 2002, UIA merged into Unified. 
+                                                      
+3 Although a series investment company such as Unified Funds, AAT or AF is organized as a single corporate entity, 
+it may be comprised of several different series or portfolios that function as separate investment companies. 
+ - 3 - 
+FACTS 
+UTMM and Liquid Green Held Ineligible Securities 
+9. Investment Company Act Rule 22c-1 pr ohibits an investment company issuing 
+redeemable securities from selling, redeeming or repurchasing any such security except at a price 
+based on the current NAV of the security.  In determining the NAV, an investment company 
+must value portfolio securities for which market quotations are readily available at their current 
+market value, and other securities at their fair value as determined in good faith by the 
+investment company’s board of directors.  This NAV determination, which generally must be 
+made on each business day on which the investment company sells, redeems or repurchases its 
+securities, is commonly referred to as the “daily mark-to-market” requirement. 
+10. Investment Company Act Rule 2a-7 is an exemptive rule which exempts 
+investment companies from the daily mark-to-market requirement for certain investment 
+companies characterized as money market funds.  Rule 2a-7 permits a money market fund to use 
+the amortized cost method of valuation to value its portfolio securities.  Under the amortized cost 
+method of valuation, portfolio securities are valued at the investment company’s cost of 
+acquisition, adjusted for the amortization of premium or the accumulation of discount, rather 
+than at their market or fair values. 
+11. Rule 2a-7 provides that an investment company which holds itself out as a money 
+market fund and uses the amortized cost method of valuation to value its portfolio securities 
+must meet certain conditions.  In particular, such a money market fund may not acquire any 
+instrument with a remaining maturity of more than 397 calendar days, unless the securities have 
+a maturity-shortening feature as defined in Rule 2a-7, or maintain a dollar-weighted average 
+portfolio maturity that exceeds 90 days. 
+12. Between March 20, 2001 and December 6, 2001, UIA purchased 28 fixed-rate 
+government agency bonds for UTMM and Liquid Green with remaining maturities of between 
+two and a half and twelve years (the “Ineligible Securities”).  By September 30, 2001, the 
+Ineligible Securities made up approximately 53.1% of Liquid Green’s assets.  Each of these 
+securities contained a call provision that provided the issuer of the security with an option or 
+right, at its discretion, to call the instrument during its term on specified dates at par.  Unified 
+used these call dates, rather than the stated maturity dates, for purposes of determining 
+compliance with the conditions of Rule 2a-7.  Unified’s use of the call dates rather than the 
+stated maturity dates was impermissible under the rule, however, because UTMM and Liquid 
+Green did not have any right or privilege to put back, or sell, the Ineligible Securities to the 
+issuer prior to the stated maturity and thereby ensure that the maturity of the Ineligible Securities 
+would not actually be greater than 397 days. 
+13. Pursuant to its fund servicing cont racts with Unified Funds and AAT, the 
+sponsors of UTMM and Liquid Green respectively, Unified was responsible for monitoring the 
+funds’ compliance with their stated investment restrictions, which included the conditions of 
+Rule 2a-7.  Unified was also responsible for keeping the funds’ books and preparing quarterly 
+Rule 2a-7 compliance reports for the funds’ boards of directors. 
+ - 4 - 
+14. In performing its duties for the funds, Unified erroneously substituted the call 
+dates for the maturity dates of the Ineligible Securities in the source accounting records of 
+UTMM and Liquid Green.  By doing so, Unified made misstatements in UTMM’s and Liquid 
+Green’s books and records.  The misstatements appeared in both funds’ security master files, 
+which are part of the funds’ accounting records, and in their portfolio listings.  Although the 
+correct maturity dates for the Ineligible Securities were also entered into the source records and 
+were set forth on the audited and unaudited financial statements of UTMM and Liquid Green, 
+Unified prepared quarterly Rule 2a-7 compliance reports based upon a portion of the source 
+records containing the call dates.  Unified also used the call dates to calculate the funds’ average 
+portfolio maturities.  As a result, Rule 2a-7 compliance reports generated by Unified between 
+May and December 2001 showed the average portfolio maturities to be under 90 days when the 
+actual average portfolio maturities were between 730 and 1,825 days.  The reports also 
+misrepresented UTMM’s and Liquid Green’s longest maturity investments.  For example, the 
+May 1, 2001 Rule 2a-7 report disclosed the longest maturity investment as 381 days instead of 
+3,642 days.  
+15. Between March 2001 and December 2001, Unif ied prepared and filed with the 
+Commission prospectuses and reports for UTMM and Liquid Green.  These prospectuses and 
+reports, which were also reviewed by the funds’ outside counsel and accountants, described 
+UTMM and Liquid Green as money market funds when they were no longer entitled to hold 
+themselves out as money market funds.  The prospectuses also represented that the funds could 
+and did use the amortized cost method to price their securities, without disclosing that the funds 
+held Ineligible Securities and therefore were not entitled to use the amortized cost method. 
+16. On or about December 14, 2001, Unif ied employees observed a deviation 
+between the market value of the Liquid Green portfolio and its value based on the amortized cost 
+method of valuation.  As a result, Unified reviewed the eligibility of the Ineligible Securities and 
+determined that such securities were not in compliance with Rule 2a-7.  After making the 
+determination, Unified notified UIA and the Liquid Green board of directors that the fund held 
+ineligible securities. 
+17. Between December 17, 2001 and January 4, 200 2, UIA sold all of the Ineligible 
+Securities at a net loss of approximately $517,000.  In January 2002, UIA reimbursed Liquid 
+Green for the full loss incurred in the sale of the Ineligible Securities.  Shortly thereafter, UIA 
+entered into agreements to recover $100,000 from the fund’s independent auditor and $125,000 
+from the fund’s counsel, the latter in the form of a partial forgiveness of a receivable due to the 
+law firm.  Unified informed the Commission staff of the loss resulting from the sale of the 
+Ineligible Securities in conjunction with an SEC examination in mid-January 2002. 
+Florida Street - Improper Interest Accruals
+18. On August 1, 1999, Florida Street became a portfolio of AF and Unified began 
+providing fund accounting services pursuant to AF’s contract with Unified.  As of that date, the 
+assets on Florida Street’s balance sheet included an unsubstantiated interest receivable of 
+approximately $913,264, at least $195,120 of which was uncollectible.  Unified carried this 
+balance over when it began providing accounting services to Florida Street, and for over a year it 
+did not take any steps to substantiate the accuracy and collectibility of the receivable that had 
+ - 5 - 
+been recorded by the predecessor accountant.  Additionally, starting in August 1999, Unified’s 
+fund accounting group failed to write off uncollectible interest for bonds in default and 
+previously accrued interest for bonds no longer owned by the fund (i.e., bonds that were sold 
+“flat” or for principal only).  This occurred at least in part because Unified failed to employ 
+internal accounting controls adequate to assure that the interest receivable was accurate. 
+19. Beginning in August 1999, when Unified became the fund’s administrator, 
+Durham knew or acted with reckless disregard for whether Florida Street was carrying 
+unsubstantiated interest on its books and records.  Among other things, Durham knew that the 
+predecessor accountant had not provided Unified with accounting records needed to substantiate 
+certain interest receivables on the books of Florida Street and that, as a result, the fund’s interest 
+receivable balance had not been tied out to the interest sub-ledger for each bond in the fund.  
+Durham also knew that the fund accountants could not reconcile the interest for bonds sold 
+without the subledgers and did not create aged interest receivable reports.  Finally, Durham 
+received a letter in April 2000 from Florida Street’s independent auditor warning him of 
+unsubstantiated interest on Florida Street’s books.  Prior to late 2000, however, Durham 
+continued to rely on the work product of the predecessor accountant, did not make any attempt to 
+substantiate the accuracy and collectibility of the receivable that had been recorded by the 
+predecessor accountant, and failed to put in place internal accounting controls adequate to assure 
+that the interest receivable was accurate.  As a result, Durham was a cause of Florida Street’s 
+failure to write off uncollectible interest on its books. 
+20. During the 2000 year-end audit, the f und’s independent auditor requested that 
+Unified substantiate Florida Street’s interest receivable.  From November 2000 through 
+June 2001, Unified reviewed the interest receivable for collectibility.  By June 2001, Unified 
+determined that Florida Street’s interest receivable was overstated by approximately $796,356 as 
+of October 31, 2000 and by approximately $285,794 more for the first four months of the fiscal 
+year ending October 31, 2001.  These amounts represented accrued interest that Unified 
+determined to be uncollectible.  Starting in June 2001, Unified wrote off the uncollectible interest 
+back to December 1, 1999.  The write off reduced the fund’s NAV for the year ending 
+October 31, 2000 by approximately 4.7%. 
+21. After writing off the interest, Unified re -priced the fund.  The repricing revealed 
+that Florida Street’s daily NAV was overstated from December 1, 1999 through June 25, 2001 
+by amounts ranging from $.01 to $.34 per share.  At its worst, the fund’s NAV was overstated by 
+approximately 6.1%.  After the repricing, Unified recomputed shareholder transactions during 
+the same period to ensure that no shareholders were harmed by the mispricing.  As a result of the 
+recomputation, Unified voluntarily reimbursed the fund for investors who redeemed out during 
+the period of the repricing and were consequently overpaid. 
+22. By carrying the uncollectible interest on Florida Street’s books, Unified caused 
+material misstatements in Florida Street’s April 30, 2000 semi-annual report, which Unified filed 
+on December 12, 2000.  As a result of the failure to write off the uncollectible interest described 
+above, the report overstated the fund’s interest receivable by approximately 35.2%, overstated 
+the fund’s NAV by approximately 2%, and overstated the net investment income by 
+approximately 21.56%.  The reported NAV per share was $7.33 but should have been $7.16.  
+Unified knew or should have known, at the time it filed the report on behalf of the fund, that the 
+ - 6 - 
+report contained material misstatements resulting from the failure to write off the uncollectible 
+interest. 
+23. The uncollectible interest al so resulted in material misstatements and omissions in 
+Florida Street’s audited October 31, 2000 annual report and unaudited April 30, 2001 semi-
+annual report, both of which were prepared and filed by Unified.  The annual reports were also 
+reviewed by the funds’ outside counsel and auditors.  Florida Street’s audited 2000 annual report, 
+which was filed on March 22, 2002, four months after the fund closed, failed to disclose the 
+interest write-off and subsequent repricing, which resulted in a lower NAV.  In addition, the 
+2000 annual report misrepresented the fund’s distribution to shareholders from net investment 
+income and failed to disclose a return of capital.  Florida Street reported $2,541,908 in net 
+investment income after the interest write-offs.  Nevertheless, the fund also reported that it paid 
+$3,338,264 in distributions to investors from net investment income.  Since the fund had no prior 
+year net investment income from which it could make a positive distribution, only $2,541,908 of 
+the $3,338,264 distributed to shareholders could possibly be attributed to net investment income.  
+The difference, $796,356, was actually an undisclosed return of capital to investors, not a 
+distribution of net investment income, on which some investors may have unknowingly paid 
+taxes.  Unified prepared and filed the audited October 31, 2000 annual report which failed to 
+disclose the repricing and return of capital even though Unified knew about the repricing and the 
+return of capital no later than June 2001.  Some portion of this $796,356 difference should have 
+been reflected on Forms 1099 for the 2000 taxable year that were issued to shareholders on 
+January 15, 2001, and some portion of the remainder should have been reflected on Forms 1099 
+for the 1999 and earlier taxable years. 
+Late Filings by Unified Administered Funds 
+24. From 2000 through 2002, portfolios of AF and AAT made late filings or failed to 
+file required reports with the Commission.  As administrator, Unified was responsible for filing 
+these reports.  At least 21 portfolios under AAT and AF failed to file their annual or semi-annual 
+shareholder reports on time.  In addition, at least 27 portfolios failed to timely file their Form N-
+SARs.  Finally, at least 9 portfolios under AF and AAT either failed to file Form 12b-25s 
+notifying the Commission of an inability to timely file a Form N-SAR or filed the forms 
+incorrectly.  These late filings were in part due to Unified’s failure to put in place adequate 
+procedures to ensure that it timely received documents necessary to make the filings on or before 
+their respective due dates. 
+VIOLATIONS 
+25. As a result of the conduct described above, Unified willfully aided and abetted 
+and caused, and Durham caused, AF to violate Rule 22c-1, promulgated pursuant to 
+Section 22(c) of the Investment Company Act.  Rule 22c-1 requires registered investment 
+companies to sell and redeem shares only “at a price based on the current net asset value of such 
+security.” 
+26. As a result of the conduct described a bove, Unified willfully violated Section 
+34(b) of the Investment Company Act.  Section 34(b) prohibits any person from making any 
+untrue statement of a material fact in any report, account, record, or other document filed or 
+ - 7 - 
+required to be kept under Section 31(a) of the Investment Company Act.  Section 34(b) also 
+prohibits any person filing or keeping those documents from omitting to state any fact necessary 
+in order to prevent the statements made in those documents from being misleading.  Rule 2a-
+7(b)(1) provides that it is a material misrepresentation in violation of Section 34(b) for a fund to 
+hold itself out as a money market where it does not meet the risk limiting conditions of Rule 2a-
+7(c).   
+27.  As a result of the conduct described a bove, Durham violated Section 34(b) of the 
+Investment Company Act by making an untrue statement of a material fact in a report, account, 
+record, or other document filed or required to be kept under Section 31(a) of the Investment 
+Company Act. 
+28. As a result of the conduct described above, Unified willfully aided and abetted 
+and caused Unified Funds and AAT to violate Section 35(d) of the Investment Company Act.  
+Section 35(d) prohibits any registered investment company from adopting as a part of its name or 
+title any word or words that the Commission finds are materially deceptive or misleading.  Rule 
+2a-7(b)(2) provides that “it shall constitute the use of a materially deceptive or misleading name 
+within the meaning of Section 35(d) of the Act for a registered investment company to adopt the 
+term “money market” as part of its name … unless such registered investment company meets 
+the conditions of paragraphs (c)(2), (c)(3), and (c)(4) of [Rule 2a-7].” 
+29. As a result of the conduct described above, Unified willfully aided and abetted 
+and caused AAT and AF to violate Section 30(e) of the Investment Company Act and Rule 30e-1 
+thereunder.  Section 30(e) of the Investment Company Act and Rule 30e-1 thereunder requires 
+every registered investment company to transmit to shareholders, at least semiannually, reports 
+containing the financial statements and other information.  These reports must be transmitted to 
+shareholders no later than sixty days after the close of the period for which the report is being 
+made.   
+30. As a result of the conduct described above, Unified willfully aided and abetted 
+and caused AAT and AF to violate Section 30(b)(1) of the Investment Company Act and Rule 
+30b1-1 thereunder and Rule 12b-25 under the Exchange Act.  Section 30(b)(1) and Rule 30b1-1 
+thereunder require every registered investment company to file a semi-annual report on Form N-
+SAR not more than sixty days after the close of each fiscal year and second quarter.  Rule 12b-
+25(a) promulgated under the Exchange Act requires that if a registered management investment 
+company cannot timely file its Form N-SAR, the company shall file a Form 12b-25 no later than 
+one business day after the due date for the N-SAR filing. 
+UNIFIED’S REMEDIAL EFFORTS 
+31. In determining to accept the Offer, th e Commission considered remedial acts 
+promptly undertaken by Unified in connection with the conduct described herein, including the 
+following: 
+a. firing or demoting four individuals; 
+b. hiring a new Chief Executive Officer; 
+c. hiring a new Chief Compliance Officer; 
+ - 8 - 
+d. hiring a new Vice President in charge  of mutual fund administration; and 
+e. hiring several consulting firms to  assist Unified in updating its fund 
+accounting, fund administration and compliance procedures. 
+UNDERTAKINGS 
+32. Independent Compliance Consultant.  Unified has undertaken:  
+a. to hire, within 90 days of the entry of the Order, an Independent 
+Compliance Consultant not unacceptable to the staff of the Commission.  Unified shall 
+cause the Independent Compliance Consultant to review Unified’s (i) accounting and 
+compliance procedures applicable to Rule 2a-7, (ii) accounting policies and procedures 
+applicable to interest accruals, and (iii) compliance procedures applicable to the timely 
+filing of reports of the type described in paragraph 24 above.  The Independent 
+Compliance Consultant’s compensation and expenses shall be borne exclusively by 
+Unified or its affiliates.  Unified shall cooperate fully with the Independent Compliance 
+Consultant and shall provide the Independent Compliance Consultant with access to its 
+files, books, records and personnel as reasonably requested for the review; 
+b. to require that, at the conclusion of the review, which in no event shall be 
+more than 120 days after the date of entry of the Order, the Independent Compliance 
+Consultant shall submit a Report to Unified and the staff of the Commission.  The Report 
+shall address the issues described in subparagraph 32.a. of these undertakings, and shall 
+include a description of the review performed, the conclusions reached, the Independent 
+Compliance Consultant’s recommendations for changes in or improvements to policies 
+and procedures of Unified and a procedure for implementing the recommended changes 
+in or improvements to Unified’s policies and procedures;  
+c. to adopt all recommendations contai ned in the Report of the Independent 
+Compliance Consultant; provided, however, that within 150 days after the date of entry 
+of the Order, Unified shall in writing advise the Independent Compliance Consultant and 
+the staff of the Commission of any recommendations that it considers to be unnecessary 
+or inappropriate.  With respect to any recommendation that Unified considers 
+unnecessary or inappropriate, Unified need not adopt that recommendation at that time 
+but shall propose in writing an alternative policy, procedure or system designed to 
+achieve the same objective or purpose;  
+d. that as to any recommendation with respect to Unified’s policies and 
+procedures on which Unified and the Independent Compliance Consultant do not agree, 
+such parties shall attempt in good faith to reach an agreement within 180 days of the date 
+of entry of the Order.  In the event Unified and the Independent Compliance Consultant 
+are unable to agree on an alternative proposal acceptable to the staff of the Commission, 
+Unified will abide by the determinations of the Independent Compliance Consultant;  
+e. that Unified (i) shall not have the authority to terminate the Independent 
+Compliance Consultant, without the prior written approval of the staff of the 
+Commission; (ii) shall compensate the Independent Compliance Consultant, and persons 
+ - 9 - 
+engaged to assist the Independent Compliance Consultant, for services rendered pursuant 
+to the Order at their reasonable and customary rates; (iii) shall not be in and shall not 
+have an attorney-client relationship with the Independent Compliance Consultant and 
+shall not seek to invoke the attorney-client or any other doctrine or privilege to prevent 
+the Independent Compliance Consultant from transmitting any information, reports, or 
+documents to the Directors of Unified or its parent, Unified Financial Services, Inc. or the 
+Commission; and  
+f. to require the Independent Complia nce 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 Compliance Consultant shall not 
+enter into any employment, consultant, attorney-client, auditing or other professional 
+relationship with Unified, or any of its present or former affiliates, directors, officers, 
+employees, or agents acting in their capacity.  The agreement will also provide that the 
+Independent Compliance 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 Compliance Consultant in performance of his/her duties under this Order 
+shall not, without prior written consent of the staff of the Commission, enter into any 
+employment, consultant, attorney-client, auditing or other professional relationship with 
+Unified, or any of its present or former affiliates, directors, officers, employees, or agents 
+acting in their capacity as such for the period of the engagement and for a period of two 
+years after the engagement. 
+33. Certification and Extension of Procedural Dates.  Unified undertakes that, no 
+later than twenty-four months after the date of entry of the Order, its chief executive officer shall 
+certify to the Commission in writing that Unified has fully adopted and complied in all material 
+respects with the undertakings set forth in paragraph 32 above or, in the event of material non-
+adoption or non-compliance, shall describe such material non-adoption and non-compliance.  For 
+good cause shown, the Commission’s staff may extend any of the procedural dates set forth in 
+paragraph 32 above. 
+34. Record-keeping.  Unified undertakes to preserve for a period not less than five 
+years from the date of this Order, the first two years in an easily accessible place, any record of 
+their compliance with the undertakings set forth in paragraph 32 above.  
+IV. 
+In view of the foregoing, the Commission deems it appropriate and in the public interest 
+to impose the sanctions agreed to in Respondent’s Offers.  Accordingly, pursuant to Section 21C 
+of the Exchange Act and Sections 9(b) and 9(f) of the Investment Company Act it is hereby 
+ORDERED that: 
+A. Unified cease and desist from commi tting or causing any violations and any 
+future violations of Section 34(b) of the Investment Company Act, and to cease and desist from 
+causing any violations and any future violations of Rule 12b-25 under the Exchange Act and 
+Sections 30(b)(1), 30(e), 34(b) and 35(d) of the Investment Company Act and Rules 22c-1, 30e-1 
+and 30b1-1 thereunder. 
+ - 10 - 
+B. Durham cease and desist from committ ing or causing any violations and any 
+future violations of Sections 34(b), and causing any violations and any future violations of Rule 
+22c-1 under the Investment Company Act. 
+C. Payment of Civil Monetary Penalty by Unified.  It is further ordered that Unified 
+shall, within thirty days of the entry of this Order, pay a civil money penalty in the amount of 
+$125,000 to the United States Treasury.  Such payment shall be: (A) made by United States 
+postal money order, certified check, bank cashier’s check or bank money order; (B) made 
+payable to the Securities and Exchange Commission; (C) hand-delivered or mailed to the Office 
+of Financial Management, Securities and Exchange Commission, Operations Center, 6432 
+General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that 
+identifies Unified 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 Robert J. Burson, Senior 
+Associate Regional Director, Midwest Regional Office, Securities and Exchange Commission, 
+175 West Jackson Boulevard, Suite 900, Chicago, Illinois 60604. 
+D. Unified’s Compliance with Undertakings.  Unified shall comply with the 
+undertakings set forth in paragraphs 32-34 above. 
+ By the Commission. 
+ 
+ 
+ 
+ 
+ 
+Nancy M. Morris 
+Secretary 
+ 
+ - 11 - 
\ No newline at end of file
diff --git a/raw/aaer/2006/AAER-2427.pdf b/raw/aaer/2006/AAER-2427.pdf
new file mode 100644
index 0000000000000000000000000000000000000000..733152797b2a9e0f2f12d3004dc36c2a6c615b87
Binary files /dev/null and b/raw/aaer/2006/AAER-2427.pdf differ
diff --git a/raw/aaer/2006/AAER-2430.txt b/raw/aaer/2006/AAER-2430.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7663c38027b03d61f80277092ad271a1cf748075
--- /dev/null
+++ b/raw/aaer/2006/AAER-2430.txt
@@ -0,0 +1,112 @@
+UNITED STATES OF AMERICA  
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 53820 / May 17, 2006 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 2430 / May 17, 2006 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-11714 
+ 
+In the Matter of  
+John M. Wong, 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 October 20, 2004, John M. Wong ("Wong") 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 Wong pursuant to Rule 102(e)(1)(ii) of the 
+Commission's Rules of Practice.1  This order is issued in response to Wong’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. 
+ Wong was alleged to have engaged in improper professional conduct in connection 
+with performing the reviews and audits of the financial statements filed by Gemstar-TV Guide 
+International, Inc. (“Gemstar”) from the quarter ended September 30, 1999 through the fiscal 
+year ended March 31, 2000.  During this time, Wong was employed as the engagement partner 
+for KPMG LLP’s audits and reviews of the financial statements of Gemstar.  As the engagement 
+partner, Wong allegedly failed to exercise professional care and skepticism, failed to obtain 
+sufficient competent evidential matter and over-relied on Gemstar’s management representations 
+with respect to the audit and review of Gemstar’s financial statements.  In addition, Wong 
+allegedly failed to take appropriate action to correct disclosures that did not comply with GAAP 
+and were inconsistent with Gemstar’s financial statements.  Finally, Wong allegedly failed to 
+render accurate audit reports. 
+ 
+                                                 
+1 See Accounting and Auditing Enforcement Release No. 2125 dated October 20, 2004.  Wong was permitted, 
+pursuant to the order, to apply for reinstatement after one year upon making certain showings. 
+ 
+In his capacity as a preparer or reviewer, or as a person responsible for the preparation or 
+review, of financial statements of a public company to be filed with the Commission, Wong 
+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.  Wong 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, Wong’s 
+suspension from practice before the Commission as an independent accountant continues in 
+effect until the Commission determines that a sufficient showing has been made in this regard in 
+accordance with the terms of the original suspension order. 
+ 
+Wong is currently subject to probation under the California Board of Accountancy that is 
+scheduled to end in March 2008.  Failure to abide by the terms of the probation could result in 
+the revocation of Wong’s CPA license pending notice and an opportunity to be heard by the 
+California Board of Accountancy.  Wong has attested that he will notify the Commission if he is 
+found to have violated the terms of the probation.  He has also attested that he understands that 
+the revocation of his CPA license could result in the revocation of the reinstatement of his 
+privilege to appear or practice before the Commission as a preparer or reviewer, or as a person 
+responsible for the preparation or review, of financial statements required to be filed with the 
+Commission. 
+ 
+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 Wong, it appears that he has complied with the terms of the October 20, 2004 order denying 
+him the privilege of appearing or practicing before the Commission as an accountant, that no 
+information has come to the attention of the Commission relating to his character, integrity, 
+professional conduct or qualifications to practice before the Commission that would be a basis 
+for adverse action against him pursuant to Rule 102(e) of the Commission's Rules of Practice, 
+and that Wong, by undertaking to have his work reviewed by the independent audit committee of 
+any company for which he works, or in some other manner acceptable to the Commission, in his 
+practice before the Commission as a preparer or reviewer of financial statements required to be 
+filed with the Commission, has shown good cause for reinstatement.  Therefore, it is accordingly, 
+ 
+ 
+                                                 
+2 Rule 102(e)(5)(i) provides: 
+ 
+“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) 
+of this section may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a 
+hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated 
+by the Commission for good cause shown.”  17 C.F.R. § 201.102(e)(5)(i). 
+ 
+ 2
+ 
+ 
+ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that John 
+M. Wong, CPA is hereby reinstated to appear and practice before the Commission as an 
+accountant responsible for the preparation or review of financial statements required to be filed 
+with the Commission. 
+ 
+By the Commission. 
+ 
+ 
+ 
+Nancy M. Morris  
+Secretary  
+ 3
\ No newline at end of file
diff --git a/raw/aaer/2006/AAER-2431.txt b/raw/aaer/2006/AAER-2431.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9c9847ed383e3a1b60fdeda69fa586ae7e7bf5f2
--- /dev/null
+++ b/raw/aaer/2006/AAER-2431.txt
@@ -0,0 +1,105 @@
+UNITED STATES OF AMERICA  
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 53821 / May 17, 2006 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No.  2431 / May 17, 2006 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-11714 
+ 
+In the Matter of  
+Kenneth B. Janeski, CPA  
+ 
+: 
+: 
+: 
+: 
+: 
+: 
+ORDER GRANTING APPLICATION FOR 
+REINSTATEMENT TO APPEAR AND PRACTICE 
+BEFORE THE COMMISSION AS AN ACCOUNTANT  
+ 
+On October 20, 2004, Kenneth B. Janeski ("Janeski") 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)(1)(ii) of the Commission's Rules of Practice.1  This order is issued in response to 
+Janeski’s application for reinstatement to appear and practice before the Commission as an 
+accountant. 
+Janeski was found to have engaged in improper professional conduct in connection with 
+performing the reviews and audits of the financial statements filed by Gemstar-TV Guide 
+International, Inc. (“Gemstar”) from the quarter ended September 30, 1999 through the fiscal 
+year ended March 31, 2002.  During this time, Janeski was employed as the SEC reviewing 
+partner for KPMG, LLP’s audits and reviews of the financial statements of Gemstar.  As the SEC 
+reviewing partner, Janeski failed to exercise professional care and skepticism, failed to obtain 
+sufficient competent evidential matter and over-relied on Gemstar’s management representations 
+with respect to the audits and reviews of Gemstar’s financial statements.  In addition, Janeski 
+failed to take appropriate action to correct disclosures that did not comply with GAAP and were 
+inconsistent with Gemstar’s financial statements.  Finally, Janeski failed to render accurate audit 
+reports. 
+                                                 
+1 See Accounting and Auditing Enforcement Release No. 2125 dated October 20, 2004.  Janeski was permitted, 
+pursuant to the order, to apply for reinstatement after one year upon making certain showings. 
+Janeski 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.  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, Janeski 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.   
+  
+Janeski is currently subject to probation under the California Board of Accountancy that 
+is scheduled to end in March, 2008.  Failure to abide by the terms of his probation could result in 
+the revocation of Janeski’s CPA license pending notice and an opportunity to be heard by the 
+California Board of Accountancy.  Janeski has attested that he will notify the Commission if he 
+is found to have violated the terms of the probation.  He has also attested that he understands that 
+the revocation of his CPA license could result in the revocation of the reinstatement of his 
+privilege to appear or practice before the Commission as an accountant. 
+ 
+Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for 
+reinstatement, and provides that the Commission may reinstate the privilege to appear and 
+practice before the Commission “for good cause shown.”2  This “good cause” determination is 
+necessarily highly fact specific. 
+ 
+On the basis of information supplied, representations made, and undertakings agreed to 
+by Janeski, it appears that he has complied with the terms of the October 20, 2004 order denying 
+him the privilege of appearing or practicing before the Commission as an accountant, that no 
+information has come to the attention of the Commission relating to his character, integrity, 
+professional conduct or qualifications to practice before the Commission that would be a basis 
+for adverse action against him pursuant to Rule 102(e) of the Commission's Rules of Practice, 
+and that Janeski, by undertaking to have his work reviewed by the independent audit committee 
+of any company for which he works, or in some other manner acceptable to the Commission, in 
+his practice before the Commission as a preparer or reviewer of financial statements required to 
+be filed with the Commission, and that Janeski, by undertaking to comply with all requirements 
+of the Commission and the Public Company Accounting Oversight Board, including, but not 
+limited to, all requirements relating to registration, inspections, concurring partner reviews and 
+quality control standards, in his practice before the Commission as an independent accountant 
+has shown good cause for reinstatement.  Therefore, it is accordingly, 
+ 
+ 
+ 
+                                                 
+2 Rule 102(e)(5)(i) provides: 
+ 
+“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) 
+of this section may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a 
+hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated 
+by the Commission for good cause shown.”  17 C.F.R. § 201.102(e)(5)(i). 
+ 2
+ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that 
+Kenneth B. Janeski, CPA is hereby reinstated to appear and practice before the Commission as 
+an accountant. 
+ 
+By the Commission. 
+ 
+ 
+ 
+ 
+Nancy M. Morris  
+Secretary  
+ 
+ 3
\ No newline at end of file
diff --git a/raw/aaer/2006/AAER-2433.txt b/raw/aaer/2006/AAER-2433.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f285ff8d8495ea6a75b444bb3a467586e365137a
--- /dev/null
+++ b/raw/aaer/2006/AAER-2433.txt
@@ -0,0 +1,1399 @@
+
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19710 / May 23, 2006 
+
+ Accounting and Auditing Enforcement Release No. 2433 / May 23, 2006 
+
+  SEC v. Federal National Mortgage Association , Case No. 06-00959 (RBW) (U.S.D.C., D.D.C) 
+
+ Fannie Mae to Pay $400 Million Penalty for Accounting Fraud 
+
+ SEC and OFHEO Settle Action Against Fannie Mae 
+
+ 
+
+ On May 23, 2006, the Commission filed a settled enforcement proceeding charging the Federal National Mortgage Association ("Fannie Mae"), a shareholder-owned government-sponsored enterprise, with fraudulent accounting in violation of the anti-fraud, books and records, internal controls and reporting provisions of the Securities Exchange Act of 1934 (the "Exchange Act") and the anti-fraud provisions of the Securities Act of 1933 (the "Securities Act"). In a related proceeding, the Office of Federal Housing Enterprise Oversight ("OFHEO") reached a settlement with Fannie Mae. As a result of its settlement with both OFHEO and the Commission, Fannie Mae will pay a total civil penalty of $400 million to the U.S. government.  
+
+ The Commission filed a lawsuit in the United States District Court for the District of Columbia charging Fannie Mae with 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, 13a-11, and 13a-13 thereunder; and violations of Sections 17(a)(2) and (3) of the Securities Act. Without admitting or denying the Commission's allegations, Fannie Mae consented to the entry of a final judgment in the Commission's federal lawsuit enjoining Fannie Mae from further violations.  
+
+ In its federal court Complaint, the Commission charged that, between 1998 and 2004, Fannie Mae engaged in a financial fraud involving multiple violations of Generally Accepted Accounting Principles ("GAAP") in connection with the preparation of its annual and quarterly financial statements. These violations had the effect, among other things, of falsely portraying stable earnings growth and reduced income statement volatility, and - for year-ended 1998 - of maximizing bonuses and achieving forecasted earnings.  
+
+ Specifically, in its Complaint the Commission alleged that Fannie Mae failed to comply with the accounting requirements of Statement of Accounting Standards ("SFAS") 91, which requires companies to recognize loan fees, premiums and discounts as an adjustment over the life of the applicable loans. In the fourth quarter of 1998, by not recording the full adjustment required by SFAS 91, Fannie Mae understated its expenses and overstated its income by a pre-tax amount of $199 million. Management's decision to book an amount significantly less than the adjustment amount required by SFAS 91 resulted in the company not only exceeding Wall Street expectations, but also hitting the earnings per share target necessary to trigger maximum bonuses. In the periods that followed, Fannie Mae made other departures from SFAS 91, including the implementation of a SFAS 91 Policy in 2000. Fannie Mae's SFAS 91 Policy used a "precision threshold" to determine the SFAS 91 adjustment amount the company would record. There is no support for the use of a threshold in SFAS 91. Implementation of the Policy led to misstatements of SFAS 91 amortization in all periods from the fourth quarter of 2000 through the second quarter of 2004. The Commission alleges that, on at least one occasion, Fannie Mae booked income when it was within its own Policy threshold, with the effect of meeting its earnings targets.  
+
+ The Commission's Complaint also alleges that Fannie Mae failed to comply with the accounting requirements of SFAS 133, which governs the accounting for derivative instruments and hedging activities. Fannie Mae disregarded the requirements of SFAS 133 and qualified transactions for certain hedge accounting treatment based on erroneous interpretations and an unjustified reliance on materiality. By failing to comply with the requirements of SFAS 133, the company failed to qualify for hedge accounting. This failure led to the company issuing materially false and misleading financial statements for the periods covering the first quarter of 2001 through the second quarter of 2004. The vast majority of the anticipated restatement of at least an $11 billion reduction of previously reported net income is a result of Fannie Mae's improper hedge accounting.  
+
+ In its Complaint, the Commission also alleged improper accounting practices involving the estimation and maintenance of the Loan Loss Reserve, the process of classifying the company's portfolio securities, the amortization of debt issuance costs, the consolidation of certain securitization transactions, the accounting for Dollar Rolls, and the valuation of aircraft asset-backed securities, among others. Several of the transactions, acts, practices, or courses of business alleged in the Commission's Complaint were directed and/or implemented with the knowledge or approval of Fannie Mae's senior management acting within their scope of authority.  
+
+ In determining to accept Fannie Mae's settlement offer, the Commission considered the cooperation that Fannie Mae provided the Commission staff during its investigation. The Commission acknowledges the assistance of OFHEO in its investigation, which is continuing as to others.  
+
+ 
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diff --git a/raw/aaer/2006/AAER-2434.txt b/raw/aaer/2006/AAER-2434.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b864628e5d393089fe2906d6d09e64addb14473e
--- /dev/null
+++ b/raw/aaer/2006/AAER-2434.txt
@@ -0,0 +1,339 @@
+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  53882 / May 30, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2434 / May 30, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.   3-12304 
+________________________ 
+    : ORDER INSTITUTING CEASE-AND-DESIST  
+In the Matter of  : PROCEEDINGS, MAKING FINDINGS AND   
+    : IMPOSING A CEASE-AND-DESIST ORDER  
+ Tribune Company, : PURSUANT  TO SECTION 21C OF THE 
+    : SECURITIES EXCHANGE ACT OF 1934  
+Respondent.   :  
+________________________:   
+ 
+I. 
+ 
+ The Securities and Exchange Commissi on (“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 Tribune Company (“Tribune” or 
+“Respondent”). 
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the  
+findings herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting 
+Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order 
+Pursuant to Section 21C of the Securities Exchange Act of 1934 (“Order”), as set forth below.  
+ 
+III. 
+  
+ On the basis of this Order and Respondent’s Offer, the Commission finds that: 
+ 
+ 
+Summary 
+  
+ 1. From at least January 2002 to March 2004, two Tribune newspapers, Newsday 
+and Hoy, falsely inflated their paid circulation figures.  As a consequence, Tribune reported 
+inflated average paid circulation figures and erroneous circulation trends for these newspapers to 
+the Commission and the investing public in its Forms 10-K for the years ended December 29, 
+2002, and December 28, 2003.  The company also reported erroneous circulation trends based on 
+the inflated paid circulation figures for these newspapers in its Forms 10-Q for the first quarter 
+ended March 31, 2002, through the first quarter ended March 28, 2004.  Moreover, in the same 
+Forms 10-K and 10-Q, Tribune misstated its accounts receivable and accounts payable, as well 
+as its circulation revenues and expenses as they related to Newsday and Hoy.  This occurred 
+because, at the time, Tribune did not have sufficient internal controls in place at these two 
+newspapers.  In 2004, Tribune revised downward the average paid circulation figures previously 
+reported by Newsday and Hoy and disclosed that it had recorded a pretax charge of $90 million 
+in anticipation of settling advertisers’ claims related to the inflated paid circulation figures 
+reported by Newsday and Hoy.   
+ 
+Respondent 
+ 
+ 2. Tribune is a Delaware holding company w ith its principal executive office located 
+in Chicago, Illinois.  Tribune operates a publishing and broadcasting and entertainment business. 
+Among other things, the company publishes fourteen daily newspapers in, among other places, 
+New York, Chicago, Los Angeles, Fort Lauderdale and Orlando.  Tribune’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.      
+ 
+“Paid Circulation” 
+ 
+ 3. Advertisers consider several factors in selecting the newspapers in which they run 
+advertisements.  One significant consideration is the size of a publication’s audience.  
+Advertisers want to run their advertisements in newspapers with potentially the largest audiences 
+so that their advertisements will be viewed by as many customers as possible.  The customary 
+means by which newspaper publishers convey the size of their potential audiences to advertisers 
+is by publicly disseminating the number of newspapers that they sell at or above a specified 
+minimum price on weekdays and Sundays.  Consequently, newspaper publishers and advertisers 
+consider these “paid circulation” figures when negotiating advertising rates, and advertisers are 
+more likely to pay publications that report higher paid circulation figures more money for their 
+advertising space.        
+ 
+ 4. In 1914, in recognition of the importance of paid circulation figures to advertisers, 
+the publishing industry established its first circulation auditing organization to verify publishers’ 
+ 2
+circulation claims (the “Circulation Bureau”).  The Circulation Bureau is a voluntary, not-for-
+profit organization whose members include both advertisers and publishers.  The purpose of the 
+Circulation Bureau is to ensure the integrity and accuracy of the circulation figures reported by 
+its member publishers through, among other means, standardized circulation reporting and 
+circulation audits.  Member publishers agree to compile and report their paid circulation figures 
+in accordance with reporting rules adopted by the Circulation Bureau and to submit to circulation 
+audits conducted by the Circulation Bureau’s audit staff.  Between January 2002 and March 
+2004, all of Tribune’s principal newspapers were members of the Circulation Bureau and their 
+paid circulation figures were audited annually by the Circulation Bureau.  Further, during that 
+period, the Circulation Bureau’s reporting rules, among other things, defined “paid circulation” 
+generally to include newspapers that were sold for an amount equal to or greater than a specified 
+minimum price.      
+  
+5. Paid circulation is an important me asure used to evaluate the business 
+performance of publishing companies, which typically draw about 75% of their revenues from 
+advertisers.  Publishing industry analysts have observed in their reports and in conference calls 
+that paid circulation is a metric used by publishers and advertisers to set advertising rates, and 
+that there is a relationship between paid circulation and advertising revenues.    
+      
+Newsday and Hoy 
+ 
+ 6.  In June 2000, Tribune merged with the Times Mirror Company.  In connection 
+with the merger, Tribune acquired Newsday and Hoy and six other daily newspapers.  Newsday, 
+which has been published since 1940 and is Tribune’s third largest newspaper in terms of paid 
+circulation, is distributed primarily on Long Island, New York and in parts of New York City.  
+Hoy, a Spanish-language newspaper, has been published and distributed in New York City since 
+1998.  In late 2003, Tribune embarked on a plan to distribute Hoy nationally by introducing the 
+newspaper in Chicago.  In early 2004, Tribune began distributing Hoy in Los Angeles.   
+ 
+ 7. From June 2000 to March 2004, Newsday operated as a subsidiary of Tribune, 
+and Hoy operated as a division of Newsday.  The newspapers had separate publishers, but shared 
+many of the same personnel responsible for circulation.  The publishers and most of the 
+Directors and Vice Presidents of Circulation and other senior circulation personnel at Newsday 
+and Hoy remained the same from the time that Tribune acquired the newspapers in June 2000 
+until June 2004.  In February 2004, Tribune initiated an internal investigation into alleged 
+circulation improprieties at Newsday and Hoy.  As a consequence of the investigation, between 
+June and September 2004, Tribune identified various schemes being used at Newsday and Hoy to 
+inflate the newspapers’ paid circulation figures and forced the publishers at Newsday and Hoy to 
+retire and terminated all of the circulation personnel at Newsday and Hoy, including the Directors 
+and Vice Presidents of Circulation, associated with falsely inflating the newspapers’ paid 
+circulation figures. 
+ 
+ 8. Between January 2002 and March 2004, Tr ibune generated approximately 73% of 
+its operating revenues from its publishing business.  Newsday, which included Hoy’s operations, 
+accounted for approximately 15% of Tribune’s total publishing revenues.  In 2002 and 2003, 
+Newsday’s operating revenues (including Hoy) were $609 million and $622 million, 
+ 3
+respectively.  At least three quarters of Newsday’s operating revenues (including Hoy) were 
+attributable to advertising sales.   
+ 
+ 
+ 
+Newsday and Hoy’s Inflated Paid Circulation Figures  
+ 
+9. From at least January 2002 to March 2004, the publishers of Newsday and Hoy set 
+ambitious circulation goals for their circulation management staff.  In order to meet the goals set 
+by the publishers, the Directors and Vice Presidents of Circulation and other circulation 
+personnel (collectively the “Circulation Personnel”) at Newsday and Hoy engaged in several 
+schemes to generate fictitious sales and thereby inflate the newspapers’ paid circulation figures.  
+Although the schemes varied, they by and large fell into three categories.  The first category 
+involved circular and wash agreements with single copy dealers and home delivery agents that 
+made it falsely appear as if the dealers and agents had purchased newspapers from Newsday and 
+Hoy that they, in fact, did not buy.  The second category involved newspapers that Newsday and 
+Hoy claimed as paid circulation, but actually distributed for free or at prices that were less than 
+the minimum price required to qualify the sales as paid circulation.  The third category involved 
+the practice of shifting returns. 
+ 
+ 10. During the relevant period, the Circulation Personnel at Newsday and Hoy entered 
+into various sales arrangements with single copy dealers and home delivery agents for the sole 
+purpose of generating fictitious sales in order to boost the newspapers’ paid circulation figures.  
+The arrangements varied from dealer-to-dealer and agent-to-agent, but generally operated in the 
+same manner.  Under these arrangements, the dealers and agents paid Newsday and Hoy for 
+newspapers that were distributed to customers for free or, in some cases, were not distributed at 
+all.  Newsday and Hoy, in return, paid the dealers and agents incentive payments and fees for 
+cartage and other purported services in amounts equal to or in excess of the cost of the 
+newspapers.  Although Newsday and Hoy did not earn monies from the sale of the newspapers 
+under these arrangements, the structure of the agreements and payments made it falsely appear as 
+if Newsday and Hoy had been paid for the newspapers and thus were recorded as paid 
+circulation. 
+ 
+ 11. The Circulation Personnel at Newsday and Hoy also inflated the newspapers’ paid 
+circulation figures by claiming as paid circulation newspapers that were distributed for free or at 
+prices that were less than the minimum price required to qualify the sales as paid circulation.  
+These included newspapers that were distributed for up to ninety days to customers who did not 
+order the newspapers and whose delivery was automatically suspended for nonpayment.  It also 
+included newspapers that were distributed to schools and colleges which were falsely represented 
+as having been paid for by third-parties.  Furthermore, it included newspapers distributed on days 
+other than Sundays to customers who had paid only for the Sunday editions of Newsday and 
+Hoy.   
+ 
+ 12. In addition to generating the fictitious  sales described above, the Circulation 
+Personnel at Newsday and Hoy engaged in the practice of “shifting returns” in order to inflate the 
+publications’ paid circulation figures.  Each day, Newsday and Hoy calculated their single copy 
+ 4
+sales by subtracting the number of newspapers that their single copy dealers returned to them 
+unsold at the end of the day from the daily “draw.”  The draw was the number of newspapers that 
+Newsday and Hoy distributed in the morning to its dealers for sale.  In order to boost sales 
+figures on weekdays and Sundays, which were of principal interest to advertisers, Newsday and 
+Hoy did not always recognize all of the newspapers that were returned to them unsold on 
+weekdays and Sundays.  Instead, they would “shift” the returns to less important days by 
+recording the dealers’ returns on weekdays and Sundays against their draws on Saturdays, 
+holidays and other special days that were excluded from the circulation analysis. 
+ 
+Tribune’s Inaccurate Books and Records and Periodic Reports 
+   
+13. By fabricating sales and shifting re turns, the Circulation Personnel at Newsday 
+and Hoy were able to inflate the average paid circulation figures that they reported to Tribune, 
+and which Tribune in turn reported to the public, for Newsday and Hoy for the six-months ended 
+September 30, 2002, and for the six-months ended September 30, 2003, as follows: 
+ 
+ Reported Average 
+Paid Circulation as 
+of September 2002 
+Actual Average 
+Paid Circulation as 
+of September 2002 
+% of Over-
+Statement 
+2002   
+ 
+Reported Average 
+Paid Circulation as 
+of September 2003 
+Actual Average 
+Paid Circulation as 
+of September 2003 
+% of  Over- 
+Statement 
+2003 
+Newsday 
+Daily 
+579,000 509,000 14% 580,000 455,000 27% 
+Newsday 
+Sunday 
+677,000 595,000 14% 678,000 569,000 19% 
+Hoy 
+Daily 
+78,000 52,000 50% 94,000 52,000 81% 
+Hoy     
+Sunday 
+30,000 24,000 25% 35,000 27,000 30% 
+  
+ 14. In order to fabricate the sales and shift the returns that allowed them to inflate  
+Newsday and Hoy’s paid circulation figures as noted above, the Circulation Personnel at 
+Newsday and Hoy entered into sham agreements and prepared or caused to be prepared false 
+draw, return and billing records.  The Circulation Personnel at Newsday and Hoy were successful 
+in doing this because they had control over all aspects of the publications’ circulation processes, 
+including, but not limited to, executing and reviewing dealer and agent agreements, establishing 
+draws and recording returns, fixing rates and fees, determining the amounts to be paid to vendors 
+and collecting amounts owed by vendors.  Between January 2002 and March 2004, both 
+Newsday and Hoy were members of the Circulation Bureau and their paid circulation figures 
+were audited annually by the Circulation Bureau.  Tribune, however, did not evaluate the 
+Circulation Bureau’s audit procedures or separately verify its audit findings.  In addition, 
+Tribune lacked sufficient internal controls to detect the types of schemes that the Circulation 
+Personnel at Newsday and Hoy employed to inflate the publications’ paid circulation figures.  
+Newsday and Hoy’s inflated paid circulation figures therefore went undetected by Tribune during 
+the relevant period.  
+ 
+ 15.  As a result of the infl ated circulation figures at Newsday, Tribune disseminated 
+paid circulation numbers to the public in press releases, earnings conferences and other public 
+statements that showed that Newsday was experiencing small, but steady growth in its paid 
+circulation and that it was successfully competing against several other daily newspapers in its 
+market.  Tribune also disseminated paid circulation figures to the public that showed that Hoy’s 
+paid circulation was growing substantially and at a rapid rate.  Relying on the paid circulation 
+ 5
+figures reported to it by Hoy, Tribune stated in earnings conferences, press releases and other 
+public statements that Hoy was the largest Spanish-language newspaper in New York and that it 
+had surpassed the circulation of a well-known, competing daily Spanish-language newspaper.           
+ 
+16. As a result of its failure to dete ct the schemes being used to inflate Newsday and 
+Hoy’s paid circulation figures, Tribune reported inflated average paid circulation figures and 
+circulation trends for these newspapers to the Commission and to the public in its Forms 10-K 
+for the years ended December 29, 2002, and December 28, 2003.  The company also reported 
+erroneous circulation trends based on the inflated paid circulation figures for these newspapers in 
+its Forms 10-Q for the first quarter ended March 31, 2002, through the first quarter ended March 
+28, 2004.  In addition, in the same Forms 10-K and 10-Q, Tribune misstated its accounts payable 
+and accounts receivable, as well as its circulation revenues and expenses as they related to 
+Newsday and Hoy.         
+ 
+Tribune’s $90 Million Pretax Charge    
+ 
+ 17. As part of its internal investigation, Tribune conducted circulation audits of all of 
+its daily newspapers.  The internal circulation audits revealed that Newsday and Hoy inflated 
+their paid circulation figures as described above.  As a result, in 2004, Tribune recorded pretax 
+charges totaling $90 million to settle anticipated claims by advertisers.  Tribune recorded $35 
+million in charges in the second quarter of 2004 and $55 million in the third quarter of 2004.  
+The charges reduced Tribune’s income before taxes for those quarters by 18% and 21%, 
+respectively.  The internal circulation audits that Tribune conducted of its other daily newspapers 
+did not uncover any material misstatements in their previously reported paid circulation figures. 
+  
+Tribune’s Violations of the Exchange Act 
+ 
+ 18. Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13, thereunder, 
+require issuers that have securities registered pursuant to Section 12 of the Exchange Act to file 
+annual and quarterly reports on Forms 10-K and 10-Q, respectively.  Rule 12b-20 requires that 
+the reports be complete and accurate. 
+ 
+ 19. Section 13(b)(2)(A) of the Exchange  Act requires reporting companies under 
+Section 12 of the Exchange Act to make and keep books, records and accounts, which, in 
+reasonable detail, accurately and fairly reflect the transactions and dispositions of the issuer’s 
+assets.   
+ 
+ 20. Section 13(b)(2)(B) of the Exchange Act requires reporting companies to devise 
+and maintain a system of internal accounting controls sufficient to provide reasonable assurances 
+that, among other things, transactions are recorded as necessary (i) to permit preparation of 
+financial statements in conformity with generally accepted accounting principles or any other 
+criteria applicable to such statements, and (ii) to maintain accountability for assets.   
+ 
+ 21. As a result of the conduct described above, Tribune violated Sections 13(a), 
+13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13, 
+thereunder. 
+ 6
+ 
+ 
+ 
+ 
+Remedial Efforts and Cooperation by Tribune 
+ 
+ In determining to accept the Offer, the Comm ission considered remedial acts promptly 
+undertaken by Tribune and the cooperation that Tribune afforded the Commission staff. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Tribune’s offer. 
+ 
+ Accordingly, it is hereby ORDERED: 
+ 
+ A. Pursuant to Section 21C of the Exchange  Act, that Tribune cease and desist from 
+committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) 
+and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13, thereunder. 
+ 
+ By the Commission. 
+ 
+ 
+        N a n c y  M .  M o r r i s  
+        S e c r e t a r y  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 7
\ No newline at end of file
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@@ -0,0 +1,1417 @@
+
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19721 / June 7, 2006 
+
+ Accounting and Auditing Enforcement Release No. 2440 / June 7, 2006 
+
+  SEC v. Brady M. Schofield , Civil Action No. 06 CV 4273 (S.D.N.Y.) (June 7, 2006) 
+
+ SEC CHARGES BRADY SCHOFIELD WITH AIDING AND ABETTING FINANCIAL FRAUD AT U.S. FOODSERVICE SUBSIDIARY OF ROYAL AHOLD 
+
+ Schofield Also Agrees to Pay $728,232 to Settle Related Insider Trading Charges 
+
+ 
+
+ The Securities and Exchange Commission today filed a settled civil action against Brady M. Schofield, alleging that he aided and abetted a massive financial fraud by signing and sending false audit confirmations to the auditors of U.S. Foodservice, Inc., a subsidiary of Royal Ahold (Koninklijke Ahold N.V.). Schofield was also charged with insider trading.  
+
+ The Commission's complaint alleges that U.S. Foodservice personnel contacted vendors and urged them to sign and return the false confirmation letters. In some cases U.S. Foodservice pressured the vendors; in other cases they provided side letters to the vendors assuring the vendors that they did not owe U.S. Foodservice the amounts reflected as outstanding in the confirmation letters. The letters clearly stated that the confirmations were being used in connection with the annual audit and the letters directed the defendants to return the confirmations directly to the company's auditors.  
+
+ Schofield, who owned and operated several companies that supplied U.S. Foodservice, aided and abetted the fraud by signing and sending to the company's independent auditors confirmation letters that he knew materially misstated the amounts of promotional allowance income paid or owed to U.S. Foodservice. The amounts misstated in the relevant confirmations were wrong by millions of dollars and, in some instances, by more than 100%.  
+
+ The complaint further alleges that U.S. Foodservice engaged in a scheme to report earnings equal to or greater than its targets, regardless of the company's true performance. U.S. Foodservice inflated its promotional allowance income by at least $700 million for fiscal years 2001 and 2002 and thereby caused Ahold to report materially false operating and net income for these periods. The annual audit confirmation process at U.S. Foodservice was systematically corrupted to help keep the fraud from being discovered.  
+
+ The Commission's complaint against Schofield also alleges that during February and March of 2000, after learning of material, nonpublic information about Ahold's intention to acquire U.S. Foodservice, Schofield traded in the shares of U.S. Foodservice. The complaint alleges that he made illegal profits of approximately $299,206.40.  
+
+ Schofield has agreed to settle the Commission's action, without admitting or denying the allegations in the complaint, by consenting to a judgment permanently enjoining him from violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 14e-3 thereunder and from aiding and abetting any violation of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder. The judgment orders Schofield to disgorge illegal trading profits of $299,206.40, pay prejudgment interest of $129,820.14, and pay a civil monetary penalty of $299,206.40 for insider trading. The judgment further orders Schofield to pay a separate civil monetary penalty of $25,000 for signing false audit confirmation letters.  
+
+ In a related action, the U.S. Attorney's Office for the Southern District of New York also announced that it has filed criminal charges against Schofield for insider trading and conspiracy to falsify books and records.  
+
+ The Commission's investigation is continuing. The Commission acknowledges the assistance and cooperation of the Office of the United States Attorney for the Southern District of New York and the New York Office of the Federal Bureau of Investigation.  
+
+ For additional information on related actions, see  Administrative Release No. 34-53326  (February 16, 2006),  Litigation Release No. 19454  (November 2, 2005),  Litigation Release No. 19034  (January 13, 2005),  Litigation Release No. 18929  (October 13, 2004), and  Litigation Release No. 18797  (July 27, 2004).  
+
+ Contact Persons: 
+
+ Scott W. Friestad 
+Associate Director, Division of Enforcement 
+(202) 551-4962 
+
+ James T. Coffman 
+Assistant Director, Division of Enforcement 
+(202) 551-4953 
+
+ Charles D. Stodghill 
+Assistant Chief Litigation Counsel, Division of Enforcement 
+(202) 551-4413 
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diff --git a/raw/aaer/2006/AAER-2441.pdf b/raw/aaer/2006/AAER-2441.pdf
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@@ -0,0 +1,348 @@
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+   SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 53953 / June 7, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2441 / June 7, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12326 
+ 
+______________________________________ 
+ 
+           In the Matter of 
+ 
+           NEVANNA SACKS, 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 Commi ssion (“Commission”) deems it appropriate 
+that public administrative proceedings be, and hereby are, instituted against Nevanna 
+Sacks, CPA (“Respondent” or “Sacks”) 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 (“Offer”) which the Commission has determined to accept.  Solely 
+for the purpose of these proceedings and any other proceeding brought by or on behalf of 
+                                                 
+1  Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+The Commission may … deny, temporarily or permanently, the privilege of appearing or 
+practicing before it in any way to any person who is found … to have engaged in … improper professional 
+conduct. 
+  
+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, 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. RESPONDENT  
+ 
+ Nevanna Sacks is a certified public account ant licensed in California and Florida.  
+Sacks was an audit manager on Arthur Andersen LLP’s (“Arthur Andersen”) audit of the 
+fiscal year 2001 financial statements of Peregrine Systems, Inc. (“Peregrine”) and on 
+Arthur Andersen’s reviews of Peregrine’s quarterly financial statements for the 
+company’s third quarter of 2001 and first, second and third quarters of 2002.3  Sacks 
+previously was an audit senior on Arthur Andersen’s audit of Peregrine’s fiscal year 2000 
+financial statements and review of the company’s quarterly financial statements for the 
+third quarter of 2000 and the first and second quarters of 2001.  Sacks left Arthur 
+Andersen in May 2002.  She is currently the CFO of a privately-held company. 
+ 
+B. OTHER RELEVANT ENTITY 
+ 
+Peregrine Systems, Inc. was a Delaware corporation headquartered in San Diego, 
+California.  Peregrine developed and marketed infrastructure management software 
+products.  Peregrine’s common stock was registered with the Commission pursuant to 
+Section 12(g) of the Securities Exchange Act of 1934, from its initial public offering in 
+April 1997 until its acquisition by Hewlett-Packard Company in December 2005.  
+Peregrine filed a Form 15 on December 19, 2005.  
+  
+In February 2003, Peregrine restated its financial results for its fiscal years 2000 
+and 2001 and for the first three quarters of its fiscal year 2002.  In its restatement for 
+fiscal year 2001 – the year-end audit for which Sacks served as an audit manager  – 
+Peregrine reduced previously reported software license revenues by approximately 
+$259.7 million, from $354.6 million down to approximately $94.9 million.4   
+                                                 
+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 proceedings.   
+ 
+3  Peregrine’s fiscal year ended on March 31.  Th erefore, Peregrine’s fiscal year 2001 involves the 
+period from April 1, 2000, to March 31, 2001.  Peregrine filed a materially false and misleading Form 10-K 
+with the Commission for its fiscal year 2001 on June 29, 2001. 
+ 
+4  In June 2003, the Commission filed a civil injunctive action against Peregrine, and the U.S. 
+District Court in San Diego entered a Final Judgment by consent against the company, which, among other 
+ 2
+C. FACTS 
+ 
+1. Sacks’ Conduct 
+ 
+Peregrine’s Reseller Revenue Scheme 
+ 
+ a.  Sacks’ improper professional c onduct as an auditor occurred in the 
+context of a revenue recognition fraud being conducted by Peregrine personnel and 
+others.  Peregrine sometimes used “resellers” to help in the marketing of its software.  
+Resellers – also called “channel partners” – are companies that purchase software for 
+resale to end users.  Peregrine frequently entered into undisclosed oral or written 
+agreements with channel partners that made its “sales” to them conditional.  These 
+agreements freed the channel partners from any enforceable obligation to Peregrine if 
+they failed to resell the software.  Despite these side agreements, Peregrine generally 
+recognized the revenue from these reseller agreements and used reseller revenue to meet 
+or exceed revenue predictions.  However, Peregrine’s channel partners frequently failed 
+to resell the software, and therefore failed to pay Peregrine on the deals.  As a result, 
+Peregrine did not have a history of collecting payment on its agreements with channel 
+partners. 
+ 
+b.  Peregrine’s recognition of resell er revenue did not comply with 
+generally accepted accounting principles (“GAAP”).  The recognition of revenue from 
+the sale of software products is controlled by the American Institute of Certified Public 
+Accountants’ Statement of Position (SOP) 97-2, “Software Revenue Recognition.”  SOP 
+97-2 prohibited Peregrine from recognizing revenue on software sales unless each of four 
+criteria was met: (a) persuasive evidence of an arrangement exists; (b) delivery has 
+occurred; (c) the fee is fixed or determinable; and (d) collectibility is probable.  
+Peregrine’s undisclosed side agreements with resellers made revenue recognition 
+improper.  As a separate matter, much of Peregrine’s reseller revenue was not properly 
+recognized under GAAP because collectibility was less than probable.  Historically, 
+Peregrine often failed to collect payment on agreements with resellers.  
+ 
+c.  In addition, Peregrine’s resell er agreements sometimes included 
+extended payment terms, giving resellers as long as three years to pay Peregrine.  If 
+payment terms exceed one year, SOP 97-2 presumes the fee is not fixed or determinable 
+and therefore revenue can not be recognized.  Peregrine could overcome this presumption 
+only by demonstrating a history of successfully collecting all payments as due under 
+comparable arrangements.  Peregrine did not have such a history. 
+ 
+Sacks Failed to Exercise Due Professional Care While  
+Conducting the Peregrine Audit
+ 
+d. During her work as audit seni or on the Peregrine engagement, 
+Sacks learned that other Arthur Andersen auditors had concerns regarding Peregrine’s 
+                                                                                                                                                 
+things, enjoined it from further violations of the anti-fraud, reporting, and books and records provisions of 
+the federal securities laws. 
+ 3
+reseller arrangements.  In January 2000, shortly after she began work on the Peregrine 
+engagement, Sacks learned that the Arthur Andersen partner then assigned to the 
+Peregrine audit was concerned that Peregrine channel partners appeared to be reselling 
+Peregrine software more slowly than the Arthur Andersen partner had anticipated.  Sacks 
+understood that as a result of his concerns, the audit partner had advised Peregrine not to 
+recognize revenue on reseller agreements with extended payment terms.  Sacks knew that 
+Peregrine – already identified by Arthur Andersen as a high-risk audit client due to 
+revenue recognition issues – had agreed to stop recognizing revenue on these agreements 
+due to the audit partner’s concerns.  Additionally, in April 2000 a German affiliate of 
+Arthur Andersen (“Arthur Andersen Germany”), after reviewing Peregrine’s German 
+subsidiary (“Peregrine Germany”), suspected that Peregrine Germany had been 
+improperly recording reseller revenue.  In an email memorandum dated April 14, 2000, 
+an Arthur Andersen Germany auditor informed Sacks that, in Arthur Andersen 
+Germany’s opinion, Peregrine Germany was recording “bad revenue.”    
+ 
+  e. Sacks became an audit manager on the Peregrine engagement in 
+September 2000 (Peregrine’s second quarter of fiscal year 2001), reporting to a new 
+partner on the engagement.  Peregrine was Sacks’ first assignment as an audit manager.  
+Almost immediately after becoming a manager, Sacks received additional reports and 
+information putting her on notice of risks regarding Peregrine’s revenue recognition.  For 
+example, in October 2000, Sacks and others on the Arthur Andersen U.S. audit team 
+received a report from an auditor with Arthur Andersen Germany identifying what the 
+auditor characterized as “major revenue recognition issues.”  Later that month, Sacks was 
+provided with a significant Peregrine contract with a reseller that provided the reseller 
+with the right to cancel the contract.  Despite the conditional nature of the agreement with 
+the reseller, Sacks and the Arthur Andersen U.S. audit team failed to question Peregrine’s 
+recognition of revenue on it.    
+ 
+f.    The next quarter – Peregrine’ s third quarter of fiscal year 2001, 
+ended December 31, 2000 – Sacks received a report stating that a Peregrine subsidiary in 
+the United Kingdom was experiencing collection problems on deals with resellers.  Sacks 
+also knew that the amount of channel inventory Peregrine reported to the Arthur 
+Andersen U.S. audit team had increased by more than 25% since she had become an 
+audit manager.  Sacks also learned that Peregrine had resumed recording material 
+amounts of software license revenue on contracts with extended payment terms.  This 
+was contrary to Peregrine’s prior policy – adopted on the advice of Andersen – not to 
+recognize revenue on agreements with extended payment terms.  Sacks and the Arthur 
+Andersen U.S. audit team did not obtain sufficient competent evidence establishing that 
+Peregrine had the history of collections required under GAAP to recognize this revenue.    
+ 
+g. Sacks also served as audit manager on Arthur Andersen’s audit of 
+Peregrine’s financial statements to be included in Peregrine’s Form 10-K for the 
+company’s fiscal year 2001, ended March 31, 2001.  Peregrine filed that Form 10-K with 
+the Commission on June 29, 2001.  During the audit, Sacks learned that auditors with 
+Arthur Andersen Germany had refused to issue a report on the financial statements of 
+Peregrine Germany due to revenue recognition issues, control issues, and what they 
+ 4
+described as “questionable system integrity.”  The Andersen Germany auditors therefore 
+concluded that the financial statements for Peregrine Germany – identified by the Arthur 
+Andersen U.S. audit team as a material subsidiary – were not auditable.  Sacks also knew 
+that the Arthur Andersen Germany auditors had identified three reseller contracts that 
+Peregrine Germany had entered into in the fourth quarter of 2001 that granted extended 
+payment terms.  Sacks learned that the Arthur Andersen Germany auditors concluded that 
+it was inappropriate to recognize revenue on these extended payment term contracts.   
+ 
+h. Sacks knew that the Arthur Anders en Germany auditors refused to 
+provide an audit report regarding Peregrine’s material German subsidiary.  Despite the 
+Arthur Andersen Germany auditors’ refusal to provide an audit report, Sacks and the 
+Arthur Andersen U.S. audit team did not obtain sufficient competent evidence to provide 
+a reasonable basis for Arthur Andersen to form an opinion on Peregrine’s consolidated 
+financial statements, which included the revenue from the Peregrine Germany contracts 
+with extended payment terms.   
+ 
+i.   As audit manager, Sacks faile d to appropriately plan and perform 
+the audit of Peregrine’s accounts receivable to obtain sufficient competent evidence to 
+conclude that Peregrine’s recognition of revenue on extended payment term deals was 
+appropriate.  In particular, Sacks did not obtain sufficient competent evidence 
+establishing that Peregrine had the history of collections required by SOP 97-2 to 
+overcome the presumption that revenue should not be recognized on extended payment 
+term contracts.  Peregrine had no such history of collections.  The company rarely 
+collected its reseller receivables, and Sacks knew that Peregrine had millions of dollars in 
+unpaid inventory with resellers.  Peregrine inappropriately recognized material amounts 
+of revenue on reseller agreements in violation of GAAP, and the company materially 
+overstated its software license revenue in its fiscal year 2001 financial statements. 
+ 
+j. Additionally, Sacks assisted in preparing Peregrine’s response to a 
+Comment Letter issued by the Commission’s Division of Corporation Finance on March 
+28, 2001 (“Comment Letter”).  The Comment Letter questioned certain aspects of 
+Peregrine’s reporting in its Form 10-K for fiscal year 2000 and Forms 10-Q for fiscal 
+year 2001, including how it accounted for concession risks in extended payment term and 
+other contracts.  Peregrine’s response to the Comment Letter, dated April 12, 2001, 
+included false statements regarding, among other things, the company’s history of 
+collections.  In particular, the company’s response to the Comment Letter falsely stated 
+that Peregrine had successfully collected on all extended payment term contracts.   Sacks 
+helped to prepare an initial draft of Peregrine’s response to the Comment Letter, and also 
+reviewed the final version of the response with Peregrine executives and the Arthur 
+Andersen audit partner then assigned to the engagement before the false and misleading 
+response was submitted to the Commission staff.   
+ 
+k. The conduct described above repr esents repeated instances of 
+unreasonable conduct that resulted in violations of professional standards in the 
+performance of Sacks’ reviews and audit of Peregrine’s financial statements.   
+ 
+ 5
+2. Violations
+ 
+  a. Rule 102(e)(1)(ii) of the Comm ission’s Rules of Practice provides 
+that the Commission may deny the privilege of appearing or practicing before it to any 
+person who is found to have engaged in improper professional conduct.  With respect to 
+persons licensed to practice as accountants, “improper professional conduct” may include 
+negligent conduct evidenced by “repeated instances of unreasonable conduct, each 
+resulting in a violation of applicable professional standards, that indicate a lack of 
+competence to practice before the Commission.”  Rule 102(e)(1)(ii). 
+ 
+  b. Sacks engaged in improper pr ofessional conduct by repeatedly 
+engaging in unreasonable conduct, resulting in a violation of applicable professional 
+standards that indicate a lack of competence to practice before the Commission.  As 
+discussed above, Sacks (i) failed to adequately audit Peregrine’s accounts receivable; (ii) 
+did not obtain sufficient competent evidential matter to conclude that Peregrine had a 
+history of collecting on reseller agreements; (iii) failed to make adequate inquiries into 
+Peregrine’s agreements with resellers; (iv) failed to obtain sufficient competent evidential 
+matter to afford a reasonable basis for Andersen to issue a report on the financial 
+statements of Peregrine, which consolidated the financial statements of Peregrine 
+Germany, a material subsidiary, after Arthur Andersen Germany refused to provide an 
+audit report on the financial statements of Peregrine Germany; (v) failed to exercise due 
+professional care in connection with Peregrine’s false and misleading response to a 
+Commission Comment Letter; and (vi) failed to exercise due professional care in 
+connection with the audit and reviews. 
+ 
+ 3. Findings  
+ 
+  a. Based on the foregoing, the Commission finds that Sacks 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 Sacks’ Offer. 
+ 
+ Accordingly, it is hereby ORDE RED, effective immediately, that: 
+ 
+A. Sacks is denied the privilege of  appearing or practicing before the 
+Commission as an accountant. 
+ 
+ B. After two (2) years from the date of  this order, Sacks 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: 
+ 
+ 6
+  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 regist ered 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. 
+ 
+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. 
+ 
+ 
+ 
+       N a n c y  M .  M o r r i s  
+       S e c r e t a r y  
+ 7
\ No newline at end of file
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+ 
+ 
+ 
+  UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+Securities Exchange Act of 1934 
+Release No.  54030 / June 22, 2006 
+ 
+Accounting and Auditing Enforcement 
+Release No.  2444 / June 22, 2006 
+ 
+Administrative Proceeding 
+File No.  3-12339 
+                                                                     
+     :  ORDER INSTITUTING CEASE-AND- 
+In the Matter of   :  DE SIST PROCEEDINGS, MAKING 
+     :  FINDINGS, AND IMPOSING A CEASE- 
+WALLACE G. HAISLIP,  :  AND -DESIST ORDER PURSUANT TO  
+     :   S E C T I O N  2 1 C  O F  T H E  S E C U R I T I E S  
+Respondent.    :  EXCHANGE ACT OF 1934 
+     :  
+                                                               : 
+ 
+I. 
+  
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”) against Wallace G. Haislip (“Haislip” or “Respondent”).  
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (“Offer”) which the Commission has determined to accept.  Solely for the purpose of 
+these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
+which the Commission is a party, and without admitting or denying the findings herein, except as 
+to the Commission’s jurisdiction over him and the subject matter of these proceedings, which are 
+admitted, Respondent consents to the entry of this Order Instituting Cease-and-Desist Proceedings, 
+Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21C of the 
+Securities Exchange Act of 1934 (“Order”), as set forth below. 
+ 2
+ 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds1 that:  
+ 
+Summary 
+ 
+1. In the fall of 2000, Adelphia Communications Corporation (“Adelphia”), a cable 
+television system owner and operator, asked Scientific-Atlanta, Inc. (“Scientific-Atlanta”), a vendor 
+that provided digital cable set-top boxes used by Adelphia, to enter into a marketing support 
+transaction.  Following negotiations between Adelphia and Scientific-Atlanta, the parties agreed that 
+Scientific-Atlanta would make marketing support payments for the stated purpose of helping 
+Adelphia increase demand for digital set-top boxes provided by Scientific-Atlanta and, in return, 
+Scientific-Atlanta would receive a corresponding increase in the price of digital set-top boxes it had 
+supplied Adelphia in the past and was contractually obligated to supply in the future pursuant to a 
+long-term purchase contract that had been entered into in May 2000.  Adelphia did not use the 
+marketing support payments to help increase demand for digital set-top boxes.  Adelphia recorded 
+the price increases it paid Scientific-Atlanta as capital expenditures, and recognized the marketing 
+support payments paid by Scientific-Atlanta as a contra marketing expense, thereby artificially 
+reducing its marketing expense and increasing Earnings Before Interest, Taxes, Depreciation, and 
+Amortization (“EBITDA”).  In this manner, Adelphia was able to use the transaction to reduce 
+improperly its operating costs and increase its earnings by approximately $16.8 million in 2000 
+and $26.2 million in 2001. 
+2. Respondent, Scientific-Atlanta’s CFO at the time, was the most senior finance 
+executive responsible for approving the transaction.  Respondent was not involved in documenting 
+the transaction or signing the transaction documents.  
+Respondent 
+3. Respondent, age 56, is currently Senior Vice President, Finance and Operations for 
+Scientific-Atlanta.  From 1998 to 2003, Respondent was Senior Vice President of Finance, CFO, 
+and Treasurer.   
+Relevant Entities
+4. Scientific-Atlanta is a Georgia corporation, with corporate headquarters in 
+Lawrenceville, Georgia.  Scientific-Atlanta sells end-to-end networks used by programmers and 
+cable operators and provides customer service and support for the cable television industry.  At all 
+relevant times, Scientific-Atlanta’s common stock was registered with the Commission pursuant to 
+Section 12(g) of the Exchange Act and was publicly traded on the New York Stock Exchange.   
+5. Adelphia is a Delaware corporation, formerly headquartered in Coudersport, 
+Pennsylvania.  Adelphia owns, operates, and manages cable television systems and other related 
+                                                 
+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
+telecommunications businesses.  On March 27, 2002, Adelphia announced that it was liable for 
+approximately $2.3 billion in debt that it had previously failed to disclose.  In May 2002, certain 
+members of the Rigas family, who controlled and held officer and director positions with 
+Adelphia, resigned and Adelphia disclosed that it had misrepresented its financial performance for 
+the fiscal years 2000 and 2001 by, among other things, overstating its earnings.  On July 18, 2002, 
+the Commission filed SEC v. Adelphia Communications Corporation, et al., 02 Civ. 5776 (PKC) 
+(S.D.N.Y.), alleging that widespread, multifaceted financial fraud occurred at Adelphia.  On July 8, 
+2004, two Adelphia executives were convicted on 18 counts of securities fraud, bank fraud, and 
+conspiracy.  On May 31, 2005, the U.S. District Court for the Southern District of New York 
+entered a consent order enjoining Adelphia from 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, and 13a-13 under the Exchange Act.   
+The Year 2000 Marketing Support Agreement
+6. In May 2000, Adelphia entered into a purchase agreement for digital set-top boxes 
+with Scientific-Atlanta.  The agreement, which expired on December 31, 2001, required Adelphia 
+to purchase digital set-top boxes and transmission equipment at prices fixed by the terms of the 
+agreement, and contained no provision regarding marketing.   
+7. In June 2000, Adelphia realized that its second quarter reported EBITDA would fall 
+below analysts’ expectations.  Adelphia devised a plan to increase EBITDA by reducing operating 
+costs through a marketing support agreement with Scientific-Atlanta.  The business rationale for 
+the marketing support agreement that Adelphia stated to Scientific-Atlanta was to assist Adelphia 
+in the roll-out of its digital cable service, which was in direct competition with satellite television.  
+The request was consistent with the cable industry’s use of marketing campaigns to introduce 
+digital service and to compete with satellite television.  Pursuant to the agreement, Scientific-
+Atlanta would make marketing support payments to Adelphia.  The transaction, however, would 
+have no economic impact on Scientific-Atlanta’s net revenue or income from the sales of set-top 
+boxes to Adelphia because Adelphia would pay to Scientific-Atlanta an amount equal to the 
+marketing support payments in the form of a price increase applied to each set-top box that 
+Adelphia purchased.  The parties ultimately agreed that the marketing support would average 
+approximately $20 per set-top box.  Based upon the number of boxes that Adelphia was required to 
+purchase, the marketing support came out to approximately $16.8 million for the year 2000 and 
+$22.4 million for the year 2001. 
+8. Several facts existed that, taken together, should have put Respondent on notice that 
+it was unlikely that Adelphia was using the marketing support agreement to market Scientific-
+Atlanta set-top boxes.  Respondent understood that the price increase was designed to ensure that 
+there would be no impact on Scientific-Atlanta’s net revenue or income.  Respondent also knew 
+that the marketing support transaction provided operating expense benefits to Adelphia.  During 
+negotiations in October 2000, Adelphia put intense pressure on Scientific-Atlanta to agree to pay 
+marketing support of $50 per set-top box.  Respondent rejected that proposal as commercially 
+unreasonable, and the parties eventually agreed that Scientific-Atlanta would pay approximately 
+$20 per set-top box over the life of the contract, with Adelphia paying the same amount to 
+Scientific-Atlanta in the form of price increases applied to Adelphia’s set-top orders.  Adelphia 
+ 4
+requested, and Scientific-Atlanta agreed, that the marketing support contracts apply retroactively to 
+set-tops shipped during the period from April 2000 to December 2000.   Respondent also 
+understood that part of the rationale for the marketing support payments was that Adelphia had 
+already incurred marketing expenses in prior quarters.      
+9. Pursuant to the contracts, on May 10, 2001 Adelphia paid Scientific-Atlanta $16.8 
+million in price increases and Scientific-Atlanta immediately returned to Adelphia $16.8 million in 
+marketing support payments.  Scientific-Atlanta did not ask for any proof of marketing before 
+making the $16.8 million payment.  
+The Year 2001 Modifications To The Marketing Support Agreement 
+10. In June 2001, Adelphia advised Scientific-Atlanta that it would be ordering fewer 
+set-top boxes than required by the long-term purchase agreement.  Because Adelphia would be 
+ordering fewer set-top boxes than previously agreed to by the parties, the prior price increase for 
+the set-top boxes would not be sufficient to cover Scientific-Atlanta’s marketing support payment 
+obligation of $22.4 million for the year 2001.  To ensure that Scientific-Atlanta’s marketing 
+support payment obligation equaled the amount of the overall price increase, Scientific-Atlanta 
+agreed to expand coverage of the marketing support arrangement beyond digital set-top boxes to 
+include price increases applied to Adelphia’s purchases of digital cable transmission equipment 
+from Scientific-Atlanta, retroactive to 2000.    
+11. In December 2001, Adelphia demanded an increase in the amount of marketing 
+support for 2001 from the previously agreed $22.4 million to between $28-29 million.  The parties 
+ultimately agreed that Scientific-Atlanta would pay $26.2 million in marketing support, which 
+covered set-tops purchased in 2001 and transmission equipment purchased between July 2000 and 
+December 31, 2001.   
+12. In late 2001, at Respondent’s direction, Scientific-Atlanta repeatedly asked 
+Adelphia for documentation of the marketing that had been done using the marketing support 
+payments.  Adelphia failed to deliver to Scientific-Atlanta any documentation of credible 
+marketing activity by Adelphia.  Notwithstanding the lack of credible evidence of marketing done, 
+Respondent approved the payment of $26.2 million for 2001. 
+Adelphia Misused The Marketing Support Transaction                                                             
+To Artificially Decrease Marketing Expenses And Increase EBITDA 
+13. In internal journal entries, Scientific-Atlanta recorded the price increases as an 
+increase in revenue and the marketing support payments to Adelphia as contra-revenue.  The net 
+result was no change in the revenue line item reported in Scientific-Atlanta’s publicly-filed income 
+statement.   
+14. Adelphia, however, recorded the marketing support payments as a contra-expense 
+to marketing costs.  This accounting treatment lowered the amount of recorded marketing expenses 
+and, in turn, artificially inflated Adelphia’s EBITDA.  Adelphia recorded the price increases paid 
+to Scientific-Atlanta as capital expenditures, which are depreciated over time and, as such, have no 
+impact on EBITDA and a minimal impact on earnings.  In total, over seven quarters from April 
+ 5
+2000 through December 2001, Adelphia recorded improperly approximately $43 million in 
+marketing support payments as reductions in current operating expenses, with the intended effect 
+of inflating improperly its reported EBITDA by $43 million over that period.  Adelphia’s 
+accounting treatment violated Generally Accepted Accounting Principles (“GAAP”) because it 
+improperly reflected the transaction as having substance when in fact Adelphia did not make the 
+necessary marketing expenditures.   
+15. On March 27, 2002, approximately one month after Scientific-Atlanta paid 
+Adelphia $26.2 million for marketing support, Adelphia announced that the company was liable 
+for $2.3 billion in off-balance sheet liabilities.  On June 10, 2002, Adelphia filed a Form 8-K with 
+the Commission, making downward revisions of its 2000 and 2001 reported EBITDA, citing 
+improper accounting of marketing support agreements with two unnamed vendors (one of which 
+was Scientific-Atlanta).  Adelphia stated that properly accounting for the marketing support 
+agreements would reduce EBITDA by approximately $54 million in 2001 and $37 million in 2000, 
+of which $26.2 million and $16.8 million, respectively, is attributable to the transactions with 
+Scientific-Atlanta.   
+Legal Conclusions 
+16. The Exchange Act and Exchange Act rules require every issuer of registered 
+securities to file reports with the Commission that accurately reflect the issuer’s financial 
+performance and provide other true and accurate information to the public. 
+17. Adelphia violated Section 13(a) and Rules 13a-1, 13a-13, and 12b-20 by filing with 
+the Commission a Form 10-Q for each of the quarters from the fourth quarter of 2000 through the 
+fourth quarter of 2001, and a Form 10-K for the year ended December 31, 2000, each containing 
+materially false and misleading earnings in the financial statements for each reporting period. 
+18. Adelphia violated Sections 13(b)(2)(A) and 13(b)(2)(B) by improperly recording 
+the marketing support payments as a contra-expense to Adelphia’s marketing costs, and by 
+recording as capital expenditures the payments owed by Adelphia to Scientific-Atlanta under the 
+price increase provisions of the marketing support agreement.  Certain officers of Adelphia 
+knowingly falsified, and caused others to falsify, Adelphia’s books, records and accounts, 
+including the fraudulent journal entries of the price increases and marketing support payments.  In 
+doing so, each of them knowingly circumvented the internal accounting controls that existed at 
+Adelphia. 
+19. Section 21C of the Exchange Act provides that the Commission may issue a cease-
+and-desist order against a person who is “a cause of [another person’s] violation, due to an act or 
+omission the person knew or should have known would contribute to such violation.”2  Based on 
+                                                 
+2  Where the primary violations underlying a finding that a person is “a cause of” violations 
+do not themselves require a finding of scienter, the standard of liability for being “a cause of” such 
+violations under Section 21C of the Exchange Act is negligence. See KPMG LLP v. SEC, 289 F. 
+3d 109, 112 (DC Cir. 2002). 
+ 6
+the conduct described above, Respondent was a cause of Adelphia’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 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’s Offer. 
+ Accordingly, pursuant to Section 21C of the Exchange Act, it is hereby ORDERED that: 
+A. 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 12b-20, 13a-1, and 
+13a-13 thereunder.  
+ 
+ 
+ By the Commission. 
+ 
+ 
+       N a n c y  M .  M o r r i s  
+       S e c r e t a r y  
\ No newline at end of file
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new file mode 100644
index 0000000000000000000000000000000000000000..1263fcbb9aca7cd7cee288abc82ed3458d986b7b
--- /dev/null
+++ b/raw/aaer/2006/AAER-2445.txt
@@ -0,0 +1,221 @@
+ 
+ 
+ 
+  UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+Securities Exchange Act of 1934 
+Release No.  54031 / June 22, 2006 
+ 
+Accounting and Auditing Enforcement 
+Release No.   2445 / June 22, 2006 
+ 
+Administrative Proceeding 
+File No.  3-12340 
+                                                                     
+     :  ORDER INSTITUTING CEASE-AND- 
+In the Matter of   :  DE SIST PROCEEDINGS, MAKING 
+     :  FINDINGS, AND IMPOSING A CEASE- 
+JULIAN W. EIDSON,  :  AND -DESIST ORDER PURSUANT TO  
+     :   S E C T I O N  2 1 C  O F  T H E  S E C U R I T I E S  
+Respondent.    :  EXCHANGE ACT OF 1934 
+     :  
+                                                               : 
+ 
+I. 
+  
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”) against Julian W. Eidson (“Eidson” or “Respondent”).  
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (“Offer”) which the Commission has determined to accept.  Solely for the purpose of 
+these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
+which the Commission is a party, and without admitting or denying the findings herein, except as 
+to the Commission’s jurisdiction over him and the subject matter of these proceedings, which are 
+admitted, Respondent consents to the entry of this Order Instituting Cease-and-Desist Proceedings, 
+Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21C of the 
+Securities Exchange Act of 1934 (“Order”), as set forth below. 
+ 2
+ 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds1 that:  
+ 
+Summary 
+ 
+1. In the fall of 2000, Adelphia Communications Corporation (“Adelphia”), a cable 
+television system owner and operator, asked Scientific-Atlanta, Inc. (“Scientific-Atlanta”), a vendor 
+that provided digital cable set-top boxes used by Adelphia, to enter into a marketing support 
+transaction.  Following negotiations between Adelphia and Scientific-Atlanta, the parties agreed that 
+Scientific-Atlanta would make marketing support payments for the stated purpose of helping 
+Adelphia increase demand for digital set-top boxes provided by Scientific-Atlanta and, in return, 
+Scientific-Atlanta would receive a corresponding increase in the price of digital set-top boxes it had 
+supplied Adelphia in the past and was contractually obligated to supply in the future pursuant to a 
+long-term purchase contract that had been entered into in May 2000.  Adelphia did not use the 
+marketing support payments to help increase demand for digital set-top boxes.  Adelphia recorded 
+the price increases it paid Scientific-Atlanta as capital expenditures, and recognized the marketing 
+support payments paid by Scientific-Atlanta as a contra marketing expense, thereby artificially 
+reducing its marketing expense and increasing Earnings Before Interest, Taxes, Depreciation, and 
+Amortization (“EBITDA”).  In this manner, Adelphia was able to use the transaction to reduce 
+improperly its operating costs and increase its earnings by approximately $16.8 million in 2000 
+and $26.2 million in 2001. 
+2. Respondent, Scientific-Atlanta’s principal accounting officer at the time, was one of 
+the senior executives responsible for approving the form of the transaction and was the senior 
+executive responsible for approving Scientific-Atlanta’s accounting for the transaction.  Respondent 
+did not negotiate the terms of the transaction or review the transaction documents.    
+Respondent 
+3. Respondent, age 65, was Vice President, Controller, and Principal Accounting 
+Officer of Scientific-Atlanta from at least 2000 to 2003.   
+Relevant Entities 
+4. Scientific-Atlanta is a Georgia corporation, with corporate headquarters in 
+Lawrenceville, Georgia.  Scientific-Atlanta sells end-to-end networks used by programmers and 
+cable operators and provides customer service and support for the cable television industry.  At all 
+relevant times, Scientific-Atlanta’s common stock was registered with the Commission pursuant to 
+Section 12(g) of the Exchange Act and was publicly traded on the New York Stock Exchange.   
+5. Adelphia is a Delaware corporation, formerly headquartered in Coudersport, 
+Pennsylvania.  Adelphia owns, operates, and manages cable television systems and other related 
+                                                 
+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
+telecommunications businesses.  On March 27, 2002, Adelphia announced that it was liable for 
+approximately $2.3 billion in debt that it had previously failed to disclose.  In May 2002, certain 
+members of the Rigas family, who controlled and held officer and director positions with 
+Adelphia, resigned and Adelphia disclosed that it had misrepresented its financial performance for 
+the fiscal years 2000 and 2001 by, among other things, overstating its earnings.  On July 18, 2002, 
+the Commission filed SEC v. Adelphia Communications Corporation, et al., 02 Civ. 5776 (PKC) 
+(S.D.N.Y.), alleging that widespread, multifaceted financial fraud occurred at Adelphia.  On July 8, 
+2004, two Adelphia executives were convicted on 18 counts  of securities fraud, bank fraud, and 
+conspiracy.  On May 31, 2005, the U.S. District Court for the Southern District of New York 
+entered a consent order enjoining Adelphia from 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, and 13a-13 under the Exchange Act.   
+The Year 2000 Marketing Support Agreement 
+6. In May 2000, Adelphia entered into a long-term purchase agreement for digital set-
+top boxes with Scientific-Atlanta.  The agreement, which expired on December 31, 2001, required 
+Adelphia to purchase digital set-top boxes and transmission equipment at prices fixed by the terms 
+of the agreement, and contained no provision regarding marketing.   
+7. In June 2000, Adelphia realized that its second quarter reported EBITDA would fall 
+below analysts’ expectations.  Adelphia devised a plan to increase EBITDA by reducing operating 
+costs through a marketing support agreement with Scientific-Atlanta.  The business rationale for 
+the marketing support agreement that Adelphia stated to Scientific-Atlanta was to assist Adelphia 
+in the roll-out of its digital cable service, which was in direct competition with satellite television.  
+The request was consistent with the cable industry’s use of marketing campaigns to introduce 
+digital service and to compete with satellite television.  Pursuant to the agreement, Scientific-
+Atlanta would make marketing support payments to Adelphia.  The transaction, however, would 
+have no economic impact on Scientific-Atlanta’s net revenue or income from the sales of set-top 
+boxes to Adelphia because Adelphia would pay to Scientific-Atlanta an amount equal to the 
+marketing support payments in the form of a price increase applied to each set-top box that 
+Adelphia purchased.  The parties ultimately agreed that the marketing support would average 
+approximately $20 per set-top box.  Based upon the number of boxes that Adelphia was required to 
+purchase, the marketing support came out to approximately $16.8 million for the year 2000 and 
+$22.4 million for the year 2001. 
+8. Several facts existed that, taken together, should have put Respondent on notice that 
+it was unlikely that Adelphia was using the marketing support agreement to market Scientific-
+Atlanta set-top boxes.  Respondent understood that the price increase was designed to ensure that 
+there would be no impact on Scientific-Atlanta’s net revenue or income.  As Principal Accounting 
+Officer, Respondent took steps to ensure that Scientific-Atlanta would not record any additional 
+revenue as a result of the price increase; instead, Scientific-Atlanta would record both the effect of 
+the price increase and the corresponding marketing support payments in revenue, resulting in no 
+net change in Scientific-Atlanta’s revenue from its sales to Adelphia.  Respondent also understood 
+that the marketing support transaction would likely be used to provide operating expense benefits 
+to Adelphia.  Adelphia demanded, and Scientific-Atlanta agreed, that the marketing support 
+ 4
+contracts apply retroactively to set-tops shipped during the period from April 2000 to December 
+2000.   
+The Year 2001 Modifications To The Marketing Support Agreement 
+9. In June 2001, Adelphia advised Scientific-Atlanta that it would be ordering fewer 
+set-top boxes than required by the long-term purchase agreement.  Because Adelphia would be 
+ordering fewer set-top boxes than previously agreed to by the parties, the prior price increase for 
+the set-top boxes would not be sufficient to cover Scientific-Atlanta’s marketing support payment 
+obligation of $22.4 million for the year 2001.  To ensure that Scientific-Atlanta’s marketing 
+support payment obligation equaled the amount of the overall price increase, Scientific-Atlanta 
+agreed to expand coverage of the marketing support arrangement beyond digital set-top boxes to 
+include price increases applied to Adelphia’s purchases of digital cable transmission equipment 
+from Scientific-Atlanta, retroactive to 2000.    
+10. In December 2001, Adelphia demanded an increase in the amount of marketing 
+support for 2001 from the previously agreed $22.4 million to between $28-29 million.   The parties 
+ultimately agreed that Scientific-Atlanta would pay $26.2 million in marketing support, which 
+covered set-tops purchased in 2001 and transmission equipment purchased between July 2000 and 
+December 31, 2001.   
+Respondent Approved Marketing Support Payments                                                        
+Without Any Documentation Of Marketing Done By Adelphia 
+11. On or about May 10, 2001, Respondent approved the first marketing support check 
+request in the amount of $16.8 million.  Respondent did not confirm that actual marketing was 
+being done prior to approving the check request.     
+12. In late 2001, Respondent recommended that the CFO approve payment of $26.2 
+million in marketing support for 2001.  Respondent did not confirm that actual marketing was 
+being done prior to recommending approval of that payment.  The CFO approved the payment, 
+based in significant part on Respondent’s recommendation. 
+Adelphia Misused The Marketing Support Transaction                                                             
+To Artificially Decrease Marketing Expenses And Increase EBITDA 
+13. In internal journal entries, Scientific-Atlanta recorded the price increases as an 
+increase in revenue and the marketing support payments to Adelphia as contra-revenue.  The net 
+result was no change in the revenue line item reported in Scientific-Atlanta’s publicly-filed income 
+statement.   
+14. Adelphia, however, recorded the marketing support payments as a contra-expense 
+to marketing costs.  This accounting treatment lowered the amount of recorded marketing expenses 
+and, in turn, artificially inflated Adelphia’s EBITDA.  Adelphia recorded the price increases paid 
+to Scientific-Atlanta as capital expenditures, which are depreciated over time and, as such, have no 
+impact on EBITDA and a minimal impact on earnings.  In total, over seven quarters from April 
+2000 through December 2001, Adelphia recorded improperly approximately $43 million in 
+ 5
+marketing support payments as reductions in current operating expenses, with the intended effect 
+of inflating improperly its reported EBITDA by $43 million over that period.    Adelphia’s 
+accounting treatment violated Generally Accepted Accounting Principles (“GAAP”) because it 
+improperly reflected the transaction as having substance when Adelphia did not make the 
+necessary marketing expenditures.   
+15. On March 27, 2002, approximately one month after Scientific-Atlanta paid 
+Adelphia $26.2 million for marketing support, Adelphia announced that the company was liable 
+for $2.3 billion in off-balance sheet liabilities.  On June 10, 2002, Adelphia filed a Form 8-K with 
+the Commission, making downward revisions of its 2000 and 2001 reported EBITDA, citing 
+improper accounting of marketing support agreements with two unnamed vendors (one of which 
+was Scientific-Atlanta).  Adelphia stated that properly accounting for the marketing support 
+agreements would reduce EBITDA by approximately $54 million in 2001 and $37 million in 2000, 
+of which $26.2 million and $16.8 million, respectively, is attributable to the transactions with 
+Scientific-Atlanta.   
+Legal Conclusions 
+16. The Exchange Act and Exchange Act rules require every issuer of registered 
+securities to file reports with the Commission that accurately reflect the issuer’s financial 
+performance and provide other true and accurate information to the public. 
+17. Adelphia violated Section 13(a) and Rules 13a-1, 13a-13 and 12b-20 by filing with 
+the Commission a Form 10-Q for each of the quarters from the fourth quarter of 2000 through the 
+fourth quarter of 2001, and a Form 10-K for the year ended December 31, 2000, each containing 
+materially false and misleading earnings in the financial statements for each reporting period. 
+18. Adelphia violated Sections 13(b)(2)(A) and 13(b)(2)(B) by improperly recording 
+the marketing support payments as a contra-expense to Adelphia’s marketing costs, and by 
+recording as capital expenditures the payments owed by Adelphia to Scientific-Atlanta under the 
+price increase provisions of the marketing support agreement.  Certain officers of Adelphia 
+knowingly falsified, and caused others to falsify, Adelphia’s books, records and accounts, 
+including the fraudulent journal entries of the price increases and marketing support payments.  In 
+doing so, each of them knowingly circumvented the internal accounting controls that existed at 
+Adelphia.  
+19. Section 21C of the Exchange Act provides that the Commission may issue a cease-
+and-desist order against a person who is “a cause of [another person’s] violation, due to an act or 
+omission the person knew or should have known would contribute to such violation.”2  Based on 
+the conduct described above, Respondent was a cause of Adelphia’s violations of Sections 13(a), 
+                                                 
+2  Where the primary violations underlying a finding that a person is “a cause of” violations 
+do not themselves require a finding of scienter, the standard of liability for being “a cause of” such 
+violations under Section 21C of the Exchange Act is negligence. See KPMG LLP v. SEC, 289 F. 
+3d 109, 112 (DC Cir. 2002). 
+ 6
+13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 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’s Offer. 
+ Accordingly, pursuant to Section 21C of the Exchange Act, it is hereby ORDERED that: 
+A. 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 12b-20, 13a-1, and 
+13a-13 thereunder.  
+ 
+ 
+ By the Commission. 
+ 
+ 
+       N a n c y  M .  M o r r i s  
+       S e c r e t a r y  
\ No newline at end of file
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+ 
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  54049 / June 27, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2448 / June 27, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.   3-12344 
+ 
+ 
+ 
+In the Matter of 
+ 
+DOUGLAS R. BAUER, 
+ 
+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 R. Bauer (“Bauer” or “Respondent”). 
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”), which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making 
+Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below.   
+ 
+ 2
+ 
+III. 
+ 
+ On the basis of this Order and Res pondent’s Offer, the Commission finds1 that: 
+ 
+Respondent 
+ 
+Douglas R. Bauer, age 44, of St. Petersburg, Florida, is the chief financial officer, 
+secretary, and treasurer of PowerLinx, Inc. (“PowerLinx”).  He joined PowerLinx’s management 
+team in early 2001 and shortly thereafter became chief financial officer.    
+ 
+Other Relevant Entity  
+ 
+PowerLinx is a Nevada corporation based in St. Petersburg, Florida.  The company, 
+formerly known as SeaView Video Technology, Inc., manufactures security video cameras, 
+underwater cameras, and accessories.  PowerLinx’s stock is quoted on the OTC Bulletin Board 
+under the symbol “PWNX.”   
+ 
+Summary 
+ 
+Bauer joined PowerLinx’s management team in early 2001.  Prior to Bauer’s arrival, 
+PowerLinx had fraudulently recognized nearly ninety percent of its reported revenues during fiscal 
+year 2000 based on fictitious sales.2  During his initial review of the company’s financial records, 
+Bauer concluded that PowerLinx had materially overstated revenues and accounts receivable 
+during 2000.  In April 2001, largely at Bauer’s impetus, PowerLinx restated its second- and third-
+quarter revenues as part of its fiscal year 2000 annual report on Form 10-K.  In April 2002, 
+PowerLinx again restated its financial statements, in its 2001 annual report on Form 10-K, to write 
+down improperly recorded deferred tax assets.  At the time of that restatement, Bauer was aware of 
+material information that should have been disclosed, but did not cause that information to be 
+included in the restatement.  Accordingly, Bauer was a cause of PowerLinx’s violations of Section 
+15(d) of the Exchange Act and Rules 15d-1 and 12b-20 thereunder with regard to its April 2002 
+restatement.    
+ 
+                                                 
+1  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any 
+other person or entity in this or any other proceeding. 
+ 
+2  In a related action, PowerLinx and two of its former officers and directors, George S. Bernardich III and 
+James R. Cox, have consented to the entry of final judgments enjoining them from violating the antifraud, periodic 
+reporting, and recordkeeping provisions and imposing various sanctions.  See Securities and Exchange Commission 
+v. PowerLinx, Inc., et al., Civ. Action No. 1172 (D.D.C. filed June 27, 2006).  
+ 
+ 3
+Background 
+ 
+PowerLinx’s Improper Revenue Recognition 
+ 
+ From 1999 through 2001 (t he “relevant period”), PowerLinx’s business consisted of 
+manufacturing and selling underwater video cameras and accessories, and it sold and shipped its 
+products directly to consumers, primarily at boat shows.3  During fiscal year 2000, PowerLinx 
+utilized a sales program known as “dealer floor plans,” which were, in essence, consignment 
+arrangements whereby dealers agreed to display PowerLinx’s underwater camera products without 
+actually purchasing them (i.e., without accepting title and the risks and rewards of ownership).  In a 
+departure from both Generally Accepted Accounting Principles (“GAAP”) and the company’s 
+stated revenue recognition policy, which provided for recognition “at the time of product 
+shipment,” PowerLinx recorded revenues from dealer orders placed pursuant to the dealer floor 
+plans before any cameras were shipped to dealers or sold by the dealer-consignees to consumers.4  
+Most of the cameras in question were not shipped, or even manufactured, during the relevant 
+period.  However, even if PowerLinx had shipped the cameras on time, the company could not 
+have recognized revenue on those shipments in accordance with GAAP because the cameras 
+would have been shipped pursuant to consignment arrangements. 
+ 
+ PowerLinx’s dealer floor pl an program for underwater cameras continued until September 
+2000, when the company began soliciting orders for its new SecureView video surveillance 
+product, which was still under development at that time.  As the terms of the dealer floor plan 
+agreement made clear,5 dealers who submitted orders to participate in SecureView dealer floor 
+plans merely were agreeing to display cameras on PowerLinx’s behalf, but were not purchasing the 
+cameras.  Consequently, the dealer floor plan orders that PowerLinx received did not reflect actual 
+demand for the company’s products.  From September through at least December 2000, PowerLinx 
+devoted virtually all of its marketing and sales efforts toward generating dealer floor plan orders 
+                                                 
+3  In late 1999, PowerLinx began developing a video surveillance product known as “SecureView,” which 
+used a “camera in a light bulb” technology to transmit video signals through electrical wiring to a television monitor.  
+During the relevant period, PowerLinx only produced approximately two dozen functioning SecureView cameras, 
+primarily prototypes for testing purposes. 
+ 
+4  Under GAAP, revenue recognition is inappropriate on products delivered pursuant to a consignment 
+arrangement, but not yet sold by the consignee, because the consignor retains the risks and rewards of ownership of 
+the product and title has not passed to the consignee.  See Statements of Financial Accounting Standards (“SFAS”) 
+48, Revenue Recognition When Right of Return Exists; Statement of Position (“SOP”) 97-2, Software Revenue 
+Recognition, ¶ 25; Statements of Financial Accounting Concepts (“SFAC”) 5, Recognition and Measurement in 
+Financial Statements of Business Enterprises, ¶¶ 83-84.  Financial statements filed as part of an issuer’s periodic 
+reports under Sections 13(a) and 15(d) of the Exchange Act must be prepared in accordance with GAAP.  See 
+Regulation S-X §§ 210.4-01, 210.1-01(a)(2). 
+ 
+5  The consignment agreement that PowerLinx used in connection with its SecureView dealer floor plan 
+offered dealers the following terms: “ZERO down…ZERO interest…ZERO risk.”  The consignment agreement 
+further provided that “[t]he Goods shipped shall remain [PowerLinx]’s property until sold to Consignee’s 
+customers,” and also that the “Consignee shall make payment to [PowerLinx] for Goods sold as soon as practical 
+after the sale of each unit on consignment.”
+   
+ 
+ 4
+for SecureView cameras.  As it had done with the underwater camera dealer floor plans, 
+PowerLinx improperly recorded the SecureView orders as sales prior to shipping any cameras and 
+before dealers had sold any cameras to customers.  In fact, PowerLinx only manufactured 
+approximately two dozen prototype SecureViews in all of 2000 and did not produce commercially 
+viable models until May 2001 or later. 
+   
+PowerLinx’s 2000 Annual Report and Restatement 
+ 
+ Bauer joined PowerLinx’s management team in  early 2001.  During his initial review of the 
+company’s financial records, Bauer concluded that PowerLinx had materially overstated revenues 
+and accounts receivable during 2000.  Bauer immediately conveyed his findings to other members 
+of PowerLinx’s senior management.  In April 2001, PowerLinx filed its annual report on Form 10-
+K for fiscal year 2000.  In that report, PowerLinx restated its financial results for the second and 
+third quarters of 2000, but failed to disclose that its accounting errors stemmed from having 
+improperly recorded consignment (or dealer floor plan) orders as revenue.    
+ 
+ In addition, PowerLinx asserted in its Form 10-K that “[a]ggressive selling efforts [had] 
+achieved approximately $9 million in SecureView product orders from independent retailers and 
+individual customers.”  (Emphasis added.)  This purported $9 million SecureView backlog was 
+also discussed in a December 2000 press release, in which PowerLinx stated, “[t]he Company will 
+roll into 2001 with a backlog of orders totaling over $9 million.”  In fact, the “orders” comprising 
+the purported $9 million backlog were consignment orders and not actual product sales.  By 
+representing its dealer floor plan orders as “product orders from independent retailers and 
+individual customers,” PowerLinx created the impression that there was actual demand for 
+SecureView cameras and that such demand would translate into future revenue as soon as 
+PowerLinx could begin filling the orders.  In fact, there was little, if any, demand for SecureView 
+cameras at the time PowerLinx filed its Form 10-K.  As PowerLinx’s senior accounting officer, 
+Bauer had a role in preparing PowerLinx’s annual report for fiscal year 2000 and was aware of this 
+disclosure concerning the $9 million order backlog.    
+ 
+Bauer Was a Cause of PowerLinx’s Issuance of a 
+Restatement in 2002 That Omitted Material Facts  
+Regarding the Improper Recording of a Deferred Tax Asset 
+ 
+Under GAAP, a company may record a deferred tax asset based on a reasonable 
+expectation that current net tax operating losses will, in future years, offset expected future 
+profits, thereby reducing the company’s future income tax liability.6  However, GAAP requires 
+that the deferred tax asset be reduced by a “valuation allowance” to account for the possibility 
+that the company will fail to be profitable as expected. 
+ 
+PowerLinx improperly recorded on its fiscal year 2000 balance sheet a deferred tax asset 
+of $1,439,322 without any valuation allowance.  The tax asset was material, representing almost 
+forty percent of PowerLinx’s total assets of $3,841,944.  PowerLinx also recorded deferred tax 
+                                                 
+6  See SFAS 109, Accounting for Income Taxes.   
+   
+ 5
+assets of $180,613, $72,907, and $44,921, respectively, in its financial statements for the first 
+three quarters of 2000.    
+ 
+PowerLinx did not have a proper basis for recording the deferred tax assets.  The 
+company had accumulated significant losses in 2000 and had no historical operating basis from 
+which to conclude that it would be profitable in future years.  Underwater camera sales had 
+declined significantly and the company had devoted most of its resources to developing its 
+SecureView product.  The sole basis for PowerLinx’s “expectation” of future profitability was 
+the purported $9 million backlog of SecureView orders, which management assumed would 
+generate taxable income; however, this purported backlog, which predated Bauer’s hiring, did 
+not reflect actual demand for SecureView cameras and, consequently, was not a reasonable or 
+reliable indicator of future profitability. 
+ 
+In late 2001, Bauer determined that virtually all of the orders comprising the purported $9 
+million backlog contained consignment terms and, therefore, were unlikely to produce taxable 
+income.  In April 2002, after hiring a new audit firm, PowerLinx restated its 2000 financial 
+results, reducing the value of the deferred tax asset on its balance sheet from $1,439,322 to zero.  
+In its restatement, PowerLinx explained that the action was necessary because “projections of 
+future taxable income d[id] not rise to the ‘more likely than not’ criteria established in Financial 
+Accounting Standard No. 109.”  However, PowerLinx failed to disclose the material underlying 
+reason for the restatement, which was, as Bauer himself had concluded in an internal 
+memorandum, that “[i]n no cases did these orders [comprising the backlog] constitute firm, 
+contracted future business” and, for that reason, they should not have been relied upon as 
+evidence of future taxable income.  
+ 
+Although Bauer had become aware, after PowerLinx had filed its fiscal year 2000 annual 
+report, that the purported backlog consisted of orders for consignment arrangements (rather than 
+orders to purchase product), he failed to ensure that PowerLinx disclosed this information as part 
+of the 2002 restatement.  As chief financial officer, Bauer should have caused PowerLinx to 
+disclose that the sole basis for having recorded the deferred tax asset, the purported $9 million 
+order backlog, had been determined to be invalid, but he failed to do so. 
+ 
+Legal Analysis 
+ 
+As a result of the conduct described above, PowerLinx violated, among other provisions, 
+Section 15(d) of the Exchange Act and Rules 15d-1 and 12b-20 thereunder, which require 
+Exchange Act reporting companies to file accurate annual reports on Forms 10-K and include in 
+such reports material information necessary to ensure that statements in the reports are not 
+misleading.  In April 2002, PowerLinx filed an annual report with the Commission that omitted 
+material facts.   
+ 
+As a further result of the conduct described above, Bauer was a cause of PowerLinx’s 
+violations of Section 15(d) of the Exchange Act and Rules 15d-1 and 12b-20 thereunder.   
+ 
+ 6
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED that Respondent Bauer cease and desist from causing 
+any violations and any future violations of Sections 15(d) of the Exchange Act and Rules 15d-1 
+and 12b-20 promulgated thereunder.   
+ 
+ By the Commission. 
+ 
+ 
+       N a n c y  M .  M o r r i s  
+       S e c r e t a r y  
\ No newline at end of file
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+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES ACT OF 1933 
+Release No. 8716 / June 28, 2006   
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  54061 / June 28, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2451 / June 28, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-12346 
+ 
+                
+      : ORDER INSTITUTING CEASE-AND-  
+In the Matter of    : DE SIST PROCEEDINGS PURSUANT  
+      :  T O  S E C T I O N  8 A  O F  T H E  S E C U R I T I E S  
+  Vedco, Inc. and Crai g S. Campbell,  : ACT OF  1933 AND SECTION 21C OF 
+      : THE SECURITIES EXCHANGE ACT  
+       : OF 1934, MAKING FINDINGS AND 
+     Respondents.  : IM POSING A CEASE-AND-DESIST  
+      : ORDER 
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“ Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 
+1933 (the “Securities Act”) and Section 21C of the Securities Exchange Act of 1934 (the “Exchange 
+Act”) against Vedco, Inc. (“Vedco”) and Craig S. Campbell. 
+ 
+II. 
+ 
+ In anticipation of the ins titution of these proceedings, Vedco and Campbell have submitted 
+an Offer of Settlement (“Offer”) that th e Commission has determined to accept. 1  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+contained herein, except that Vedco and Campbell admit the Commission’s jurisdiction over them 
+and over the subject matter of these proceedings, Vedco and Campbell consent to the entry of this 
+Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 
+                                                                                                                                                             
+1 Simultaneously with this proceeding, the Commission has filed the following settled action in which Campbell 
+is a party:  SEC v. Virbac Corp., et al., Civil Action No. 4-06CV-453-A, U.S.D.C. N.D. Tex. (hereafter, “the parallel 
+civil action”). 
+ 
+ 2
+1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a 
+Cease-and-Desist Order. 
+ 
+III. 
+FINDINGS 
+ 
+ The Commission makes the following findings:2
+ 
+A. RESPONDENTS 
+ 
+Vedco, a privately owned veterinary buying gr oup based in St. Joseph, Missouri, with 
+approximately $114 million in annual sales, accounted for 18% and 12% of Virbac Corporation’s 
+(“Virbac” or the “Company”) net revenues in 2002 and 2001, respectively.3
+ Campbell , age 52, is the general manager of Vedco and is Virbac’s principal Vedco 
+contact. 
+ 
+B. RELATED PARTIES  
+ 
+Virbac, a Delaware corporation headquartered in Fort Worth, Texas, is  the result of the 
+March 1999 acquisition of Agri-Nutrition Group Limited (“AGNU”), a publicly held company, by 
+Virbac Inc., a wholly owned subsidiary of Virb ac S.A., a French vete rinary pharmaceutical 
+manufacturer.  Virbac’s common stock is registered with the Commission under Section 12(g) of 
+the Exchange Act and trades in the Pink Sheets under  the  sym bo l “VBAC ”  since it was delisted 
+from the NASDAQ National Market on January 23, 2004 for Virbac’s failure to  file timely its 
+periodic reports. 
+ 
+Thomas L. Bell, age 45, served as president and CEO of Virbac from April 1999, as well as 
+a director from May 2002, until he resigned effective January 27, 2004. 
+Joseph A. Rougraff, age 46, and a CPA licensed in the state of Indiana, served as vice 
+president, CFO, and corporate secretary of Virbac fr om May 2000 until he resigned effective 
+January 27, 2004. 
+ Douglas A. Hubert , age 38, joined Virbac in March 1991 as a sales territory manager and 
+served as vice president of the Veterinary Division from April 2000 until his resignation in January 
+2005. 
+ 
+ 
+C. FACTS  
+ 
+                                                                                                                                                             
+2 The findings herein are made pursuant to Respondents’ Offer and are not binding on any other person or entity 
+in these or any other proceedings. 
+ 
+3 During the relevant time period, Vedco was owned by ni ne veterinary supply companies that use Vedco to 
+achieve economies of scale when purchasing products. 
+ 
+ 3
+ 1. Background  
+Shortly after the March 1999 merger of Virbac, Inc. with AGNU, Bell was named 
+Virbac’s CEO.  Primarily through the introduction of new products, Virbac’s revenues grew from 
+$44 million in 1999 to $64 million in 2002.  From January 2000 through September 2002, Bell, in 
+press releases and conference calls, consistently  expressed confidence that the Company would 
+achieve its strategic goal of more than doubling revenues to $100 million by 2004.  Together with 
+Rougraff, Bell touted positive ear nings results in press releases , investor presentations, and 
+conference calls which they attributed primarily  to successful product launches.  Virbac’s 
+Veterinary Division, the larges t of its three repo rtable segments, which accounted for 
+approximately 50% of Virbac’s co nsolidated revenue, was portrayed  as the principal driver of 
+the Company’s growth and success. 
+ 
+Virbac’s stock price rose in response to the Company’s favorable operating results and Bell 
+and Rougraff’s upbeat statements—from $1.1 25 on March 5, 1999 to $8 .35 on November 12, 
+2003. The November 12 price peak immediately preceded Virbac’s announcement of delay in 
+filing its third quarter 2003 Form  10-Q.  Within two weeks of  this announcement, Virbac 
+confirmed it would be restating its financial statements. Virbac’s stock price tumbled—from $8.35 
+per share on November 12, 2003, when Virbac disclosed delays in filing its Form 10-Q, to $2.70 
+on February 20, 2004, when Virbac disclosed the Commission’s investigation. 
+ 
+2. Elements of the Scheme  
+ 
+To foster the illusion of rapid revenue and ea rnings growth, Virbac orchestrated a multi-
+pronged scheme to manipulate Virbac’s financial statements.  The scheme involved, among other 
+things: 1) accelerating revenue recognition on shipments of product that exceeded distributors’ 
+current demands (i.e., Virbac’s “loading” cycle); 2) recognizing revenue on sham transactions; 3) 
+failing to cut off sales at fiscal period-end; and 4) deferring expenses, principally by manipulating 
+reserves and accruals. 
+ 
+ Bell and Hubert were able to conv ince Vedco to assist in the scheme.4  Virbac was one of 
+Vedco’s top five suppliers.  In order to mainta in that relationship, Campbell consented to the 
+transactions requested by Bell and Hubert.  Vedco did not derive any direct benefit from its 
+participation in the scheme. 
+ 
+                                                                                                                                                             
+4 Vedco accounted for 60% of the invoices th at Virbac used to inflate its revenue. 
+ 
+ 
+ 4
+3. Vedco and Campbell’s Participat ion in the Revenue Inflation and 
+Expense Deferral Scheme 
+ 
+a. Virbac’s “Loading” Strategy  
+ 
+In early 1999, Virbac began a loading strategy with its distributors to meet Bell’s sales and 
+income targets and to fulfill its mission statement: double-digit earnings growth through successful 
+product launches.  Virbac relied heavily upon Vedco and another distributor to execute its loading 
+strategy, granting whatever concessions were necessary to make “sales” in excess of distributors’ 
+current requirements.  In some instances, Virbac offered very long payment terms—often 180 
+days or more instead of a more typical 30 days—or even consignment terms to Vedco.  On other 
+occasions, various volume discounts and rebates were  given to induce large purchases.  In many 
+cases, Virbac promised Vedco that it could simp ly return large quantities of product for full 
+credit, or exchange it for replac ement product, at a later date.  These return or exchange terms 
+were rarely reflected in Vedco’s purchase or ders to Virbac.  Through these distributor 
+enticements, Virbac improperly recorded revenue in violation of Generally Accepted Accounting 
+Principles (“GAAP”).
+5
+ 
+Virbac’s most excessive loading strategy involved new product launches, such as Preventic 
+Plus (flea and tick collar), Iverhart Plus (heartworm medication), and its generic ivermectin pour-
+on products (cattle de-wormers).  Additionally, Virbac used product launches to accelerate revenue 
+through a scheme in which Vedco was asked to purchase an existing product with the understanding 
+it could be exchanged for a newly launched product  when available. For example, Virbac pushed 
+Preventic in the fourth quarter  of 2000 in advance of the Preventic Plus launch, and pushed 
+Preventic Plus and other products in the second and third quarters of 2001 in advance of the Iverhart 
+Plus launch.  In none of these instances did Vedco’s purchase orders reflect the true nature of the 
+transactions. 
+ 
+After initial Preventic  Plus sales lagged behind its projections, Virbac created the 
+appearance of a successful product launch by pushi ng Preventic Plus to Vedco to meet Virbac’s 
+second and third quarter 2001 sales and earnings ta rgets.  For example, Hubert requested that 
+Campbell issue a Vedco purchase order for “half of his first order of Iverha rt Plus in Preventic 
+Plus,” with the inducement that the product “could be kept on a trailer until needed.”  Contrary to 
+their previous practices, Campbell acceded to Hubert’s request for the purchase order and caused 
+Vedco to issue a $351,000 purchas e order for Preventic Plus after Hubert granted unusually 
+extended payment terms of 150 days, versus the normal 30 days.  Virbac paid for 102 days of 
+storage fees until Campbell, at Hubert’s insistence, finally accepted delivery of the collars.  Contrary 
+to FAS 48, Virbac recognized revenue, without regard to expected returns, when it invoiced Vedco 
+on September 29, 2001. 
+ 
+                                                                                                                                                             
+5 GAAP requires the following criteria for revenue recognition: 1) persuasi ve evidence that an arrangement 
+exists; 2) delivery has occurred or services have been rendered; 3) the seller's price to the buyer is fixed or determinable; 
+and 4) collectibility is reasonably assured.  See, e.g., Statement of Financial Accounting Standards No. 48 (“FAS 48”); 
+Statements of Financial Accounting Concepts Nos. 2 a nd 5 (“SFAC 2” and “SFAC 5”); and Accounting Research 
+Bulletin No. 43 (“ARB 43”). 
+ 
+ 5
+When the Vedco $351,000 invoice became due on February 26, 2002, Rougraff and Bell 
+were aware of, or approved, one or more due date extensions, to taling more than a year, through 
+February 28, 2003, in lieu of requiring payment.  Vedco viewed this shipment as a consignment, 
+and ultimately paid only $41,000 for collars it actually sold.  The balance of the shipment expired in 
+Vedco’s warehouse, and Virbac was forced to issue Vedco a $308,000 credit in the fourth quarter of 
+2003.  Virbac should not have included the $351,000 in revenue for the third quarter of 2001, 
+because payment was contingent upon resale by Vedco and because it was probable that the collars 
+would be returned or replaced after they expired.  See FAS 48.  This transaction resulted in a 3% 
+overstatement of actual third quarter 2001 revenues. 
+ 
+In early 2001, Virbac heralded Iverhart Pl us as a high-growth opportunity.  Due to 
+regulatory delays, however, Virbac did not have the necessary approvals to ship Iverhart Plus until 
+the fourth quarter of 2001.  Approximately $600,000 of Iverhart Plus was shipped to Vedco in the 
+fourth quarter of 2001 with the explicit agreement, approved by Bell and documented in an e-mail 
+between Hubert and Campbell, that any unsold product could be returned in 90 days for full credit. 
+ 
+In an effort to meet Virbac’ s revenue and earnings targets, Hubert convinced Campbell at 
+the end of the first quarter of 2002 to issue a purchase order for $1.6 million of Iverhart Plus—all of 
+Virbac’s available inventory.  Hubert reiterated to Campbell, with  Bell’s concurrence, that any 
+expired product would be replaced at no cost to Vedco.  Although payment terms were stated as 90 
+days on the invoice, Vedco had no obligation to pay unless, and until, it sold the product. 
+ 
+Because Virbac shipped all remaining Iverhart Plus inventory to Vedco, it had no available 
+inventory to fill other customers’ orders at the beginning of the second quarter of 2002.  To remedy 
+this problem, Hubert, Bell, and Rougraff decided, with the assistance of Campbell, to ship product 
+from Vedco to other Virbac customers.  As a result, Virbac improperly recognized revenue from a 
+second shipment of the same product—from Vedco to another distributor—and sidestepped reversal 
+of the first “sale” to Vedco by shipping “replacement” product at no cost to Vedco.  Campbell and 
+Hubert had agreed to this unusual arrangement during the first quarter of 2002.  Hubert informed 
+Campbell that he did not want to issue a credit for the Iverhart Plus because it might present a 
+problem with Virbac’s auditors.  Although Vedco made some payments on Iverhart Plus sales 
+throughout 2002, Virbac was forced to issue $857,000 of credits to Vedco in the fourth quarter of 
+2003 for the remainder of this product, which had expired.  Virbac further inflated reported earnings 
+by not recording a reserve for anticipated returns of Iverhart Plus. 
+ 
+In its May 2, 2002 earnings release, Virbac announced record revenue and operating income 
+results for the first quarter of 2002.  In the release, Bell stated  that the Veterinary Division’s sales 
+“jumped 72% year-over-year, marked by early impressive sales for newcomers Iverhart Plus and 
+Preventic Plus.”  Virbac’s rest ated revenues included a $1.6 million adjust ment (due to an 11% 
+overstatement of actual first quarter 2002 sales) to reduce first quarter 2002 Iverhart Plus revenues. 
+ 
+At the end of the second quarter of 2002, Campbell again agreed to issue a Vedco purchase 
+order for $598,000 of Iverhart Plus, even though Vedco had not sold $1.4 million of the $1.6 million 
+of Iverhart Plus it acquired in the prior quarter.  Again, Campbell viewed Vedco’s obligation to pay 
+as contingent upon resale, despite Vedco’s issuance of a purchase order reflecting fixed payment 
+ 
+ 6
+terms.  Vedco was unable to sell any of the prod uct.  Virbac recorded a mere $64,000 reserve for 
+returns of Iverhart Plus at the end of the seco nd quarter of 2002; however, Virbac’s management 
+knew that anticipated returns would be higher as a result of the high percentage of inventory at 
+Vedco that would become unmarketable within 90 days and require replacement due to expiration 
+dates.  Vedco ultimately made no payments on the second quarter 2002 shipment and Virbac was 
+forced to issue a credit to Vedco for the entire $598,000 invoice amount in the fourth quarter of 
+2003. 
+ 
+ b. Fraudulent Bill-and-Hold Sale  
+ 
+Virbac improperly recognized $775,000 of revenue related to the pour-on invoiced to Vedco 
+on December 28, 2001.  The transactions were documented as valid bill-and-hold sales.6  The sales, 
+however, did not comply with th e bill-and-hold criteria spelled out in GAAP for two reasons: 1) 
+Virbac, rather than Vedco, initiate d the transactions and 2) they lacked fixed delivery dates.  
+Virbac’s auditors were misled into believing that all b ill-and-hold criteria had been met as of the 
+date of the transaction.  When Virbac’s auditors requested thir d-party confirmation, Campbell 
+approved a subordinate’s signing and returning the confirmation, even though Campbell knew, or 
+should have known, that some of the representations were false. 
+ 
+  c. Vedco Assisted Virbac in Manipulating Reserves and Accruals  
+ 
+In addition to overstating revenues, Virbac’ s management also manipulated expenses 
+such as reserves, accruals, and sales credits, a nd their associated books and records, to maintain 
+the illusion that Virbac was meeting internal a nd external sales and earnings forecasts.  For 
+example, although Virbac emphasized to its distribu tors that expired product could be returned 
+for full credit or replacement product, Virbac re sisted issuing credits in order to lessen the 
+negative impact on its reported earnings.  Inst ead, it promised, but often failed, to ship 
+replacement product.  The full exte nt of expiring or expired product, especially Iverhart Plus, 
+was concealed in schedules provided by Virbac to its auditors for testing the reasonableness of 
+its accruals. 
+ 
+For example, Vedco and Campbell participated in Iverhart Plus reserve manipulation during 
+the fourth quarter of 2002.  To avoid increasing Virbac’s accrual, Hubert, with the knowledge and 
+consent of Campbell, caused Virbac to invoice Vedco for $258,000 of product previously shipped 
+to Vedco at no cost as replacement for expired product.  Hubert explained to Campbell in January 
+2003 that he needed this “favor” to help Virbac  avoid increasing its Iverhart Plus replacement 
+reserve.  Vedco paid the invoice, but was issued a credit for the full amount by Virbac.  As a result 
+of this subterfuge, Virbac achieved two positive outcomes.  First, Virbac was able to disguise as 
+revenue from a new sale what sh ould have been recognized as an expense.  More significantly, 
+however, Virbac was able to mask the true percentage of expired product, which in turn understated 
+Virbac’s estimated liability for replacement product. 
+                                                                                                                                                             
+6 SFAC 5 states that revenue should not be recognized until the seller has substantially accomplished what it 
+must do pursuant to the terms of the agreement, which usually occurs upon delivery.  A bill-and-hold sale is an exception 
+in that revenue is recognized prior to delivery.  See also, SAB 101 which lists specific criteria for bill-and-hold sales. 
+ 
+ 
+ 7
+ 
+IV. 
+VIOLATIONS 
+ 
+ Based on the foregoing, the Commission finds that: 
+ 
+A. Vedco caused Virbac’s viol ations of Sections 17(a)(2) and 17(a)(3) of the Securities 
+Act, and Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-
+1, and 13a-13 thereunder, and also caused Bell, Ro ugraff, and Hubert’s violations of Section 
+13(b)(5) of the Exchange Act, and Rules 13b2-1 and 13b2-2 thereunder; and 
+ 
+ B. Campbell caused Virbac’s violations of Sections 17(a)(2) and 17(a)(3) of the 
+Securities Act, and Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 
+12b-20, 13a-1, and 13a-13 thereunder, and also caused Bell, Rougraff, and Hubert’s violations of 
+Section 13(b)(5) of the Exchange Act, and Rules 13b2-1 and 13b2-2 thereunder. 
+  
+V. 
+ 
+ In view of the foregoing, the Commission deems it appropria te to impose the sanctions 
+agreed to in the Respondents’ Offer.7
+ 
+ Accordingly, IT IS HEREBY OR DERED, pursuant to Section 8A of the Securities Act and 
+Section 21C of the Exchange Act, that: 
+ 
+ A. Respondent Vedco cease and desist from committing or causi ng any violation and 
+any future violation of Sections  17(a)(2) and 17(a)(3) of  the Securities Act, and Sections 13(a), 
+13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act, and Rules 12 b-20, 13a-1, 13a-13, 
+13b2-1, and 13b2-2 thereunder; and 
+ 
+B. Respondent Campbell cease and desist from co mmitting or causing any violation 
+and any future violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Section 13(b)(5) 
+of the Exchange Act, and Rules 13b2-1, and 13b2-2 thereunder, and from causing any violation and 
+any future violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 
+12b-20, 13a-1 and13a-13 thereunder. 
+ 
+ By the Commission. 
+ 
+       N a n c y  M .  M o r r i s  
+       S e c r e t a r y  
+                                                                                                                                                             
+7 Campbell has agreed to pay a $50,000 civil penalty in connection with the parallel civil action. 
\ No newline at end of file
diff --git a/raw/aaer/2006/AAER-2452.txt b/raw/aaer/2006/AAER-2452.txt
new file mode 100644
index 0000000000000000000000000000000000000000..dde59659784f28a2514b0fd86e98e77f63d21614
--- /dev/null
+++ b/raw/aaer/2006/AAER-2452.txt
@@ -0,0 +1,1397 @@
+
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+     SEC.gov | Virbac Corporation, Thomas L. Bell, Joseph A. Rougraff, Douglas A. Hubert, James C. Robison, and Craig S. Campbell 
+     
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+              Virbac Corporation, Thomas L. Bell, Joseph A. Rougraff, Douglas A. Hubert, James C. Robison, and Craig S. Campbell
+           
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+        Virbac Corporation, Thomas L. Bell, Joseph A. Rougraff, Douglas A. Hubert, James C. Robison, and Craig S. Campbell
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19746 / June 28, 2006 
+
+ Accounting and Auditing Enforcement Release No. 2452 / June 28, 2006 
+
+  Securities and Exchange Commission v. Virbac Corporation, Thomas L. Bell, Joseph A. Rougraff, Douglas A. Hubert, James C. Robison, and Craig S. Campbell , Civil Action No. 4-06CV-453-A, U.S.D.C./Northern District of Texas (Fort Worth Division) 
+
+  In the Matter of Vedco, Inc. and Craig S. Campbell , Exchange Act Rel. No. 33-8716 
+
+  In the Matter of Walco International, Inc. and James C. Robison , Exchange Act Rel. No. 33-8717 
+
+ SEC Settles Action against Virbac Corporation, its Former CEO, CFO, and VP, and Two Virbac Distributors and their Officers 
+
+ On June 28, 2006, the Commission announced the filing and simultaneous settlement of a civil action against Virbac Corporation ("Virbac"), a Fort Worth, Texas, manufacturer and distributor of animal health products, Thomas L. Bell, Virbac's former CEO and president, Joseph A. Rougraff, Virbac's former CFO, and Douglas A. Hubert, Virbac's former Veterinary Division vice president.  In its complaint, filed in the district court for the Northern District of Texas, Fort Worth division, the Commission alleges that, from late 2000 through the first half of 2003, Virbac â€" through Bell, Rougraff and Hubert â€" engaged in a fraudulent revenue inflation and expense deferral scheme.  In addition, the Commission announced the institution and simultaneous settlement of cease-and-desist proceedings brought against Virbac distributors Vedco, Inc. ("Vedco") and Walco International, Inc. ("Walco"), and against Vedco general manager Craig S. Campbell, and Walco chairman and CEO James C. Robison, for causing certain violations by Virbac, Bell, Rougraff and Hubert. 
+
+ The Commission alleges in its complaint that Virbac engaged in a scheme orchestrated by Bell, and that Bell was assisted by Rougraff, Hubert, Vedco, Walco, Campbell, and Robison.  The scheme involved the improper recognition of revenue by means of channel-stuffing, or "loading" of product to distributors, by recording revenue from sham transactions, and by recording revenue from transactions occurring after period-end.  As a result of the scheme, Virbac met unrealistic revenue and earnings projections and managed to sustain the illusion of rapid growth â€" by fraudulently inflating its revenues and net income by as much as 9% and 694%, respectively, in a given period.  Virbac also manipulated reserves and accruals to overstate earnings.  In the process, Virbac failed to comply with Generally Accepted Accounting Principles.   
+
+ In the settled civil action, Virbac, Bell, Rougraff and Hubert consented to a judgment of permanent injunction, enjoining them from violating, directly or indirectly, the antifraud provisions of the Securities Act and Exchange Act, and from aiding and abetting the reporting, recordkeeping and internal controls provisions of the Exchange Act. In addition, Bell, Rougraff and Hubert consented to be enjoined from violating, directly or indirectly, the Exchange Act's financial record falsification, internal controls circumvention, and auditor deception prohibitions, and Bell and Rougraff consented to be enjoined from violating, directly or indirectly, the Sarbanes-Oxley certification provision. 
+
+ As part of the settlement of the civil action, the defendants agreed to additional remedies: Virbac agreed to undertakings to enhance its financial reporting through employee training and certification; Bell consented to an officer and director bar and agreed to pay $95,045 in disgorgement plus prejudgment interest of $15,091, and a $150,000 civil penalty; Rougraff consented to an officer and director bar and agreed to pay $26,668 in disgorgement plus prejudgment interest of $5,656, and a $100,000 civil penalty; and Hubert consented to a five-year officer and director bar and agreed to pay $19,057 in disgorgement plus prejudgment interest of $4,233, provided, however, that the Commission waive payment and not impose a civil penalty based on his sworn financial statement.  In consenting to the judgment, Virbac, Bell, Rougraff and Hubert neither admitted nor denied the non-jurisdictional allegations in the Commission's compliant. 
+
+ In the settled cease-and-desist proceedings, Walco, Vedco, Robison and Campbell consented to a Commission order to cease and desist from committing or causing violations of certain antifraud provisions of the Securities Act, violations of the Exchange Act's reporting, recordkeeping and internal controls provisions, and violations of the Exchange Act's financial record falsification and internal controls circumvention prohibitions, and additionally, as regards Vedco and Campbell, violations of the Exchange Act's auditor deception prohibition.  As part of its settlement with Robison and Campbell, the Commission named them in the above-referenced civil action solely for the purpose of obtaining against them the $50,000 civil penalty Robison and Campbell each agreed to pay, and the Commission filed and simultaneously settled the civil action against them.  In consenting to the cease-and-desist order, and in Robison's and Campbell's each agreeing to pay a civil penalty in settlement of the civil action, Walco, Vedco, Robison and Campbell neither admitted nor denied the Commission's findings. 
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diff --git a/raw/aaer/2006/AAER-2454.pdf b/raw/aaer/2006/AAER-2454.pdf
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+              John Samson, John G. A. Munro, Ian N. Campbell, and John H. Whelan
+           
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+        John Samson, John G. A. Munro, Ian N. Campbell, and John H. Whelan
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19754 / July 5, 2006 
+
+ Accounting and Auditing Enforcement Release No. 2456 / July 5, 2006 
+
+  SEC v. John Samson, John G. A. Munro, Ian N. Campbell, and John H. Whelan , Civil Action No. 06 CV 01217(D.D.C.) 
+
+ SEC Files FCPA Charges Against Four Former Senior Employees of ABB Ltd. Subsidiaries 
+
+ The Securities and Exchange Commission announced today that it filed a civil injunctive action in the United States District Court for the District of Columbia charging four former employees of  subsidiaries of ABB Ltd., with violating the anti-bribery provisions of the Foreign Corrupt Practices Act of 1977 ("FCPA").  ABB is a global provider of power and automation technologies headquartered in Zurich, Switzerland, and its American Depository Receipts are registered with the Commission and trade on the New York Stock Exchange.  All four defendants agreed to settle the charges against them, without admitting or denying the allegations in the Commission's complaint.  
+
+ The Commission's complaint alleges that the four former employees -- John Samson, a former regional sales manager for West Africa, John G. A. Munro, a former senior vice president of operations, Ian N. Campbell, a former vice president of finance, and John H. Whelan, a former vice president of sales -- participated in a scheme by offering, approving, and/or paying bribes to Nigerian government officials in furtherance of ABB's bid to obtain a $180 million contract to provide equipment for an oil drilling project in Nigeria's offshore Bonga Oil Field.  According to the complaint, as a result of the defendants' actions, during the period 1999 through 2001, ABB paid approximately $1 million in bribes to officials of National Petroleum Investment Management Services ("NAPIMS"), the Nigerian state-owned agency responsible for overseeing oil exploration and production in Nigeria.  The Commission alleges that these illicit payments -- which took the form of both cash and gifts --  were intended to induce and reward NAPIMS officials for providing ABB with confidential competitor bid information, and securing favorable consideration of ABB's bid on the Bonga contract, which ultimately was awarded to ABB in early 2001.   
+
+ The Commission alleges that during the tender process for the Bonga contract in 2000, Samson, the regional sales manager for West Africa, negotiated to pay six NAPIMS officials a total of $800,000 in bribes.  The Commission further alleges that Samson subsequently informed Munro and Campbell of the payments promised to the NAPIMS officials.  According to the complaint, at the direction of a senior officer (now deceased) of ABB's Vetco Gray U.S. subsidiary, Munro instructed Campbell and Samson to arrange payment to the NAPIMS officials using a local consultant as a conduit.  The complaint alleges that Campbell arranged to funnel $800,000 in bribes to the consultant under the cover of false invoices for consulting work.  The complaint also alleges that Samson personally profited from this bribery scheme by obtaining $50,000 in kickbacks from one the NAPIMS officials who received illicit payments. 
+
+ In addition, the complaint alleges that between 1999 and 2001, Samson arranged for Whelan to provide cash and other gifts -- including lodging and meals -- to NAPIMS officials when they visited the United States.  According to the complaint, these payments totaled more than $176,000.      
+
+ The Commission's complaint alleges that Samson, Munro, Campbell and Whelan each violated the anti-bribery provisions of the FCPA, codified as Section 30A of the Securities and Exchange Act of 1934 ("Exchange Act"), and the books and records and internal accounting control provisions of Exchange Act Section 13(b)(5) and Rule 13b2-1 thereunder.  The complaint further alleges that each defendant aided and abetted ABB's books and records and internal accounting control violations of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B).  Without admitting or denying the allegations in the complaint, Samson, Munro, Campbell and Whelan consented to the entry of final judgments that (1) permanently enjoin each of them from future violations of these provisions, (2) order each to pay a civil monetary penalty ($50,000 as to Samson, and $40,000 each as to Munro, Campbell and Whelan), and (3) orders Samson to pay $64,675 in disgorgement and prejudgment interest.   
+
+ The Commission previously filed a settled enforcement action against ABB in connection with these and other illicit payments.  See SEC v. ABB Ltd., Case No. 1:04CV1141 (D.D.C.)/Lit. Rel. 18775 (July 6, 2004).  In that matter, without admitting or denying the allegations in the Commission's complaint, ABB consented to entry of a final judgment that provided for permanent injunctive relief, ordered ABB to pay $5.9 million in disgorgement and prejudgment interest, and ordered ABB to pay a $10.5 million civil penalty.  
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diff --git a/raw/aaer/2006/AAER-2457.pdf b/raw/aaer/2006/AAER-2457.pdf
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+++ b/raw/aaer/2006/AAER-2459.txt
@@ -0,0 +1,125 @@
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  54128 / July 11, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2459 / July 11, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12363
+       
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+  Marvin Winick,   : 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 Marvin 
+Winick (“Respondent” or “Winick”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of 
+Practice.1   
+ 
+ 
+ 
+                                                 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+ 
+ The Commission, with due regard to the public interest and without  preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+ 2
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings  
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, and the findings contained in Section III(4) below, which are admitted, Respondent 
+consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) 
+of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions 
+(“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that:  
+ 
+1. Winick, from Thornhill, Ontario, is an  accountant who frequently serves as a 
+consultant to issuers that have a class of securities registered pursuant to Section 12 of the 
+Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 78l] or that are required to file 
+reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C. § 78o(d)] (“U.S. public 
+companies”).  He also frequently serves as an officer or director of and provides other 
+miscellaneous services on behalf of U.S. public companies.   
+ 
+2. In 2003, Winick was hired as a consultant by Greentech USA, Inc. (“Greentech”), 
+Information Architects Corporation (“IACH”) and Tekron, Inc. (“Tekron”) (collectively referred to 
+here as “the issuers”).  He was responsible for preparing the issuers’ financial statements and 
+preparing and filing their Commission filings.     
+ 
+3. At all relevant time s, Greentech, IACH and Tekron each had a class of securities that 
+was registered with the Commission pursuant to Section 12(g) of Exchange Act and was traded on 
+the Over-the-Counter Bulletin Board (“OTCBB”).   
+ 
+ 4. On June 30, 2006, th e Commission filed a complaint against Winick in SEC v. 
+Marvin Winick, et al. (Civil Action No. 306-CV-1164-D) in the U.S. District Court for the 
+Northern District of Texas, Dallas Division.  On July 5, 2006, the court entered an order 
+permanently enjoining Winick, by consent, from future violations of Section 17(a) of the Securities 
+Act of 1933 (“Securities Act”) and Section 10(b) of the Exchange Act and Rules 10b-5 and 13b2-1 
+thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the 
+Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.  Winick was also ordered to pay 
+$30,985 in disgorgement of ill-gotten gains, plus prejudgment interest, and ordered to surrender 
+50,000 shares of IACH stock he received from IACH.  He was also ordered to pay a $100,000 civil 
+penalty, and prohibited from acting as an officer or director of any U.S. public company.   
+ 
+ 5. The Commission’s complaint alleged that  Winick was hired by Greentech, IACH 
+and Tekron as a consultant charged with responsibility for, among other things, properly preparing 
+ 3
+and filing the issuers’ Commission filings; instead Winick filed 2003 Forms 10-KSB on each 
+issuer’s behalf that included fraudulent Reports of Independent Certified Public Accountants 
+(“Audit Report(s)”) and fraudulent auditor’s consent letters (“Consent(s)”).  More specifically, the 
+Commission alleged that Winick placed an electronic signature of an Oklahoma City-based 
+accounting firm (“accounting firm”) on the Audit Reports and Consents without authorization from 
+the accounting firm; in fact, neither the accounting firm nor any other auditor had audited the 
+issuers’ 2003 financial statements.  The complaint further alleged that Winick subsequently filed 
+on the issuers’ behalf Forms 10-QSB that contained a balance sheet comparing the financial results 
+for the current quarter with those for the previous annual period and falsely designating the annual  
+period as “audited.”  According to the complaint, after the accounting firm confronted Winick 
+about the fraudulent Audit Reports and Consents, Winick filed a 2003 Form 10-KSB/A on behalf 
+of IACH that included an Audit Report and Consent putatively signed by a second auditor, based 
+in Colorado.  Again, Winick placed this signature on the Auditor Report and Consent without 
+authorization from the auditor and, in fact, no audit had been completed.  The complaint further 
+alleged that in February 2005, Winick filed on Tekron’s behalf another Form 10-QSB that 
+contained a balance sheet comparing the financial results of the current quarter with those of the 
+prior annual period, falsely designating the annual period as “audited.” 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Winick’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that Winick is suspended 
+from appearing or practicing before the Commission.   
+  
+ By the Commission. 
+ 
+ 
+ 
+       N a n c y  M .  M o r r i s  
+       S e c r e t a r y  
\ No newline at end of file
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@@ -0,0 +1,207 @@
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  54172 / July 19, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2460 / July 19, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-12369 
+ 
+ 
+In the Matter of 
+ 
+L. MICHAEL HART,  
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS, MAKING 
+FINDINGS, AND IMPOSING A CEASE-
+AND-DESIST ORDER PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934  
+   
+ 
+I. 
+  
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), against L. Michael Hart (“Hart” or “Respondent”).   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to 
+Section 21C of the Securities Exchange Act of 1934 (“Order”), as set forth below.   
+ 
+ 
+ 
+ 
+ 2
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Co mmission finds that:  
+ 
+Respondent 
+ 
+1. Hart, 58, is a resident of Fort Pierce, Florida.  He was Endocare, Inc.’s director of  
+sales for the Southeastern region throughout the relevant period and was an employee of Endocare 
+from July 1, 1999 to June 3, 2004.  Prior to joining Endocare in 1999, Hart had almost twenty 
+years of sales and/or managerial experience in the healthcare industry.  His experience ranged from 
+selling disposable healthcare products and healthcare software to managing pharmacies and sales 
+associates. 
+ 
+Relevant Entity 
+ 
+ 2. Endocare, Inc. is a Delaware corporation, with its principal place of business in 
+Irvine, California.  Endocare’s common stock is registered with the Commission pursuant to 
+Section 12(g) of the Exchange Act and was listed on the Nasdaq Stock Market until January 16, 
+2003, when it was delisted for Endocare’s failure to file its periodic reports with the Commission.  
+Endocare’s common stock currently trades in the Pink Sheets. 
+ 
+Background 
+ 
+ 3. The conduct described in this order concerns the reporting of false financial 
+information and other misleading disclosures caused by an Endocare regional sales manager in 
+Endocare’s reports filed with the Commission for fiscal years 2001 and 2002.  Endocare develops 
+and distributes medical devices for use in the treatment of various types of cancers and urological 
+ailments.  Endocare generates most of its revenue from the sale of its cryocare surgical system 
+(known as a “box”) and disposable probes that are used with the box in the treatment.  Throughout 
+2001 and 2002, Endocare engaged in improper revenue recognition practices and improperly 
+understated or delayed the recognition of expenses to inflate earnings.  These actions resulted in 
+Endocare’s filing of financial statements that overstated revenue by at least 16% for fiscal year 
+2001, 17% for the first quarter of 2002, and 33% for the second quarter of 2002.  Additionally, 
+Endocare’s financial statements understated its pre-tax loss for 2001 by at least 20%, and falsely 
+reported profits for the first two quarters of 2002, rather than substantial losses.   
+ 
+ 4.  Endocare improperly recognized revenue on box sales involving various 
+contingent terms.  These transactions included improper bill-and-hold sales in which product was 
+shipped to an Endocare-controlled storage facility until the equipment could be resold or until it 
+generated sufficient revenues to support payment, and side letters that included indeterminate 
+payment terms, continuing obligations, or certain guarantees regarding minimum procedures.  As 
+Endocare’s Southeast regional sales director during the relevant time, Hart was involved in 
+negotiating and executing several of these side letters with customers.   
+ 
+ 
+ 3
+Side Letters 
+ 
+ 5. In September 2001, Hart was involved in  negotiating a box sale to a physician in 
+Gainesville, Florida that contained an undisclosed side letter.  Specifically, Hart and Endocare’s 
+chief executive officer (“CEO”) contacted the physician and requested that he take delivery of a 
+box for $250,000 pending the ultimate sale to the physician’s associate, who was interested in 
+forming a physician partnership to purchase a box.  This contingency was not included on the 
+purchase order.  The box was shipped to Endocare’s storage facility in Florida, where it remained 
+through October 2002.  Endocare recognized revenue on the box for the quarter ended September 
+30, 2001, which was improper given the contingency. 
+ 
+ 6. In December 2001, Hart executed a side  letter with a physician in Celebration, 
+Florida regarding a box purchase.  Endocare’s CEO initiated the negotiations with the physician 
+and then directed Hart to send the physician a purchase order and side-letter agreement.  Hart’s 
+side letter to the physician stated that the physician was purchasing the unit on behalf of a 
+physician-owned company and that the company was still in the process of formation.  The side 
+letter also stated that Endocare would assist in the formation and resale of the box into existing 
+targeted or future partnerships and that when the company was formed, the physician could 
+transfer some or all ownership of the box to the company.  The contingency was not included on 
+the purchase order.  Endocare recognized revenue on the box for the quarter ended December 31, 
+2001, which was improper given the contingency. 
+ 
+ 7. In March 2002, Hart provided a side lette r to the representative/managing partner of 
+a South Florida venture partnership that memorialized their discussions regarding the sale of a box 
+for $250,000.  The side letter stated that the box being sold to the partnership’s representative was 
+intended for another physician and that Endocare would pay this representative a $25,000 
+commission upon the resale of the unit.  Endocare then shipped the box to the Endocare storage 
+facility in Florida.  Hart did not include the contingency on the purchase order.  Endocare 
+recognized revenue on the box for the quarter ended March 31, 2002, which was improper given 
+the contingency. 
+ 
+ 8. In June 2002, Hart negotiated the sale of a box to a partnership that included five 
+limited partners and one general partner, in a transaction that included a side letter committing 
+Endocare to help resell the box.  The purchase order was only signed by the limited partner 
+physicians, not representatives of the general partner in the venture.  The partnership agreement 
+included a clause whereby the physicians were able to sell back their interest in the partnership to 
+the general partner in the event the venture failed.  Hart knew about the physicians’ option to 
+withdraw from the partnership.  Endocare recognized revenue on the box for the quarter ended 
+June 30, 2002, which was improper given the contingency. 
+ 
+Legal Discussion 
+ 
+9. Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require 
+issuers of securities registered pursuant to Section 12 of the Exchange Act, such as Endocare, to 
+file with the Commission accurate annual and quarterly reports.  An issuer violates these 
+ 4
+provisions if it files a report that contains materially false or misleading information.  SEC v. 
+Falstaff Brewing Corp., 629 F.2d 62, 72 (D.C. Cir. 1980); SEC v. Savoy Indus., Inc., 587 F.2d 
+1149, 1165 (D.C. Cir. 1978).  Rule 12b-20 under the Exchange Act similarly requires that these 
+reports contain any material information necessary to make the required statements made in the 
+reports not misleading.  Moreover, Regulation S-X requires that financial statements filed with 
+the Commission pursuant to Section 13(a) of the Exchange Act be prepared in accordance with 
+Generally Accepted Accounting Principles.  Otherwise, such financial statements shall be 
+presumed inaccurate. 
+ 
+10. Section 13(b)(2)(A) of the Exchange Ac t requires reporting companies registered 
+pursuant to Section 12 of the Exchange Act to “make and keep books, records, and accounts, 
+which in reasonable detail, accurately and fairly reflect the transactions . . . of the issuer.”  
+ 
+11. Section 21C of the Exchange Act provides that the Commission may order any 
+person who is or was a cause of a violation of any provision of the Exchange Act, due to an act 
+or omission the person knew or should have known would contribute to the violation, to cease 
+and desist from committing or causing such violations.  
+ 
+12. Hart caused Endocare’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 by providing undisclosed side 
+letters to customers that contained contingent terms that Endocare would help resell the 
+equipment.  Hart’s failure to include the contingent terms in the purchase orders caused 
+Endocare to improperly recognize revenue and file misleading reports. 
+ 
+Undertakings 
+ 
+ 13. Respondent has undertaken to cooperate fully with the Commission and its staff 
+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.  In 
+particular, Respondent agrees to: (i) make himself available for interviews and appearances at 
+such times and places as the staff requests upon reasonable notice; (ii) accept service and 
+promptly respond to 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) appoint Respondent’s attorney in this matter 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) consent 
+to personal jurisdiction over Respondent in any United States District Court for purposes of 
+enforcing any such subpoena. 
+ 
+14. In determining whether to accept the Offe r, the Commission has considered these 
+undertakings. 
+ 
+ 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: 
+ 
+ Respondent cease and desist fr om causing any violations and any future violations of 
+Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 
+thereunder. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       N a n c y  M .  M o r r i s  
+       S e c r e t a r y  
\ No newline at end of file
diff --git a/raw/aaer/2006/AAER-2461.txt b/raw/aaer/2006/AAER-2461.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5a5ac595bba5e005df789a688a08d4b0796a100a
--- /dev/null
+++ b/raw/aaer/2006/AAER-2461.txt
@@ -0,0 +1,1371 @@
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19766 / July 20, 2006 
+
+ Accounting and Auditing Enforcement Release No. 2461 / July 20, 2006 
+
+  William T. Owens and Weston L. Smith , United States District Court for the Northern District of Alabama, Civil Action No. CV-03-CO-0720-S 
+
+ On July 14, 2006, the Honorable L. Scott Coogler, U. S. District Judge for the Northern District of Alabama, entered a Final Judgment as to defendant Weston L. Smith (Smith), who formerly served as chief financial officer of HealthSouth Corporation. The Final Judgment enjoined Smith from future violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5 and 13b2-1 thereunder, and from aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder. Smith was also permanently barred from serving as an officer or director of a public company. Smith was ordered to pay disgorgement of $4,897,124 and prejudgment interest of $2,021,211, provided that $1.5 million of the disgorgement and prejudgment interest is deemed satisfied by forfeiture and restitution ordered against him in the related criminal proceeding. The judgment waived the remainder and did not order Smith to pay a civil penalty based on his sworn representations in his Statement of Financial Condition. Smith consented to the entry of the judgment without admitting or denying any of the allegations of the Commission's Complaint.  
+
+ The Commission's Complaint, filed on March 31, 2003, alleged that Smith made or directed HealthSouth employees to make false accounting entries to inflate reported operating results in order to meet or exceed Wall Street earnings expectations. In the related criminal proceeding, Smith was sentenced to serve 27 months incarceration, among other things.  
+
+ See also:  L.R. 18044  / March 20, 2003;  L. R. 18059  / April 1, 2003;  L. R. 18060  / April 1, 2003;  AAER No. 1749  / April 1, 2003;  L. R. 18070  / April 4, 2003;  L. R. 18339  / September 10, 2003;  AAER No. 2004  / May 10, 2004;  L.R. 18904  / September 28, 2004;  AAER No. 2111  / September 28, 2004;  L.R. 19123  / March 7, 2005;  AAER No. 2206  / March 7, 2005;  L.R. 19743  / June 28, 2006; and  AAER No. 2450  / June 28, 2006.  
+
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diff --git a/raw/aaer/2006/AAER-2462.txt b/raw/aaer/2006/AAER-2462.txt
new file mode 100644
index 0000000000000000000000000000000000000000..833b0d981bd1adc405b0efb7dfbe40fa59e78c83
--- /dev/null
+++ b/raw/aaer/2006/AAER-2462.txt
@@ -0,0 +1,102 @@
+UNITED STATES OF AMERICA  
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No.  54187 / July 20, 2006 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No.  2462 / July 20, 2006 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-9303 
+ 
+In the Matter of  
+Richard J. Lajoie, Jr. 
+ 
+: 
+: 
+: 
+: 
+: 
+: 
+ORDER GRANTING APPLICATION FOR 
+REINSTATEMENT TO APPEAR AND PRACTICE 
+BEFORE THE COMMISSION AS AN ACCOUNTANT 
+RESPONSIBLE FOR THE PREPARATION OR 
+REVIEW OF FINANCIAL STATEMENTS REQUIRED 
+TO BE FILED WITH THE COMMISSION 
+ 
+On April 30, 1997, Richard J. Lajoie, Jr. ("Lajoie") was suspended from appearing or 
+practicing as an accountant before the Commission as a result of settled public administrative 
+proceedings instituted by the Commission against Lajoie pursuant to Rule 102(e) of the 
+Commission's Rules of Practice.1  Lajoie consented to the entry of the April 30, 1997 order, and 
+imposition of the remedial sanctions set forth therein, without admitting or denying the findings 
+of the order but for the Commission’s finding that a Final Judgment and Permanent Injunction 
+and Other Equitable Relief had been previously entered against him. 
+From 1987 until November 1994, Lajoie served as controller for Structural Dynamics 
+Research Corporation (“SDRC”), an Ohio corporation with its principal place of business in 
+Milford, Ohio.  During this time, SDRC inflated revenue and earnings by recognizing both 
+premature and fictitious revenue.  The Commission alleged that Lajoie knew or was reckless in 
+not knowing that SDRC improperly recognized certain material amounts of revenue.  In addition, 
+Lajoie allegedly omitted to state certain material information to SDRC’s auditors.  Finally, the 
+Commission alleged that by such conduct, Lajoie violated the antifraud and certain other 
+provisions of the federal securities laws. 
+                                                 
+1 See Accounting and Auditing Enforcement Release No. 910, dated April 30, 1997.  Lajoie was permitted, pursuant 
+to the order, to apply for reinstatement after five years upon making certain showings. 
+ 
+This order is issued in response to Lajoie’s application for reinstatement to practice 
+before the Commission as an accountant responsible for the preparation or review of financial 
+statements required to be filed with the Commission. 
+ 
+ In his capacity as a preparer or reviewer, or a person responsible for the preparation or 
+review of financial statements required to be filed with the Commission, Lajoie attests that he 
+will have his work reviewed by the independent audit committee of any company for which he 
+works, or in some other manner acceptable to the Commission, while practicing before the 
+Commission in this capacity.  Lajoie 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, Lajoie’s suspension from practice before 
+the Commission as an independent accountant continues in effect until the Commission 
+determines that a sufficient showing has been made in this regard in accordance with the terms of 
+the original suspension order. 
+ 
+Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for 
+reinstatement, and provides that the Commission may reinstate the privilege to appear and 
+practice before the Commission “for good cause shown.”2  This “good cause” determination is 
+necessarily highly fact specific. 
+ 
+On the basis of information supplied, representations made, and undertakings agreed to 
+by Lajoie, it appears that he has complied with the terms of the April 30, 1997 order suspending 
+him from practice 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 Lajoie, by 
+undertaking to have his work reviewed by the independent audit committee of any company for 
+which he works, or in some other manner acceptable to the Commission, in his practice before 
+the Commission as a preparer or reviewer of financial statements required to be filed with the 
+Commission, has shown good cause for reinstatement.  Therefore, it is accordingly, 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+2 Rule 102(e)(5)(i) provides: 
+ 
+“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) 
+of this section may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a 
+hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated 
+by the Commission for good cause shown.”  17 C.F.R. § 201.102(e)(5)(i). 
+ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that 
+Richard J. Lajoie, Jr. is hereby reinstated to appear and practice before the Commission as an 
+accountant responsible for the preparation or review of financial statements required to be filed 
+with the Commission. 
+ 
+By the Commission. 
+ 
+ 
+Nancy M. Morris  
+Secretary  
\ No newline at end of file
diff --git a/raw/aaer/2006/AAER-2463.txt b/raw/aaer/2006/AAER-2463.txt
new file mode 100644
index 0000000000000000000000000000000000000000..768cb2c5221da44173a8b0f6f8d32accdf147dff
--- /dev/null
+++ b/raw/aaer/2006/AAER-2463.txt
@@ -0,0 +1,128 @@
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  54197 / July 24, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2463 / July 24, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12374  
+       
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+ Weston L. Smith, 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 Weston 
+L. Smith (“Respondent” or “Smith”) pursuant to Rules 102(e)(2) and 102(e)(3)(i) of the 
+Commission’s Rules of Practice.1   
+                                                 
+1  Rule 102(e)(2) provides, in relevant part, that: 
+ 
+ Any . . . person who has been convicted of a felony or a misdemeanor involving moral 
+turpitude shall be forthwith suspended from appearing or practicing before the Commission. 
+ 
+ Rule 102(e)(3)(i) provides, in relevant part, that: 
+ 
+ The Commission, with due regard to the public interest and without  preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+ 2
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings  
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, and the findings contained in Sections III, 3 and III, 5 below, which are admitted, 
+Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant to 
+Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial 
+Sanctions (“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Responde nt’s Offer, the Commission finds that:  
+ 
+ 
+1. Smith, age 44, is and has been a certified public accountant licensed to practice in 
+the State of Alabama.  Smith was an officer in the Reimbursement Department of HealthSouth 
+Corporation (“HealthSouth”) from 1987 through March 2000.  Smith was the Controller of 
+HealthSouth from March 2000 to August 2001 and was Chief Financial Officer of HealthSouth 
+from August 2001 to August 2002.  
+ 
+2. HealthSouth was, at  all relevant times, a Delaware corporation with its principal 
+place of business in Birmingham, Alabama.  HealthSouth was in the business of, among other 
+things, providing outpatient diagnosis and surgery.  At all relevant times, HealthSouth’s common 
+stock was registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act 
+of 1934 (“Exchange Act”), and traded on the New York Stock Exchange. 
+ 
+3. On March 31, 2003, the Commission filed a complaint against Smith in SEC v. 
+Weston L. Smith, et al., (Civil Action No. CV-03-C-0720-S, amended to CV-03-CO-0720-S).  On 
+July 14, 2006, 2006, the court entered an order permanently enjoining Smith, by consent, from 
+future violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of 
+the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and from aiding and abetting violations 
+of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-
+1 and 13a-13 thereunder.  
+ 
+ 4. The Commission’s complaint alleged, am ong other things, that Smith and other 
+senior officers of HealthSouth, engaged in a fraudulent scheme which resulted in HealthSouth 
+filing materially false and misleading financial statements in the company’s annual reports on 
+Forms 10-K and periodic reports on Forms 10-Q from 1997 through 2002. Among other 
+                                                                                                                                                             
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+ 3
+things, the complaint alleged that Smith directed other HealthSouth employees to make entries 
+on the company’s books which fraudulently overstated income and reflected fictitious assets in 
+amounts which matched generally the fraudulent overstatements of income.  The complaint 
+alleged that the fraudulent entries were designed to avoid detection by HealthSouth’s 
+independent auditors.  
+ 
+5. On September 23, 2005, a judgment of convi ction was entered against Smith in 
+United States v. Smith, CR-03-PT-0126-S, in the United States District Court for the Northern 
+District of Alabama, finding him guilty of one count of conspiracy to commit wire fraud and 
+securities fraud, one count of filing false reports with the Commission and one count of filing a 
+false certification of financial information with the Commission. 
+ 
+6. As a result of this conviction, Smith was sentenced to 27 months incarceration 
+followed by one year of supervised release, and was ordered to forfeit $1.5 million.  
+ 
+IV. 
+ 
+In view of the foregoing, the Commission finds that Smith has been convicted of a felony 
+within the meaning of Rule 102(e)(2) of the Commission’s Rules of Practice. The Commission 
+deems it appropriate and in the public interest to impose the sanction agreed to in Respondent 
+Smith’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ Smith is forthwith suspended from appearing or practicing before the Commission as an 
+accountant. 
+ 
+ By the Commission. 
+. 
+ 
+ 
+ 
+       N a n c y  M .  M o r r i s  
+       S e c r e t a r y  
\ No newline at end of file
diff --git a/raw/aaer/2006/AAER-2466.pdf b/raw/aaer/2006/AAER-2466.pdf
new file mode 100644
index 0000000000000000000000000000000000000000..df8a74d03609dc00ac100c41b544238749084220
Binary files /dev/null and b/raw/aaer/2006/AAER-2466.pdf differ
diff --git a/raw/aaer/2006/AAER-2471.txt b/raw/aaer/2006/AAER-2471.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e9a6ef71dbe0726b6466b7254f2891963ceb7c9d
--- /dev/null
+++ b/raw/aaer/2006/AAER-2471.txt
@@ -0,0 +1,1396 @@
+
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+              Blast Energy Services, Inc. f/k/a Verdisys, Inc., Daniel W. Williams and Andrew G. Wilson
+           
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+      
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+        Blast Energy Services, Inc. f/k/a Verdisys, Inc., Daniel W. Williams and Andrew G. Wilson
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19786 / August 1, 2006 
+
+ Accounting and Auditing Enforcement Release No. 2471 / August 1, 2006 
+
+  SEC v. Blast Energy Services, Inc. f/k/a Verdisys, Inc., Daniel W. Williams and Andrew G. Wilson , Civil Action No. 4:06-CV-02441 (S.D. Texas) (July 24, 2006) 
+
+ In the Matter of Eric A. McAfee, Exchange Act Rel. No. 34-54234 (July 28, 2006) 
+
+ Securities and Exchange Commission v. Eric A. McAfee, Civil Action No. 4:06-CV- 02440 (S.D. Texas) (July 24, 2006) 
+
+ SEC Brings Anti-Fraud Action Against Oil and Gas Services Company, Two Former Officers and a Director 
+
+ 
+
+ On July 24, 2006, the Securities and Exchange Commission filed a complaint in the United States District Court for the Southern District of Texas against Blast Energy Services, Inc. f/k/a Verdisys, Inc., alleging that Verdisys and former CEO Daniel W. Williams violated the anti-fraud provisions of the Securities Exchange Act of 1934 by making various misleading disclosures regarding the capabilities of Verdisys' lateral drilling technology, the status and success of its drilling operations, and its revenues, and that former Verdisys CFO Andrew G. Wilson aided and abetted the violations. Also on July 28, 2006, the Commission entered a cease-and-desist order against former Verdisys director Eric A. McAfee, finding that he caused Verdisys to make misleading disclosures regarding its expenses and revenues. The Commission also commenced a civil money penalty action against McAfee in United States District Court for the Southern District of Texas.  
+
+ Verdisys, Williams and Wilson made offers of settlement, on a neither admit-nor-deny basis, by which they consent to the entry of permanent injunctions by the United States District Court, barring future violations of the Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Williams has also offered to pay a civil money penalty of $125,000, and to be barred from serving as an officer or director of a public company. Wilson has offered to pay a penalty of $25,000, and to be barred him from serving as the officer or director of a public company for five years.  
+
+ McAfee consented, on a neither admit-nor-deny basis, to the entry of the Commission's cease-and-desist order, which found that he caused violations Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. In the related penalty action filed in United States District Court, McAfee also offered to pay a civil money penalty of $25,000.  
+
+ The parties to the various proceedings are:  
+
+  Blast Energy Services, Inc., f/k/a Verdisys at the time of the violations alleged in the Commission's complaint, a California corporation with corporate headquarters in Houston, Texas. Verdisys is engaged in reworking existing oil and gas wells to renew or enhance production, and its common stock currently is quoted on the OTC BB;   
+
+   Daniel W. Williams, 47, of The Woodlands, Texas, Verdisys' president and CEO from March 2003 until his dismissal in December 2003;   
+
+   Andrew G. Wilson, 50, of Alameda, California, Verdisys' CFO from March 2003 until January 2004; and,   
+
+   Eric A. McAfee, 42, of Saratoga, California, Verdisys' CEO before it became publicly held, and a director from late 2000 until his resignation in March 2004. 
+  Beginning in May 2003, according to the Commission's complaint, Verdisys issued misleading press releases which Wilson and Williams prepared and reviewed. The releases failed to disclose that the company's touted lateral drilling technology only consisted of two prototypes with no track record of substantial success and that its two major customers did not have the financial resources to support announced drilling contracts totaling $19 million. Further, statements in a press release predicting that Verdisys' technology would rejuvenate a formerly prolific natural gas field in Louisiana lacked a reasonable basis in fact. In actual operations, Verdisys' drilling technology proved unreliable, and no significant production ever resulted from its use.  
+
+ The Commission's complaint also alleges that various reports Verdisys filed with the Commission through late 2003, which Williams and Wilson prepared and signed, made misleading disclosures. Among other things, Verdisys' quarterly report for the period ended September 30, 2003, initially filed with the Commission on Form 10-QSB on November 19, 2003, overstated the company's revenues by nearly 100%. According to the complaint, Williams had wholly falsified reports of wells drilled, which resulted in false claims of revenue earned.  
+
+ The Commission's cease-and-desist proceedings against McAfee found that he caused Verdisys to omit disclosure in financial statements filed with the Commission in its September 29, 2003 Form 8-K/A filing, that Verdisys had incurred a $500,000 expense in issuing stock to retain a stock promoter. The proceedings also found that McAfee caused Verdisys to file its misleading Form 10-QSB report on November 19, 2003, before Verdisys' auditor had reviewed the accompanying financial statements, and without disclosing an agreement that called for Verdisys to assume substantial liabilities and which compromised a material receivable.  
+
+ 
+
+ 
+    
+ SEC Complaint in this matter  
+   
+ SEC Penalty Action Complaint in this matter  -->
+
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diff --git a/raw/aaer/2006/AAER-2478.pdf b/raw/aaer/2006/AAER-2478.pdf
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19840 / September 20, 2006 
+
+ Accounting and Auditing Enforcement Release No. 2483 / September 20, 2006 
+
+  Securities and Exchange Commission v. Walid H. Maghribi , Case No. C 065756 RMW (N.D. CA) 
+
+ FOR IMMEDIATE RELEASE 
+
+ SEC Charges Ex-CEO of Bay Area Semiconductor Company with Failing to Prevent False Revenue Reporting 
+
+ The Securities and Exchange Commission charged Walid H. Maghribi, former CEO, president and director of Milpitas, California-based Sipex Corporation, for his role in the company's improper reporting of revenue from certain purported sales transactions.  Without admitting or denying the charges, Maghribi, of Los Gatos, California, has agreed to settle the claims against him by paying a $45,000 penalty and consenting to other sanctions.    
+ The Commission's complaint, filed in federal court in San Jose, alleges that Maghribi allowed Sipex to report inflated financial information by recognizing revenue on two transactions in which the customers had no obligation to pay Sipex for the products.  According to the Commission, Maghribi was aware of information suggesting that Sipex had made side agreements with the customers guaranteeing either a written right of return or a right not to pay Sipex.   
+ Although these agreements prohibited Sipex from counting the deals as actual sales under generally accepted accounting principles, Maghribi failed to take steps to prevent their inclusion in the Company's revenue.  As a result of his failure to act, in October 2003 and February 2004, Sipex issued press releases and financial statements which reported revenue that was improperly inflated by as much as 5% and in one instance exceeded Wall Street analysts' expectations.  
+ The complaint charges Maghribi with violating Sections 17(a)(2) and (3) of the Securities Act of 1933, as well as Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, 13a-11, 13a-13, and 13b2-1 thereunder.  Simultaneous with the filing of the complaint, Maghribi has agreed to settle the charges without admitting or denying the Commission's allegations.  Maghribi has consented to an order requiring him to pay a civil penalty of $45,000, and imposing a permanent injunction against future violations of the securities laws. 
+
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diff --git a/raw/aaer/2006/AAER-2485.pdf b/raw/aaer/2006/AAER-2485.pdf
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@@ -0,0 +1,311 @@
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+ 
+SECURITIES ACT OF 1933  
+Release No.  8745 / September 27, 2006 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  54525 / September 27, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2485 / September 27, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12441 
+ 
+ 
+In the Matter of 
+ 
+LANTRONIX, INC.,  
+ 
+Respondent. 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-DESIST 
+PROCEEDINGS, MAKING FINDINGS, AND 
+IMPOSING A CEASE-AND-DESIST ORDER 
+PURSUANT TO SECTION 8A OF THE 
+SECURITIES ACT OF 1933 AND SECTION 
+21C OF THE SECURITIES EXCHANGE ACT 
+OF 1934  
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act 
+of 1933 (“Securities Act”) and Section 21C of the Securities Exchange Act of 1934 (“Exchange 
+Act”), against Lantronix, Inc. (“Lantronix” or “Respondent”).   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to 
+ 2
+Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934 
+(“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Responde nt’s Offer, the Commission finds that:  
+ 
+Summary 
+  
+    This case involves a scheme by Lantronix, Inc., through its former chief financial 
+officer/chief operating officer, to overstate its financial results for the second and third quarters of 
+fiscal year 2001, its fiscal year 2001 and the first quarter of fiscal year 2002.1  The CFO’s scheme 
+to inflate the company’s revenues was effected primarily through artificially boosting sales by 
+offering distributors special terms to induce them to purchase more product than they needed (a 
+fraudulent practice known as “channel stuffing”).  As a result of this scheme, Lantronix overstated 
+its revenues for these periods by 2.24% to 21.42% and understated pre-tax losses by 12% to 98%.   
+ 
+Respondent 
+ 
+1. Lantronix, Inc. is a Delaware corporation headquartered in Irvine, California.  Its 
+common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act 
+and trades on the Nasdaq Stock Market.  Lantronix designs, develops, and markets network 
+hardware and software solutions that enable network connectivity and system management for a 
+broad range of devices and equipment.  Its customers include original equipment manufacturers, 
+value added resellers, system integrators, and distributors.  In a July 2001 offering of its common 
+stock, Lantronix received net proceeds of approximately $48 million.    
+ 
+Background 
+ 
+2. Lantronix relied on sales to its distribu tors for the majority of its revenue.  
+Lantronix artificially inflated reported revenue and earnings by deliberately sending excessive 
+product to distributors and granting them expanded return rights and extended payment terms.  In 
+addition, as part of its channel stuffing scheme and to prevent imminent product returns, Lantronix 
+loaned funds to a third party to purchase Lantronix product from one of its distributors.  The third 
+party later returned the product.  Lantronix also engaged in other improper revenue recognition 
+practices, including shipping product without a purchase order and recognizing revenue on a 
+contingent sale.     
+ 
+Transactions With Full Stock Rotation or Return Rights 
+ 
+ 3. Full stock rotation rights exist when a distributor has the ability to exchange any 
+portion of or its entire order for different product.  Return rights exist when a company sells its 
+                                                 
+1 Lantronix’s fiscal calendar commences July 1 and concludes on June 30. 
+ 
+ 3
+product but gives the buyer the right to return product for credit that the buyer did not sell.  
+Lantronix recognized revenue on certain transactions despite outstanding return rights and full 
+stock rotation rights.  Sales with return rights may be treated as revenue if there is a history of 
+similar types of sales of similar products to provide a basis for estimating the amount of future 
+returns and if income is reduced to reflect the estimated future returns through establishing a 
+reserve for the returned product.  See Statement of Financial Accounting Standards (“SFAS”)  
+No. 48, Revenue Recognition When Right of Return Exists.  Stock rotation rights constitute rights 
+of return and, therefore, must meet all the requirements of SFAS 48 before a sale can be 
+recognized as revenue.  See In the Matter of Microtest, Inc., AAER No. 1397 (May 16, 2001).  
+Lantronix had a returns reserve based on historical returns, but that reserve was not based on 
+allowing distributors full return rights or full stock rotation rights.  Lantronix did not have a history 
+of giving full return rights or full stock rotation rights.  As such, Lantronix did not have the 
+historical data to estimate a proper returns reserve, and should not have recognized revenue from 
+sales giving such rights to its distributors. 
+ 
+ 4. For example, in the negotiations for a Ma rch 2001 transaction with one of its largest 
+distributors, located in Germany (the German distributor), which totaled approximately $1.5 
+million, Lantronix offered the German distributor the ability to rotate any unsold inventory at the 
+end of June 2001.  The stock rotation terms associated with this order were not included on either 
+the purchase order or the invoice.  Instead, the terms were included in an email.  Lantronix 
+improperly recognized $1,531,659 in revenue on this transaction for the quarter ended March 
+2001.   
+ 
+ 5. Similarly, Lantronix granted another fore ign distributor full stock rotation rights for  
+90 days in connection with a $421,900 sale in June 2001.  Lantronix had not made a sale of this 
+magnitude to this distributor in prior or subsequent periods.  Lantronix was unable to locate a 
+purchase order for this transaction, but the company noted the stock rotation terms for this 
+transaction in an email.  Lantronix improperly recognized $421,900 in revenue on this transaction 
+for the quarter ended June 2001.  The distributor never paid for the product and ultimately returned 
+it during Lantronix’s quarter ended December 2001. 
+ 
+6. Also in June 2001, the Ge rman distributor issued two purchase orders to Lantronix 
+that totaled approximately $2.3 million.  These orders included about $1.6 million of Lantronix 
+product (over $900,000 of which was new product) and approximately $700,000 of Lightwave 
+product.  Lantronix had no previous sales history for either the new Lantronix product or the 
+Lightwave product.  The German distributor required return rights with this order because it 
+largely involved new products for the German distributor.  Lantronix agreed to $1.1 to $1.5 million 
+of return rights.  The terms of this transaction, as evidenced in an email, also included full stock 
+rotation rights.  Due to the return and rotation rights, and Lantronix brokering a deal to avoid a 
+return of product (discussed in paragraphs 8 and 9 below), Lantronix improperly recognized 
+$2,157,234 of revenue on this transaction for the quarter ended June 2001.      
+ 
+7. In late September 2001, Lantronix so ld $496,927 of product to a components 
+distributor.  Lantronix granted this distributor the right to return any unsold product for 79 days as 
+ 4
+                                                
+well as 60-day payment terms.  Lantronix improperly recognized $496,927 in revenue on this 
+transaction for the quarter ended September 2001.  
+ 
+Lantronix Loans Funds to Prevent a Return By the German Distributor 
+ 
+8. During the quarter ended September 2 001, the German distributor intended -- and 
+had authorization from Lantronix -- to return to Lantronix about $1.1 million of product that 
+Lantronix previously had shipped to the German distributor and had recognized as revenue.  In 
+order to reduce this return, Lantronix negotiated a deal whereby the German distributor would ship 
+$498,240 of product from its March and June orders to a Texas-based company.2  The Texas-based 
+company would then pay the German distributor for the product.  The terms stated on the purchase 
+order between the German distributor and the Texas-based company included, among other things, 
+full rotation rights. 
+ 
+9. The Texas-based company wanted the Lantronix product for a future sale to a 
+customer in the Philippines.  In December 2001, the German distributor attempted to collect from 
+the Texas-based company for this transaction.  Because the Philippines deal had not yet come 
+through and the Texas-based company did not have the money to pay the German distributor for 
+the product, Lantronix lent money to the Texas-based company to pay the German distributor.  In 
+December 2001, Lantronix wired $475,000 to the Texas-based company.  Lantronix also issued a 
+check in December 2001 to the Texas-based company for $50,000.  After Lantronix issued the 
+funds to the Texas-based company, the Texas-based company paid the German distributor.  In 
+conjunction with this loan, the Texas-based company’s owner signed two promissory notes totaling 
+$525,000.  This transaction was improper because Lantronix essentially paid for its own sales 
+when it sent funds to the Texas-based company to pay the German distributor.  Further, by fronting 
+money to the Texas-based company, Lantronix was able to avoid the return of its product and a 
+corresponding reduction in revenue.   
+  
+The German Distributor Overshipments and Out-of-Quarter Transaction 
+ 
+ 10. In addition to the revenue recognition problems involving the German distributor 
+discussed above, Lantronix also improperly recognized revenue in the quarters ended December 
+2000 and March 2001, totaling approximately $536,530, on shipments of product to the German 
+distributor.  These sales were improperly recorded as revenue because the German distributor 
+placed the purchase order after quarter-end or did not order the product.      
+ 
+11. On or about December 31, 2000, Lantronix shipped $272,605 of product to the 
+German distributor without having received a purchase order from the German distributor.  On 
+January 4, 2001, the German distributor issued a purchase order for the exact amount of the 
+shipment.  Lantronix improperly recorded revenue from this transaction in the December quarter 
+ 
+2 The purchase order was actually placed in the name of another company under the same 
+ownership as the Texas-based company in 2001.  For all practical purposes, this transaction was 
+between the Texas-based company, the German distributor, and Lantronix.   
+ 5
+even though the German distributor did not actually issue the purchase order until January 4, 2001, 
+four days into the next quarter.   
+ 
+ 12. In addition to, and as part of, the approximately $1.5 million March 2001 transaction 
+with the German distributor discussed above wherein Lantronix granted full stock rotation rights to 
+the German distributor, Lantronix shipped an additional $263,925 of unordered product to the 
+German distributor.  Lantronix improperly recognized revenue on this transaction.     
+ 
+13. Lantronix’s revenue recognition on these overshipments to the German distributor 
+was not in conformity with generally accepted accounting principles (“GAAP”).  Statement of 
+Financial Accounting Concepts No. 5, “Recognition and Measurement in Financial Statements of 
+Business Enterprises” (CON 5), ¶ 83(a) provides that “revenues . . . generally are not recognized 
+until realized.  Revenues . . . are realized when products . . . are exchanged for cash or claims to 
+cash.”  Lantronix should not have recognized revenue on these overshipments to the German 
+distributor because Lantronix had no claims to cash.  Lantronix had no reasonable expectation that 
+the German distributor would pay on an invoice for product that it had not ordered.   
+ 
+Contingent Order 
+ 
+14. Lantronix also improperly recognized $343,520 in revenue on a June 30, 2001 
+contingent transaction.  Lantronix sales personnel were attempting to close a sale with a customer, 
+but the customer was unwilling to place an order with Lantronix because it did not yet have an 
+order from its end-user.  Lantronix suggested that another one of Lantronix’s distributors agree to 
+take the product; hold it for the customer until it could authorize a purchase order; and then the 
+distributor would ship the product to the customer.  Although the invoices to the distributor stated a 
+60-day payment term, an October 23, 2001 email confirms the contingent nature of this 
+transaction.  The email indicates that the distributor was not required to pay Lantronix until it had 
+“receive[d] …the money.”  The distributor eventually paid Lantronix $62,500 for this transaction 
+in the quarters ended December 2001 and March 2002 and returned the remainder of the product in 
+the quarter ended March 2002. 
+ 
+15.  Lantronix did not recognize revenue on this  transaction in conformity with GAAP.  
+Sales made contingent upon the resale of the product to an end-user cannot be recognized as 
+revenue under GAAP.  FAS 48, ¶ 6.b.  Statement of Accounting Concepts No. 5, ¶ 83(a).  See also 
+SEC v. Scientific Software Intercomp, Inc., AAER No. 956 (Sept. 11, 1997); In the Matter of 
+William D. Kyle, AAER No. 941 (July 28, 1997).   
+ 
+Reported Financial Results and Subsequent Restatement 
+   
+ 16. Lantronix filed periodic reports w ith the Commission for the quarters ended 
+December 2000 and March 2001, fiscal year ended June 2001, and the quarter ended September 
+2001 that misstated and misrepresented its financial condition and results of operations and omitted 
+material information.  These misstatements were material.  As a result of the fraud, Lantronix 
+overstated its revenues for these periods by 2.24% to 21.42% and understated pre-tax losses by 
+ 6
+12% to 98%.  Lantronix also reported these inflated revenue numbers for the December 2000 and 
+March 2001 quarters in its Form S-1 in connection with its offering in July 2001.   
+ 
+ 17.  On June 25, 2002, Lantroni x restated its periodic reports, which included fiscal year 
+ended June 2001 and the quarter ended September 2001.   
+ 
+Legal Analysis 
+ 
+ 18. As a result of the conduct described a bove, Lantronix violated Section 17(a) of 
+the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which 
+prohibit making untrue statements of material fact or omitting to state material facts in the offer 
+or sale, or in connection with the purchase or sale, of securities.  As described above, Lantronix 
+violated these provisions by filing a registration statement and periodic reports that misstated and 
+misrepresented its financial condition and results of operations by overstating revenue and 
+understating pre-tax losses.   
+ 19.  Further, as a result of the conduc t described above, Lantronix violated 
+Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder, which 
+require issuers of securities registered pursuant to Section 12 of the Exchange Act to file accurate 
+annual and quarterly reports.  These reports must contain any material information necessary to 
+make the required statements made in the reports not misleading.  As previously discussed, 
+Lantronix filed periodic reports with the Commission that misstated its financial results and 
+omitted material information. 
+ 20.  Further, as a result of the conduc t described above, Lantronix violated 
+Section 13(b)(2)(A) of the Exchange Act, which requires reporting companies registered under 
+Section 12 of the Exchange Act to make and keep books, records, and accounts which, in 
+reasonable detail, accurately and fairly reflect the transactions of the issuer.  During its fiscal 
+years 2001 and 2002, Lantronix’s books and records were inaccurate as demonstrated by 
+Lantronix’s restatements. 
+ 21. In addition, as a result of the conduc t described above, Lantronix violated 
+Section 13(b)(2)(B) of the Exchange Act, which requires reporting companies to devise and 
+maintain a system of internal accounting controls sufficient to reasonably assure that transactions 
+are recorded and financial statements are prepared in conformity with GAAP.  During its fiscal 
+years 2001 and 2002, Lantronix had insufficient internal controls to assure that it accounted 
+properly for its revenue.   
+Undertakings 
+Respondent has undertaken to: 
+22. Cooperate fully with the Commission and its staff 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.  In particular, Respondent agrees to:  
+(i) take all possible steps to make its officers, directors, employees, agents and other 
+ 7
+representatives available to be interviewed, by the Commission’s staff, at such times as the 
+Commission’s staff reasonably may direct; (ii) take all possible steps to make its officers, 
+directors, employees, agents and other representatives available to appear and testify in such 
+investigations, depositions, hearings, or trials as the Commission’s staff reasonably may direct; 
+(iii) accept service and promptly respond to 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; (iv) appoint Respondent’s attorney in this matter as agent to 
+receive service of such notices and subpoenas; (v) 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 (vi) consent to personal jurisdiction over Respondent in any 
+United States District Court for purposes of enforcing any such subpoena.  
+In determining to accept the Offer, the Commission has considered these undertakings, as 
+well as 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 Lantronix’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+ Respondent Lantronix cease and desist from committing or causing any violations and any 
+future violations of Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A), and 
+13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder.   
+ 
+ By the Commission. 
+ 
+ 
+ 
+       N a n c y  M .  M o r r i s  
+       S e c r e t a r y  
\ No newline at end of file
diff --git a/raw/aaer/2006/AAER-2486.txt b/raw/aaer/2006/AAER-2486.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0761d3c5b0262e9a58eaa1d322e35d0f368705a5
--- /dev/null
+++ b/raw/aaer/2006/AAER-2486.txt
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+              The Children's Internet, Inc., Nasser V. Hamedani, Sholeh A. Hamedani, Peter A. Perez, Cort L. Poyner and Two Dog Net, Inc.
+           
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+
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+        The Children's Internet, Inc., Nasser V. Hamedani, Sholeh A. Hamedani, Peter A. Perez, Cort L. Poyner and Two Dog Net, Inc.
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19849 / September 27, 2006 
+
+ 
+
+  SEC v. The Children's Internet, Inc., Nasser V. Hamedani, Sholeh A. Hamedani, Peter A. Perez, Cort L. Poyner and Two Dog Net, Inc. , Case No. C 06-6003 CW (N.D. CA filed on September 27, 2006) 
+
+ SEC Charges Northern California Educational Software Company for Fraudulent Stock Offering 
+
+ 
+
+ The Securities and Exchange Commission today charged the principals of The Children's Internet, Inc., a Pleasanton, California-based company, with defrauding investors out of approximately $5.5 million. The Commission's complaint alleges that, unbeknownst to investors, only a tiny fraction of the money raised funded corporate operations, with the majority instead going towards luxury automobiles, gambling debts, and other personal expenses of the principals. Named in the Commission's action are The Children's Internet, Inc., Chief Executive Officer Sholeh A. Hamedani, 39, and her father, Nasser V. Hamedani, 68, both of Danville, Calif.  
+
+ In its complaint, filed in federal court in San Francisco, the Commission alleges that the Hamedanis fraudulently induced investors to purchase approximately 2.7 million shares of stock in The Children's Internet, a company which sells subscriptions to a children's internet product, by misrepresenting and omitting key facts. According to the Commission, investors were told, among other things, that the shares could be freely traded and would be listed on a national stock exchange shortly, none of which was true.  
+
+ The complaint also alleges that the Hamedanis did not inform investors that up to 25% of their investment would be paid as commissions to two stock promoters, or that some of the stock proceeds were being secretly funneled back to the Hamedanis and to Two Dog Net, Inc., a company they controlled.  
+
+ The Commission's complaint also charges The Children's Internet and Sholeh Hamedani with making false filings with the Commission in furtherance of the scheme to defraud investors, and, in June 2005, filing a false restatement of previous financial statements in an effort to cover up the scheme.  
+
+ Also charged in the Commission's complaint are two stock promoters, Peter A. Perez, 40, of Boca Raton, Fla., and Cort L. Poyner, 37, of Delray Beach, Fla. The Commission charges Perez and Poyner with assisting in the sale of unregistered stock and making false statements and omitting material facts to induce investors to buy stock.  
+
+ The Commission's complaint charges that Sholeh and Nasser Hamedani, Peter Perez, Cort Poyner, The Children's Internet Inc., and Two Dog Net, Inc. 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 Rule 10b-5 thereunder, as well as the federal registration provisions, Sections 5(a) and 5(c) of the Securities Act. The promoters are charged with acting as unregistered broker-dealers (Section 15(a) of the Exchange Act). The complaint also charges Sholeh Hamedani with causing The Children's Internet to report false financial information to the Commission (Section 13(a) of the Exchange Act and the related Rules); and with causing The Children's Internet's failure to maintain accurate books and records and adequate internal controls (Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act). The complaint also charges Sholeh Hamedani with circumventing internal accounting controls (Section 13(b)(5) of the Exchange Act); with falsifying the company's books and records (Rule 13b2-1 under the Exchange Act); with lying to the accountants (Rule 13b2-2 under the Exchange Act) and falsely certifying The Children's Internet's financial statements (Rule 13a-14 under the Exchange Act). Sholeh Hamedani is further charged with failing to report changes in her ownership of The Children's Internet stock (Section 16(a) of the Exchange Act).  
+
+ The Commission's lawsuit ultimately seeks the return of all ill-gotten investor funds as well as penalties and other relief from the defendants, including permanent injunctive relief, officer and director and penny stock bars against the Hamedanis, and penny stock bars against Poyner and Perez. 
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+              Jerry K. Castleman, Cheryl I. Lipshutz, and Kathleen M. Lynn
+           
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+        Jerry K. Castleman, Cheryl I. Lipshutz, and Kathleen M. Lynn
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19865 / October 13, 2006 
+
+ Accounting and Auditing Enforcement 
+Release No. 2492 / October 13, 2006 
+
+
+  Securities and Exchange Commission v. Jerry K. Castleman, Cheryl I. Lipshutz, and Kathleen M. Lynn , Civil Action No. 06-3226 (SDTX) (October 12, 2006) 
+
+ SEC Charges Three Former Enron Employees with Violating the Federal Securities Laws 
+
+ Cheryl I. Lipshutz, Former Enron Vice President, Simultaneously Settles Charges 
+
+ On October 12, the Securities and Exchange Commission charged Jerry Kent Castleman, former Enron executive and accountant, and Cheryl I. Lipshutz and Kathleen M. Lynn, former Enron executives, with violating the antifraud provisions of the federal securities laws and aiding and abetting Enron's violations of the reporting, record-keeping and internal controls provisions.  As alleged in the Commission's complaint, Castleman, Lynn and Lipshutz, along with others, engaged in a fraudulent transaction to manipulate Enron's publicly-reported earnings, which resulted in Enron filing materially false and misleading financial statements in the company's annual report on Form 10-K for the fiscal years ended December 31, 1999 and 2000, and in the company's quarterly reports on Form 10-Q for the third quarter of fiscal year 1999, the first three quarters of fiscal year 2000, and the first two quarters of fiscal year 2001. 
+
+ Specifically, the Commission's complaint alleges, among other things, that Enron sold an interest in a troubled power project in Cuiaba, Brazil to a related party called LJM Cayman, LP (LJM1), controlled by Enron's then Chief Financial Officer, Andrew Fastow (the "selldown").  Through the selldown, Enron South America (ESA), an Enron subsidiary, deconsolidated its interest in the project and Enron recognized earnings from related gas supply contracts.  Enron and ESA needed these earnings to meet earnings estimates for the third and fourth quarters of 1999.  In conformity with relevant accounting rules, deconsolidation and recognition were not appropriate because the seller (Enron) did not transfer to the buyer (LJM1) the usual risks and rewards of ownership, in that the selldown included an oral side agreement that LJM1 would not lose money on its Cuiaba investment (the "side agreement").  The side agreement was neither memorialized in the deal documents nor disclosed to Enron's auditor.  In 2001, to satisfy the side agreement, Enron bought back LJM1's interest without reversing the previously (and improperly) recognized earnings (the "buyback").  In addition, Enron paid LJM1 a profit despite the poor economics of the project. 
+
+ As alleged in the complaint, Castleman and Lipshutz negotiated and documented the selldown, and Castleman and Lynn negotiated and documented the buyback.  The complaint alleges that the defendants knew or were reckless in not knowing of the existence of the side agreement and that it was not included in the deal documents.  They also knew, according to the complaint, that the Cuiaba project was troubled and that Enron was incurring significant costs to keep it going.  The complaint alleges that the defendants knew or were reckless in not knowing that the purpose of the selldown was to improperly deconsolidate the project and manufacture earnings from related gas supply contracts.  In early drafts of the deal documents, rejected by Enron's independent auditor, Castleman and Lipshutz attempted to structure the selldown so that LJM1 would assume no transactional risk.  Castleman and Lynn negotiated and documented the buyback in which Enron paid LJM1 a profit of over 13% for temporarily parking the interest, even though the value of the interest had decreased significantly over time due to the problems with the project.  The complaint alleges that Castleman, Lipshutz and Lynn knew or were reckless in not knowing that the side agreement violated Enron's desired accounting treatment.  According to the complaint, Castleman also concealed the undocumented side agreement from Enron's independent auditor and knew that Enron did not reverse the previously (and improperly) recognized earnings at the time of the repurchase. 
+
+ The complaint further alleges that by engaging in the above-described conduct, Castleman, Lynn and Lipshutz violated 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 and Rule 13b2-1 thereunder, and aided and abetted Enron's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.  In addition, the complaint alleges that Castleman violated Rule 13b2-2 of the Exchange Act.  The complaint seeks permanent injunctions, disgorgement with prejudgment interest and penalties from each of the defendants, as well as an order barring Castleman from serving as an officer or director of a publicly-traded company. 
+
+ Simultaneously with the filing of the complaint, Lipshutz, without admitting or denying the Commission's allegations, consented to the entry of a final judgment that permanently enjoins her from violating the identified provisions, and orders her to pay disgorgement of $20,000, prejudgment interest of $7,150 and a penalty of $25,000.  The Commission intends to have the disgorgement and civil penalty amounts paid into a court account pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002 for ultimate distribution to victims of the fraud. 
+
+ The Commission's investigation is continuing. 
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+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2006/AAER-2495.txt b/raw/aaer/2006/AAER-2495.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6a4e582f3f0ed0cd533943655d5a037d69c315f4
--- /dev/null
+++ b/raw/aaer/2006/AAER-2495.txt
@@ -0,0 +1,1375 @@
+
+
+ 
+ 
+   
+     
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+     SEC.gov | Keith G. Baxter, et al. 
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+              Keith G. Baxter, et al.
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19872 / October 17, 2006 
+
+ Accounting and Auditing Enforcement 
+ Release No.	2495 /	October 17, 2006 
+
+  Securities and Exchange Commission v. Keith G. Baxter, et al. , (Civil Action No.  05-3843 RMW, N.D. Cal.) 
+
+ SEC Settles with Ronald J. Goedde 
+
+ The Securities and Exchange Commission today announced that on	 October 17, 2006, the Honorable Ronald M. Whyte entered an order of permanent injunction prohibiting Ronald J. Goedde, former Chief Financial Officer of Cornerstone Propane Partners, LLP, from future violations of the anti-fraud and reporting provisions of the federal securities laws.  The order also requires Goedde to pay disgorgement of $82,717 plus prejudgment interest thereon in the amount of $20,630.00; and orders a civil money penalty of $35,000.  In addition, the order prohibits Goedde from acting as an officer or director of a public company for five years.  Goedde consented to the entry of the injunction and the administrative order without admitting or denying the allegations of the Commission's complaint. 
+
+ The complaint alleged generally that Goedde signed Cornerstone's fiscal year 2000 Form 10-K and three fiscal year 2001 Forms 20-Q that falsely represented that Cornerstone's financial statements complied with Generally Accepted Accounting Principles; that Goedde signed false management representation letters to Cornerstone's outside auditors; that Cornerstone's financial statements did not comply with GAAP because of a breakdown in accounting at a Cornerstone subsidiary which rendered the company's financial statements materially unreliable; that Cornerstone did not disclose the possibility of a write-down, and that Cornerstone failed to disclose that the company's inter-company accounts did not balance. 
+
+ The injunction prohibits future violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1 and 13b2-2 thereunder and aiding and abetting violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. 
+
+ Goedde also consented to the entry of an Administrative Order, pursuant to Rule 102(e) of the Commission's Rules of Practice, barring him from appearing or practicing before the Commission as an accountant, with a right to reapply after five years. 
+
+ 
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diff --git a/raw/aaer/2006/AAER-2498.txt b/raw/aaer/2006/AAER-2498.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c94a7285f89cd0cc51d4ad0cb0c17a9489df1a97
--- /dev/null
+++ b/raw/aaer/2006/AAER-2498.txt
@@ -0,0 +1,1376 @@
+
+
+ 
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19884 / October 25, 2006 
+
+ Accounting and Auditing Enforcement Release No. 2498 / October 25, 2006 
+
+  SEC v. Thomas P. Clark , Civil Action No. CV 06-380 ADM/AJB (D. Minn.) 
+
+ Court Enters Judgment Against Thomas P. Clark, Former CFO of Health Risk Management, Inc. 
+
+ 
+
+ On October 19, 2006, United States District Judge Ann D. Montgomery of the United States District Court for the District of Minnesota entered a final judgment against Thomas P. Clark in a civil action brought by the Securities and Exchange Commission. Clark, of Edina, Minnesota, was charged with causing Health Risk Management, Inc. (HRMI) to file materially false financial statements. Clark consented to the entry of the judgment pursuant to a settlement with the Commission.  
+
+ In its complaint, the Commission alleged that in August 2000, Clark negotiated a $1.85 million settlement on behalf of HRMI and its wholly owned Medicaid HMO to settle an arbitration dispute with one of the HMO's healthcare providers. According to the complaint, Clark sought to hide the full amount of the settlement expense by recasting $1.35 million of the settlement as a pre-paid "retainer" for consulting services. The complaint alleges that HRMI never needed the consulting services and never received them. The complaint further alleges that Clark booked the $1.35 million payment as an asset rather than as a settlement expense, causing HMRI to file materially false financial statements with the Commission for the second and third quarters of 2000. The complaint also alleges that Clark failed to inform HRMI's outside auditors about the consulting agreement and the true amount of the settlement.  
+
+ Without admitting or denying the allegations in the Commission's complaint, Clark consented to a Final Judgment permanently enjoining him from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13b2-1, and 13b2-2, and from aiding and abetting HRMI's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13. The Final Judgment also orders Clark to pay a civil penalty of $20,000, which was based, in part, on his financial condition as represented to the Commission, and prohibits him, for five years, from acting as an officer or director of a securities issuer.  
+
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+ SEC Complaint in this matter  
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diff --git a/raw/aaer/2006/AAER-2499.pdf b/raw/aaer/2006/AAER-2499.pdf
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Binary files /dev/null and b/raw/aaer/2006/AAER-2499.pdf differ
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+ 
+ 
+ 
+UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 54661 / October 27, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2499 / October 27, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-12462 
+       
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+    MARTIN J. MERRITT, CPA,   : 102(e) OF THE COMMISSION’S RULES OF 
+      : PRACTICE, MAKING FINDINGS, AND 
+    Respondent.    : IM POSING 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 Martin 
+J. Merritt (“Respondent” or “Merritt”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of 
+Practice.1   
+ 
+                                                 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+ 
+ The Commission, with due regard to the public interest and without  preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+ 2
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, and the findings contained in Section III.3 below, which are admitted, Respondent 
+consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) 
+of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions 
+(“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Responde nt’s Offer, the Commission finds that:  
+ 
+ 1. Merritt, age 43, is an d has been a certified public accountant licensed to 
+practice in the State of Massachusetts.  He served as Controller of RenaissanceRe Holdings Ltd. 
+(“RenRe”) from at least 2000 until March 2005, and was a Vice President of RenRe from 2000 
+through 2002 and a Senior Vice President of RenRe from 2003 through March 2005.  From March 
+2005 through approximately November 1, 2005, he was RenRe’s Senior Vice President of Finance.      
+ 
+ 2. RenRe was, at all rele vant times, a Bermuda corporation with its principal 
+place of business in Bermuda.  RenRe was a reinsurance company specializing largely in property 
+catastrophe reinsurance.  At all relevant times, RenRe’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 September 27, 20 06, the Commission filed a complaint against Merritt 
+in SEC v. Stanard, et al. (Civil Action No. 06 cv 7736 (GEL)).  On October 6, 2006, the court 
+entered an order permanently enjoining Merritt, 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 from aiding and abetting violations of 
+Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, and 13b2-1 
+thereunder.  The Commission deferred resolution of any civil penalties and disgorgement against 
+Merritt. 
+ 
+ 4. The Commission’s complaint alleged, among other things, that Merritt 
+participated in a fraudulent scheme which resulted in RenRe filing materially false and misleading 
+financial statements in the company’s annual report on Form 10-K for the fiscal years ended 
+December 31, 2001 and December 31, 2002, and in the company’s quarterly reports on Form 10-Q 
+for the first and third quarters of 2001 and the third quarter of 2002.  The complaint alleged that 
+Merritt participated in a sham reinsurance transaction whose sole purpose was to smooth and defer 
+$26 million of RenRe’s earnings from 2001 to 2002 and 2003.  The complaint also alleged that 
+Merritt engaged in improper accounting for the transaction in a departure from generally accepted 
+ 3
+accounting principles (“GAAP”).  In addition, the complaint alleged that Merritt made material 
+misrepresentations and omissions about the transaction to RenRe’s independent auditors.   
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Merritt’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ Merritt is suspended from appearing or practic ing before the Commission as an accountant.   
+ 
+  
+ By the Commission. 
+ 
+ 
+ 
+       N a n c y  M .  M o r r i s  
+       S e c r e t a r y  
+ 
+ 
\ No newline at end of file
diff --git a/raw/aaer/2006/AAER-2500.txt b/raw/aaer/2006/AAER-2500.txt
new file mode 100644
index 0000000000000000000000000000000000000000..cfd7b9e7c4032453c82fb9b6d1bf6f6b2877f9e7
--- /dev/null
+++ b/raw/aaer/2006/AAER-2500.txt
@@ -0,0 +1,201 @@
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+                                                 
+ 
+   
+       
+     
+ 
+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 54665 / October 30, 2006 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2500 / October 30, 2006 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12463 
+In the Matter of ORDER INSTITUTING CEASE-AND-DESIST 
+PROCEEDINGS, MAKING FINDINGS, AND 
+B.N. BAHADUR, IMPOSING A CEASE-AND-DESIST ORDER 
+PURSUANT TO SECTION 21C OF THE 
+Respondent. SECURITIES EXCHANGE ACT OF 1934 
+I. 
+The Securities and Exchange Commission (the “Commission”) deems it appropriate that 
+cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the 
+Securities Exchange Act of 1934 (the “Exchange Act”), against B.N. Bahadur (“Bahadur” or the 
+“Respondent”). 
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the 
+findings herein, except as to the Commission’s jurisdiction over him and the subject matter of 
+these proceedings, which are admitted, Respondent consents to the entry of this Order Instituting 
+Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order 
+Pursuant to Section 21C of the Securities Exchange Act of 1934 (“Order”), as set forth below.
+TPF 
+1 
+FPT 
+TP PT 
+1 In a separate civil action filed simultaneously with this proceeding, Bahadur has separately consented to 
+the entry of a judgment by the U.S. District Court for the Eastern District of Michigan pursuant to Section 21(d) of 
+the Exchange Act ordering him to disgorge $350,000, pay prejudgment interest of $139,257 on the disgorgement 
+amount and pay a civil penalty of $80,000. SEC v. Delphi Corporation, et al., Civil Action No. 2:06-cv-14891 (AC) 
+(E.D. Mich. Oct. 30, 2006). 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+                                                 
+    
+ 
+III. 
+On the basis of this Order and Respondent’s Offer,TPPTthe Commission finds that:TPF 
+2 
+FPT 
+A. Respondent and Delphi Corporation 
+1. Respondent 
+Bahadur, 61, is a resident of West Bloomfield, Michigan. At all relevant times, he was 
+the sole owner and principal of a private management consulting company based in Southfield, 
+Michigan (the “Consulting Company”). 
+2. Delphi Corporation 
+Delphi Corporation (“Delphi”) is an auto parts supplier headquartered in Troy, Michigan. 
+At all relevant times, Delphi’s common stock was registered with the Commission pursuant to 
+Section 12(b) of the Exchange Act and was listed on the New York Stock Exchange (“NYSE”) 
+under the symbol “DPH.” On October 8, 2005, Delphi filed for bankruptcy in the Southern 
+District of New York. On November 11, 2005, De lphi was delisted from the NYSE. Delphi’s 
+common stock is now registered with the Commission pursuant to Section 12(g) of the Exchange 
+Act and trades in the over the counter market and is quoted in the pink sheets under the symbol 
+“DPHIQ.” 
+B. Facts 
+1. Introduction 
+In December 2000, Delphi entered into two separate inventory schemes involving 
+transactions with third parties. In one of thos e transactions, Delphi purported to sell $70 million 
+worth of inventory to the Consulting Company at the end of December 2000, while 
+simultaneously promising Bahadur that Delphi would repurchase the inventory from the 
+Consulting Company in early 2001. In return for Bahadur’s participation, he negotiated for the 
+Consulting Company to receive a $350,000 fee. Del phi accounted for the transaction as a sale of 
+inventory, but should have accounted for it as a financing. 
+2. Bahadur assists Delphi by entering into oral repurchase agreement. 
+In December 2000, a Delphi executive (“Executive X”) asked Bahadur if, as an 
+accommodation, his Consulting Company would buy automotive battery and generator core 
+inventory from Delphi for $70 million and resell it back to Delphi within 90 days, again, for 
+$70 million.  Executive X agreed that the Consulting Company would earn a 0.5% fee in 
+connection with the transaction. When Bahadur was unable to secure financing for the 
+TP PT 
+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 
+
+ 
+ 
+transaction, Executive X suggested the parties close the transaction before the end of 2000, but 
+seek to finalize the financing early in January. 
+Although the Consulting Company had been engaged by Delphi on multiple occasions to 
+provide consulting services, it had never purchased inventory from an automotive manufacturer 
+or supply company and had no need or use for automotive batteries or generator cores.  
+Nevertheless, after consulting outside counsel and participating in telephone conference calls 
+with counsel and Executive X, Bahadur agreed to enter into the transaction with Delphi.  
+Bahadur’s counsel, who drafted the contract, proposed to Executive X and recommended to 
+Bahadur that Delphi’s repurchase obligation be put in writing.  Executive X rejected that 
+proposal, however, and Bahadur agreed to go forward with the transaction without a written 
+repurchase agreement. 
+The final agreement was executed in December 2000 and, pursuant to Delphi’s specific 
+request, made no mention of Delphi’s agreement to repurchase of the inventory or of any fee the 
+Consulting Company would earn in connection with the transaction.  However, Executive X had 
+repeatedly assured Bahadur and his counsel that Delphi would repurchase the inventory and that 
+the Consulting Company would earn a fee.   
+3.	 Delphi self-finances Bahadur’s inventory purchase by making 
+improper use of supplier financing program. 
+In January 2001, while Bahadur was working on securing financing, Executive X 
+suggested that Delphi finance the transaction through a third party entity’s supplier financing 
+program.  In the normal course, Delphi enrolled its suppliers in the third party supplier financing 
+program so that suppliers could receive early, but reduced, payment on invoices issued for 
+material purchased by Delphi.  Under the program, as soon as the supplier’s invoice was 
+received and approved by Delphi, the third party supplier financer would pay the supplier at a 
+discount. Delphi would then pay the third party supplier financer the full amount of the invoice 
+on its actual due date. 
+In connection with the batteries and cores transaction, however, Delphi used the third 
+party supplier finance program for a different and improper purpose.  Delphi first arranged with 
+Bahadur for the Consulting Company to be enrolled in the supplier financer program.  Delphi 
+then arranged with Bahadur to have the Consulting Company issue an invoice to Delphi for 
+$70,840,214.28. This amount was calculated by Delphi so that, after the third party supplier 
+financer took its fee, the Consulting Company would receive the net proceeds of $70,350,000.  
+Upon receipt of the invoice, Delphi approved it and submitted it to the third party supplier 
+financer. The Consulting Company receiv ed the $70,350,000 on or about January 12, 2001 and 
+immediately paid $70 million to Delphi as payment for its purchase of the inventory.  The 
+Consulting Company retained $350,000 as its fee.  A month later, Delphi paid $70,840,214.28 to 
+the third party supplier financer. 
+When the transaction was complete, Delphi had paid the Consulting Company $350,000 
+and had paid the third party supplier financer $538,385.63 to move inventory off of Delphi’s 
+books for approximately two weeks.  No inventory ever left Delphi’s premises. 
+3 
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+4. Bahadur’s knowledge 
+Bahadur knew that by representing the transaction as a “purchase,” without any mention 
+of the repurchase agreement or the Consulting Company’s fee, the inventory purchase agreement 
+he signed in December 2000 did not accurately represent all of the terms of the transaction, 
+including the oral agreement by Executive X.  He further knew that under the actual terms of his 
+arrangement with Delphi, the Consulting Company was not in fact purchasing inventory from 
+Delphi, but instead was agreeing to provide Delphi with short-term financing.  Moreover, by 
+January 2001, he knew that as a result of Delphi’s self-financing program, the only cash Delphi 
+received in connection with the transaction came not from the Consulting Company, but from 
+Delphi itself, via the third party supplier financer.  
+5. Delphi’s fraudulent accounting 
+Delphi fraudulently accounted for the December 2000 transaction with the Consulting 
+Company as a sale.  As the result of its fraudulent accounting, on its Form 10-K for the period 
+ended December 31, 2000, Delphi improperly overstated its earnings per share by approximately 
+3 cents or 9% for the fourth quarter of 2000. 
+C. Conclusion 
+As a result of the conduct described above, Bahadur was a cause of Delphi’s violations of 
+Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, which prohibit 
+fraudulent conduct in connection with the purchase or sale of securities. 
+Also as a result of the conduct described above, Bahadur was a cause of Delphi’s 
+violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 promulgated 
+thereunder, which require reporting companies to file accurate annual reports with the 
+Commission. 
+Lastly, as a result of the conduct described above, Bahadur was a cause of Delphi’s 
+violations of Section 13(b)(2)(A) of the Exchange Act, which requires reporting companies to 
+make and keep books, records, and accounts which, in reasonable detail, accurately and fairly 
+reflect their transactions and dispositions of their assets.  
+4 
+
+ 
+ 
+ 
+ 
+ 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Bahadur’s Offer. 
+Accordingly, it is hereby ORDERED that Respondent Bahadur 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 cease and desist from causing any violations 
+and any future violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-
+20 and 13a-1 promulgated thereunder.  
+By the Commission. 
+Nancy M. Morris 
+Secretary 
+5 
diff --git a/raw/aaer/2006/AAER-2501.txt b/raw/aaer/2006/AAER-2501.txt
new file mode 100644
index 0000000000000000000000000000000000000000..022ad5372d46069c40cb3447ec8326eff91ca012
--- /dev/null
+++ b/raw/aaer/2006/AAER-2501.txt
@@ -0,0 +1,140 @@
+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No.  54666 / October 30, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No.  2501 / October 30, 2006 
+ 
+ADMINISTRATIVE PROCEEDING  
+File No.  3-12464 
+ 
+In the Matter of  
+ 
+STUART DOYLE, 
+ 
+Respondent. 
+ORDER INSTITUTING CEASE-AND-DESIST 
+PROCEEDINGS, MAKING FINDINGS, AND 
+IMPOSING A CEASE-AND-DESIST ORDER 
+PURSUANT TO SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+  
+ 
+I. 
+The Securities and Exchange Commission (the “Commission”) deems it appropriate that 
+cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the 
+Securities Exchange Act of 1934 (the “Exchange Act”), against Stuart Doyle (“Doyle” or the 
+“Respondent”). 
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the 
+findings herein, except as to the Commission’s jurisdiction over him and the subject matter of 
+these proceedings, which are admitted, Respondent consents to the entry of this Order Instituting 
+Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order 
+Pursuant to Section 21C of the Securities Exchange Act of 1934 (“Order”), as set forth below.
+1
+                                                 
+1 In a separate civil action filed simultaneously with this proceeding, Doyle has separately 
+consented to the entry of a judgment by the U.S. District Court for the Eastern District of Michigan pursuant to 
+Section 21(d) of the Exchange Act ordering him to pay a civil penalty of $40,000.  SEC v. Delphi Corporation, et 
+al., Civil Action No. 2:06-cv-14891 (AC) (E.D. Mich. Oct. 30, 2006). 
+ 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds that:2
+A. Respondent and Delphi Corporation (“Delphi”) 
+1. Respondent 
+Doyle, 49, is a resident of Rochester Hills, Michigan.  At all relevant times, he was a 
+client executive at a Texas information technology company (the “IT Company”) supporting the 
+IT Company’s relationship with Delphi.   
+2. Delphi 
+Delphi is an auto parts supplier headquartered in Troy, Michigan.  At all relevant times, 
+Delphi’s common stock was registered with the Commission pursuant to Section 12(b) of the 
+Exchange Act and was listed on the New York Stock Exchange (“NYSE”) under the symbol 
+“DPH.”  On October 8, 2005, Delphi filed for bankruptcy in the Southern District of New York.  
+On November 11, 2005, Delphi was delisted from the NYSE.  Delphi’s common stock is now 
+registered with the Commission pursuant to Section 12(g) of the Exchange Act and trades in the 
+over the counter market and is quoted in the pink sheets under the symbol “DPHIQ.” 
+B. Facts 
+1. Introduction 
+Prior to December 2001, Delphi had entered agreements with the IT Company under 
+which the IT Company provided information technology (“IT”) services to Delphi (the “Existing 
+IT Agreements”).  In December 2001, Delphi and the IT Company entered into a new five-year 
+IT contract, pursuant to which Delphi agreed to pay the IT Company approximately $207 million 
+over the course of five years in return for IT services (the “New IT Contract”).   As additional 
+consideration, the IT Company agreed to pay Delphi $20 million at the time the New IT Contract 
+was signed.  Delphi agreed to repay the $20 million to the IT Company over five years.  
+Although the $20 million was to be repaid and related to a new contract, Delphi improperly 
+accounted for the payment as income (reduction of recorded IT expenses) in the fourth quarter of 
+2001.   
+Doyle was the lead client executive at the IT Company responsible for negotiating the 
+terms of the New IT Contract, including the $20 million payment.  He also signed an inaccurate 
+and incomplete side letter on behalf of the IT Company, that allowed Delphi to mislead its 
+auditors about the true nature of the $20 million payment. 
+                                                 
+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 
+ 
+2. Doyle’s Understanding of Delphi’s Scheme 
+From early in his discussions with Delphi concerning the New IT Contract, Doyle 
+understood that Delphi sought a payment of $20 million that it could book as income in the 
+fourth quarter of 2001.  Doyle understood that because the payment was to be repaid and tied to 
+the New IT Contract, it would be improper for Delphi to immediately record the $20 million as 
+income.   
+3. Doyle’s Role in Signing the Inaccurate and Incomplete Side Letter 
+Delphi asked the IT Company to enter into a side letter documenting the $20 million 
+payment.  Doyle, on behalf of the IT Company, signed a side letter with Delphi that described 
+the terms of the $20 million payment in an inaccurate and incomplete way.  In order to account 
+for the $20 million as income, Delphi wanted to mislead its auditors into believing that it was 
+receiving the $20 million as a nonrefundable rebate on payments it had previously made to the IT 
+Company, in connection with the Existing IT Agreements.  Conversely, to support its own 
+accounting for the $20 million payment, the IT Company wanted its own auditors to understand 
+the true terms of the payment: that it was to be repaid over five years and that it was linked 
+directly to the New IT Contract.  Doyle came to understand, from others, that in order for both 
+companies to accomplish their accounting goals, they would need to draft a vague side letter.  
+The side letter that Doyle ultimately signed on behalf of the IT Company deliberately omitted 
+any reference to the New IT Contract.  Instead it stated that the payment was related to the 
+companies’ “ongoing business relationship.”  The letter also omitted any reference to the fact 
+that Delphi had to repay the $20 million. 
+4. Delphi’s improper accounting 
+Delphi improperly accounted for the $20 million payment as a reduction of recorded IT 
+expenses (effectively income) in the fourth quarter of 2001.  Based on the intent of the parties 
+and substance of the agreements, GAAP required that Delphi record the transaction as a liability 
+to the IT Company at the time the companies executed the New IT Contract and the side letter.
+3  
+As a result of its improper accounting, Delphi overstated its fourth quarter 2001 earnings per 
+share, as reported in its Form 10-K for the period ended December 31, 2001, by approximately 2 
+cents or 24%. 
+C. Conclusion 
+As a result of the conduct described above, Doyle was a cause of Delphi’s violations of 
+Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 promulgated thereunder, which 
+require reporting companies to file accurate annual reports with the Commission. 
+Also, as a result of the conduct described above, Doyle was a cause of Delphi’s violations 
+of Section 13(b)(2)(A) of the Exchange Act, which requires reporting companies to make and 
+                                                 
+3 Statement of Financial Accounting Concept Statement No.6 – Elements of Financial Statements, ¶¶ 35 – 
+40. 
+3 
+ 
+keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect their 
+transactions and dispositions of their assets.  
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Doyle’s Offer. 
+Accordingly, it is hereby ORDERED that Respondent Doyle cease and desist from 
+causing any violations and any future violations of Sections 13(a) and 13(b)(2)(A) of the 
+Exchange Act and Rules 12b-20 and 13a-1 promulgated thereunder.  
+By the Commission. 
+ 
+ 
+ 
+Nancy M. Morris  
+Secretary  
+4 
+ 
\ No newline at end of file
diff --git a/raw/aaer/2006/AAER-2503.txt b/raw/aaer/2006/AAER-2503.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4eb1388c42ebf5d9cfc19e5780e8c96e6b1809e8
--- /dev/null
+++ b/raw/aaer/2006/AAER-2503.txt
@@ -0,0 +1,149 @@
+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No.  54668 / October 30, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No.  2503 / October 30, 2006 
+ 
+ADMINISTRATIVE PROCEEDING  
+File No.  3-12466 
+ 
+In the Matter of  
+ 
+KEVIN CURRY, 
+ 
+Respondent. 
+ORDER INSTITUTING CEASE-AND-DESIST 
+PROCEEDINGS, MAKING FINDINGS, AND 
+IMPOSING A CEASE-AND-DESIST ORDER 
+PURSUANT TO SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+  
+ 
+I. 
+The Securities and Exchange Commission (the “Commission”) deems it appropriate that 
+cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the 
+Securities Exchange Act of 1934 (the “Exchange Act”), against Kevin Curry (“Curry” or the 
+“Respondent”). 
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the 
+findings herein, except as to the Commission’s jurisdiction over him and the subject matter of 
+these proceedings, which are admitted, Respondent consents to the entry of this Order Instituting 
+Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order 
+Pursuant to Section 21C of the Securities Exchange Act of 1934 (“Order”), as set forth below.
+1
+                                                 
+1  In a separate civil action filed simultaneously with this proceeding, Curry has separately consented to the 
+entry of a judgment by the U.S. District Court for the Eastern District of Michigan pursuant to Section 21(d) of the 
+Exchange Act ordering him to pay a civil penalty of $25,000.  SEC v. Delphi Corporation, et al., Civil Action No. 
+2:06-cv-14891 (AC) (E.D. Mich. Oct. 30, 2006).  
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds that; 2
+A. Respondent and Delphi Corporation (“Delphi”) 
+1. Respondent 
+Curry, 58, is a resident of Hilton Head, South Carolina.  At all relevant times, he was a 
+client executive at a Texas information technology company (the “IT Company”) supporting the 
+IT Company’s relationship with Delphi.   
+2. Delphi 
+Delphi is an auto parts supplier headquartered in Troy, Michigan.  At all relevant times, 
+Delphi’s common stock was registered with the Commission pursuant to Section 12(b) of the 
+Exchange Act and was listed on the New York Stock Exchange (“NYSE”) under the symbol 
+“DPH.”  On October 8, 2005, Delphi filed for bankruptcy in the Southern District of New York.  
+On November 11, 2005, Delphi was delisted from the NYSE.  Delphi’s common stock is now 
+registered with the Commission pursuant to Section 12(g) of the Exchange Act and trades in the 
+over the counter market and is quoted in the pink sheets under the symbol “DPHIQ”.  
+B. Facts 
+1. Introduction 
+Prior to December 2001, Delphi had entered agreements with the IT Company under 
+which the IT Company provided information technology (“IT”) services to Delphi (the “Existing 
+IT Agreements”).  In December 2001, Delphi and the IT Company entered into a new five-year 
+IT contract, pursuant to which Delphi agreed to pay the IT Company approximately $207 million 
+over the course of five years in return for IT services (the “New IT Contract”).   As additional 
+consideration, the IT Company agreed to pay Delphi $20 million at the time the New IT Contract 
+was signed.  Delphi agreed to repay the $20 million to the IT Company over five years.  
+Although the $20 million was to be repaid and related to a new contract, Delphi improperly 
+accounted for the payment as income (reduction of recorded IT expenses) in the fourth quarter of 
+2001.   
+Curry was a client executive at the IT Company.  In 2001, he assisted in negotiating the 
+terms of the New IT Contract, including the $20 million payment.  He also assisted in 
+negotiating an inaccurate and incomplete side letter between Delphi and the IT Company, that 
+allowed Delphi to mislead its auditors about the true nature of the $20 million payment.  Finally, 
+in 2002, he negotiated and signed two work orders that were used by the companies to facilitate 
+Delphi’s repayment of the $20 million to the IT Company. 
+                                                 
+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 
+ 
+2. Curry’s Understanding of Delphi’s Scheme 
+From his discussions with Delphi concerning the New IT Contract, Curry understood that 
+Delphi sought a payment of $20 million that it could book as income in the fourth quarter of 
+2001.  Curry understood that because the payment was to be repaid and tied to the New IT 
+Contract, it would be improper for Delphi to immediately record the $20 million as income.   
+3. Curry’s Role in Negotiating the Inaccurate and Incomplete Side 
+Letter 
+Delphi asked the IT Company to enter into a side letter documenting the $20 million 
+payment.  Curry, on behalf of the IT Company, assisted in negotiating a side letter with Delphi 
+that described the terms of the $20 million payment in an inaccurate and incomplete way.  In 
+order to account for the $20 million as income, Delphi wanted to mislead its auditors into 
+believing that it was receiving the $20 million as a nonrefundable rebate on payments it had 
+previously made to the IT Company, in connection with the Existing IT Agreements.  
+Conversely, to support its own accounting for the $20 million payment, the IT Company wanted 
+its own auditors to understand the true terms of the payment: that it was to be repaid over five 
+years and that it was linked directly to the New IT Contract.  Curry came to understand, from 
+others, that in order for both companies to accomplish their accounting goals, they would need to 
+draft a vague side letter.  The side letter that Curry ultimately assisted in negotiating on behalf of 
+the IT Company deliberately omitted any reference to the New IT Contract.  Instead it stated that 
+the payment was related to the companies’ “ongoing business relationship.”  The letter also 
+omitted any reference to the fact that Delphi had to repay the $20 million. 
+ 4. Curry’s Role in Negotiating and Signing Two Incorrect Work Orders 
+In early 2002, the IT Company required that Delphi enter into a written commitment to 
+repay the $20 million to the IT Company.  Because Delphi had accounted for the $20 million as 
+income, it was unwilling to enter into any document that explicitly stated that it was repaying the 
+$20 million.  Accordingly, the companies agreed to enter into two work orders that incorrectly 
+stated that Delphi was paying the IT Company $20 million over five years to perform 
+“administrative services” under the New IT Contract.  In fact, the work orders were simply a 
+mechanism for Delphi to repay the $20 million to the IT Company.  Curry negotiated and signed 
+the work orders on behalf of the IT Company. 
+3 
+ 
+5. Delphi’s improper accounting 
+Delphi improperly accounted for the $20 million payment as a reduction of recorded IT 
+expenses (effectively income) in the fourth quarter of 2001.  Based on the intent of the parties 
+and substance of the agreements, GAAP required that Delphi record the transaction as a liability 
+to the IT Company at the time the companies executed the New IT Contract and the side letter.3  
+As a result of its improper accounting, Delphi overstated its fourth quarter 2001 earnings per 
+share, as reported in its Form 10-K for the period ended December 31, 2001, by approximately 2 
+cents or 24%. 
+C. Conclusion 
+As a result of the conduct described above, Curry was a cause of Delphi’s violations of 
+Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 promulgated thereunder, which 
+require reporting companies to file accurate annual reports with the Commission. 
+Also, as a result of the conduct described above, Curry was a cause of Delphi’s violations 
+of Section 13(b)(2)(A) of the Exchange Act, which requires reporting companies to make and 
+keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect their 
+transactions and dispositions of their assets.  
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Curry’s Offer. 
+Accordingly, it is hereby ORDERED that Respondent Curry cease and desist from 
+causing any violations and any future violations of Sections 13(a) and 13(b)(2)(A) of the 
+Exchange Act and Rules 12b-20 and 13a-1 promulgated thereunder.  
+By the Commission. 
+ 
+ 
+ 
+Nancy M. Morris  
+Secretary  
+                                                 
+3 Statement of Financial Accounting Concept Statement No.6 – Elements of Financial Statements, ¶¶ 35 – 
+40. 
+4 
+ 
\ No newline at end of file
diff --git a/raw/aaer/2006/AAER-2509.txt b/raw/aaer/2006/AAER-2509.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2f52f4c371565393c4aa79203bc25fc29da67ef1
--- /dev/null
+++ b/raw/aaer/2006/AAER-2509.txt
@@ -0,0 +1,1375 @@
+
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19898 / November 3, 2006 
+
+ Accounting and Auditing Enforcement Release No. 2509 / November 3, 2006 
+
+  SEC v. Sanjay Kumar , 04 Cr. No. 846 (E.D.N.Y.)(I.L.G.);  SEC v. Sanjay Kumar and Stephen Richards , 04 Civ. 4101 (E.D.N.Y.)(I.L.G.) 
+
+ Former CEO and Chairman of Computer Associates, Sanjay Kumar, Sentenced to 12 Years in Prison for Accounting Fraud and Obstructing Commission Investigation 
+
+ 
+
+ The Commission announced that in a criminal case prosecuted by the United States Attorney's Office for the Eastern District of New York, Sanjay Kumar, a former CEO and Chairman of Computer Associates International, Inc., was yesterday sentenced to a prison term of 12 years by Judge I. Leo Glasser of the United States District Court for the Eastern District of New York. Judge Glasser also directed Kumar to pay an $8 million dollar fine. Judge Glasser will determine Kumar's restitution obligation at a later hearing. Kumar, 44, pled guilty to eight felonies, including securities fraud, obstruction of justice, and perjury, on April 24, 2006, two weeks before a scheduled trial. Kumar admitted fraudulently inflating the quarterly revenue and earnings of Computer Associates by keeping open the company's books past quarter-ends in order to give the appearance that the company had met or exceeded quarterly revenue projections, when, in fact, Computer Associates' performance had fallen short of those goals.  
+
+ The indictment charged that in 1999 and 2000, under Kumar's oversight and direction, over $2 billion in revenue were manipulated to prop up the price of the stock. Kumar also admitted obstructing the government's investigation by providing false explanations for the fraudulent accounting practices to the company's lawyers, with the intent that those lawyers would repeat those false explanations to the government, and by lying himself to federal investigators to conceal the fraud scheme. Kumar's co-defendant, Stephen Richards, Computer Associates' former Head of World-Wide Sales, also pled guilty to eight felonies on April 24, 2006, and will be sentenced by Judge Glasser on November 14, 2006. Five other of Kumar's co-conspirators previously entered guilty pleas, agreed to cooperate with the prosecution and are awaiting sentencing: David Kaplan, David Rivard, Lloyd Silverstein, Steven Woghin and Ira Zar.  
+
+ The Commission previously filed civil injunctive actions against Kumar, the above-named former Computer Associates executives and Computer Associates itself. In the Commission's actions, Judge Glasser previously imposed injunctions and other equitable relief, on consent, against all of these defendants. The Commission's claims for disgorgement and civil penalties remain pending against Kumar, Rivard, Silverstein, Woghin and Zar.  
+
+ The Commission acknowledges the assistance of the United States Attorney's Office for the Eastern District of New York and the Federal Bureau of Investigation in this matter.  
+
+ See prior Lit. Rel. Nos.  19730 ,  18954 ,  18891 ,  18665 , and  18552 .  
+
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diff --git a/raw/aaer/2006/AAER-2510.txt b/raw/aaer/2006/AAER-2510.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4c420577a738d19579a370993fd16cc8d2bb2364
--- /dev/null
+++ b/raw/aaer/2006/AAER-2510.txt
@@ -0,0 +1,146 @@
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934     
+Release No. 54712 / November 6, 2006      
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2510 / November 6, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12469 
+       
+      : 
+      :  
+      :  
+ 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  
+ DAVID KREINBERG, CPA, : PURS UANT 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 David 
+Kreinberg, CPA (“Respondent” or “Kreinberg”) 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.4 below, which are admitted, Respondent 
+consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) 
+of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions 
+(“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Responde nt’s Offer, the Commission finds that:  
+ 
+ 1. Kreinberg, 41, a resident of Teaneck, New Jersey, is a certified public accountant 
+with a lapsed New York license.  Kreinberg held various positions, including senior manager, at 
+Deloitte & Touche LLP (“D&T”) until April 1994, when he became Vice President of Financial 
+Planning at Comverse Technology, Inc. (“CTI”).  He served as Vice President of Finance and 
+Treasurer at CTI from 1996 until May 1999.  Kreinberg performed many of the day-to-day 
+functions of the CFO prior to being appointed as CFO.  In May 1999, Kreinberg was appointed 
+CFO of CTI.  He resigned this position on April 28, 2006.  Kreinberg also served as the CFO of 
+Ulticom, Inc. (“Ulticom”) from December 1999 to September 2001, and was a Director of Ulticom 
+between April 2000 and April 28, 2006.  Kreinberg reviewed and signed each of CTI’s annual 
+reports on Form 10-K since April 2000, and quarterly reports on Form 10-Q since June 1999.  He 
+assisted in the preparation of CTI’s annual and quarterly reports beginning in 1994.  He also 
+reviewed, approved and helped to prepare each proxy statement CTI filed since at least 1999. 
+ 
+2. CTI was, at all relevant times, a New York corporation, the subsidiaries of which 
+provided software, systems and related services for multimedia communication and information 
+processing applications.  CTI was headquartered in Woodbury, New York, throughout most of the 
+relevant period and currently maintains office space and/or operations facilities in Manhattan and 
+Long Island, New York; its subsidiaries had operating facilities in Wakefield, Massachusetts; Tel 
+Aviv, Israel and various other locations within the United States, Europe, Asia, South America, 
+Africa and Canada.  Prior to July 31, 2006, CTI’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 under the symbol “CMVT.”  It is now 
+registered under Section 12(b) and continues to trade on the NASDAQ National Market System.  
+CTI’s fiscal year ends on January 31.  Prior to 1998, CTI’s fiscal year ended on December 31. 
+ 
+ 3. Ulticom is a New Jersey corporation based in Mount  Laurel, New Jersey, that 
+provides service enabling signaling software for fixed, mobile and Internet communications.  Prior 
+to July 31, 2006, Ulticom’s common stock was registered with the Commission pursuant 
+to Section 12(g) of the Exchange Act and traded on the NASDAQ National Market System under 
+the symbol “ULCM.”  It is now registered under Section 12(b) and continues to trade on the 
+NASDAQ National Market System.   Prior to going public in 2000, Ulticom was a wholly-owned 
+subsidiary of CTI.  Ulticom is currently a majority-owned subsidiary of CTI.  Ulticom’s fiscal year 
+ends on January 31. 
+ 
+ 2
+ 4. On November 2, 2006, a final judgment was entered against Kreinberg, 
+permanently enjoining him from violating Section 17(a) of the Securities Act of 1933 (“Securities 
+Act”), Sections 10(b), 13(b)(5), 14(a), and 16(a) of the Exchange Act, and Exchange Act Rules 
+10b-5, 13a-14, 13b2-1, 13b2-2, 14a-9, and 16a-3, and for aiding and abetting violations of Section 
+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, in the civil action entitled Securities and Exchange Commission v. Jacob “Kobi” 
+Alexander et. al, Civil Action Number 1:06-CV-03844-NGG-RER, in the United States District 
+Court for the Eastern District of New York.  Kreinberg 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 $2,394,917.68 in disgorgement, which includes prejudgment interest. 
+ 
+5. The Commission’s Co mplaint alleges, among other things, that no later than 1998, 
+Kreinberg engaged in a fraudulent scheme with CTI’s former Chairman and Chief Executive 
+Officer and CTI’s former General Counsel and later, Senior General Counsel, to grant 
+undisclosed, in-the-money options to themselves and others, by backdating stock option grants to 
+coincide with historically low closing prices for CTI’s stock.  From 1999 through at least April 
+2002, the Complaint also alleges that Kreinberg and CTI’s former Chairman and Chief Executive 
+Officer created a slush fund of backdated options which the former Chairman and Chief 
+Executive Officer, with Kreinberg’s knowledge, were used to recruit and retain key personnel.  
+According to the Complaint, Kreinberg’s fraudulent misconduct caused CTI, between fiscal year 
+1998 and fiscal year 2005, (i) to file materially false and misleading financial statements that 
+materially understated its compensation expenses and materially overstated its quarterly and 
+annual net income and earnings per share, and (ii) to make disclosures in its periodic filings and 
+proxy statements that falsely portrayed CTI’s options as having been granted at exercise prices 
+equal to the fair market value of CTI’s common stock on the date of the grant.  According to the 
+Complaint, Kreinberg also misled CTI’s outside auditors in an attempt to hide the scheme.  The 
+Complaint alleges that Kreinberg, and others, failed to file all required Commission Forms 3 and 
+4 to disclose his option-related activity and also filed Forms 3 and 4 that contained false or 
+misleading statements with regard to the options’ expirations dates (based on backdated grant 
+dates) and the exercise prices.  Beginning in 2000, the Complaint alleges that Kreinberg initiated a 
+similar backdating scheme at Ulticom, a publicly-traded company whose stock was majority-
+owned by CTI, which resulted in Ulticom making materially false and misleading financial 
+statements, and materially false and misleading disclosures regarding option grants, in its filings 
+with the Commission. 
+ 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 Kreinberg’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ Kreinberg is suspended from appearing or  practicing before the Commission as an 
+accountant. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       N a n c y  M .  M o r r i s  
+       S e c r e t a r y  
+ 4
\ No newline at end of file
diff --git a/raw/aaer/2006/AAER-2514.txt b/raw/aaer/2006/AAER-2514.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c412a3455b8a8c04392fed3bb35784d60cb1dab8
--- /dev/null
+++ b/raw/aaer/2006/AAER-2514.txt
@@ -0,0 +1,1369 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Glenn E. Glasshagel 
+     
+     
+     
+     
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+     
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+              Glenn E. Glasshagel
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+        Glenn E. Glasshagel
+       
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+                        
+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19911 / November 15, 2006 
+
+ Accounting and Auditing Enforcement Release No. 2514 / November 15, 2006 
+
+  SEC v. Glenn E. Glasshagel , Case No. 05-61159-CIV-Cooke/Brown 
+
+ Court Enters Judgment of Permanent Injunction and Other Relief Against Defendant Glenn E. Glasshagel 
+
+ 
+
+ The Securities and Exchange Commission announced that on November 1, 2006, the Honorable Marcia G. Cooke of the United States District Court for the Southern District of Florida entered a Judgment of Permanent Injunction and Other Relief against Defendant Glenn E. Glasshagel. Glasshagel consented to the entry of an injunction against future violations of 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 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. In addition, the Judgment bars Glasshagel from acting as an officer or director pursuant to Section 21(d)(2) of the Exchange Act, and provides for disgorgement and the imposition of a civil penalty to be determined by agreement of the parties or by the Court, upon motion by the Commission. 
+
+ For more information on earlier actions in this case, see Litigation Release No. 19309 and Accounting and Auditing Enforcement Release No. 2280 (July 25, 2005). 
+
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diff --git a/raw/aaer/2006/AAER-2515.txt b/raw/aaer/2006/AAER-2515.txt
new file mode 100644
index 0000000000000000000000000000000000000000..04f2f40716c62de967509c8b768833fa538c8330
--- /dev/null
+++ b/raw/aaer/2006/AAER-2515.txt
@@ -0,0 +1,1376 @@
+
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+     SEC.gov | Stephen Richards 
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19912 / November 15, 2006 
+
+ Accounting and Auditing Enforcement Release No. 2515 / November 15, 2006 
+
+  SEC v. Stephen Richards , (E.D.N.Y.)(I.L.G.);  SEC v. Sanjay Kumar and Stephen Richards , 04 Civ. 4101 (E.D.N.Y.)(I.L.G.) 
+
+ Former Head of World-Wide Sales for Computer Associates, Stephen Richards, Sentenced to 7 Years in Prison for Accounting Fraud and Committing Perjury During Commission Subpoenaed Testimony 
+
+ 
+
+ The Commission announced that in a criminal case prosecuted by the United States Attorney's Office for the Eastern District of New York, Stephen Richards, a former Head of World-Wide Sales and Senior Vice President of Computer Associates International, Inc., was yesterday sentenced to a prison term of 7 years by Judge I. Leo Glasser of the United States District Court for the Eastern District of New York. Judge Glasser will determine Richards' restitution obligation at a later hearing. Richards, 41, pled guilty to eight felonies, including securities fraud, obstruction of justice, and perjury, on April 24, 2006, two weeks before a scheduled trial. Richards admitted fraudulently inflating the quarterly revenue and earnings of Computer Associates by keeping open the company's books past quarter-ends in order to give the appearance that the company had met or exceeded quarterly revenue projections, when, in fact, Computer Associates' performance had fallen short of those goals.  
+
+ The indictment charged that in 1999 and 2000, with Richards' participation, over $2 billion in revenue were manipulated to prop up the price of the stock. Richards also admitted to committing perjury during subpoenaed testimony before the Commission staff to conceal the fraud scheme. Richards' co-defendant, Sanjay Kumar, Computer Associates' former Chairman and CEO, also pled guilty to eight felonies on April 24, 2006, and was sentenced by Judge Glasser on November 2, 2006, to serve 12 years and pay an $8 million fine. Five other of Richards' co-conspirators previously entered guilty pleas, agreed to cooperate with the prosecution and are awaiting sentencing: David Kaplan, David Rivard, Lloyd Silverstein, Steven Woghin and Ira Zar.  
+
+ The Commission previously filed civil injunctive actions against Richards, the above-named former Computer Associates executives and Computer Associates itself. In the Commission's actions, Judge Glasser previously imposed injunctions and other equitable relief, on consent, against all of these defendants. The Commission's claims for disgorgement and civil penalties remain pending against Kumar, Rivard, Silverstein, Woghin and Zar. 
+
+ The Commission acknowledges the assistance of the United States Attorney's Office for the Eastern District of New York and the Federal Bureau of Investigation in this matter.  
+
+ See prior Lit. Rel. Nos.  19898 ,  19730 ,  18954 ,  18891 ,  18665 , and  18552 . 
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diff --git a/raw/aaer/2006/AAER-2516.pdf b/raw/aaer/2006/AAER-2516.pdf
new file mode 100644
index 0000000000000000000000000000000000000000..bd9a39f2d7cb15ae593b22d5020bb964ce5c696e
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@@ -0,0 +1,255 @@
+ UNITED STATES OF AMERICA 
+ Before the 
+   SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES ACT OF 1933 
+Release No.  8755 / November 17, 2006 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  54776 / November 17, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2516 / November 17, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-12481 
+                                                              
+ 
+     :  
+In the Matter of   : 
+     : ORDER INSTITUTING CEASE-AND-DESIST 
+     : PROCEEDINGS, MAKING FINDINGS, AND 
+     : IMPOSING A CEASE-AND-DESIST ORDER 
+     : PURSUANT TO SECTION 8A OF THE  
+BRUCE M. PERRY   : SECURITIES ACT OF 1933 AND SECTION  
+     : 21C OF THE SECURITIES EXCHANGE ACT  
+     : OF 1934 
+Respondent.    :   
+                                                              
+: 
+ 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  Bruce M. Perry (“Perry”). 
+  
+ II. 
+ 
+ In anticipation of the institution of these proceedings, Perry 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, Perry consents to the entry of this Order Instituting Cease-and-Desist Proceedings, 
+Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 8A of the 
+Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934 (“Order”), as set 
+forth below.   
+ 
+ 
+ 
+ 2
+ 
+III. 
+ 
+ On the basis of this Order and Perry’s Offer, the Commission  finds 1 that: 
+ 
+Perry 
+ 
+ 1. Bruce M. Perry, age 60, served as chief executive officer of Mount Sinai 
+Medical Center, Inc., from January 1999 through October 2001.  Mount Sinai terminated Perry on 
+October 8, 2001.  
+  
+Mount Sinai’s 2001 Bond Offering  
+ 
+  2. Mount Sinai is a not-for-profit corporation located in Miami Beach, Florida, 
+which operates a multi-campus hospital, including a 701-bed, teaching and research hospital and 
+various satellite outpatient facilities and physician offices.   
+ 
+  3. On May 24, 2001, Mount Sinai, through the City of Miami Beach Health 
+Facilities Authority (the “Authority”), issued three series of municipal bonds (Series 2001A, Series 
+2001B and Series 2001C) totaling approximately $184 million (the “2001 Bonds”).  The purpose of 
+the issuance was primarily to re-finance Mount Sinai’s acquisition of the Miami Heart Institute and 
+Medical Center, purchased by Mount Sinai in June 2000.  The 2001 Bonds were limited obligations 
+of the Authority payable solely from payments made by Mount Sinai pursuant to a loan agreement 
+between Mount Sinai and the Authority.  The bonds were rated “BBB,” “Baa3,” and “BBB+” by 
+Standard & Poor’s, Moody’s Investors Service, Inc. and Fitch, Inc., respectively. 
+ 
+  4. The Official Statements to th e bond offerings contained Mount Sinai’s 
+audited financial statements for the years 1999 and 2000.  The Official Statements also included 
+Mount Sinai’s forecasted financial statements, as of March 30, 2001, for the years 2001 through 
+2003.  The forecasted financial statements projected operating losses totaling $7.5 million for fiscal 
+year 2001, losses totaling $2.6 million for fiscal year 2002, and operating income of $2.5 million for 
+fiscal year 2003.   
+ 
+  5. The Official Statements contained an anti-fraud certificate, signed by Perry 
+as CEO, that certified on behalf of Mount Sinai: (i) the statements and information contained in the 
+Official Statement were true, correct and complete in all material respects; (ii) the Official Statement 
+did not contain any untrue or incorrect statements or omissions of material fact; and (iii) Mount 
+Sinai’s financial condition had not materially or adversely changed since December 31, 2000.     
+                                                
+ 
+1
+ The findings herein are made pursuant to Respondent’s Offer and are not binding on any other person or entity in 
+this or any other proceeding. 
+ 
+ 
+ 
+ 3
+ 
+  6. In addition, the Official Statements contained another certificate, executed by 
+Mount Sinai’s chief financial officer (“CFO”), in which he certified to Mount Sinai’s bond counsel 
+that the Official Statements did not contain any untrue statements or omissions of a material fact.   
+ 
+  7. The terms of the bond covenants required Mount Sinai to file quarterly 
+reports with various repositories, which would then be available for review by existing and 
+prospective investors.  Accordingly, on August 24, 2001, Mount Sinai filed its second-quarter report 
+for the quarter ended June 30, 2001.  The second-quarter report was signed by Mt. Sinai’s CFO.   
+   
+Misrepresentations and Omissions in the Official Statement
+ 
+ 
+  8. Mount Sinai, through Perry and other former senior management, failed to 
+disclose the hospital’s deteriorating financial condition at the time of the offering.  Specifically, 
+Mount Sinai failed to disclose in the Official Statements that the hospital was experiencing a 
+significant deterioration in its cash position and was in the midst of a severe liquidity problem.  
+Indeed, Mount Sinai’s financial condition began to materially decline after it underwent a computer 
+conversion in December 2000 to update its patient accounting system within its business office.   
+The computer conversion gave rise to major problems that substantially impacted Mount Sinai’s 
+billing and collection process.  For example, Mount Sinai experienced substantial delays in billings 
+and a significant rise in failed billings to third-party payors.  In addition, the hospital’s patient 
+accounts receivable grew substantially -- increasing from approximately $70 million at the end of 
+December 2000 to more than $90 million by June 30, 2001.  As a direct result of its billing and 
+collections problems, Mount Sinai’s cash position began to materially worsen after December 2000, 
+and continued to worsen through at least the time of the issuance of the 2001 Bonds in May.   
+ 
+  9. In addition, Mount Sinai, at the direction of Perry and other former senior 
+management, represented in the Official Statements that eight of the hospital’s high-volume 
+managed care contracts had been renegotiated, and that the renegotiated contracts were expected 
+to contribute approximately $10 million of additional revenue to the hospital on an annual basis 
+beginning in 2001.  In fact, at the time of the issuance of the 2001 bonds, only three of the eight 
+major contracts had actually been renegotiated.   
+ 
+  10. Moreover, the financial statements forecasting the hospital’s anticipated 
+revenue through the end of 2003, which were included in the Official Statements, were 
+misleading.  The forecasted financial statements projected operating losses for 2001 and 2002 
+totaling $7.5 million and $2.6 million, respectively, and a relatively small surplus in 2003.  The 
+forecasted financials included net patient service revenue and accounts receivable projections that 
+were calculated using Mount Sinai’s 2001 contractual deduction rate.
+2   That contractual 
+                                                 
+2 Contractual deductions are an estimate of the deductions that the hospital expects will not be paid based on 
+contracts or other arrangements with its third-party payors.  Mount Sinai recorded net patient service revenue based 
+on a percentage that reflected the average of all of the hospital’s contractual deductions with its third-party payors.  
+This percentage is called the “contractual deduction rate.”   
+ 
+ 
+ 4
+ 
+deduction rate, however, was based on the false notion that Mount Sinai had renegotiated all of 
+its eight largest managed care contracts.   
+ 
+  11. Given the facts known by Perry and other Mount Sinai former senior 
+managers, the representations made by Perry and the CFO in the anti-fraud certificates 
+accompanying the Official Statements were false and misleading.  The representations in the anti-
+fraud certificates that the Official Statements did not contain any untrue statements or omissions of a 
+material fact, and that Mount Sinai’s financial condition had not materially or adversely changed 
+since fiscal year 2000, were contradicted by Mount Sinai’s deteriorating financial situation, the 
+actual situations with the renegotiation of the managed care contracts, and the inaccurate projections 
+included in the forecasted financial statements.  
+ 
+False and Misleading Statements to 
+Institutional Investors and Bond Rating Agencies
+ 
+ 
+  12.  During a presentation given to prospective ins titutional bond investors on 
+April 30, 2001, Mount Sinai represented that it had been successful in renegotiating all eight of its 
+largest managed care contracts and that the renegotiated rates would result in a $10 million 
+improvement to revenue beginning in 2001.  In fact, as mentioned above, only three of the contracts 
+had been renegotiated.  Mount Sinai also provided institutional investors with baseless projections 
+concerning the hospital’s net patient service revenue and accounts receivable.  Mount Sinai, through 
+Perry and other former senior management, was aware that Mount Sinai’s cash position had 
+materially declined prior to the bond offering, and that the cash situation at the hospital 
+continued to be a major concern up until the date of the bond offering.  Perry and others 
+nevertheless failed to disclose this cash crisis or update the hospital’s financial information.  To 
+the contrary, Perry certified that Mount Sinai’s financial condition had not materially or 
+adversely changed since December 31, 2000. Mount Sinai’s CFO also falsely certified to bond 
+counsel that the Official Statement did not contain any untrue statements or omissions of a material 
+fact.  In light of the severe cash crisis and growing accounts receivable problem that Perry and others 
+knew the hospital was experiencing before the bond offering, these certifications were plainly false. 
+ 
+ 13. In March and April 2001, Mount Sinai, through Perry and other former 
+senior management, gave similar presentations to certain bond rating agencies during which Mount 
+Sinai again represented that it had renegotiated all eight of its largest managed care contracts, 
+resulting in an annual improvement in revenues of $10 million.  
+ 
+ 
+ 
+ 
+Misrepresentations and Omissions in Mount Sinai’s Second- 
+Quarter Report for the Period Ended June 30, 2001
+ 
+ 
+ 
+ 
+ 5
+ 
+  14. M ount Sinai’s second-quarter report for the period ending June 30, 2001 
+reflected a $5 million write-off in accounts receivable Mount Sinai recorded in June 2001.  Although 
+the second-quarter report discussed the $5 million write-off, Mount Sinai failed to adequately 
+disclose in the report the circumstances requiring the write-off.   By the time of the filing of the 
+second-quarter report, Perry and other senior management at Mount Sinai knew that the managed 
+care contracts had not been renegotiated and that Mount Sinai may have been using a contractual 
+deduction rate for recording net patient service revenue that was too low.  Mount Sinai nevertheless 
+failed to disclose this information to investors in its second-quarter report.  
+ 
+  15. Mount Sinai also failed to disclose in the second-quarter report that by the 
+time of the filing of that report, Perry and other senior management knew additional write-offs of 
+accounts receivable would be necessary, and that those write-offs could be as high as $20 million.  
+Mount Sinai ultimately recorded a $21 million reduction in net patient service revenue and accounts 
+receivable in September 2001, which was mostly the result of the improper contractual deduction 
+rate used by Mount Sinai for the first nine months of 2001. 
+ 
+  16. Additionally, Mount Sinai failed to disclose in the second quarterly report 
+that, at the time of its filing, Mount Sinai continued to struggle with its cash flow situation.  Finally, 
+the report failed to disclose the fact that an accounting firm began running Mount Sinai’s business 
+office because of the problems with its billing and collection process.   
+   
+     
+Violations
+ 
+  
+  17. As a result of the c onduct described above, Perry violated, and caused Mount 
+Sinai’s violations of, Section 17(a) of the Securities Act, which prohibits fraudulent conduct in the 
+offer or sale of securities. 
+ 
+  18. As a result of the c onduct described above, Perry violated, and caused Mount 
+Sinai’s violations of, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which 
+prohibit fraudulent conduct in connection with the purchase or sale of securities. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Perry’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+ A.  Perry cease and desist from committing or causing any violations and any future 
+violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act, and Rule 
+10b-5 thereunder. 
+ 
+ 
+ 
+ 6
+ 
+   
+ By the Commission. 
+ 
+ 
+ 
+        N a n c y  M .  M o r r i s    
+        S e c r e t a r y  
+ 
+ 
+ 
+ 
\ No newline at end of file
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+UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES ACT OF 1933 
+Release No. 8759 / December 11, 2006 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 54907 / December 11, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2523 / December 11, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-12502 
+ 
+ 
+ 
+ 
+In the Matter of 
+ 
+MICHAEL S. JOSEPH, CPA 
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE- 
+ AND-DESIST PROCEEDINGS 
+PURSUANT TO SECTION 8A OF THE 
+SECURITIES ACT OF 1933, SECTION 
+21C OF THE SECURITIES EXCHANGE 
+ACT OF 1934, AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS AND A  
+ CEASE-AND-DESIST ORDER  
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative and cease-and-desist proceedings be, and hereby are, instituted against Michael S. 
+Joseph (“Joseph” or “Respondent”) pursuant to Section 8A of the Securities Act of 1933 
+(“Securities Act”) and Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”) and 
+Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.1 
+ 
+ 
+                                                 
+1  Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+ The Commission may . . . deny, temporarily or permanently, the privilege of appearing or 
+practicing before it . . . to any person who is found . . . to have engaged in unethical or improper 
+professional conduct. 
+ 
+ 2
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement of Michael S. Joseph (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 Joseph 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, Section 21C of the Securities Exchange Act of 1934, and Rule 102(e) of the 
+Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions and a Cease-
+and-Desist Order (“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Res pondent’s Offer, the Commission finds2 that:  
+ 
+A. SUMMARY  
+ 
+ This action concerns violations by Respondent Michael S. Joseph of certain of the antifraud, 
+reporting, and recordkeeping provisions of the federal securities laws, as well as auditor 
+independence standards.  During 2001, Joseph was a partner in the national office of Ernst & Young 
+LLP (“E&Y”).  That year, Joseph helped develop and market an accounting product for one client, 
+American International Group, Inc. (“AIG”), and then worked with an E&Y audit team to advise an 
+E&Y audit client, The PNC Financial Services Group, Inc. (“PNC”), on the accounting treatment 
+for a version of that product.3   
+ 
+ AIG’s product purported to enab le a public company to transfer volatile financial assets to a 
+special purpose entity (“SPE”) and thereby to remove those assets from the public company’s 
+financial statements.  AIG sold three of these accounting products to PNC in 2001.  As a result, 
+PNC improperly excluded certain assets from its consolidated financial statements.  Joseph advised 
+PNC that the accounting for each of these transactions conformed to GAAP, even though Joseph 
+should have known that this advice was inaccurate.  Subsequently, PNC filed with the Commission 
+several Forms 10-Q and the registration statements for PNC securities, yet these filings were 
+materially misleading in that they incorporated improper accounting of the SPE transactions.  In 
+January 2002, PNC announced that it would restate its financial statements for the second and third 
+                                                
+ 
+2   The findings herein are made pursuant to Respondent's Offer and are not binding on any other 
+person or entity in this or any other proceeding.  
+ 
+3  The Commission previously brought settled proceedings against both PNC and AIG related to 
+their roles in these matters.  PNC Financial Services Group, Inc., Securities Act Release No. 8112, 
+Exchange Act Release No. 46225, Accounting and Auditing Enforcement Release No. 1597 (July 18, 
+2002); SEC v. American International Group, Inc., No. 1:04CV02070 (GK) (D.D.C. judgment entered 
+Dec. 7, 2004). 
+ 3
+quarters of 2001, and revise its previously announced financial results for the fourth quarter and 
+year-end of 2001.   
+ 
+  Joseph advised PNC, in  connection with E&Y’s work as PNC’s auditor, on the 
+appropriateness of the accounting treatment of the SPE product that he had helped AIG develop and 
+market.  Accordingly, Joseph compromised his and his firm’s auditor independence required by 
+generally accepted auditing standards (“GAAS”) and Regulation S-X of the Commission’s rules 
+and regulations.  Additionally, because Joseph should have known that the accounting treatment for 
+the product that AIG sold to PNC did not conform with GAAP and would result in materially 
+misleading filings by PNC, he was a cause of PNC’s violation of certain antifraud, reporting and 
+recordkeeping provisions of the federal securities laws. 
+  
+B. RESPONDENT 
+ 
+ Michael S. Joseph, age 55, was employed by E&Y from June 1972 until June 1981 and 
+again from June 1983 until 2005.  At all relevant times, he was a partner in E&Y’s National 
+Office.  In 2001, he was a nationally recognized expert on the accounting for structured financial 
+vehicles and SPEs.  At that time, his duties in the National Office consisted of advising E&Y 
+accountants on local engagement teams regarding complex accounting issues, and advising audit 
+and non-audit clients on the accounting ramifications of financial products that they developed 
+and planned to market.  Joseph, at all relevant times was licensed to practice as a certified public 
+accountant in both New York and Illinois. 
+ 
+C. RELEVANT ENTITIES 
+ 
+ Ernst & Young LLP, is a national accounting firm with its headquarters in New York, 
+New York.  At all relevant times, E&Y provided auditing services to PNC.  Specifically, E&Y was 
+responsible for, among other things, the audit of PNC’s consolidated financial statements, interim 
+reviews of quarterly financial statements, reviews and consultations pertaining to filings with the 
+SEC, and internal control reviews.  While serving as auditor and consultant for PNC, E&Y also 
+was employed as a consultant for AIG with responsibility for addressing GAAP compliance issues 
+during the product design stage of an SPE accounting product ultimately used in transactions 
+between AIG and PNC.     
+ 
+ American International Group, Inc. is a Delaware Corporation with its principal place 
+of business in New York, New York.  Through its subsidiaries, AIG is engaged in a broad range 
+of insurance-related and asset management activities in the United States and abroad.   
+ 
+ The PNC Financial Services Group, Inc. is a Pennsylvania corporation with its 
+principal place of business in Pittsburgh, Pennsylvania.  PNC is a bank holding company that is 
+regulated by the Board of Governors of the Federal Reserve System and the Federal Reserve 
+Bank of Cleveland (together the “Federal Reserve”) and has a national bank subsidiary that is 
+regulated by the Comptroller of the Currency. 
+ 
+ 
+ 4
+ 
+D.  FACTS  
+ 
+1.  Development and Marketing of the C-GAITS Product 
+ In early 2001, AIG engaged Joseph to help  develop a financial product, known as a 
+Contributed Guaranteed Alternative Investment Trust Security (“C-GAITS”).  The C-GAITS 
+product purported to enable a public company to reduce the earnings impact of potentially 
+volatile assets by transferring those assets from the public company’s balance sheet to an SPE 
+established by AIG.  Under the C-GAITS structure, the SPE was to be consolidated onto AIG’s 
+balance sheet, but the public company still would hold a substantial interest in the SPE.  Under 
+GAAP, this transfer of assets and consolidation onto AIG’s balance sheet required that AIG 
+make a substantive capital investment into the SPE4 constituting at least 3% of the total assets in 
+the SPE.5  GAAP further provided that a fee for structuring the transaction (i.e., a “structuring” 
+fee), would be treated as a return of AIG’s initial capital investment and correspondingly reduce 
+that investment. 6  Thus, if AIG invested only 3% in the SPE, any structuring fee that AIG received 
+would be counted against AIG’s investment, reducing it below the required 3% minimum required 
+by GAAP to achieve the desired nonconsolidation accounting.  
+ 
+To assist AIG in its marketing of the C-GAITS product, Joseph caused E&Y to issue 
+reports pursuant to Statement on Auditing Standards No. 50, Reports on the Application of 
+Accounting Principles (“SAS 50 letters”).7  The SAS 50 letters represented that the favorable 
+nonconsolidation accounting treatment for the assets transferred to the SPE established in a 
+proposed C-GAITS transaction was an appropriate application of GAAP.  As intended, AIG used 
+the E&Y SAS 50 letters to promote the C-GAITS product.  AIG also relied extensively on 
+Joseph’s advice as it attempted to sell the product.  For example, AIG referred to E&Y’s advice 
+in its marketing materials and referred potential buyers directly to Joseph to answer accounting-
+related questions.  Joseph reviewed and edited term sheets for at least two proposed C-GAITS 
+deals.  On several occasions, Joseph also participated in conference calls with AIG when it was 
+marketing the C-GAITS product.   
+ 
+                                                 
+4   Emerging Issues Task Force, Topic D-14, Transactions Involving Special Purpose Entities. 
+ 
+5  Emerging Issues Task Force, Issue No. 90-15, Impact of Nonsubstantive Lessors, Residual Value 
+Guarantees, and Other Provisions in Leasing Transactions, Response to Question No. 3. 
+ 
+6  Emerging Issues Task Force Issue No . 96-21, Response to Question No. 6. 
+ 
+7  A “SAS 50” letter is a report issued by an accounting firm that provides accounting guidance to a 
+non-audit client.  A SAS 50 letter could provide accounting guidance on the audit opinion on a specific 
+entity’s financial statements, new transactions, or hypothetical transactions.  These letters frequently were  
+used for marketing purposes by non-audit clients.  SAS No. 50 was amended in June 2002 by Statement 
+on Auditing Standards No. 97, Amendment to Statement on Auditing Standards No. 50, Reports on the 
+Application of Accounting Principles.  Accountants are now prohibited from providing a report on 
+accounting principles concerning hypothetical transactions. 
+ 
+ 5
+  From March 2001 through January 2002, AIG marketed the C-GAITS product, with the 
+assistance of Joseph, to several public companies.  Despite its marketing effort, though, AIG sold 
+the product only to PNC.  AIG ultimately closed three C-GAITS deals with PNC.8   
+ 
+2.  PNC’s Second Quarter 2001 
+ 
+Around the beginning of June 2001, AIG marketed a C-GAITS product to PNC, known 
+as PAGIC I, using a SAS 50 letter written by Joseph.  Throughout its negotiations with AIG that 
+month, PNC management consulted with the E&Y audit engagement team, which, in turn, 
+consulted with Joseph to determine the proper accounting treatment for PAGIC I.  In fact, when 
+PNC began considering PAGIC I, PNC senior management contacted the E&Y engagement 
+team and requested formal written guidance on the accounting treatment for the transaction.  The 
+engagement team then contacted Joseph. 
+Joseph provided the engagement team with the SAS 50 letter he previously had written 
+for AIG, for use as a template for the PNC accounting guidance letter.  Joseph also discussed 
+accounting issues with the team.  Joseph billed his time for this work to PNC’s audit account.  
+Without performing any meaningful separate analysis, the E&Y engagement team incorporated 
+virtually verbatim into the guidance letter the accounting analysis and conclusions that Joseph 
+had included in his earlier SAS 50 letter.9  Joseph reviewed drafts of the guidance letter and 
+approved issuance of the final letter.  The guidance letter provided PNC with a written opinion 
+memorializing E&Y’s view that PNC’s nonconsolidation of the SPE conformed with GAAP.   
+ 
+ While E&Y was analyzing the contemplated accounting for the transaction, questions 
+about the nature of the fee paid to AIG were raised.  Joseph knew that the desired 
+nonconsolidation of the assets transferred to the SPE would not conform with GAAP unless the 
+fees paid to AIG in the deal were for actual services that AIG provided to the SPE, rather than 
+merely for setting up the deal – also known as a “structuring” fee.  In fact, the fees paid to AIG 
+in the PAGIC transactions were intended by AIG to compensate AIG for structuring the 
+transactions and not for providing management services.   
+Joseph should have known that AIG’s fee – characterized as a “Fee to the Managing 
+Member” – was not for management services.  At a minimum, there were numerous red flags 
+highlighting the true nature of the fee.  Among other things, the deal documents showed that 
+even though AIG was nominally responsible for managing the affairs of the SPE, it did not have 
+many duties to perform as managing member.  The major responsibility in managing the SPE 
+                                                
+ 
+8  The transactions were referred to respectively as PAGIC I, PAGIC II, and PAGIC III.  The C-
+GAITS transactions initially contemplated the transfer of equity assets to the SPE, while PAGIC I  and 
+PAGIC II transferred troubled loan assets.  The applicable accounting principles relevant to this action are 
+the same for the PAGIC and C-GAITS transactions.  
+ 
+9  Each guidance letter for each of the three PAGIC transactions included a factual description of 
+the particular transaction for which the guidance letter was written and a discussion of accounting issues.  
+The factual descriptions in the letters differed, but the discussion of the accounting issues was virtually 
+identical to the corresponding discussion in the SAS 50 letter.  
+ 
+ 6
+was processing the loans that PNC had sold to the SPE.  However, PNC had a side agreement 
+with the SPE providing that PNC would service the loans, subject to AIG’s review and approval.  
+For this service, PNC was paid 50 basis points (i.e., .005) of the value of the assets in the SPE.  
+Moreover, PNC’s fee for servicing the loans was paid directly by the SPE, not out of AIG’s 75-
+basis-point fee.  In addition, the transaction documents stated that AIG’s fee, subject to some 
+minor conditions, would be paid for five years, even in the event of early termination.  Thus, if 
+PNC decided to terminate the SPE after two years, AIG would still receive the present value of 
+the remaining three years of fees.  The funding mechanism for paying this fee also provided that 
+the fee would always be paid out first before virtually all other expenses of the SPE.  Finally, 
+AIG’s five-year fee added up to a little more than its 3% initial capital investment in the SPE, 
+suggesting a round-trip of AIG’s initial 3% investment in the SPE.   
+The written guidance letter provided to PNC did not discuss AIG’s fee and on June 28, 
+2001, PNC closed PAGIC I with AIG.   
+ On August 14, 2001, PNC filed a Form 10-Q fo r the second quarter of 2001 with the 
+Commission.10  The Form 10-Q included the second quarter financial statements that E&Y had 
+reviewed.  In those financial statements, PNC excluded from its balance sheet the assets it had 
+transferred to the SPE in the PAGIC I transaction.  The financial statements reflected that PNC had 
+$374 million in nonperforming loan assets and $16 million in other nonperforming assets.  These 
+figures did not include $84 million in nonperforming assets among the $257 million of loan assets 
+that PNC had transferred to the SPE.  PNC’s second quarter Form 10-Q did not provide any 
+disclosure concerning the PAGIC I transaction.   
+ 
+ 3.  PNC’s Third Quarter 2001 
+ 
+During the third quarter of 2001, Joseph continued to assist AIG in marketing the C-
+GAITS product to other public companies.  In September 2001, Joseph and another partner from 
+E&Y’s National Office accompanied an AIG marketing team to pitch the C-GAITS product to 
+another public company that was not an E&Y audit client.  Also in September 2001, E&Y’s 
+engagement team and Joseph advised PNC on a second PAGIC transaction with AIG, which 
+closed on September 27, 2001.  PNC again relied on E&Y’s and Joseph’s advice.  Once again, 
+E&Y agreed to provide PNC with a written guidance letter memorializing E&Y’s opinion that 
+nonconsolidation was the appropriate accounting treatment for PAGIC II.  As before, E&Y 
+incorporated virtually verbatim into the guidance letter the accounting analysis and conclusions 
+that Joseph had included in his earlier SAS 50 letter.  Joseph once again reviewed and approved the 
+issuance of the guidance letter. 
+                                                
+ 
+10  E&Y performed a review of PNC’s financial statements for the second quarter of 2001 and 
+subsequently for the third quarter of 2001.  The E&Y engagement team did not perform a separate 
+analysis of PNC’s accounting for the PAGIC transactions.  In evaluating the accounting for the 
+transactions, the E&Y team instead incorporated and relied on Joseph’s analysis, including the written 
+guidance letter issued to PNC, which mirrored the SAS 50 letters he provided to AIG.  As a result, E&Y’s 
+conclusion on the appropriateness of PNC’s accounting essentially was based on work performed by 
+Joseph for AIG during the design of the product. 
+ 
+ 7
+On September 18, 2001, PNC filed with the Commission a registration statement on Form 
+S-3 (the “September 18, 2001 registration statement”) that would allow it to offer and sell 
+approximately $4 billion of common stock, preferred stock, warrants, guarantees, depositary shares 
+and debt securities.  This filing was for a shelf registration of these securities, such that PNC could 
+offer and sell the registered securities from time to time pursuant to applicable rules of the 
+Commission.  The September 18, 2001 registration statement incorporated by reference, among 
+other things, the Form 10-Q filed with the Commission by PNC for the second quarter of 2001. 
+On October 1, 2001, a few days after PAGIC II closed, Joseph sent to AIG a revised term 
+sheet with his edits for a C-GAITS deal that AIG was pitching to another public company.  The 
+term sheet featured an AIG initial capital investment of approximately 5%, and described AIG’s 
+fee as a “structuring” fee.  The provisions surrounding the “structuring” fee virtually mirrored 
+the terms surrounding what had previously been named the “fee” in previous drafts of the term 
+sheet.  This similarity should have been another significant red flag to Joseph that the “Fee to the 
+Managing Member” in all of the PAGIC deals was in fact a structuring fee.  Only days earlier, 
+however, PAGIC II, which relied on the advice of Joseph, closed with deal documents that 
+provided for only a 3% investment by AIG, and labeled AIG’s fee a “Fee to the Managing 
+Member.”  
+ 
+ In an October 18, 2001 press release, PNC announced that its earnings per share for the 
+third quarter of 2001 were $1.02.  The press release noted, “Loans declined $8.5 billion from 
+December 31, 2000 to $42.1 billion at September 30, 2001 as a result of ongoing efforts to reduce 
+lending leverage.”  The press release later noted, “Total assets were $71.9 billion at September 30, 
+2001 compared with $69.9 billion at September 30, 2000.  Average interest-earning assets were 
+$57.9 billion for the third quarter of 2001 compared with $59.7 billion for the third quarter of 2000.  
+The decrease was primarily due to a $2.5 billion decrease in commercial loans related to initiatives 
+to downsize certain higher-risk, non-strategic portfolios.”   
+ 
+ The October 18, 20 01 press release further stated that PNC had $361 million in 
+nonperforming loans and $13 million in other nonperforming assets.  These figures did not include 
+a total of $207 million in nonperforming assets among the assets that PNC had transferred to the 
+SPEs in the two PAGIC transactions.  Significantly, this release made no mention of the two 
+PAGIC transactions into which PNC had entered by October 18, 2001. 
+ 
+Certain financial results set forth in the October 18, 2001 press release were also set forth in 
+a prospectus relating to an offering made pursuant to the September 18, 2001 registration 
+statement, which prospectus was filed with the Commission on October 25, 2001 and utilized in 
+the offer and sale of approximately $1 billion of debt securities on or about October 29, 2001.  In 
+particular, the prospectus announced that PNC’s earnings per share for the third quarter of 2001 
+were $1.02. 
+On November 14, 2001, PNC filed a Form 10-Q for the third quarter of 2001 with the 
+Commission.  The Form 10-Q included the third quarter financial statements that E&Y had 
+reviewed.  In those financial statements, PNC excluded from its balance sheet the assets it 
+transferred in the two PAGIC transactions, and reported that PNC’s earnings per share for that 
+quarter were $1.02 per share.  The financial statements reflected that PNC had $361 million in 
+ 8
+nonperforming loan assets and $13 million in other nonperforming assets.  These figures did not 
+include a total of $207 million in nonperforming assets among the $592 million of loan assets that 
+PNC had transferred to the SPEs in the PAGIC transactions.  PNC’s third quarter Form 10-Q did 
+not provide any disclosure concerning the completed PAGIC transactions.   
+4.  PNC’s Fourth Quarter 2001 
+Throughout October and November 2001, Joseph continued his marketing efforts on behalf 
+of AIG, and on November 29, 2001, Joseph caused E&Y to issue another SAS 50 letter for AIG’s 
+negotiations with yet another public company.  Joseph’s new SAS 50 letter identified the fee to 
+AIG as a “structuring” fee and mentioned that a structuring fee could reduce the amount of AIG’s 
+initial capital investment in the SPE.  The structuring fee issue was included in the SAS 50 letter at 
+the insistence of the counterparty public company.  Also at about the same time, Joseph conferred 
+with another E&Y audit client regarding a potential C-GAITS transaction with AIG.   
+On October 23, 2001, the Federal Reserve sent a letter to PNC expressing concern about 
+PNC’s accounting for the assets transferred in the first PAGIC transaction.  Joseph worked at 
+PNC’s behest to address the Federal Reserve’s concerns and to defend the accounting.  During the 
+same October-to-November period, Joseph, through E&Y’s engagement team advised PNC on the 
+accounting treatment for a third PAGIC  transaction with AIG, which closed on November 29, 
+2001.11  Again, Joseph reviewed and approved the issuance of a formal guidance letter to PNC 
+memorializing E&Y’s opinion concerning the accounting treatment for PAGIC III.  As before, the 
+guidance letter incorporated virtually verbatim the accounting analysis and conclusions that Joseph 
+had included in the SAS 50 letter.   
+Also in November 2001, another of E&Y’s banking audit clients discussed with the Federal 
+Reserve the accounting for a C-GAITS transaction that the audit client was contemplating.  On or 
+about December 4, 2001, the Federal Reserve informed E&Y’s client of its view that the proposed 
+accounting was not in conformity with GAAP.  Joseph worked at AIG’s request to defend the 
+proposed accounting for the transaction. 
+On December 6, 2001, PNC filed with the Commission a registration statement on Form S-
+8, in order to register the offer and sale of certain shares of common stock.  This registration 
+statement incorporated by reference the Forms 10-Q filed by PNC with the Commission for the 
+second and third quarters of 2001. 
+ 
+ 
+ On January 11, 2002, the Federal Reserve direct ed PNC to consolidate the assets of the 
+three PAGIC SPEs in its bank holding company regulatory reports for 2001.  Thereafter, on 
+January 29, 2002, PNC announced it would reverse the accounting for all three PAGIC 
+transactions, restate its financial statements for the second and third quarters of 2001, and revise 
+                                                
+ 
+11  The assets to be transferred to the PAGIC III SPE were equity assets, including venture capital 
+investments.   The accounting principles at issue in this matter were the same for all three PAGIC 
+transactions. 
+ 9
+its previously announced fourth quarter and full-year 2001 financial results.  After the 
+consolidation, PNC reflected a $155 million charge to PNC’s earnings, a $0.53 per share drop 
+(equivalent to 38%) in PNC’s previously reported earnings per share for 2001, and an $0.18 per 
+share drop (approximately 18%) in PNC’s earnings per share as reported in the company’s 
+original Form 10-Q for the third quarter of 2001.   
+ 
+E. LEGAL ANALYSIS  
+ 
+ 1.  Joseph Caused PNC to Violate Repo rting and Recording-Keeping Provisions 
+ 
+ Section 13(a) of the Exchange Act requires issuers of registered securities to file periodic 
+reports with the Commission containing information prescribed by Commission rules and 
+regulations.  Exchange Act Rule 13a-13 requires the filing of quarterly reports on Form 10-Q, and 
+Exchange Act Rule 12b-20 requires that, in addition to the information required by Commission 
+rules to be included in periodic reports, such further material information as may be necessary to 
+make the required statements not misleading also must be included.  Periodic reports must be 
+complete and accurate. 
+ 
+ Section 13(b)(2)(A) of the Ex change Act requires issuers to “make and keep books, 
+records, and accounts, which in reasonable detail, accurately and fairly reflect the transactions and 
+dispositions of the assets of the issuer.”  “A company’s ‘books and records’ include not only 
+general ledgers and accounting entries, but also memoranda and internal corporate reports.”  In the 
+Matter of Gibson Greetings, Inc., Ward A. Cavanaugh, and James H. Johnsen, Admin. Proc. File 
+No. 3-8866, Release No. 34-36357, 60 SEC Docket 1401 (Oct. 11, 1995). 
+ 
+ PNC’s accounting for the three PAGIC transactions did not conform with GAAP because, 
+in each, AIG received a structuring fee which consequently reduced AIG’s initial capital 
+investment in the SPE below the 3% minimum required for nonconsolidation.  Because the PAGIC 
+transactions did not satisfy the criteria for nonconsolidation of SPEs, PNC should have 
+consolidated the PAGIC entities in PNC’s financial statements.  PNC improperly excluded the 
+PAGIC entities’ assets from PNC’s balance sheet included in its Forms 10-Q for the quarters ended 
+June 30 and September 30, 2001, and materially overstated its earnings for the third quarter of 
+2001.  In addition, the amounts of nonperforming assets were also materially understated in these 
+filings.  Accordingly, PNC violated Section 13(a) of the Exchange Act and Exchange Act Rules 
+13a-13 and 12b-20.  Similarly, because PNC improperly accounted for the PAGIC transactions, 
+PNC failed to maintain accurate books and records and consequently violated Section 13(b)(2)(A).  
+Because Joseph should have known that PNC’s accounting for the PAGIC transactions was not in 
+conformity with GAAP, and by his conduct described above, Joseph was a cause of PNC’s 
+violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 13a-13 
+and 12b-20.  
+ 
+ 2. Joseph Caused PNC to Vi olate Antifraud Provisions 
+  
+ Sections 17(a)(2) and 17(a)(3) of  the Securities Act make it unlawful, in the offer or sale of 
+securities, by the use of any means or instruments of transportation or communication in interstate 
+ 10
+commerce, or the mails, to obtain money or property by means of an untrue statement of a material 
+fact or any omission to state a material fact necessary in order to make the statements made, in the 
+light of the circumstances under which they were made, not misleading, or to engage in any 
+transaction, practice, or course of business which operates or would operate as a fraud or deceit 
+upon the purchaser. 
+   
+ In its Forms S-3 and S-8 filed in Septembe r and December 2001, respectively, PNC offered 
+its securities for sale.  Those filings incorporated by reference PNC’s Form 10-Q for the second 
+quarter of 2001.  The December filing also incorporated PNC’s Form 10-Q for the third quarter of 
+2001.  Because both Forms 10-Q materially misstated PNC’s financial results through omitting the 
+first two PAGIC transactions, PNC’s offers of securities were materially misleading, and it 
+engaged in a practice that would operate as a fraud upon purchasers of PNC securities.  
+ 
+ Consequently, PNC violated Sections 17(a)(2) and 17(a)(3) of the Securities Act.  As 
+described above, Joseph should have known that the PAGIC transactions did not conform to 
+GAAP.  By his conduct described above, Joseph was a cause of PNC’s violations of Sections 
+17(a)(2) and 17(a)(3) of the Securities Act.  
+ 
+3. Applicable Professional Standards 
+ 
+Standards relating to the independence of public accounting firms are contained in GAAS 
+and Rule 2-01(b) of Regulation S-X.  Throughout the relevant time, GAAS required that “[i]n all 
+matters relating to the assignment, an independence in mental attitude is to be maintained by the 
+auditor or auditors.”
+12  This requirement is necessary because of the importance in having the 
+public maintain confidence in the independence of auditors.13  Auditors, accordingly, are required 
+not only to be independent in fact, but also to avoid the appearance of a lack of independence.14 
+ 
+Rule 2-01(b) of Regulation S-X, in pertinent part, states: 
+ 
+The Commission will not recognize an accountant as independent, with respect to an audit 
+client, if the accountant is not, or a reasonable investor with knowledge of all relevant facts 
+and circumstances would conclude that the accountant is not, capable of exercising 
+objective and impartial judgment on all issues encompassed within the accountant’s 
+engagement.  In determining whether an accountant is independent, the Commission will  
+consider all relevant circumstances, including all relationships between the accountant and 
+the audit client, and not just those relating to reports filed with the Commission. 
+ 
+4. Joseph Violated Independence Standards 
+                                                
+ 
+12  Codification of Statements on Auditing Standa rds, Statement on Auditing Standards No. 1, § 
+150.02 (Am. Inst. of Certified Pub. Accountants 1972). 
+ 
+13  See  id. § 220.03. 
+ 
+14  Id.  
+ 
+ 11
+ 
+As discussed above, Joseph was involved in the development and marketing of AIG’s C-
+GAITS accounting product.  He advised AIG on the structure, he prepared several SAS 50 letters 
+used in marketing the product, he participated in conference calls with potential purchasers of the 
+product and, on at least one occasion, accompanied AIG salespersons on a trip to market the 
+product to a potential customer.  Consequently, Joseph was invested both financially and 
+reputationally in the success of the C-GAITS product and therefore had a conflict of interest 
+when he later evaluated the accounting for the product by E&Y’s audit client, PNC. 
+While working on the development and marketing of the C-GAITS product, Joseph also 
+evaluated the accounting for transactions involving the PAGIC transaction pursued by E&Y’s 
+audit client, PNC.  Joseph’s advice and analysis of the accounting for the PAGIC transactions 
+were relied upon during the drafting and issuance of the guidance letters to PNC, and during the 
+E&Y engagement team’s interim reviews of PNC’s Form 10-Qs.  At those times, the E&Y 
+engagement team performed no separate, meaningful analysis of the accounting, but relied 
+instead on that of Joseph.  Because of the role that Joseph had played in the development and 
+marketing of the C-GAITS product, and because of the role Joseph also had played in evaluating 
+and advising PNC on PAGIC I, II and III in connection with E&Y’s audit assignment for PNC, a 
+reasonable investor with knowledge of all relevant facts and circumstances would conclude that 
+Joseph was on both sides of the PNC transactions and that Joseph was not impartial and lacked 
+the requisite independence with respect to his work in connection with E&Y’s engagement for 
+PNC. 
+The departures from GAAS and failure to comply with Rule 2-01 of Regulation S-X 
+described above constitute improper professional conduct within the meaning of Rule 102(e)(1)(ii).  
+Regarding accountants, the term “improper professional conduct” is defined by Rule 
+102(e)(1)(iv)(A) to include 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.”
+15  Inasmuch as a reasonable investor would 
+have concluded that Joseph was operating on both sides of several transactions which led to auditor 
+independence violations, Joseph engaged in highly unreasonable conduct under circumstances 
+which he should have known warranted heightened scrutiny.  As the Commission has stated, 
+“Because of the importance of an accountant’s independence to the integrity of the financial 
+reporting system, the Commission has concluded that circumstances that raise questions about an 
+accountant’s independence always merit heightened scrutiny.”16 
+ 
+F. FINDINGS 
+ 
+ A. Based on the foregoing, the Commissi on finds that Joseph engaged in improper 
+professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. 
+ 
+                                                 
+15  17 CFR § 201.102(e)(1)(iv). 
+ 
+16  Amendment to Rule 102(e) of the Commissi on’s Rules of Practice, Release No. 33-7593 
+(October 19, 1998) (emphasis added). 
+ 12
+ B. Based on the foregoing, the Commission finds that Joseph was a cause of PNC’s 
+violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act, Exchange Act Rules 13a-13 and 
+12b-20, and Sections 17(a)(2) and 17(a)(3) of the Securities Act. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Joseph’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+A. Joseph shall cease and de sist from (i) causing any violations and any future 
+violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act, Exchange Act Rules 13a-13 and 
+12b-20, and (ii) committing or causing any violations and any future violations of Sections 
+17(a)(2) and 17(a)(3) of the Securities Act.   
+ 
+B. Joseph is denied the privilege of appe aring or practicing before the Commission as 
+an accountant. 
+ 
+ C. After three (3) years from  the date of this order, Respondent may request that 
+the Commission consider his reinstatement by submitting an application (attention: Office of 
+the Chief Accountant) to resume appearing or practicing before the Commission as: 
+      
+       1. a preparer or reviewer, or  a person responsible for the preparation or 
+review, of any public company’s financial statements that are filed with the Commission.  Such 
+an application must satisfy the Commission that Respondent’s work in his practice before the 
+Commission will be reviewed either by the independent audit committee of the public company 
+for which he works or in some other acceptable manner, as long as he practices before the 
+Commission in this capacity; and/or 
+      
+  2.    an independent accountant.  Such an application must satisfy the 
+Commission that: 
+      
+           (a) Respondent, or the public accounting firm with which he is 
+associated, is registered with the Public Company Accounting Oversight Board (“Board”) in 
+accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; 
+ 
+   (b) Respondent, or the registered  public accounting firm with which he 
+is associated, has been inspected by the Board and that inspection did not identify any criticisms 
+of or potential defects in the Respondent’s or the firm’s quality control system that would 
+indicate that the Respondent will not receive appropriate supervision; 
+   (c) Respondent has resolved all 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 
+ 
+ 13
+   (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 app lication by Respondent to resume appearing 
+or practicing before the Commission provided that his state CPA license is current and he has 
+resolved all other disciplinary issues with the applicable state boards of accountancy.  However, 
+if state licensure is dependent on reinstatement by the Commission, the Commission will 
+consider an application on its other merits.  The Commission’s review may include consideration 
+of, in addition to the matters referenced above, any other matters relating to Respondent’s 
+character, integrity, professional conduct, or qualifications to appear or practice before the 
+Commission. 
+ 
+ By the Commission. 
+ 
+       N a n c y  M .  M o r r i s  
+       S e c r e t a r y  
+ 
\ No newline at end of file
diff --git a/raw/aaer/2006/AAER-2524.txt b/raw/aaer/2006/AAER-2524.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2dbd4753421173cb8439706eb7457c659682a1d2
--- /dev/null
+++ b/raw/aaer/2006/AAER-2524.txt
@@ -0,0 +1,168 @@
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                    
+   
+   
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+  
+ 
+ 
+UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  54940 / December 14, 2006 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2524 / December 14, 2006 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12506 
+In the Matter of 
+Mark B. Leffers, 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 admi nistrative proceedings be, and here by are, instituted pursuant to 
+Rule 102(e)(3)
+1 of the Commission’s Rules of Practice against Mark B. Leffers (“Respondent” or 
+“Leffers”). 
+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, . . . temporarily suspend from appearing or practicing before it any . . . accountant 
+. . . who has been by name . . . permanently en joined 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. 
+The Commission finds that: 
+A. RESPONDENT 
+1. Leffers, age 44, is and has been a certified public accountant (“CPA”) 
+licensed to practice in the State of Maryland.  From early 1999 through Fall 2000, Leffers served as 
+the chief financial officer (“CFO”) to Busybox.com, Inc. (“Busybox”).  Acting in his capacity as 
+Busybox CFO, Leffers signed and caused to be filed with the Commission the registration statement 
+for the initial public offering (“IPO”) of the securities of Busybox that took place in June 2000 (File 
+Number 333-80315).  Leffers also assisted with the preparation of the Busybox IPO registration 
+statement and participated in the preparation of Busybox’s periodic filings with the Commission.  
+Leffers has therefore practiced before the Commission within the meaning of Rule 102(f) of the 
+Commission’s Rules of Practice [17 CFR § 201.102(f)]. 
+B. CIVIL INJUNCTION 
+1. On October 24, 200 6, the U.S. District  Court for the Southern District of 
+New York entered a final judgme nt against Leffers, permanently  enjoining him from future 
+violations, direct or indirect, of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the 
+Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  Securities and Exchange 
+Commission v. Patrick A. Grotto, et al., Civil Action Number 05 Civ. 5880 (GEL).   
+2. The Commission’s compla int filed in SEC v. Grotto  alleges, among other 
+things, the following facts.  Leffers and others engaged in fraud in connection with the June 2000 
+IPO of Busybox securities.  Barron Chase Securities Inc. (“Barron Chase”), the lead underwriter 
+for the Busybox IPO, agreed to  underwrite a firm commitme nt offering that would raise 
+approximately $12.8 million for Busybox.  After he learned that Barron Chase was having 
+difficulty selling the IPO securities to bona fide investors, Leffers agreed to participate in a 
+fraudulent scheme to complete the offering. Specifically, Leffers and several other Busybox 
+officers and directors (“insiders”) agreed secretly to “purchase” IPO securities using undisclosed 
+payments styled as “bonuses,” and Busybox’s outside securities counsel received an inflated and 
+undisclosed legal fee paid in IPO securities.  Barron Chase secretly financed these transactions and, 
+during the IPO closing, Leffers and others caused Busybox to repay Barron Chase out of the 
+proceeds of the offering. As a re sult of these purchases, Leffers and other insiders at Busybox 
+along with its outside securities counsel acquired almost 20% of the securities being offered in the 
+IPO and reduced the proceeds available to Busybox by over $2.1 million.  Leffers knew that the 
+IPO registration statement and prospectus did not  disclose the insiders’ stock purchases, the 
+inflated legal fee paid to outside  counsel, Barron Chase’s financing of these transactions or the 
+repayment to Barron Chase using IPO proceeds. 
+2
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+ 
+III. 
+Based upon the foregoing, the Commission finds that a court of competent jurisdiction has 
+permanently enjoined Leffers, a CPA, from violating the Fede ral 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 Le ffers be temporarily 
+suspended from appearing or practicing before the Commission. 
+IT IS HEREBY ORDERED that  Leffers 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 Leffers 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 Co mmission may lift the suspension, censure the 
+petitioner, or disqualify the petitioner from appe aring 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 Leffers personally or by certified mail at his last known 
+address. 
+ By the Commission. 
+       N a n c y M . M o r r i s
+       S e c r e t a r y 
+3
+ 
\ No newline at end of file
diff --git a/raw/aaer/2006/AAER-2525.txt b/raw/aaer/2006/AAER-2525.txt
new file mode 100644
index 0000000000000000000000000000000000000000..08afc4c5cdc7253a797322a0fcfde8c6a60245ec
--- /dev/null
+++ b/raw/aaer/2006/AAER-2525.txt
@@ -0,0 +1,449 @@
+ UNITED STATES  OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 54945 / December 15, 2006 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2525 / December 15, 2006 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12322 
+ 
+ 
+ 
+ 
+In the Matter of 
+ 
+JAMES T. MCCURDY, CPA, 
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ORDER MAKING FINDINGS AND 
+IMPOSING REMEDIAL SANCTIONS 
+PURSUANT TO RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE 
+   
+ 
+I. 
+ 
+ On June 2, 2006, the Securities and Exch ange Commission (“Commission”) instituted 
+public administrative proceedings pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of 
+Practice1 against James T. McCurdy, CPA (“Respondent” or “McCurdy”). 
+ 
+II. 
+ 
+ In connection with these proceedings, Respon dent has submitted an Offer of Settlement 
+(the “Offer”) which the Commission has determined to accept.  Solely for the purpose of these 
+proceedings and any other proceedings brought by or on behalf of the Commission, or to which the 
+Commission is a party, and without admitting or denying the findings herein, except as to the 
+Commission’s jurisdiction over him and the subject matter of these proceedings, which are 
+admitted, Respondent consents to the entry of this Order Making Findings and Imposing Remedial 
+                                                 
+1 Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+ The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before 
+it . . . to any person who is found . . . to have engaged in . . . improper professional conduct. 
+ 2
+Sanctions Pursuant to Rule 102(e) of the Commission’s Rules of Practice (“Order”), as set forth 
+below. 
+ 
+III. 
+ 
+ On the basis of this Order and Res pondent’s Offer, the Commission finds
+2 that:  
+ 
+A. SUMMARY  
+ 
+1. This matter concerns failed audits of the financial statements of two mutual funds, 
+the Liquid Green Money Market Fund (“Liquid Green”) and the Florida Street Bond Fund (“Florida 
+Street”), as the result of improper professional conduct by James T. McCurdy, CPA. 
+2. McCurdy engaged in improper professional conduct during the audit of Liquid 
+Green’s financial statements for the fiscal year ended September 30, 2001 (“the 2001 Liquid Green 
+audit”).  During the 2001 Liquid Green audit, McCurdy, who was the concurring review partner, 
+became aware that more than half of the securities in the fund’s portfolio had stated maturity dates 
+exceeding the 397-day period set forth in Rule 2a-7 under the Investment Company Act of 1940 
+(“Investment Company Act”), and did not assure that the engagement partner performed audit 
+procedures to determine whether the securities were in fact eligible for a money market fund or 
+otherwise to test the fund’s compliance with Rule 2a-7. 
+3. Because he did not require the engagement partner to audit Liquid Green’s financial 
+statements in accordance with generally accepted auditing standards (“GAAS”) and did not do so 
+himself, McCurdy allowed his firm to issue an audit report with an unqualified opinion even though 
+the fund’s financial statements were not prepared in conformity with generally accepted accounting 
+principles (“GAAP”) because the fund was using the amortized cost method of valuing its securities 
+and holding itself out as a money market fund when it was not eligible to do so, in violation of the 
+Investment Company Act. 
+4. McCurdy also engaged in improper professional conduct during the audits of 
+Florida Street’s financial statements for the fiscal years ended October 31, 1999 (the “1999 Florida 
+Street audit”) and October 31, 2000 (the “2000 Florida Street audit”).  McCurdy assigned two 
+inexperienced auditors as engagement partners and designated himself as the concurring review 
+partner for the 1999 and 2000 Florida Street audits.  
+5. Because McCurdy failed to ensure that the 1999 Florida Street audit was conducted 
+in accordance with GAAS, he failed to detect (i) that the fund was over-accruing interest for bonds 
+that had missed interest payments, were in default, or had previously been sold and were no longer 
+held by the fund; (ii) that a significant portion of the fund’s interest receivable balance was 
+uncollectible; and (iii) that Florida Street’s financial statements were not fairly presented in 
+conformity with GAAP. 
+                                                 
+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
+6. Florida Street’s overstated interest receivable balance came to light during the 2000 
+Florida Street audit.  As a result of the discovery, the fund was re-priced, the fund wrote off the 
+uncollectible interest, and it was determined that the fund made a return of capital that had not been 
+disclosed to shareholders.  None of these events was disclosed in the October 31, 2000 financial 
+statements in violation of GAAP. 
+7. As a result of McCurdy’s reckless or at least highly unreasonable conduct, his 
+accounting firm issued audit reports with unqualified opinions on Liquid Green’s financial 
+statements as of September 30, 2001, and Florida Street’s financial statements as of October 31, 
+1999 and October 31, 2000, each of which falsely represented that those financial statements were 
+fairly presented in conformity with GAAP and the audits were conducted in accordance with 
+GAAS. 
+B. RESPONDENT 
+ 
+8. McCurdy, age 59, resides in Westlake, Ohio and has been a licensed certified 
+public accountant (“CPA”) in Ohio since 1979.  From February 1980 until December 2003, 
+McCurdy was the principal shareholder and managing partner of McCurdy & Associates CPAs, 
+Inc.  (“McCurdy & Associates”), an accounting firm that specialized in performing mutual fund 
+audits.  McCurdy was the concurring review partner for the 2001 Liquid Green audit and 1999 and 
+2000 Florida Street audits.  McCurdy & Associates sold its investment industry practice, including 
+its auditing practice, to Cohen McCurdy, Ltd. in January 2004.  McCurdy & Associates continues 
+to provide tax services to clients.  The firm resigned its Public Company Accounting Oversight 
+Board (“PCAOB”) registration effective August 17, 2004.  On May 19, 2005, McCurdy was 
+temporarily denied the privilege of appearing or practicing before the Commission as an 
+accountant for one year, as a result of his improper professional conduct in connection with the 
+1998 audit of the financial statements of the JWB Aggressive Growth Fund. 
+C. RELATED PARTIES 
+9. AmeriPrime Advisors Trust (“AAT”), an Ohio business trust, is an open-end 
+series investment company3 that has been registered with the Commission since 1999.  On 
+September 20, 2001, AAT organized Liquid Green as one of its series of funds.  On September 28, 
+2001, Liquid Green acquired the assets and assumed the liabilities of the Unified Taxable Money 
+Market Fund (“UTMM”), which was a series of the open-end series investment company Unified 
+Funds.  UTMM transferred its assets to Liquid Green and dissolved.
+4  As of September 30, 2001, 
+Liquid Green had total net assets valued at $37,695,013.  In February 2002, Liquid Green 
+dissolved after transferring all of its assets to another money market fund. 
+10. AmeriPrime Funds (“AF”), an Ohio business trust, is an open-end series 
+investment company that has been registered with the Commission since 1995.  From June 1997 
+                                                 
+3 Although a series investment company such as AAT is organized as a single corporate entity, it may be comprised 
+of several different series or portfolios that function as separate investment companies. 
+ 
+4 For the purposes of this Order, “Liquid Green” refers collectively to both Liquid Green and its predecessor 
+UTMM. 
+ 4
+until November 2001, Florida Street was a high-yield bond fund under AF.  As of October 31, 
+2001, Florida Street reported total assets of $13,184,855.  AF liquidated and closed Florida Street 
+in November 2001. 
+11. Unified Fund Services, Inc. (“Unified”), an Indiana corporation located in 
+Indianapolis, Indiana, has provided administrative and accounting services to mutual funds since 
+1990.  Unified’s clients included AAT and AF.  As fund administrator and fund accountant for 
+Liquid Green and Florida Street, Unified was responsible for, among other things, keeping the 
+funds’ books and records and preparing their financial statements. 
+D. FACTS  
+ 
+ Applicable Professional Standards 
+ 
+12. The “applicable professional standards” of care for accountants practicing before 
+the Commission include, but are not limited to, GAAP and GAAS.  GAAS consists of ten auditing 
+standards, including three general standards, three standards of fieldwork and four standards of 
+reporting. 
+13. The first general standard requires that an audit is to be performed by a person or 
+persons having adequate technical training and proficiency as an auditor. AU §210.01. 
+14.  The third general standard provides that “due professional care is to be exercised in 
+the performance of the audit and the preparation of the report.”  AU §230.01.  Among other things, 
+due professional care requires an auditor to observe the field work and reporting standards of 
+GAAS.  AU §230.02.  Additionally, due professional care requires an auditor to employ 
+professional skepticism, which is “an attitude that includes a questioning mind and a critical 
+assessment of audit evidence.”  AU §230.07.  Professional skepticism requires an auditor to obtain 
+no less persuasive evidence merely because he assumes that management is honest.  AU §230.09. 
+15. The first standard of fieldwork requires that audit work be adequately planned and 
+supervised.  AU §310.01. 
+16. The third standard of fieldwork requires that “sufficient competent evidential matter 
+is to be obtained through inspection, observation, inquiries, and confirmations to afford a 
+reasonable basis for an opinion regarding the financial statements under audit.”  AU §326.01.  
+GAAS further provide that “representations from management are part of the evidential matter the 
+independent auditor obtains, but they are not a substitute for the application of those auditing 
+procedures necessary to afford a reasonable basis for an opinion regarding the financial statements 
+under audit.”  AU §333.02.  “[W]hen evidential matter can be obtained from independent sources 
+outside an entity, it provides greater assurance of reliability for the purposes of an independent 
+audit than that secured solely within the entity.”  AU §326.21(a). 
+17. The first standard of reporting states, “The report shall state whether the financial 
+statements are presented in accordance with generally accepted accounting principles.”  AU 
+§410.01.  The third standard of reporting further provides that “informative disclosures in the 
+ 5
+financial statements are to be regarded as reasonably adequate unless otherwise stated in the 
+report.”  AU §431.01.  “If management omits from the financial statements, including the 
+accompanying notes, information that is required by generally accepted accounting principles, the 
+auditor should express a qualified or an adverse opinion and should provide the information in his 
+report, if practicable, unless its omission from the auditor’s report is recognized as appropriate by a 
+specific Statement on Auditing Standards.”  AU §431.03 
+18. As set forth below, McCurdy engaged in improper professional conduct in 
+connection with the 2001 Liquid Green audit and the 1999 and 2000 Florida Street audits because 
+he failed to comply with GAAS. 
+ 
+The 2001 Liquid Green Audit 
+ 
+19. Between March 20, 2001 and December 6, 2001, Liquid Green’s portfolio manager 
+followed an investment strategy of purchasing fixed-rate, government agency bonds with 
+remaining maturities of between 2 1/2 and 12 years.  The bonds were callable within 397 days at 
+the discretion of the government agency, but not at the option of the purchaser.  As of September 
+30, 2001, the last day of fiscal year 2001, these bonds made up over 53.1% of the fund’s assets. 
+20. Under Rule 2a-7(c)(2)(i) under the Investment Company Act, a mutual fund cannot 
+acquire securities with maturities in excess of 397 days and hold itself out as a money market fund 
+unless the securities have a maturity-shortening feature as provided by the rule.  Furthermore, Rule 
+2a-7(b)(1) expressly provides that it is a material misrepresentation under Section 34(b) of the 
+Investment Company Act for a mutual fund to hold itself out as a money market fund when it does 
+not meet the risk-limiting conditions of Rule 2a-7. 
+21. In this case, the callable bonds purchased by Liquid Green did not have a maturity-
+shortening feature as provided for by Rule 2a-7.  Thus, during the time period when the fund held 
+these bonds, Liquid Green was not permitted to hold itself out as a money market fund and it was a 
+material misrepresentation for the fund to do so. 
+22. In addition, a money market fund that does not meet the requirements of Rule 2a-7 
+is not permitted to use the amortized cost method of valuing the securities in its investment 
+portfolio but instead must calculate the current net asset value of its portfolio securities on a daily 
+basis to reflect current market prices.  Because Liquid Green did not meet the requirements of Rule 
+2a-7 during the time period when it held the ineligible bonds, the fund was not permitted to use the 
+amortized cost method to value its securities. 
+23. AAT engaged McCurdy & Associates to provide audit and tax services to its series 
+of funds, including Liquid Green.  McCurdy assigned another member of his firm to be the 
+engagement partner for the 2001 Liquid Green audit while he assigned himself the role of 
+concurring review partner.  As concurring review partner, McCurdy reviewed all of the audit 
+workpapers, including the results of all of the fieldwork performed by the engagement partner. 
+24. The audit plan for the 2001 Liquid Green audit did not contain any procedures 
+designed to test the fund's compliance with Rule 2a-7. 
+ 6
+25. During the 2001 Liquid Green audit, McCurdy learned that more than one half of 
+Liquid Green’s investment portfolio consisted of callable bonds with stated maturities of greater 
+than 397 days.  McCurdy became aware of the callable bonds when he reviewed Liquid Green’s 
+financial statements, which included a schedule of investments that listed the callable bonds and 
+their maturities. 
+26. Despite knowing that more than half of Liquid Green’s portfolio consisted of 
+callable bonds with stated maturities that appeared to make them ineligible for a money market 
+fund under Rule 2a-7, McCurdy did not require the performance of any audit procedures to test the 
+fund’s compliance with the rule by the engagement partner; nor did he perform any such 
+procedures himself. 
+27. As a result of his failure to properly follow up on red flags discovered during his 
+review of the audit of Liquid Green’s financial statements, McCurdy failed to require the fund to 
+correct its audited financial statements containing material misrepresentations, including that 
+Liquid Green was a “money market fund” and that it was proper for the fund to use the amortized 
+cost method to value its portfolio securities. 
+28. McCurdy & Associates issued an audit report dated October 10, 2001, containing 
+an unqualified opinion on Liquid Green’s financial statements as of September 30, 2001, that was 
+included in the fund’s annual report filed with the Commission on November 28, 2001.5 
+29. The audit report stated that McCurdy & Associates “audited the statements of assets 
+and liabilities, including the portfolios of investments, of Liquid Green Money Market Fund 
+(formerly Unified Taxable Money Market Fund) as of September 30, 2001.”  The report further 
+falsely represented that (i) the fund’s financial statements were presented in conformity with 
+GAAP, and (ii) that McCurdy & Associates had audited the fund’s financial statements in 
+accordance with GAAS. 
+30. As the concurring review partner on the 2001 Liquid Green audit, McCurdy was 
+required to conduct himself in accordance with GAAS.  McCurdy was also responsible for 
+reviewing documentation of the resolution of any significant auditing, accounting and financial 
+reporting matters that arose during the audit and using professional judgment to determine whether 
+reviewing more documentation and employing other procedures were necessary. 
+31. With respect to the 2001 Liquid Green audit, McCurdy failed to exercise sound 
+professional judgment to determine whether additional procedures were in fact necessary to 
+determine whether Liquid Green was in compliance with Rule 2a-7. 
+32. McCurdy failed to conduct himself in accordance with the first standard of 
+fieldwork under GAAS because he failed to require the engagement partner to include in the audit 
+plan procedures to test the fund’s Rule 2a-7 compliance, even after discovering that a large 
+                                                 
+5 Liquid Green’s 2001 annual report was originally filed on November 28, 2001 under the wrong investment 
+company name.  After the fund administrator discovered the error, the annual report was re-filed, with no changes, 
+under the correct investment company name on December 26, 2001. 
+ 7
+percentage of the securities in the fund’s portfolio had stated maturity dates that appeared not to 
+comply with Rule 2a-7. 
+33. McCurdy violated the third standard of fieldwork because he failed to ensure that 
+the engagement partner obtained sufficient competent evidential matter regarding Liquid Green’s 
+compliance with Rule 2a-7 and did not have a reasonable basis for allowing the issuance of the 
+firm’s audit report containing the opinion that the fund’s financial statements were fairly presented 
+in conformity with GAAP. 
+34. McCurdy failed to exercise due professional care in accordance with the third 
+general standard by (i) failing to ensure that the audit plan included procedures appropriate to test 
+the fund’s Rule 2a-7 compliance; (ii) failing to ensure that sufficient competent evidential matter 
+was obtained to determine whether the fund was in compliance with Rule 2a-7; and (iii) allowing 
+his firm to issue an audit report with an unqualified opinion on Liquid Green’s financial 
+statements, even though those financial statements improperly held Liquid Green out as a money 
+market fund, represented that the amortized cost method was appropriate, and improperly used the 
+amortized cost method to value securities in the fund. 
+35. McCurdy violated the reporting standards under GAAS when he allowed McCurdy 
+& Associates to issue an audit report with an unqualified opinion on Liquid Green’s financial 
+statements as of September 30, 2001 even though the financial statements contained material 
+misrepresentations and failed to disclose material matters. 
+The 1999 and 2000 Florida Street Audits 
+ 
+36.  From at least August 1999 until November 2001, Florida Street failed properly to 
+account for interest due from its portfolio of bonds.  During that time period, Florida Street 
+continued to accrue interest for bonds that had missed interest payments, were in default or were 
+no longer owned by the fund. 
+37. Because of these improper interest accruals, the interest receivable reflected in 
+Florida Street’s accounting books and records included a significant amount of uncollectible 
+interest.  As of August 1, 1999, Florida Street’s interest receivable included approximately 
+$195,120 in uncollectible interest.  By October 31, 2000, Florida Street’s interest receivable 
+balance was overstated by approximately $796,356.  Between November 1, 2000 and October 31, 
+2001, Florida Street accrued additional uncollectible interest of approximately $473,275. 
+38. The uncollectible interest was included in Florida Street’s trial balance and used to 
+compute the fund’s daily net asset value (“NAV”).  From at least  December 1, 1999 through June 
+25, 2001, Florida Street’s daily NAV was overstated by between $.01 and $.34 per share.  
+Throughout this period, the fund was redeeming and selling shares at inflated NAVs. 
+39. McCurdy & Associates audited Florida Street’s financial statements for the fiscal 
+year ended October 31, 1999.   McCurdy assigned another member of his firm to serve as the 
+engagement partner for the 1999 Florida Street audit even though she did not have adequate 
+technical training, experience and proficiency as an auditor to serve as an engagement partner for 
+ 8
+an audit of a high-yield bond fund. 
+40. McCurdy assumed the role of concurring review partner for the 1999 Florida Street 
+audit.  As concurring review partner, McCurdy reviewed all of the audit workpapers.  In addition, 
+McCurdy provided the engagement partner with the audit program to be used for the audit and 
+trained her on how to carry out the audit procedures. 
+41. At the time of the 1999 Florida Street audit, the fund accountant could not provide 
+the auditors with information to substantiate an interest receivable balance of over $913,264 that 
+had been carried over from the predecessor accountant.  The unsubstantiated balance was included 
+on Florida Street’s trial balance and was used to calculate the fund’s NAVs.  Florida Street’s 
+recording of the unsubstantiated interest was inconsistent with GAAP because revenue must be (1) 
+recognizable and (2) measurable to be recorded.  Statement of Financial Accounting Concepts No. 
+6 ¶145. 
+42. Based on her training by McCurdy, the engagement partner for the 1999 Florida 
+Street audit did not perform audit procedures to test the collectibility of Florida Street’s interest 
+receivable balance.  McCurdy knew that such audit procedures, such as confirmation of the 
+receivable balance, were not performed. 
+43. Because the auditors failed to conduct the 1999 Florida Street audit properly, they 
+failed to detect (i) that the fund was over-accruing interest for bonds that had missed interest 
+payments, were in default, or had previously been sold and were no longer held by the fund, (ii) 
+that a significant portion of the fund’s interest receivable balance was in fact uncollectible, and (iii) 
+that the financial statements were not prepared in conformity with GAAP. 
+44. McCurdy & Associates also audited Florida Street’s financial statements for the 
+fiscal year ended October 31, 2000.  As with the prior year’s audit, McCurdy assigned an 
+inexperienced auditor from his firm to serve as the engagement partner for the 2000 Florida Street 
+audit, and assigned himself the role of concurring review partner. 
+45. Florida Street’s overstated interest receivable balance came to light during the 2000 
+Florida Street audit.  As a result of the discovery, the fund was re-priced back to December 1, 1999 
+and the fund wrote off a total of $1,269,631 in uncollectible interest, approximately $796,356 of 
+which was attributable to periods on or before October 31, 2000.  As a result of the interest write-
+offs, Florida Street’s distributions from net investment income exceeded the fund’s net investment 
+income in 2000, and therefore constituted a return of capital.  
+46. Florida Street failed to disclose the repricing, interest write offs and return of capital 
+in its financial statements for the fiscal year ended October 31, 2000, which were included in 
+Florida Street’s annual report filed with the Commission on March 22, 2002.  Furthermore, Florida 
+Street erroneously classified the return of capital distributions in its financial statements as being 
+derived from the fund’s net investment income. 
+47. McCurdy reviewed Florida Street’s 2000 annual report and allowed his firm to 
+issue an audit report with an unqualified opinion on the financial statements, even though he knew 
+that the financial statements did not disclose the repricing, interest write-offs and return of capital.   
+ 9
+48. Furthermore, despite knowing that a portion of the interest Florida Street wrote off 
+during the fiscal year ended October 31, 2000 related to the prior fiscal year ended October 31, 
+1999, McCurdy did not require the recording of a prior period adjustment or take any steps to 
+determine whether Florida Street should restate its financial statements for prior periods. 
+49. McCurdy did not comply with the first general standard under GAAS during the 
+1999 and 2000 Florida Street audits because he failed to assign staff members to those audits who 
+possessed adequate technical training and proficiency.   
+50. McCurdy violated the third standard of fieldwork with respect to the 1999 Florida 
+Street audit because he failed to ensure that the audit staff performed tests to confirm the fund’s 
+interest receivable balance even though he knew that collectibility of interest was an area of risk 
+for an audit of a high-yield bond fund. 
+51. McCurdy failed to exercise due professional care as provided by the third general 
+standard during the 1999 and 2000 Florida Street audits because he (i) failed to assign staff with 
+sufficient technical training and proficiency, (ii) failed to require sufficient competent evidential 
+matter be obtained regarding the fund’s interest receivable during the 1999 audit, and (iii) and 
+allowed McCurdy & Associates to issue unqualified audit reports falsely stating that the financial 
+statements conformed with GAAP and that the audits were conducted in accordance with GAAS. 
+52. McCurdy violated the first standard of reporting during the 1999 and 2000 Florida 
+Street audits when he allowed McCurdy & Associates to issue audit reports with unqualified audit 
+opinions on Florida Street’s financial statements falsely stating that the financial statements 
+conformed with GAAP and that the audits were conducted in accordance with GAAS. 
+E. VIOLATION  
+53. Rule 102(e)(1)(ii) of the Commission’s Rule s of practice provides, in pertinent part, 
+that, “[t]he Commission may . . . deny, temporarily or permanently, the privilege of appearing or 
+practicing before it in any way to any person who is found . . . to have engaged in . . . improper 
+professional conduct.” 
+ 54. With respect to persons licensed to practice as accountants, such as McCurdy, 
+“improper professional conduct” under Rule 102(e)(1)(ii) includes: 
+ 
+(A) intentional or knowing conduct, including reckless conduct, that resulted in violation of 
+applicable professional standards; or  
+(B) negligent conduct, consisting of (1) a single instance of highly unreasonable conduct 
+that resulted in a violation of applicable professional standards in circumstances in which 
+an accountant knows, or should have know, that heightened scrutiny was warranted, or (2) 
+repeated instances of unreasonable conduct by an accountant, each resulting in a violation 
+of applicable professional standards, that indicate a lack of competence to practice before 
+the Commission. 
+ 10
+ 55. The conduct described above constitut es reckless conduct that resulted in a 
+violation of applicable professional standards or at least negligent conduct as defined in Rule 
+102(e)(1)(iv)(B). 
+ 
+F. FINDINGS
+ 
+ 56. Based on the foregoing, the Commission finds that McCurdy engaged in improper 
+professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of Practice in 
+connection with the 2001 Liquid Green Audit and the 1999 and 2000 Florida Street Audits. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent McCurdy’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Respondent is denied the privilege  of appearing or practicing before the 
+Commission as an accountant. 
+  
+ B. After 3 years from the date of this order, Respondent may request that the 
+Commission consider his reinstatement by submitting an application (attention: Office of the 
+Chief Accountant) to resume appearing or practicing before the Commission as: 
+      
+       1. a preparer or reviewer, or  a person responsible for the preparation or 
+review, of any public company’s financial statements that are filed with the Commission.  Such 
+an application must satisfy the Commission that Respondent’s work in his practice before the 
+Commission will be reviewed either by the independent audit committee of the public company 
+for which he works or in some other acceptable manner, as long as he practices before the 
+Commission in this capacity; and/or 
+      
+  2.    an independent accountant.  Such an application must satisfy the 
+Commission that: 
+      
+           (a) Respondent, or the public accounting firm with which he is 
+associated, is registered with the Public Company Accounting Oversight Board (“Board”) in 
+accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; 
+ 
+   (b) Respondent, or the registered  public accounting firm with which he 
+is associated, has been inspected by the Board and that inspection did not identify any criticisms 
+of or potential defects in the Respondent’s or the firm’s quality control system that would 
+indicate that the Respondent will not receive appropriate supervision; 
+   (c) Respondent has resolved all 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 
+ 11
+ 
+   (d) Respondent acknowledges his responsibility, as long as 
+Respondent appears or practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the Board, including, but not limited to, all 
+requirements relating to registration, inspections, concurring partner reviews and quality control 
+standards.   
+ 
+C. The Commission will consider an app lication by Respondent to resume appearing 
+or practicing before the Commission provided that his state CPA license is current and he has 
+resolved all other disciplinary issues with the applicable state boards of accountancy.  However, 
+if state licensure is dependent on reinstatement by the Commission, the Commission will 
+consider an application on its other merits.  The Commission’s review may include consideration 
+of, in addition to the matters referenced above, any other matters relating to Respondent’s 
+character, integrity, professional conduct, or qualifications to appear or practice before the 
+Commission. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       N a n c y  M .  M o r r i s  
+       S e c r e t a r y  
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+     SEC.gov | Paul E. Yarick 
+     
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19951 / December 20, 2006 
+
+  Accounting and Auditing Enforcement 
+  Release No. 2526 / December 20, 2006 
+
+  SEC v. Paul E. Yarick , Civil Action No. 06-1029-CV-W-REL (W.D. Mo.) 
+
+ SEC Files Antifraud Action Against Former Principal Financial Officer of Interstate Bakeries Corporation 
+
+ Interstate Bakeries Corporation Agrees To Cease and Desist From Future Securities Law Violations 
+
+ On December 20, 2006, the Securities and Exchange Commission filed a complaint in the United States District Court for the Western District of Missouri against Paul E. Yarick, the former principal financial officer of Interstate Bakeries Corporation ("IBC"), the baker and distributor of Wonder, Dolly Madison, Hostess, and other well-known brands.  The complaint alleges that Yarick violated or aided and abetted violations of the anti-fraud, record-keeping, internal controls and reporting provisions of the federal securities laws by misleading IBC investors about the adequacy of the company's workers' compensation reserves and, consequently, the company's earnings. 
+
+ According to the SEC's complaint, related to IBC's fiscal 2004 second and third quarters, Yarick disregarded workers' compensation liabilities estimates provided by IBC's insurance consultant, on which IBC historically had relied to set its workers' compensation reserve.  Instead, Yarick used obsolete information that he had been advised was unreliable to set IBC's quarterly workers' compensation reserve for these quarters.  Accordingly, IBC failed to account for its workers' compensation reserve in accordance with Generally Accepted Accounting Principles.  The complaint further alleges that, as a result of Yarick's conduct, IBC filed financial statements in its Forms 10-Q for the fiscal 2004 second and third quarters that understated IBC's reserves by at least $30 million.  Consequently, IBC materially overstated its pre-tax income in its Form 10-Q for the period ended November 15, 2003, and its cumulative fiscal third quarter pre-tax income in its Form 10-Q for the period ended March 6, 2004. 
+
+ Yarick, without admitting or denying the allegations in the complaint, consented to the entry of a permanent injunction by the United States District Court enjoining him from violating Sections 10(b) and 13(b)(5) of the Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13a-14, 13b2-1, 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-11, and 13a-13 thereunder.  The agreed court order also imposed upon him a five-year officer and director bar and ordered him to pay a civil penalty of $50,000.  
+
+ Separately, IBC consented, on a neither admit-nor-deny basis, to the entry of a Commission order to cease and desist 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. 
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